Forum: General F-22A Raptor forum

Lately, I've been reading alot of threads in this forum and news articles regarding the rising price and now delayed introduction of the F-35. It seems like here we go again - first with the F-22, and now it's starting again with the F-35. Cost overruns. Flight test problems and delays. Congressional hearings. Projected deficits - followed by cuts. And cuts. And cuts.

So, I'm wondering, is there any legal basis, within our way of government and our economy, to institute price controls on military programs such as fighter planes? I know it sounds kind of nuts, but here's how I see it:

The government makes a plan to buy x planes in the following year(s). The contractor gives him an estimate on how much that's going to cost. The buyer bears the burden on increases less than a specified percent of the unit cost - say 5%. If the unit cost goes up higher than this in the specified time period, AND the buyer does NOT cut his buy, then the manufacturer has to pick up the tab on whatever went over.

This plan isn't perfect I know - but I think something must be done to arrest the ever-increasing spiral of cost associated with these programs. Inflation alone will not cause the increase in cost seen with the F-22 and F-35. Something is going on, whether alot of little components are greatly increasing in cost, or the manufacturer is not being efficient - we're going to have to find a way to stop it if we want to have good procurement programs. It seems that lately, everything has gone up, accross the board, from new fighters to new Army combat systems. I'm not convinced it's all inflation. Maybe the manufacturer is sugarcoating things and not taking into account the rising cost of components due to inflation - if this is the case, government should make sure price estimates take inflation and other rising costs into account. The prices of programs won't be as pretty, but that's the whole point - to make things more realistic for the people making the decisions.

You might ask, well what incentive would a prospective manufacturer have to deal with the government under terms like these? Well, there's billions to be made - that's what the programs cost. Just be honest; if you as a contractor know a program is going to eventually cost $50 billion, don't say it's going to cost $25 billion. That should be considered lying.

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Tinito_16 wrote:

So, I'm wondering, is there any legal basis, within our way of government and our economy, to institute price controls on military programs such as fighter planes?

.... No. They call that communism.

TEG

I know that it's sort of the slippery slope down that path and I figured that's why seemingly no one's brought it up... but it seems to me, if I pay $5,000 for a laptop to be sent to my home, I'd be really pissed if the hardware company told me, "oops, it was really $6,000" while retaining my original $5,000. Either they give me my computer or my money back. Which is why to me it's really strange that we bankroll most of the R&D, agree on a price and then boom, a few years later it's up 30%. Something ain't right... because that kind of exorbitant price increase does not make sense if you're not cutting numbers (and as far as I know, F-35 numbers have not been cut... yet).

Tinito_16 wrote:

I know that it's sort of the slippery slope down that path and I figured that's why seemingly no one's brought it up... but it seems to me, if I pay $5,000 for a laptop to be sent to my home, I'd be really pissed if the hardware company told me, "oops, it was really $6,000" while retaining my original $5,000. Either they give me my computer or my money back. Which is why to me it's really strange that we bankroll most of the R&D, agree on a price and then boom, a few years later it's up 30%. Something ain't right... because that kind of exorbitant price increase does not make sense if you're not cutting numbers (and as far as I know, F-35 numbers have not been cut... yet).

What you bring up is perfectly reasonable. I am not involved in and I never have been involved in large, complex engineering efforts for military equipment but I do have experience as a project manager. I think much of the problem is that the government lets the defense contractors use something called cost plus contracts. In effect the government reimburses the vendor for all the costs associated with the project plus a fixed percentage for profit. The vendor is in effect given a blank check and really has no incentive at all to rein in costs. In fact they have a vested interest to inflate costs because their fee is based on a percentage of those costs.

The government needs to move to fixed price contracts. TEG calls it communism but those of us in the business world just call it good vendor management. I suspect the vast majority of the DODs acquisition woes are tied to their penchant for awarding cost plus contracts.

This might seem reasonable, but this is how you slowly inch a country out of democracy. The government just needs to start saying no to defense contractors. Once that precedent is set, then the defense companies will react accordingly. If we enforced anti-trust laws to begin with, we might not have been in this situation. In short, the government needs to learn how to make a deal.

http://en.wikipedia.org/wiki/Nunn%E2%80 ... _Amendment

Looks like more legislation that wasn't enforced.

I guess another way to look at things is this. The US military is investing in Lockheed Martin. Investments come with risk. Lockheed does make the best combat aircraft in the world, the F-16. So, the investors are investing in a company that has a good track record. I'm not sure how the FMS program works, but doesn't the US govt make money on military hardware sold to foreign countries through tariffs and other taxes? If the F-35 sells like hot cakes, then the US stands to make a lot of money. Right?

Quote:

I guess another way to look at things is this. The US military is investing in Lockheed Martin. Investments come with risk. Lockheed does make the best combat aircraft in the world, the F-16. So, the investors are investing in a company that has a good track record. I'm not sure how the FMS program works, but doesn't the US govt make money on military hardware sold to foreign countries through tariffs and other taxes? If the F-35 sells like hot cakes, then the US stands to make a lot of money. Right?

If it does behave like an investment then yes it does make a bit more sense... although it's still almost like your broker's always asking for money. But still, what is the correct balance between oversight and total freedom? I'd like to lean towards the latter, but if the last two years have shown us anything...

I just don't know. But I wanted to hear your suggestions. I don't blame TEG for saying something like this is communism because frankly I cringe at the thought that yet more regulation should be enacted to control these prices. But it just seems like it always gets out of control.

Well, what I'm wondering if it's just a product of our design culture. We value performance to the degree that cost and schedule are sacrificed pretty often, which gets you expensive world-beating aircraft like the F-22. This is in contrast to the Eurofighter, which is super cost-conscious to the point where early variants are missing very basic capability to better fit the cost targets.

