Forum: Program and politics

Pentagon Tests New Way Of Estimating Program Costs Jun. 23, 2012 By SARAH CHACKO

http://www.defensenews.com/article/2012 ... gram-Costs

"The Pentagon is putting its new weapons cost-cutting strategy to its first big test as it negotiates with Lockheed Martin over the price of the next batch of F-35 Joint Strike Fighters (JSF).

Contract negotiations for the production of 32 JSFs began earlier this year. This will be the first opportunity for Pentagon officials to see how well their “should-cost” approach to setting weapons prices works....

...Should-cost estimates would be more useful as DoD decides which weapon systems to buy, Harrison said. Defense officials could compare their should-cost estimates to the proposals they receive from contractors to see if it’s worth pursuing, he said.

But when programs are already in production, the should-cost is more like a “wish-it-would-cost,” Harrison said.

Assad said the Pentagon has developed ways to measure any savings the should-cost initiative yields.

“We have specific targets for program execution, very specific targets for the size of a program office or other areas that program managers will have defined,” Assad said. “So we can measure that, we can examine that and we can know at the program level whether or not we accomplished it.”

Makes more sense if the entire article is read at the URL! Rolling Eyes

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Didn't Ashton Carter instruct government negotiators to disregard the DoD's own estimates for JSF costs when negotiating for a previous LRIP batch as he did not believe these to be accurate? So if it's the same bean counters at work, how will things be different this time,around? Will they be more inclined to believe LM/JPO projections?

One of the problems you have when socialists, marxists, and clueless idiots - like the current generation of political dimwits running the government - is economic ideas like 'should cost'. The Soviet Union couldn't screw up basic economics worse than these folks.

When you down select all your fighter aircraft to a single source where does that leave you? Where's the competition? Where's the incentive to reduce cost, to improve efficiency, to provide better product for less?

When government bureaucrats in the Soviet Union tried to decide what things 'should cost' and what people 'should be paid' and what products people 'should have' they left behind economic and social catastrophes. The PRC tried as well, they got the same result. Ditto North Korea, Cuba, every government that has tried gets the same result.

The reason is something economists call the information problem. That one person, a small group, or even a large bureaucracy can never gather or collate enough information to know what resources should cost, what their availability is, what is the relative supply and demand. However, when left to themselves, via normal (meaning complex) capitalism, they work themselves out efficiently. That's provided you have healthy free markets and competition.

Here's the classic example of the information problem; no one knows how to make a pencil, yet millions are made cheaply and abundantly: http://www.econlib.org/library/Essays/rdPncl1.html
Here's economist Milton Friedman discussing The Pencil Story:
http://youtu.be/4ERbC7JyCfU

So all these folks sitting around in their conference rooms giving PowerPoint presentations and trying to determine a should cost price for a jet are in no way different than the Soviet Politburo trying to determine the should cost price for a bushel of corn. Is it any wonder they fail relentlessly? Doh

Todd Harrison [senior fellow at the Center for Strategic and Budgetary Assessments] says:

"The major cost driver on weapon programs is requirements that are added over time with little regard for costs."

Change orders almost always cost more than they should - it gives license to charge what you want. Pretty standard engineering practice throughout industry.

maus92 wrote:

Change orders almost always cost more than they should - it gives license to charge what you want. Pretty standard engineering practice throughout industry.

Pardon me Maus, but how do you know what a change 'should cost'? Do you have any idea what the cost impact is to changing a software package? What goes in to writing it, testing it in the lab, loading it on a testbed aircraft and finally upgrading the fleet? To changing the factory tooling and assembly process for a landing gear or a canopy? How those changes propagate up and down the supply chain between thousands of subcontractors and the prime contractor?

In the end, the most effective thing the government could do would be to create as much competition as possible to get the best product for the money. It works wonders for our food, cell phone, auto and clothing supply. Why people keep falling for these socialist/marxist fairy tales baffles me, especially when capitalism consistently delivers and socialism/marxism, and the bureaucracy and tyranny that accompany it, consistently fails.

If these programs were run is a pure competitive way, there would be a competition among design firms for the design, a competition between custom fabrication shops for prototypes, competition on providing modular components, competition for finalized production designs, and then continuous competition on mass production.

count_to_10 wrote:

If these programs were run is a pure competitive way, there would be a competition among design firms for the design, a competition between custom fabrication shops for prototypes, competition on providing modular components, competition for finalized production designs, and then continuous competition on mass production.

Not sure that would be a good idea. Three possibilities;
1) Defense contractors would require R&D funds, even if not selected
2) Contractors would pad the price even if selected to offset risks
3) Uncertainty would drive the price up, due supply chain lack of confirmed orders.
This would also result in delays, due to parallel development.

The only way this could possibly work is if the market for a particular product is big enough for two or more selected suppliers. eg. PW F100 & GE F110 engines for the F-16

neurotech wrote:

count_to_10 wrote:

If these programs were run is a pure competitive way, there would be a competition among design firms for the design, a competition between custom fabrication shops for prototypes, competition on providing modular components, competition for finalized production designs, and then continuous competition on mass production.

