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Why does a toilet seat cost $500?
Military acquisition costs, and the secrets you are never told
By: David K. Every
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Dec 31,1969
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 common issue that I've heard over the years has to do with costs and waste in Military programs. Remember, I am no fan of Govt. spending -- but there is a lot of myth. Things are too expensive, and there is a lot of waste -- but I hope that this article will explain exactly why, and who is at fault. The answers will probably surprise most people. This is written about the U.S., but I suspect it applies to most foreign countries, and bureaucracies in general. As for "the press", and "the media" -- either they know this stuff, and have been defrauding the public for 100 years (by not explaining it, sensationalizing it and compounding the problem) -- or they are incompetent at their jobs, and don't understand the most basic concepts of what they report on. Since I have to believe that there has been at least one reporter with a clue in the last century, I'm going to assume that it was simple fraud (to achieve an agenda). The agenda is to sensationalize a story, because that gets readers, makes the reporter famous, makes the paper rich -- and they only have to screw the truth (public perception) to achieve that ends.
Lets create a fictitious military Airplane -- the B-3 or FA-30. We are going to take this plane through various processes of development, to help you understand where the money goes.
      
Planes cost a fortune to design. There are millions of parts on an airplane, and they almost all have to be designed custom -- because there is no plane like this before (1). These huge development costs exist for cars as well (which are far less complex) -- but with cars you get to spread the R&D costs over hundreds of thousands of cars, or more (since they often share parts across product lines). You are lucky if you are going to sell 200 planes. The economies of scale already dictate that cost per plane is going to be huge.
(1) Some people wonder why you can't use parts from civilian planes. The answer is because their roles are so different, and the conditions of operations so different, that you just can't. Sometimes, military planes (for Cargo and the like) can be simplified down for civilian use (and costs reduced and so on) -- but almost never the other way around (at least not on any significant scale).
Then to increase the costs, you have to have many redundant systems, in case one fails. Almost every system has to have a backup (or two), and you can't run them next to each other (so that severing one, wont sever the other). Often the backups are completely different systems -- like one that is hydraulic the other electrical or mechanical. Whatever it takes to guarantee that there is not a single point of failure -- this saves lives and insures the survivability of the aircraft as well as its denizens. This costs more to design, and manufacture, but pays off in the long run.
Everything is required parts to pass Mil. Spec. (Military Specifications), which are incredibly difficult, and require tons and tons (literally) of proof and documentation. Remember, that the military (and Aerospace in general) wants to guarantee almost a zero-failure rate on every part. If you cars were made to these specifications, then they would probably cost four to ten times what they cost now. But lives and national defense are at stake (not to mention the costs of highly expensive systems). Also because lives are so dependent on the process, civilian or military airplanes require huge huge amounts of documentation, validation, testing, double checking, and so on. These drive huge costs up even higher -- but if they were not done, then the public would get outraged when lives were lost. (They are anyway, without understanding the realities of engineering, but I'm getting off topic). So these huge costs are just the way things must be.
So lets do some of the R&D and create the prototype. It will cost some huge amount say $10 Billion, for the reasons just mentioned above, and lots more -- remember, most of this money has to be spent up front! Whether you are building one plane, or 500, you still pay these costs.
After years and years of effort, a plane is designed and developed, and it usually exceeds expectations. The U.S. will once again have the best ability to rule the sky, which helps guarantee the safety of our nation and the lives of our troops. Good stuff. But there is so much more going on that people don't know.
   
The way to guarantee that the project stands a chance, is to spread out the manufacturing of this plane over as many subcontractors, in as many districts, as is possible. If you can't do that, then you spread out the weapons systems, maintenance contracts, raw material procurement, or where those planes will be deployed -- anything to get this in as many districts as possible. Not because that is an efficient way to build an airplane -- it isn't. It is horribly inefficient and drives the costs up. But if you don't do that, then politicians will vote the project down, because there is not enough pork for their area (regardless of how important the project is, or how needed it is). So you spread out development (and increase costs), to gain consensus. After some politicking, the program will be approved -- initial spending generally seems easy to get, it is just getting continued funding that is hard. Remember, "spreading" the development has driven the costs up, but is required graft by your politicians.
   
