Why Everything Costs So Much At NASA

I have managed both cost plus (CP) and firm fixed price (FFP) contracts at one NASA center. The idea that an FFP contract results in lower overall cost is incorrect in this business.

When negotiating an FFP, NASA has little or no insight into the cost rackup or profit margin. Also, since the supplier assumes all the risk, they will pump up the price proportional to the risk. Suppliers love it, because they can negotiate high and then squeeze their own costs down to make big profits. Also, every change that comes in is justification for another contract mod and cost increase (and more fee!).

On a CP contract, NASA gets full insight into the cost basis and controls the fee (typically 8-10%). Consequently, the initial cost of the CP contract can easily be much lower than an FFP for the same effort. Visibility into the cost breakdown helps a lot with managing (and avoiding) those costs.

Finally, I have seen several cases where FFP contracts ran into major technical issues and NASA or one of its partners needed to pay extra to complete the work. Often its a choice between pay and launch on time or don't pay, go to court, and maybe many years from now you can launch....

FFP might works great when the risk is low, the product is well defined, and the supplier has experience doing the job. This is not typically the case for NASA products, and CP contracts are not why NASA is so expensive....

I agree with gospace3. I rarely manage projects other than fixed price, but the project deliverables are well defined and the processes for getting there are well known. Also, the article makes a very good point that Congress has a role to play "[cost plus contracts] allow agencies to skirt around funding uncertainties caused when Congress fails to approve annual spending bills by the start of the federal fiscal year."

Fixed price is normal in life because most things aren't difficult enough to justify cost plus. Cost plus is fine if you need the job done, no matter the cost.

The point government payroll people miss is that fixed price in the real world also implies multiple competitors and provider failure.

Of course fixed price isn't a magic bullet if you just tell Boeing to build something for a fixed price. That TOTALLY misses the point. In the free market the strong survive, the weak fail, and the best producer is rewarded with sales. Since government workers don't live in this world, this simple reality must escape them.

Great post. FFP is fine for things like IT support, building maintenance, road construction, ect. Those things are done in the real world and it is easy to know what they should cost. But for development projects it is near impossible to make work. This is a problem that NASA and big business both share that they feel like they can't trust their employees. For development CP is the way to go because things change so rapidly. If it is a FFP then every change the work has to stop and the contract amended which involves many more people than those doing the actual work.

Another thing was with a CP contract the government had some say in the individuals that could work on a project and pick those that had the skills they needed for a particular job. With FFP the contractor picks the individuals and NASA has no say over who works on a project. The only recourse is to give bad marks on the review.

Everything cost so much at NASA because the Agency does not tolerate risk. It costs lots of money and time and schedule to ensure nothing fails. Too bad, because a life without risk is pretty dull.

"It costs lots of money and time and schedule to ensure nothing fails"

Nothing fails????

You must not work for NASA

Plenty of things fail here, plans, projects, tests and just because they did fail doesn't mean they kept going until they no longer failed to provided the insurance that nothing fails.

Plenty of things fail here mostly due to poor planning or people in positions where they shouldn't be--and that is what costs so much.

Don't get me started on the waste...............

Spiff...............out

I've managed both FFP and CPIF and CPAF contracts, and I think the arguments are well stated. The problem from my perspective is that in most CP contracts. NASA has not defined the program goals well, and deals out change that the contractor must adjust for, usually without any relief. This pretty much limits incentive fees, and depending on how well the contractor adjusts (this becomes a definite problem over time), limits award fee, and pushes costs into reserve. There is declining utility that is proportional to the amount of change, and it profits no one. The bigger problem at NASA is that trade offs occur that punish programs that are operating within their cost constraints to support contracts that are not. The other 800 pound gorilla in the room is the "bid to win" practice in industry. Cost realism isn't well practiced, and there is a probability going in that overruns will occur.

I think a big determining factor in deciding the cheapest approach is the degree of certainty that the customer has in what he wants.
If I buy a dishwasher, I think about what I want, choose a model and order it. If I decide later that a different set of functions is better, than I'm a fool.
The most common everyday scenario illustrating CP vs FPP is home renovation. If I tell a contractor that I want a additional room on my house, he'll bid a price based. Every one of them, though, has had experience with customers who then decide they want higher ceilings, or more windows, or the room in a different place. A rich prima donna customer makes the change anyways, and the contractor rolls their eyes, does the work, and runs to the bank with the extra dough. The rest of us end up getting talked out of our whims and continue with the original plan.
So the onus is on NASA to 1) decide what they want, 2) define it in detail 3) sit on the can for a while and think whether it is really what they want 4) contract the work out FPP 5) don't change their mind!
The naivete of saying that FPP is the way to go is that this scenario is oftentimes not possible for spacecraft. Even if the whims of Congress were removed, or of rapidly repeating cycles of 'newvision', it is still difficult to define it detail what will be done. If NASA could spell out a development, engineering, and fabrication contract in sufficient detail to risk the FPP, then they would've already completed the task and there would be no point in hiring a contractor. The most important part of engineering a new system is in the system engineering design and the requirement. If NASA could do that well, they could use FPP. But they can't. They need help with it, so they use CP contracts.

I get so frustrated with this supposed conclusion that "NASA costs too much"!!! Compared to what? In real dollars NASA is spending about one tenth what it spent during the height of the Apollo era. It is spending less than one 200th of the federal budget. It is approximately 5% of the size of the defense budget. It is less than half the Department of Transportation budget.

So, what is costing too much? Continuous human presence in low earth orbit aboard the International Space Station? Maintenance of the most advanced and versatile space transportation system in the world? Multiple deep space probes returning data from the solar system and beyond? Aeronautical research benefiting technical advancement and safety of commercial aviation?

Stop me when I have described too much wasteful spending....

The question is not whether spending on space is wasteful or not; the question is why, in human space flight particularly, does NASA spend so much money with so little to show for it. There are sure a lot of false starts and changes of direction. A lot of spending goes to things one really wonders whats the purpose?

Personally, I think a lot has to do with poor planning and wasteful extended schedules. Time is money.

One of the things which makes the Shuttle more expensive than it should be is LC-39. Like the Saturn 5 and now Ares, LC-39 will make all three programs expensive. Vertical assembly is always more expensive than horizontal integration. Unfortunately, you were not going to integrate a Saturn 5 and then erect it like the Soyuz, Atlas 5, and Falcon 9. It would have been interesting to see how well launching the Shuttle from Vandenburg AFB would have turned out. The Launch complex there was converted from a Titan 3 facility instead of the one for Saturn. No huge VAB, no mega crawler- transporter. The ET and SRB's were to be erected in the same manner the Titan 3 was. The Shuttle was stood vertically and moved to the Pad by a gantry / hangar unit. It appeared to have been a simpler method.