According to the Cato Institute Bulletin No.72 issued in September 2015, the answer to the question in the headline is the Veterans Administration paid $621 million when completed in 2008. The Department of Defense is full of massive cost overruns. One of many examples is the Joint Strike Fighter, which was estimated to cost $79 million, but the actual cost was $138 million.
The government uses a process called Lowest Price Technology Acceptable (LPTA). In this if the government takes the lowest bid and then allows for cost overruns, it may move the actual price sometimes two to three times greater than the original submission.
Let’s say that the government wants to replace the Tomahawk missiles that were originally built in the 1980’s. That missile technology, though very effective, is now 37 years old. So what should the government do in trying to decide whether to replace this old system? Should it go for the lowest price provider or the most reliable technology? Should we require the procurement officers to watch television, look at annual reports, and do Google searches to see if a particular company reports rocket failures or successes? We can foresee a story of one company that can land a rocket on the deck of a ship, while another has regular explosions.
I’m sure we could get a great deal on rockets from Space X, they seem to have a problem of their rockets blowing up, so we could get them at a really great price. Do we want to buy poor reliability, regardless of the cost? We can buy rockets and other expensive items at a low price, but if we never get the chance to use the item because of poor reliability then hasn’t the government wasted your money? In selecting a supplier, the predictability of the function of the system should be an equal part of the decision as to the cost of the item.
If a product has a history of blowing up, then the procurement system has to take that into consideration regardless of price. If we are buying a rocket to protect the lives of our men and women soldiers, we need it to work more than once in a while.
One other thing that I think needs to be removed from the procurement process is the influence of individual senators and congressmen who want the project in their district. I recently found a story that a member of Congress wanted a rocket order to go to the supplier in his district, and he wanted to put the provider’s name in the spending bill. I understand that all of our senators and congressmen need to bring federal tax dollars back to their districts or states so as to use this flow of money into their area to get re-elected. I do believe that the elected officials and procurement officers often seem to forget that it is our money. We pay the taxes out of our income, and we fund the government. We can’t have cost overruns in our business or household budgets like the government without going bankrupt.
In our everyday life, we have to make decisions, and sometimes those decisions can be difficult, but we have to make them. If you were running the government and saw that the government spent $440,000 a year to hire people to press the buttons on an automatic elevator, could you save that $440,000? When I read this, I say, “What were they thinking? Why pay people to push the floor buttons.” I realize that this is not a lot of money in a $4 trillion budget. However, the policy of being stewards of the people’s money needs to be in the forefront of the people spending our money.
Once more, what were they thinking? The government is going to buy 11 million pounds of cheese sitting in storage for $20 million because the dairy farmers can’t sell the cheese. If I had space, I could probably fill many pages with hundreds of millions of dollars, if not billions in overruns.
I think we need to go back to the fundamental principles of business; give me your best price for what I want. I agree to pay that price and no overruns, and if you miss the delivery date, you pay the penalty for every day you are late. Telling me that I will pay $50 million for a rocket, but by the time it is all said and done, it costs me another $50 million in cost overruns, I would have been better off paying a higher price up front to get a more reliable product. One thought on overruns, sometime the time it takes to build something it could be a long time maybe 10 years or more. If things change and the government needs to make changes that is not an overrun.
This problem is not just at the Federal level it also happens at the state and local government level. The largest City, State overrun was the Boston Big Dig tunnel project, when it was concluded it was nine years behind schedule and $12 billion over budget. How do all of these incredible overruns take place? The upfront estimates by government officials are unrealistic. In many cases they are unwilling to tell the truth about what things should cost. We need an independent agency that reviews awards over $50 million. I do not want the Congressional Budget Office (CBO) to check the numbers before the bids are awarded because they can’t count very well.
With a $4 trillion budget, we have to start looking at every way the government spends our money on everything from rockets to paper clips.