Not sure that would be a good idea. Three possibilities;
1) Defense contractors would require R&D funds, even if not selected
2) Contractors would pad the price even if selected to offset risks
3) Uncertainty would drive the price up, due supply chain lack of confirmed orders.
This would also result in delays, due to parallel development.

The only way this could possibly work is if the market for a particular product is big enough for two or more selected suppliers. eg. PW F100 & GE F110 engines for the F-16

There are also a lot of security concerns. A lot of things about military procurement aren't conductive to pure competition.

stereospace wrote:

maus92 wrote:

Change orders almost always cost more than they should - it gives license to charge what you want. Pretty standard engineering practice throughout industry.

Pardon me Maus, but how do you know what a change 'should cost'? Do you have any idea what the cost impact is to changing a software package? What goes in to writing it, testing it in the lab, loading it on a testbed aircraft and finally upgrading the fleet? To changing the factory tooling and assembly process for a landing gear or a canopy? How those changes propagate up and down the supply chain between thousands of subcontractors and the prime contractor?

You don't know what change orders should or ultimately cost, nor can they be accurately estimated for complex systems, it seems. That is my point. Contractors know that the government will cover their overruns during development, and they know that they will profit handsomely from modifications and requirements creep down as the program develops. It's a game that has been played many times before. The acquisition process is broken in so many ways, but at least the Pentagon seems to be trying to get a handle on this program by making a good faith effort to benchmark costs. Cost is what will ultimately determine how many F-35s are procured, and the mix of legacy vs. stealth airframes.

One of the problems with trying to finger change orders as the root of all evil is that modern day manned aircraft projects run for 3-4 administrations between project kickoff to IOC.
That is a long time for a complete design to remain frozen in stone and still be viable once it reaches the field.
Some of the change orders are dumb and motivated by local politics, some are absolutely required to accomplish the mission for the customer.
We are in a poor position to pick and choose amoung many of them due to security barriers.

Declaring the current US administration to be responsible for F-35 program costs because they are Stalinists and used their evil time machines to go back to the 90s and force a sole source selection seems like a streach to me.

Quote:

One of the problems you have when socialists, marxists, and clueless idiots - like the current generation of political dimwits running the government - is economic ideas like 'should cost'. The Soviet Union couldn't screw up basic economics worse than these folks.

When you down select all your fighter aircraft to a single source where does that leave you? Where's the competition? Where's the incentive to reduce cost, to improve efficiency, to provide better product for less?

There are lots of smart ways to apply Should Cost principals. For example if you went to mail a standard letter and they asked you for $50 you could react because you know it Should Cost <$1.

It would be a mistake to assume that every single billable cost in the entire program can't be estimated so don't try else your communist. You may only rely only on a separate overlapping program to force costs down.

It is funny how people see Obama and his government as communist when he really is not. The world is now polarised to the extreme.
The government system is totally corrupt and not representative of the expectations of the population. Big subject!
The capitalist system is working in the USA. Previous governments promoted industry consolidation to the point were now there is only just one company producing fighters, therefore it is a monopoly (which is exactly what LM wanted). They can charge whatever they can get away with with no one to stop them until someone pulls the plug. Nothing else will work until competition is restored, including having two or three companies capable of delivering a weapons system. Sometimes it is not possible to get competition with just two. The position LM is is typical of what corporations want to achieve which is total control of the market having killed all competition.

There was competition in the design stage. Boeing lost.

Having two separate fighter programs that are building two different fighters for the same mission is no longer an economically viable option.

btw, There is still competition in the sub-contractors to keep prices down. They were on a "Cost-Plus" contract where the DoD knew what it cost LM to make and paid them a little extra. LM could not just charge whatever they wanted.

Also, Boeing still builds fighters, so no, LM does not have a monopoly on fighter production or capability.

There is now only one company manufacturing fighter planes for the USAF and one for the USN.
As a result of competition, there was a point in the mid 80s when McDonnell Douglas offered to
produce F-15s at a much reduced cost instead of F-16s therefore keeping the price of the F-16 at
a reasonable level. Or if the F-22 production was continuing and they offered an F-22B version with
up to date avionics at an attractive price instead of F-35s.
Competition could come from let's say NG offering the USAF an operational version of the X-47B
therefore forcing LM to sharpen their pencils to offer a better price so they did not loose the contract. You will see ads in AWST and others explaining how the F-35 is now cheaper to produce than plane XYZ. That is the
only way. The rest is just a smoke screen to make naive people think this broken procurement system is being fixed.

Last edited by SpudmanWP on Jun 25, 2012 - 01:37 AM; edited 1 time in total

Boeing will be producing F/A-18 Super Hornets for the USN until at least 2015 based on current orders. The USN Bubget side is down right now or I would get you the exact numbers. They will also be building new and upgraded F-15SAs till the 2015/16 timeframe.

I may have missed the inference, but General Dynamics made the F-16 (and later sold that division to LM), not McDonald Douglas. MD was the maker of the YF-17 (and later F-18 ) series.

Notably, a lot of aircraft manufacturing companies are producing parts of the F-35. It may be LM's design, and their final assembly, but everyone and their uncle as a piece of the action.

Forum: Program and politics

Pentagon Tests New Way Of Estimating [F-35] Program Costs