Another question reporters should ask, especially for complex systems with many moving parts—such as light rail cars, doors that open automatically, and air conditioning—is whether the bidders provided any design and engineering services. Companies that sell such systems often offer “free” design and engineering work, but what they really do is build those costs into the initial bid or the price of spare parts and maintenance, often in ways that favor their products over competitors.
Journalists covering any government contract for goods—from bridges and buildings to computer systems to swimming pools and tennis courts—should ask these (and other) questions about life cycle costs:
What is the projected life of the property?
What is the projected all-in cost over the life of the property?
How much will maintenance and repairs, energy (if any), cost over the life of the project?
How much downtime is anticipated during such work?
How much could life cycle costs be reduced by spending more upfront for better quality materials, a different design, etc.?
What are the projected costs of disposing of the property when its useful life ends?
What obligations does the vendor have to ensure that the project, building or goods perform as promised?
What clawbacks for underperformance are in the contract?
If Net Present Value was not analyzed, why not?
If government officials cannot answer those questions, that is a story—about spending taxpayer funds without knowing the total all-in costs taxpayers must bear.
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David a couple of comments.
Over specification becomes more prevalent when dealing with larger and larger entities an no entity is larger than the federal government. There is extreme risk aversion within large organizations and this aversion to risk in any form is what drives over specification of projects. I find this surprising considering the lack of single point accountability and authority within the management of these large projects. I executed several medium sized projects with the DOD and the DOE and was introduced to these issues first hand. Proactive managers who try to keep on schedule and budget are set up for failure as they have little real authority over their projects and are hamstrung by their bureaucracies. Their decisions can be easily undermined by parallel and even subordinates outside their respective organization structures. Managers are hired in the private sector (although the issues I described above are serious concerns in many large private companies) with the expectation that they will stake their reputation and compensation on their ability to use their judgment and experience to mitigate risk and execute projects in a timely manner.
They make “the good” the enemy of “the perfect” in an attempt to eliminate risk and anyone who has executed a project knows that risk cannot be eliminated it can only be mitigated and managed.
I don’t know what point you are trying to make about life cycle costs.
I have never worked on a project, either for the public or private sector that didn’t take into consideration life cycle costs as it has been SOP for the past 25-30 years. The same with the rest of your points … I haven’t worked on a project for the federal government where all the points you mentioned weren’t explicitly spelled out in a standard broadly used format.
#1 Posted by Mike H, CJR on Tue 30 Jul 2013 at 05:04 PM
Thanks, Mike H, for your note.
While you understand contracting well, many journalists do not. My columns are intended not just ti criticize or praise various news reports, but also to enlighten others so that we improve journalism.
And while life cycle costing is SOP at the federal level, many journalists cover state and local governments, which is why I included this parenthetical:
(Hint: state and local officials often buy equipment without considering life cycle costs.)
#2 Posted by David Cay Johnston, CJR on Wed 31 Jul 2013 at 09:42 AM