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Usaf Inviting European Manufacturers To Bid

Thu Jun 10, 2004 6:51 pm

According to an article in the Financial Times


the US Air Force secretary has "called for European defence contractors to get more access to Pentagon contracts to stimulate stiffer competition in the US domestic aerospace industry" - and goes on to say "It's the only way we're going to discipline the big airframe makers in the United States".

Do you think that the Pentagon is really contemplating "buying European" (on a wider scale - I know that there are already some European products in use) - or is he just trying to calm Europe down a bit?

What are your opinions - I for one am really not sure how realistic this is, though I'd like it, if it were true...


[Edited 2004-06-10 11:51:53]
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RE: Usaf Inviting European Manufacturers To Bid

Fri Jun 11, 2004 4:11 am

It's just an attempt to drive prices down. When you have a vertual monopoly you can charge what you want. Maybe the Pentagon has finally woken up to the fact that they are being constantly ripped off (just as the MOD are being ripped off by BAES)
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RE: Usaf Inviting European Manufacturers To Bid

Fri Jun 11, 2004 6:32 am

Actually it's hard to rip off the DoD with the nature of the contracts that issues these days for most new projects (though to cut cost overruns aircraft contracts are sometimes fixed price contracts, but some aircraft companies are weary of these since Northrop got screwed over in the B-2 deal).

Most DoD contracts are issued cost plus, which means they only get the cost of the aircraft plus a certain percentage profit tacked on. Also the contractors must have an integrated accounting system, so they can audit to make sure, that if you ask the government for $400 for Susie secretary, you actually pay that out.

In fact it was a Haliburtian internal audit that revealed that they overcharged the DoD for the gas, and admitted it, not the other way around.
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RE: Usaf Inviting European Manufacturers To Bid

Tue Jun 29, 2004 5:24 pm

I think by "rip-off" he meant the Pentagon pays more than someone paying his own money would pay, and more than a truly free market would allow. He is not claiming that pentagon contractors cheat on contract terms. They don't need to. If the game is rigged in your favor from the start, there is no need to cheat.

Suppose you were looking to buy a house. A builder came to you and offered to build it for his price plus a couple percent. The more you spend, the more he makes. There is no way he can loose money by his own negligence - you pay for his mistakes. If the house actually ends up costing more to build than the builder promised - YOU pay the extra, and the builder gets MORE profit because he gets a percentage of what is spent. The builder has no incentive to minimize his costs. In fact, he has every incentive to take as long as possible and spend as much as possible - provided that you do not give up on building the house. Even then, he will not loose the money you have already spent.

Would you sign such a contract? The Pentagon does, every day. Originally, cost plus contracts were given to preserve our defense industrial base (particularly shipyards) during periods of lower defense spending. There is some justification for them because defense systems do involve more financial risk than building a house. However. it has gotten out of hand. The Pentagon has to spend a lot of money and set up many beaureaucratic controls to minimize the abuse of this kind of contract. Even so, little incentive remains for defense contractors to be creative in devising new military capabilities or in controling costs. The kind of controls that are needed to control the cost-plus system simply cause more delay and expenditure, and stiffle creativity.

The department has made some efforts to reform - by including terms to give companies some incentive to come in on time and under budget, but the "cost plus" contract still rules. That is how government, and government-dependant corperations, spend our money.

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