If you break it down into smaller units and you have more contractors in the business… It is not so vital in that situation for a contractor putting in a bid to get it. If he misses it, he will get another one… So, No. 1, breaking down into smaller pieces would take the pressure off the contractor to seriously underbid for a buy in. Two, the parametric costing would catch him if he tried it.
That was Gilbert Fitzhugh testifying to Congress, who recent before had chaired the President’s Blue Ribbon Panel report of 1970. He made the same basic point that Oliver Williamson did in his classic paper “The Economics of Defense Contracting“. While Fitzhugh stressed the use of parametic (statistical) cost estimating, Williamson believed that task partitioning lowered the discretion in the contract, and allowed for a more accurate cost estimate (presumably based on parametrics, but also on engineering build-up).
With the idea of partitioning contract tasks in mind, consider the following quote from Fitzhugh that talks about the limitation of fly-before-you-buy techniques:
In the first place, just to start with the obvious, you can’t have three different companies get all the way into the point of flying off two C-5As and see which one does the better job. It is just too expensive. So that the fly-before-you-buy concept must be applied again to manageable units and it must be early enough in the game so that the result of the test can be fed into the decisionmaking process. If the decision has already been made, you are just wasting the taxpayers’ money in flying before you buy.
What I hear Fitzhugh saying is that you should do prototyping and testing of more “manageable units” that are “early enough in the game”. If the technology of various components are highly matured — in effect partitioning the weapon system task — then you gain from fly-before-you-buy even if you can’t afford to competitively prototype at the total major system level, such as a C-5A. If this system of intermediate developments is not pursued, then it might appear that prototyping a major clean-sheet system doesn’t provide much insurance because it has in effect become locked into military and financial plans.
Source: ADVANCED PROTOTYPE, HEARING BEFORE THE COMMITTEE ON ARMED SERVICES UNITED STATES SENATE NINETY-SECOND CONGRESS, FIRST SESSION, SEPTEMBER 9, 1971
It’s important to distinguish the two different flavors of ‘prototyping’ here. The first kind is technology maturation prototyping — you do it to learn things. In particular, you can do it to spend a little bit of money in order to learn whether it is worthwhile spending a lot of money. This is not competitive (usually), and the only threshold requirements are the ones that are needed to prove that this approach can work.
The second type of prototyping is competitive prototyping of designs, given a relatively complete set of requirements. This can knock down the cost of the system to be purchased, but it only works if the technology is sufficiently mature that multiple vendors can successfully meet the requirements. The original JLTV RFP failed precisely because the requirements were too stringent — a vehicle that met them all would have been unaffordable, or perhaps simply impossible.