This seems to me to be more more of a case of Hofstadter’s law. Cost-plus contracts don’t seem to have any better track record than fixed-price contracts. For example, JWST was delayed several times, and SLS was originally mandated to launch in 2016, 6 years before the actual first launch date. Starship does not meet the ambitious internal schedule of SpaceX, but the speed of development is still impressive to most other space-related projects.
I think folks are focusing on the wrong thing. Both cost-plus and fixed-price contracts can succeed or fail. Cost-plus fails on budget. Both can fail on schedule (see both SLS and Starliner). If budget can’t move, though, fixed-price can fail on either technical (couldn’t deliver all features for the fixed price) or on risk (tried too many untested things to force the design into the cost box).
What SpaceX agreed to do was to take any cost hit against their own internal budget instead of NASA’s. That kind of power play is only available to very wealthy companies or to companies with bankruptcy lawyers on perpetual standby. It doesn’t build a sustainable space industry… it just allows a bunch of billionaires to enter the market by putting their fortunes up as collateral… which they could have done under a cost-plus model too.
The big upside for the private companies is that they don’t have to share the IP with the American people or with other companies. The result is that every significant difference in competing products (Starship vs Blue) will have to be hashed out in the marketplace in order to arrive at a standard… but with only two entrants, one customer, and a transaction every 18 months, the invisible hand of the market is going to take a VERY LONG TIME to find the most efficient solution.
All of the contract mechanisms suck for different reasons. SLS shows worst-case cost-plus… took forever and was stupid expensive but mostly worked. Starliner shows a worse-case for fixed-price… still taking forever, the company would be bankrupt fixing their problems if it wasn’t the size of Boeing, notably doesn’t work. The discriminating factor is what the American people get for the money. We own SLS, for all the good that’ll do us. For Starship, we paid into the pot, but not enough to get an ownership stake… so that money is just gone.
Cost plus is only defensible if the goal is short-term and all-important. If an asteroid were barreling towards Earth, yeah, sure, throw a trillion dollars at it.
An open-ended goal of expanding the scope of human endeavor in space (and this landing is just a manifestation of the bigger goal) requires building an efficient industry around the goal. To that end cost-plus must go.
Cost plus doesn’t make things go faster. The only thing that makes contracts go faster is an award for early delivery, and you can do that with any procurement vehicle. Cost-plus is for when you don’t know what you need. Fixed cost is for when you do. Fixed cost is going to kill you in change fees if you’re wrong, cost-plus will kill you in a bunch of other fees. All tools are useful.
This seems to me to be more more of a case of Hofstadter’s law. Cost-plus contracts don’t seem to have any better track record than fixed-price contracts. For example, JWST was delayed several times, and SLS was originally mandated to launch in 2016, 6 years before the actual first launch date. Starship does not meet the ambitious internal schedule of SpaceX, but the speed of development is still impressive to most other space-related projects.
I think folks are focusing on the wrong thing. Both cost-plus and fixed-price contracts can succeed or fail. Cost-plus fails on budget. Both can fail on schedule (see both SLS and Starliner). If budget can’t move, though, fixed-price can fail on either technical (couldn’t deliver all features for the fixed price) or on risk (tried too many untested things to force the design into the cost box).
What SpaceX agreed to do was to take any cost hit against their own internal budget instead of NASA’s. That kind of power play is only available to very wealthy companies or to companies with bankruptcy lawyers on perpetual standby. It doesn’t build a sustainable space industry… it just allows a bunch of billionaires to enter the market by putting their fortunes up as collateral… which they could have done under a cost-plus model too.
The big upside for the private companies is that they don’t have to share the IP with the American people or with other companies. The result is that every significant difference in competing products (Starship vs Blue) will have to be hashed out in the marketplace in order to arrive at a standard… but with only two entrants, one customer, and a transaction every 18 months, the invisible hand of the market is going to take a VERY LONG TIME to find the most efficient solution.
All of the contract mechanisms suck for different reasons. SLS shows worst-case cost-plus… took forever and was stupid expensive but mostly worked. Starliner shows a worse-case for fixed-price… still taking forever, the company would be bankrupt fixing their problems if it wasn’t the size of Boeing, notably doesn’t work. The discriminating factor is what the American people get for the money. We own SLS, for all the good that’ll do us. For Starship, we paid into the pot, but not enough to get an ownership stake… so that money is just gone.
Cost plus is only defensible if the goal is short-term and all-important. If an asteroid were barreling towards Earth, yeah, sure, throw a trillion dollars at it.
An open-ended goal of expanding the scope of human endeavor in space (and this landing is just a manifestation of the bigger goal) requires building an efficient industry around the goal. To that end cost-plus must go.
Cost plus doesn’t make things go faster. The only thing that makes contracts go faster is an award for early delivery, and you can do that with any procurement vehicle. Cost-plus is for when you don’t know what you need. Fixed cost is for when you do. Fixed cost is going to kill you in change fees if you’re wrong, cost-plus will kill you in a bunch of other fees. All tools are useful.