Are Fixed Price contracts the answer at NASA?

Pretty much every recent contract that NASA has made has been a fixed price contract. What is going on with this shift?

@Eager_Space on Twitter
Triabolical_ on Reddit

[lordgarion]

And here we are a little over a year later.

SLS is vastly over budget on a cost Plus contract.
And Boeing is billions in the hole on a fixed price contract, for a pretty simple human capsule, that took SpaceX half the money and half the time to make.

I think it's obvious now that as far as the established military slashed aerospace industrial complex is concerned, is for the government to take these companies and turn them into non-profits. With no profit sharing and no golden parachutes.

It's obvious that we have to get rid of the incentive for them to milk everyone.

And the reason cost Plus contracts are considered bad at nasa now is because it has led us to a position where we have SLS costing well over $4 billion dollars per launch.

SLS uses a right good amount of pre-existing technology, and even pre-existing hardware.

4 billion plus per launch is insane.

[jmstudios]

short answer: it depends, and i really wish the huge twitter thread i made a year ago on this subject still existed because i was tired of people misrepreseting the topic

[OlCrunch]

I'm a laymen and not too policy-minded person but in my opinion, it's a bit more complicated than what Nelson presented to congress. Cost-plus (while poorly regulated) made sense for SLS because no private company was going to take on the risk of developing such a large, expensive vehicle and there is little to no commercial viability for it. Commercial Crew worked as a (sort-of) fixed-price contract because it was drawing on work already being done in the private sector, even if I'd say that Commercial Crew has been a bit of a mess. TLDR: Contracting is complex, and one contract type is never going to fit every goal NASA has in mind. It’s dangerous for the agency to make an ideology out of the various financial models they use.

[GuardsmanBass]

I think one extra factor in the current favor for Fixed-Price contracts is that it makes it's easier to work with NASA's extremely tight and predictable budget limits. They basically can not count on a next-year budget increase beyond inflation at all (and probably budget cuts in the near future), which means that if you do Cost-Plus any cost overruns are just going to result in ever-longer delays and an unknown but non-zero hit to future budgets.

Whereas with Fixed-Price, their exposure to future budget issues is lower and more manageable (and predictable). They can choose to give more money down the line, if needed - but can also not do so (whereas refusing to spend more money on a cost-plus contract basically kills the contract).

[ghost]

I worked with a lot of cost-plus contracts.
In every one the internal meetings were filled with unnecessary highly paid executives just to run up the bill, since for every extra $1, 000 in costs the contractor gets an additional $100 in profit.

[mrrolandlawrence]

so the real reason that cost plus is dirty is that boeing and lockheed without competition had no incentive to speed things up a bit. especially when lobby dollars and revolving door policies meant nasa wanted the same too.

[topphatt]

The running theme I’m getting from your videos on NASA is that MASA just is not getting enough money for what they are expected to do and that forces them to make worse choices that usually end up being more expensive in the long run.

[kargaroc]

Cost-plus sounds like a decent strategy if there's *external* incentives to succeed. Self-preservation during wartime sounds like a pretty decent incentive. But if there is no big incentive, then I fail to see why a contractor wouldn't use it as a piggy bank.

[jayrod]

Fixed costs work for SpaceX, not so for much Boeing/ULA.

[theOrionsarms]

Well for lunar landers NASA would pay 4, 1 billion dollars to SpaceX (for the first two Artemis landing, 2, 9 for first and 1, 2 for the second ), and 3, 4 to Blue Origin (also for two missions), interesting question is if would be other mission after those how much would cost each option?

[clipwhatcherdude]

Your videos are fantastic and very topical

[snower]

I agree that NASA seems to be using fixed price contracts when it isn't appropriate but for now, is the influx of private investment into 'new space' making this the right decision (and I'm not just talking about the two billionaires)? As long as 'new space' is a thing, NASA might come out ahead--but the bubble may burst.

[WilliamDye-willdye]

Almighty algorithm, please accept this comment as testimony that this video should be bumped up. The disciples of "cost-plus bad, fixed-price good" need a worthy opponent.

[Superwelder]

Seriously, the predictions made in this video demand an update! The shenanigans with the CLPS rover mentioned in this vid alone could have its own entire section....

[veedrac]

This video relies a lot on the argument of, basically, ‘the tagline says you should prefer cost-plus for X, therefore it's correct to use cost-plus for X’. This is largely just a bad argument.

Yes, cost-plus is _sold_ as being good for open-ended contracts, because companies are not willing to hold risk, or something, except then you show as an example of ‘bad’ cost-plus contracts a bunch of companies that accepted risks, various times over various stages of the company, and obviously did so symbiotically.

Q: Do you really think that if NASA made a public fixed-cost contract for SLS+Orion and waves around a ~$90B budget for it, nobody would have bitten? Really?

Yes, cost-plus is _sold_ at being better for contracts where the price is hard to estimate, but is it actually bad if companies have financial incentives to make good cost estimates and overperform? Is it not also important that the government is basing publicly funded projects on accurate and honest costs? Why is the average tax-paying Joe expected to own all the risk, rather than the companies making the claims?

Q: Do companies not invest in services before they have guaranteed customers? How do new products exist? How do startups?

The possibility of failure, too, is good thing, despite the negative presentation. Most startups fail; this is fine. Companies are not precious like life, and it is plenty ethical to feed them to the jaws of unnatural selection. Contra, Boeing being unable to fail is poison, a long decay on the industry with nigh-indefinite ramifications.

The final point I think was about these fixed-cost contracts being other contracts in disguise. I... basically just can't really see this as an appropriate argument.

[guard]

I knew there was incompetence. I had no idea it was this.

[PetesGuide]

Is the rant you feel coming on about Bill Nelson? I’d watch that video because I’m curious about why an astronaut would push something like SLS.

[khankrum]

I certainly would never have given Boeing any open ended contract!

[keithrange]

17:00 (about there) - it's insane that NASA/Congress put off any (meaningful) HLS development until basically right before we need them. So now we have 2 commercial companies working as fast as they can, and everyone in the public is whining and moaning about how late HLS is and that SpaceX (and Blue Origin) suck and are swindlers. So irritating 🙁

[HebaruSan]

Trying to think outside the box, a third option is to take all those contractors' capital and employees on board at NASA proper and run the entire space program as one big organization with a singular aligned mission, transparent budgets, individual performance reviews for accountability, etc. No need to decide between paying a contractor's inflated claims for "cost" versus a fixed amount; just put enough of the right people on the project and make sure they're not sleeping at their desks. I mean it seems to work _within_ the contractors, and NASA's going to pay all that money one way or another anyway, right?