John Klossner

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Klossner on cost-plus contracting: No surprises

On a completely unrelated note, this morning at the breakfast table my 6 year-old gave me a review of "Tom and Jerry," the animated cat and mouse cartoon. He saw his first episode this week at his babysitter's house.

As with many people, "Tom and Jerry" was a major part of my television cartoon education. It is indescribable (though I'm now describing it) to watch someone, no matter what age, give serious critical thought to a television show that could be the dictionary illustration for "cartoon violence." Add to that his feeling that he had been the first person to discover "Tom and Jerry," almost as if he had discovered the Grand Canyon. "Dad, the mouse slammed the door on the cat and he got flat as a pancake!" "The mouse cut his tail into little pieces and then the cat flew in the air and screamed!"

The concept of a critical review of Tom and Jerry leaves me speechless, and I had to tell somebody. (And now for the graceful segue…)

This conversation took place in my house, which is a 110 year-old Maine Victorian. (That makes it sound grander than it is. Let's just say we don't have to do much to make our house Halloween-ready.) Our house has many surprises. For example, a couple years ago I had a water stain on an upstairs ceiling that would not go away. I tried multiple scrapings, stain killers, and repaintings, but the stain kept returning. I finally decided to open the roof over that area to see if we had an undiscovered leak. We discovered one of the past owners had dealt with a leak by stuffing rags into the ceiling cavity, and coating the underside of the roof with tar. (I have yet to see this method of waterproofing on "This Old House.")

While this makes for a good story, it does not make for easy job cost estimates. I learned a while ago that, when negotiating building and repairs costs, it's best to tell the builder that I know there will be surprises and that I just need rough parameters of the cost, after which I mentally add a percentage for the anticipated-but- unable-to-measure surprises. I could ask them for a fixed price and chuckle over my savings, but because I live in a small town, I would either run out of builders pretty quick or they would learn to overbid projects at my house.

Some would argue that this allows space for builder chicanery, but it is up to me to a) do my homework in finding a contractor and b) maintain some oversight and communication on the project. This doesn't seem too much to ask.

Reading about cost-plus vs. fixed price contracts this week made me feel kindred to the federal procurement community, although I'm not sure which agency stuffs rags into its leaky ceilings. And Senator McCain's call for an elimination to cost-plus contracting seemed like a simplistic solution to a complex problem.

The issue with both forms of contracting -- cost-plus and fixed -- is the government's requirements for the particular project. Critics of cost-plus say that contractors can draw out the project in order to drive up their costs, where a fixed price is just that: a fixed payment, regardless of how long it takes. But what if there are surprises? What if, as is often the case, government changes or adds requirements during the project? If the cost-plus contract option is eliminated, couldn't that result in higher fees for fixed price contracts, as contractors will want to cover the possibility of the project changing shape?

Also, is it ever a good idea to limit your options in a contract? 

These are separate tools for variable situations, and to limit the process to one tool seems the equivalent of telling Tiger Woods to play Augusta using only a 5 iron. (He'd probably still get a top 10 finish, but that's a different story.)

With his years of experience in the Senate, I would hope that Senator McCain bases his proposal on some specific experiences, and I wish the nature of national campaigns allowed him to expand on this. 

Based on the letters FCW has received, some people with experience in the matter disagree with his take on this issue. 

Regardless of which administration takes over in January, I hope that they would have an ear for these folks who have long-time workplace experience in government applications.

Perhaps Senator McCain explains his rationale for this proposal in some corner of his web site, under "obscure domestic procurement policies," that I could find with several hours of Googling. But that, like agency contracts and my house, has more surprises than I have time for today. I have a sudden urge to go watch Tom and Jerry.

Posted by John Klossner on Oct 27, 2008 at 12:18 PM


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