Originally posted by watchitburn
Some of you may be aware of how the US Govt. goes about hiring contractors, some of you may not.
And some might think they do and not really consider all the ramifications...
But if a company is savvy in how the Govt. works they can work the system to their advantage in ways that can only be described as criminal.
Like batteries for robots that cost $10,000 a pop, that become paper weights if they get drained below a certain charge level. (Oh my, sorry about
that. But we'll be happy to sell you replacement batteries.)
Now, here's a good place to stop you.
The gubmint often does not purchase a whole lot of any one thing. After all, there's only going to be so many F-35s and sets of replacement parts. In
some cases, the whole production run may not amount to more than 50 to 100 total pieces. And that's where the trouble comes in.
YOU are used to buying consumer stuff, where the product is a failure if it doesn't sell several million pieces. But in the world of specialty
products, you're gold if you get 1000. What happens, though, is that when you have a very small production life cycle, you don't have many pieces to
amortize your production and engineering costs over. That battery, for instance, at that price is going to be a custom piece for that application.
That entails designing the thing, so you've got NRE, and making soft plastic mold tooling that will not be used again after a few hundred uses.
Worse, if the gubmint gives you a come-on that they might use that battery again, you will need to make hard tooling. Hard tooling might cost you a
couple of hundred thousand bucks. Soft tooling, good for a few thousand, is going to be maybe 50k. But you don't have a million units to spread that
over, so that soft tooling and NRE is going to get plowed back into 100 parts at about $8,000 a whack.
Then for a lot of that sort of thing, especially if it's aerospace, you have to have an engineer available to support it for the duration of the
project and beyond. And you have to have source accountability, so you have to have paperwork systems put in place to do that, and you have to pay
suppliers to give you that info, and you have to store it essentially forever. That costs money too. So you have to guess how often you actually WILL
have to support the thing in the future, and cost that in as well.
So when the guy calls you and says 'hey, we need this particular design, and we need it fast, and we like you guys, here's the spec - quote it to me
for a six week delivery time, and I can't pay NRE so factor that in', what he's saying is that the bid process doesn't allow him to order a unique
part and pay me for the tooling and NRE, so he wants me to spread that over the production run of 50 boards. And thus you get us supplying SOCOM or
NSA with specialty boards about the size of a dollar bill that cost $10,000. If I went into production like Asus, it'd be maybe $50. But it will
never see more than 50 boards. I'll have to support the damned thing for 5-7 years. But I'll only get paid for 50 units. It doesn't make sense for
me to eat that.
Then there are No Bid contracts, where a company gets awarded the contract for essentially however much they want. These contracts require a sole
source justification to be approved, but a monkey can type one of those up. It doesn't even have to be a trained monkey.
Hell, even if they bid them out, they still have to cheat the system a lot of times. Basically, we do a lot of oddball things only a spook agency or
aerospace company would want, so when someone does a search there we are. We have what they want, they can't get it from anyone else, and so in order
to satisfy the three bid minimum, they second tier us and get LM, NG and Boeing to each bid supplying it to them, and those three guys call us and get
the same price. So it ends up being which first tier will take the smallest handling charge.
Had they just first tiered us with a no-bid, we'd have quoted THEM the same price, and it would have cost them about half what it ended up.