One point is the difference in overhead rates between defense and commercial-type business… First, perhaps, are the ways in which competitive bidding is often carried out. I remember one case in which a $40,000 study contract generated 39 proposals from industry. The cost to each company of writing the proposal must have been between $2,000 and $10,000. All the companies were interested in getting it, as they felt that successful performance on this first contract would lead to more lucrative contracts later on, including the possibility of production of equipment. The successful bidder was a very large corporation, and one of the things that led to the award was the fact that the company would “cost share” so that the true cost of the work was perhaps $60,000 or $80,000…
The cost of unsuccessful proposals has been fantastically high. It has led to the proliferation of wryly humorous signs seen in offices, like “Proposals are our most important product,” and so on. The government became concerned about this situation for several reasons. First, of course, the money must come from someplace; legal or not, a very substantial chunk of it was buried in increasing overhead. Make no mistake about it — in many cases this was necessary for mere survival. Secondly, government personnel charged with evaluating the rival proposals were simply swamped. Third, government drain on scientific and technical manpower, which diminished the country’s total capacity and weakened technical efforts on actual contracts.
That was an interesting quote from a “physicist with long military-industry experience” in Seymour Melman’s excellent “The Permanent War Economy” from 1974. Doesn’t seem like much has changed in 46 years. Here’s another bit about the additional cost of security clearances, which has been a major pain point and area of reform. The DoD internalized OPM’s background checks recently, and CSO Nicholas Chaillan has shined a light on it given his experience having come from France.
I don’t know what the costs are for DoD in general, but one can see what is involved with people making job changes, clearances having to be updated, the large number of people for whom clearances were required, the necessity for having security officers, staff, and records in every company doing defense work, the need, very often, for having new hires sit around for months before they can get to work on the jobs for which they were hired, the need for guards, safes, security check procedures, maintenance of classified libraries, and so on and so forth.
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