The politicians have demanded that contracts go to the lowest bidder. Not the best value, best quality, best track-record -- but instead the lowest bidder. This is meant to reduce payoffs, paybacks, and things like that. It doesn't make a difference on any of that, but that is what it is supposed to reduce. Even if it is well known that a contractor can't possibly afford to build the plane at the cost bid, they get the contract, because they are the cheapest.
There are also laws on the books (put there by the same politicians) that say that Aerospace companies (and companies that build things for the Govt.), can never be driven into bankruptcy by being held to the ridiculous standards of meeting the terms of a bad contract. So the fact that they bid the contract for a ridiculous amount is irrelevant -- the Govt. will overpay or do whatever it takes to actually get the thing built (no matter how poorly it is being mismanaged, and how over budget it is becoming). That is how the game is played.
That is why the graft and paybacks are still given -- basically companies get told what to do (and what to charge) by the politicians or military, in order to get the contract. Then they get to go way over budget, and the politicians pay -- because they were the one that perpetuated the fraud (or at least encouraged it) in the first place. Remember, the politicians had to be satisfied (with their pork, and all terms) for this contract to start up -- and they set the rules. So every contract is guaranteed to be over budget, because that is how the politicians want it (and that is how they've made the laws to require it).
   
Back to development. We have the plane designed (researched), we have spread enough pork about, that the politicians approve the airplane, and now we get the contract and are ready to build the plane. We are still not finished with the fixed costs. The prototype was manufactured by hand -- but it is too expensive to do 200 planes that way. We also want to make lots of little changes and improvements (that cost), because of things that were learned from the prototype. They also have to change a few things to make the plane more maintainable, and easier to manufacture. (Just because you can build a one-up, does not mean that a plane can be cheaply manufactured). But we do all that, finish the R&D, the redesigns, do far more documentation, more testing, and so on. Now you start tooling up (2).
(2) Tooling is where you make the parts (tools) that make the parts for the airplane. These are not just pliers and hammers, these are special jigs and stamps, and molds and other things that will be used to make the parts of the plane, or to help put the parts together. This is a huge cost, and takes lots of time and money. Many of these tools are also required to fit Mil. Specs.(more costs) -- and if these tools are going to be used in the battlefield that is important.
And you are finally ready to make the planes.
But don't think that is the end of the fixed costs. Remember, you have to do things like create maintenance procedures, and create special simulators to train people on how to fly or maintain the airplanes -- because you don't want them learning by making expensive mistakes on million dollar aircraft (and killing people in the process). All that hardware, and development and procedure creation and training costs as well, and is being done in parallel to the airplane development.
So if you are building one plane, or one thousand, all these fixed costs are the same -- and they are huge.
     
