It should scandalize all of us, whether hawks or peaceniks. Defense contractors are making enormous profits because there are no effective cost controls in place. They tell the government to pay so-and-so much, and the government does–without even checking that the exp. They are endangering it by guaranteeing that there will be backlash against defense spending.
Dina Rasor has a piece out on t/o (it’s a few months old) in which she interviews Director of Defense Pricing Shay Assad on what is called “should cost pricing.”
…there are very few people left in the DoD and in the United States who really know how to do the traditional should cost studies that made US manufacturing so effective 40 years ago. The DoD has spent years making sure those types of industrial engineers were purged from the system and all traces of should cost were swept away. Assad vows to train and rebuild a professional corps who can do real should-cost studies on weapons and make it a permanent fixture on how we price weapons. He said that he was “absolutely” going to purge the historical pricing system in the DoD for good.
The Japanese still have some should-cost methodology left and they should be used as a template. The DoD should go into its archives of the work of DoD whistleblower Ernest Fitzgerald, who worked his whole career to establish should cost. His past should-cost studies on various weapons would also be an important template for future genuine should-cost studies.
•The contractors generally don’t do these types of studies anymore and thrive on keeping their records on pricing, audits and payments in chaos so they can’t be closely monitored either by the DoD or by government lawsuits.
I would not be surprised if one-third of the cost of most weapons systems isn’t waste. Ironically, the contractors only get a fraction of what is wasted. It would be less expensive if we offered them higher profit margins on honest costs.