Originally posted by RFBurns
Having worked in one key military contracting company back in 81, shortly after earning my EE degree, it was amazing to see that much of the materials
we worked with were no different from materials one could find off the shelf at the local hardware store or electronics supply store.
Heh, more often than not, most of those raw materials like pannel plates and knobs and bulbs and things like resistors and diodes or even certian IC
chips, came from the closest supply house than some fancy schmancy high end specialized industrial manufacturer.
Glass is glass, vinyl is vinyl, rubber is rubber, velcro is velcro. But you see in the military industrial complex, the cost of raw materials is not
on the same level as it is for those same materials out here in the public realm..they are much, much higher.
Now this doesnt mean that there are not specialized components or materials used in military hardware, there is. But most of that specialized material
is not manufactured overseas or across the boarders. They are made right here. Last thing you want is for a specialized microprocessor chip or special
application computer module to be made in China or Korea.
Putting this all together, there are some items that are a little pricey, but those items alone wont create the huge buldging military bust-a-gut like
it is. It is the price gouging of the rest of the common materials that are jacked up so high, and replicated more than the specialized items, is the
very reason why the annual budget is chewed up by the defense spending.
[edit on 26-1-2009 by RFBurns]
I have to disagree with you RFBurns. From my experience (18 years working for a major ($1.4 billion annual budget, 12,000 contractor employees)
non-DOD contractor in budgeting and cost accounting), it is not price gouging but having to abide by the literally 1000s (if not 10s of 1000s) of
regulations that makes the government so expensive to operate. You may say that glass is glass but when laws govern the way you have to buy the glass
then even ordinary glass becomes very expensive. Just one subset of regulations to think about – federal procurement. Do you have any idea how many
regs are involved with procuring a paperclip? I can think of 4 right off of the top of my head and I wasn’t even in the procurement group so I’m
sure they would know of a lot more than I do.
Let’s get back to your glass example. First you would have to determine if there were any minority or women-owned small businesses that were already
pre-registered with you that could supply the glass. If there were, you would have to buy the glass from them at what they charge you for it. In most
cases, small businesses cannot give you the best price (or even close to the best price) but you have to do it because that’s the law. Ok, so if
there weren’t any minority or women-owned small businesses, then you would have to go out for competitive bid. This is when the local white male
owned Glass Shop can bid on providing the glass. In most cases, the local Glass Shop has had experience with you buying their glass and have no desire
in doing business with you because they know that it will take 1-2 months for you to pay them (this is an entirely different set of regulations that
the contractor has to abide by and is a lengthy process) and they can’t afford to sell you the glass. So, who ends up bidding on the glass contract?
Large businesses that know how the government works and has enough capital to wait for payment. That’s when the glass is contracted. When the
delivery man delivers the glass to the site, he can’t go directly to the person who ordered the glass, he has to take it to a receiving point where
the glass can be confirmed by someone not involved with procuring it. Finally, the glass is then delivered to the person who ordered it.
The cost of the glass is only a portion of the total cost to the government. Included in the cost to the gov are indirect costs associated with
abiding by all the imposed myriad of regulations. This example, although very simplified, would look something like this:
$10 piece of glass
1 manhour for the contractor person ordering the piece of glass to write the requisition, get all of the required approvals, and deliver it to
1 manhour for the contractor minority & women-owned coordinator to determine if any small businesses are interested.
1 manhour for the contractor procurement specialist to write the request for bid, get approvals, mail it and post it publically.
1 manhour for the contractor person at the receiving dock to perform the confirmation, do the paperwork, and stow it in the warehouse.
1 manhour for the contractor delivery person to deliver the glass to the work site
That’s the DIRECT portion of the cost. INDIRECT costs haven’t even been considered yet. The indirect costs associated with this piece of glass
include the salaries and benefits of all of the people involved in regulatory programs that are not associated with a work product per se. For
example, environmental, safety and health, quality assurance, the controller organization, general counsel (legal), internal oversight, public
relations, human resources, etc… to name a few. (Just so you know, all of these programs have regulations pertaining to them as well.) Indirect
costs are generally 15% of direct costs.
Let’s say that 1 manhour is $40 (that person’s labor rate plus a component of their management’s labor rate). If my calcs are right, in this
example a $10 piece of glass will cost the government $315.
It is truly a NIGHTMARE! I’m not saying that all government contractors are not “price gougers”, I’m just saying that there’s more to the
story than people think about.
[edit on 26/1/2009 by Iamonlyhuman]