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Other reasons cost overrun

Unsurprising News from the Pentagon The Washington Post reports yesterday on cost overruns for weapons procurement. “It is not unusual for weapons programs to go 20 to 50 percent over budget, the Government Accountability Office found.” [...] The same pattern occurs in federal highway projects, energy projects, and many other government endeavors.

Part of the reason this occurs is that contractors and government officials have a quiet understanding that the initial cost numbers that are used to get projects launched should be low-balled. Both sides know that later on, after projects are underway, excuses can be found to raise the price tag. “The scope of work has expanded.” “We couldn’t have foreseen those additional problems.” “The mission requirements have changed.” “There are new regulatory requirements.”

There are other sides to this story.

Often contractors underestimate costs in part because there is no other choice. When you competitor comes in with an unrealistically low quote, you can either go out of business, or match your competitor. I heard this same story both a few decades and a few years back. In a sense, the honest contractor is screwed. You have to underestimate costs to stay in business.

The other problem is changing requirements. Talk to any good engineer. If you change the requirements during a project, you are almost guaranteed to raise costs. The officer in charge of the contract is hoping for a promotion. To get that promotion, they want their project to be really special, and often ask for more than was in the original contract. When your customer is big, and the officer in charge wants a change, the contractor says "Yes Sir!" and carries on as best they can.