So now the Dog and Pony show starts.
The way it works is that the program goes into manufacturing and it has already cost the U.S. some huge amount (say $20B) for all the fixed costs for the airplane (the R&D, Documentation, Testing, Tooling, and creating the support infrastructure, procedures, and so on). The planes are going to cost some small amount each (say $10M per plane) to actually manufacture. The Air Force figures out that they need 200 airplanes to achieve their roles, and enough parts for an extra 50. So the total cost of the project is something like $22.5 Billion (over 5 or 10 years).
The contracts are written such that the costs of PROJECT (not planes) have to be spread out over the entire contract (each plane, and each part). So what happens is the planes are CALCULATED to cost 112.5 Million each ($22.5 B / 200). Remember, they don't really cost that much, they cost $10M each to make -- but that "reverse calculation" is just how the politicians figure the cost per plane (total to pay off the contract).
Now 4 years into a 6 year project, some politician will try to make a name for himself -- lets call him Senator Scamster. (Don't ask me why it is always 2/3rds of the way through a project -- it just is). Sen. Scamster wants to attack some program that is not generating jobs or wasting enough money in his district. He won't go after Govt. pork or social programs or other wastes, that would make him look bad (uncaring)-- but he can go after a military program (if there isn't enough pork, i.e. aren't enough subcontractors, in his district). Hmmm... what to go for? How about our project? (For some reason, destroying jobs in military programs is not bad in the publics eye).
Sen. Scamster will make a big show about cutting the project from 200 planes, to 100 planes. We don't need 200 planes anyway -- surely 100 planes are good enough. It doesn't matter that the Air Force has a role that is best served with 200 planes -- 100 planes sounds like enough to the public, so they will buy into it. Not only that, this thing is already way over budget (thanks to his procurement procedures it was only bid at $12 Billion). So out comes Senator Scamster, with this big ordeal about how he is going to save the public 1/2 of the $22.5 Billion on this program. He single handedly is going to push through enough cuts to save the public over $11 Billion (100 times 112.5 Million per plane). The media picks up on it, and talks about what a great guy he is. With enough politicking, he succeeds. What a guy. Except that the $11+ Billion figure only existed in his, and the media's, imagination. They aren't figuring the fixed costs -- they are figuring the fictitious per-plane cost. In reality he cut 100 planes that cost $10 Million each to manufacture (not the $112 Million he has been using). He saved $1 Billion, not $11.25 Billion that he has been babbling about!
Well, you think that fraud on the American public would be enough. After all, the guy just lied about $10 Billion dollars in supposed cuts-- and it was all perpetuated by the media. But things are just getting warmed up.
Senator Scamster now is getting lots of attention by the press as being a crusader for cuts -- but he wants to show his compassionate side. So he starts promoting how he wants to spend $5 Billion on a new social program of some sort or another. (Lets call it midnight baseball, or urban development). He rambles and politics and threatens, and lies, until he gets $5 Billion in pork spending (much of which will go to his area) -- and he still claims that he has still saved the public $10 Billion. (He has really just cost us $5 Billion, in a program that will be corrupt and get $.05 on the dollar to the actual program. The other $.95 will go into the process itself -- but he will be put in charge of "overseeing" the program, and so he will get power and prestige).
Are we through? Not yet. A year or two later, he recalculates the cost of our Airplane Program again. Remember the math. We have $20 Billion in fixed costs, and $10 Million per plane and only 100 planes (now). By reverse math, the program is costing $210 Million per plane -- not the $112.5 Million that they were initially calculated to cost (by his office and voodoo math). Gads! This plane is almost twice over budget -- those evil Aerospace Corporations are screwing the American Public! He'll put a stop to that! He's goes out crusading to cut the program down to 50 planes, and save the public ANOTHER $10.5 Billion! And the press plays in, and the cycle repeats.
What a great guy Senator Scamster is -- according to his calculations, he has saved the public $21 Billion -- and we still have 50 of our planes. Of course according to real math, we are paying $20.5 Billion for 50 planes, instead of $22.5 Billion for 200 -- some bargain. Actually the delays (and inflation) and all the time spent trying to justify and defend the program (because of Senator Scamster) has driven UP the cost of the plane program -- far above the $22.5 Billion point -- and it will have eaten up any real savings (and then some). Of course, those costs overruns, at least partly caused by Sen. Scamster's meddling, will be used as more justification that the program should be cut -- or should have never existed in the first place.
Unfortunately, the project has become such a boondoggle that the Air Force wants no part of it any more -- 50 planes can't fill their missions, and they have to keep the older planes in the inventory now anyway (they can't replace 200 of one type of plane with 50 of another). So they just scrap the whole project -- pay off the contractors for what they've done so far (80-90% of the work and costs), and are done with it. And we just keep using the older plane -- and start designing a new one, because we really need another plane to fill the role left open by the failed project.
So the public really got stuck with $20 Billion, for a few planes that can't be used (because there aren't enough of them to fill a roll), and the project was scrapped. Not only that, but Senator Scamster, also cost the public an additional $5 Billion in other pork programs, that he fraudulently convinced them was part of the "savings" that never existed. He was also rewarded for 20 minute exposes on Television, and tons of free publicity and articles in the press.
Worse than that fraud was that everyone ignored the reason this plane was being built in the first place -- which is often because of the older planes survivability and maintainability -- they are costing a fortune to maintain. Often they have ground crews of 24 people to keep the plane running for a couple of pilots (the new plane would require 6 people). Not to mention the cost of the parts, the time for inspections, how many sorties they can fly per day (combat missions), how fuel inefficient they are, and so on. Our project was going to cost under half as much per year to operate (per plane), and operational costs are very high when you remember to calculate support and maintenance -- but now that is gone. Modernization can reduce operating costs and save money long term! Those costs are never remembered in the Senator's, the Presses, or the Publics', calculations.
Once again, we are right back to the drawing board (and our starting point), trying to recreate the next great Aeroplane -- only $20 Billion dollars poorer this time. And we are ready to begging the cycle again. Of course the politicians and the Press got everything they wanted out of the entire procedure -- they got attention (ratings), they seemed like public advocates (when they were the ones screwing the masses the worst) -- and all they had to do was defraud the public, every step of the way.
So Senator Scamster (and the media) is claiming he saved the public $20 Billion plus, and that he "gave" us a $5 Billion social program. In reality, he cost us $20 Billion in the failed program (and many jobs), he costs us another $5 Billion in his program (only a small percentage of the money will ever do any good), and he will continue to cost us something like $100 Million per year in added operational costs for the older (more expensive) planes -- not to mention the lives lost by using the outdated hardware. Which of course, he will blame on the military, and give himself reason to meddle more.
Oh, and by the way, that $250 toilet seat or hammer you have heard about. The way they calculate that is to divide the entire cost of the project (including all the fixed costs and so on) over every part or tool on the entire project. And what still hasn't been mentioned is that in many "above board" projects, they had to pad the budgets enough to cover all the black-projects costs. So really a lot of the costs were for part of another program! This would be about as accurate as dividing your total income, by how many times you wipe your butt per year, and figuring that each flush costs you $136. In other words -- it never existed, it was just more of that reverse math to achieve an agenda.
I did Aerospace consulting for about a decade, and was a horrified observer to the process, so I do know somewhat of where I speak. Don't get me wrong -- there is a ton of other waste in these programs. But most of it has to do with the procurement procedures or processes that are controlled by the politicians, and the media. Most of the other problems can't be fixed, until we fix these problems first.
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