Forum Veteran Joined: Dec 15, 2006 - 12:28 AM Posts: 760

Tinito_16 wrote:

Just be honest; if you as a contractor know a program is going to eventually cost $50 billion, don't say it's going to cost $25 billion. That should be considered lying.

In some respects there is some truth to what you say. However in other respects you are being hypocritical because you are also lying in some respects.

While it is true that often contractors seem to unrealistically lowball their bid. (Sometimes as a wink and nod that the cost will be more that they will just be renegotiated later; and sometimes in the worst-case scenario sometimes it almost approaches black mail; we need more money or the program and the company will go bankrupt and the project will never be finished).

The other side of the story is that the contract is often negotiated before production even begins; so costs are speculative and often there is room in the contract for renegotiations and extensions.

You're also ignoring the other extreme. Often costs increase and delays are incurred because Congress and the Pentagon often change the design requirements. Often so-called budget cuts; end up increasing costs and causing delays and many other problems.

Often government interference is the cause of costs increases and delays. So if you think who is at fault should pay; then the government should be fined; therefore the government should pay the manufacturer more money and the government should refund money to the taxpayer; because the government has been incompetent, indecisive and derelict. Regretfully people like you want to give corrupt politicians more power and more money at the expense of the taxpayer and capitalism.

Prinz_Eugn wrote:

...is in contrast to the Eurofighter, which is super cost-conscious to the point where early variants are missing very basic capability to better fit the cost targets.

From what I understand the F-22 has partially been castrated by being overly shortsighted cost conscious. There has been many short-term costs cuts; thet end up sacrificing capability/flexibility and end up being long-term cost increases.

That's the problem between free market and sole source. When the competition is gone, there is nothing to stop a company from dictating what it wants/needs. A cost plus contract has no penalties. It's only "sorry, can't afford what you want right now. Honestly, what govt program has not ever been manipulted in current context? Read current affairs. Never let a group decide on the outcome. Either one is corrupt or one is afraid of the others and takes the money for favor. Power or money, take your pick. In a money market economy, nobody wins who works for it's philosophy. It's merely a control system of has and has nots. Sorry, just ranting.... Things can be done when absolute in gesture. Einstein once again has left the building......

Quote:

That's the problem between free market and sole source. When the competition is gone, there is nothing to stop a company from dictating what it wants/needs. A cost plus contract has no penalties. It's only "sorry, can't afford what you want right now. Honestly, what govt program has not ever been manipulted in current context? Read current affairs. Never let a group decide on the outcome. Either one is corrupt or one is afraid of the others and takes the money for favor. Power or money, take your pick. In a money market economy, nobody wins who works for it's philosophy. It's merely a control system of has and has nots. Sorry, just ranting.... Things can be done when absolute in gesture. Einstein once again has left the building......

I think that is what anti-trust laws are supposed to handle. But they aren't enforced. This discussion is similar to the KC-X thread about how in the US we only have one real option for a boom capable tanker. The other option is Airbus. Our defense industry is becoming very centralized and it's not good.

Oh, I forgot The Art Of War. Good reading.

Tinito_16 wrote:

Lately, I've been reading alot of threads in this forum and news articles regarding the rising price and now delayed introduction of the F-35. It seems like here we go again - first with the F-22, and now it's starting again with the F-35. Cost overruns. Flight test problems and delays. Congressional hearings. Projected deficits - followed by cuts. And cuts. And cuts.

So, I'm wondering, is there any legal basis, within our way of government and our economy, to institute price controls on military programs such as fighter planes? I know it sounds kind of nuts, but here's how I see it:

The government makes a plan to buy x planes in the following year(s). The contractor gives him an estimate on how much that's going to cost. The buyer bears the burden on increases less than a specified percent of the unit cost - say 5%. If the unit cost goes up higher than this in the specified time period, AND the buyer does NOT cut his buy, then the manufacturer has to pick up the tab on whatever went over.

This plan isn't perfect I know - but I think something must be done to arrest the ever-increasing spiral of cost associated with these programs. Inflation alone will not cause the increase in cost seen with the F-22 and F-35. Something is going on, whether alot of little components are greatly increasing in cost, or the manufacturer is not being efficient - we're going to have to find a way to stop it if we want to have good procurement programs. It seems that lately, everything has gone up, accross the board, from new fighters to new Army combat systems. I'm not convinced it's all inflation. Maybe the manufacturer is sugarcoating things and not taking into account the rising cost of components due to inflation - if this is the case, government should make sure price estimates take inflation and other rising costs into account. The prices of programs won't be as pretty, but that's the whole point - to make things more realistic for the people making the decisions.

You might ask, well what incentive would a prospective manufacturer have to deal with the government under terms like these? Well, there's billions to be made - that's what the programs cost. Just be honest; if you as a contractor know a program is going to eventually cost $50 billion, don't say it's going to cost $25 billion. That should be considered lying.

You could do this if you want to kill our aviation and electronics industry. If the price of the materials go up, they have no choice but to pass that along.
No one can stay in business for long if they sell products for a lower price than it costs to make them.

Last edited by lampshade111 on Mar 16, 2010 - 02:34 PM; edited 1 time in total

How much of this problem is simply due to there being only three companies left in the business? Boeing, Lockheed Martin, and Northrop. Not too long ago we also had McDonnell Douglas (bought by Boeing), Grumman (part of Northrop), Vought (out of business?), North American Aviation/Rockwell (out of business?), Republic-Fairchild (out of business?), and General Dynamics aircraft branch.

Forum: General F-22A Raptor forum

Price controls for fighter planes?