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Too Good To Be True!!!


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Guest Vern Edwards

Yes, I selectively quoted you. I quoted the parts that you ought to retract. You said that you don't have a problem with buying-in. You said it clearly and unequivocally. That was mistake on your part, and I think you're trying to weasel your way out of it by saying you've been quoted out of context. The heck you have.

I didn't "misread" the FAR. I quoted the parts of the definition that I wanted to quote and I quoted them accurately--the parts that show that buying-in (aka "low-balling") is below cost bidding with the intention of taking advantage of the buyer at a later date in order to get well. (It's different from "investing," which is pricing research and development at below cost in order to get the production contract at fair and reasonable prices.) Buying-in is planning to cheat. Contractors who buy-in are cheats. You call them "savvy." Are there other ways to cheat than the ones I mentioned? Sure. For example, bidding low to win a large program knowing that when you overrun the government will continue to fund it.

You are a DOD official, yet you ignore the fact that buying-in, in which DOD program managers have often been complicit, has been a plague on weapon system acquisition for decades. The practice is deeply embedded in the DOD weapon procurement culture, and people like you ought to be discouraging it, instead of applauding it.

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Guest Vern Edwards

By way of explanation to the uninitiated: Buying-in is considered improper because the offeror submits a below-cost offer intending to avoid a loss by cheating the buyer after contract award or taking advantage of the buyer's subsequent dependency. This is not to be confused with bidding below cost in order to cover fixed costs, or to gain entry into a market, or in expectation of winning a bigger contract later at fair and reasonable prices. Those kinds of practices are not buying-in and are not improper. They may, indeed, be "savvy."

The improper aspect of buying-in is the intent to take unfair advantage of the buyer after contract award. In this sense, it is akin to predatory pricing, in which a strong company bids low in order to wipe out the competition, planning to then take advantage of its dominant market position to gouge buyers. Don's idea of submitting a below-cost bid with the expectation of being able to mitigate the losses by earning legitimate profits on necessary changes is not buying-in and is not improper. If that's all he means by "buying-in," then his mistake has been calling such a practice "buying-in."

Here is former DOD analyst Frank (Chuck) Spinney describing a form of buying-in used in large weapon programs:

While it takes many forms, the most well known form is the so-called "Milestone II Buy-In," a deliberately "low-balled" estimate of future costs made to obtain a Milestone II approval in a weapons acquisition program. A Milestone II approval is crucially important, because it allows an acquisition program to move into concurrent engineering and manufacturing development (EMD). Once EMD is approved, the defense contractor can begin to "invest" contract dollars (i.e., tax dollars) in building a geographically distributed production base as well as a nationwide network of suppliers. The EMD decision, in effect, gives the contractor permission to use public money to build his political protection network by systematically spreading subcontracts and production facilities to as many congressional districts as possible. This spreading operation is the second step in the gaming strategy and is known as political engineering.

The goal is to raise the political stakes before the true costs of the front-loaded program become apparent. By the time these costs emerge, as they clearly did in the case of the F-18, the series of sequential adjustments in the succession FYDPs have bought enough time and desensitized decision makers to the effects of additional production cutbacks, while the political cost of a fundamental redirection (i.e., termination) has become prohibitive. So, decision-makers on both sides of the Potomac take the easy way out: they cut back production rates to reduce total costs in order to protect the jobs and profits of their constituents. Viewed in the context of the defense power games, production stretch-outs, like those in Side 3, were a predictable, indeed inevitable, consequence of a decision to front load the F-18 into the budget in the late 1970s and early 1980s.

While these power games may work to get programs started in the short term, they create a brain lock that produces a vicious cycle of decay over the long term.

See the entire testimony at http://www.ranum.com/editorials/must-read/...y_testimony.htm.

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Guest Vern Edwards

Here is another description of buying-in from Frank Spinney, in his article, "Defense Power Games," which may found at: http://www.d-n-i.net/fcs/def_power_games_98.htm

The buy-in is an unrealistically low cost estimate made to get a program approved; it is an obvious front-loading gambit. Costs also increase when designs are changed. As equipment becomes more complex, technical difficulties multiply, unpredictable problems crop up more frequently, and designs consequently become less stable. Contractors have economic incentives to change designs because the changes, when accepted by the government, can be used to loosen contract provisions such as cost ceilings. In the defense business, using design changes to hide cost overruns is known as "contract nourishment."

And here is a description by Senator Ted Stevens in the Oct. 15. 1987 edition of the Senate's Congressional Record, 133 Cong.Rec. S14416-02:

Boeing turned from its defeats to an aggressive comeback. Designating certain contracts "must win," it submitted very low bids and initiated its ambitious 25% cost-cutting program. Eyebrows are being raised throughout the industry about the bids, which some have labeled "buying in" or "low-balling." In defense industry jargon, these refer to submitting unreasonably low bids to win a contract, and covering costs through inflated billing later, something Boeing strongly denies.

And here is a comment by Congressman Les AuCoin in the Oct. 30, 1985 edition of the House's Congressional Record, 131 Cong.Rec. H9373-02:

Our committee, in looking at some of these practices has studied reports from its own survey and investigations staff which have shown that the absence of competition and the buying in that's gone on in navy overhaul and maintenance work on both coasts has hurt the taxpayer; has run up costs, and is not a bargain by any stretch of the imagination.

The subcommittee has looked with great interest at reports of the General Accounting Office. Reports which have examined these practices that I refer to. The General Accounting Office has indicated that in the absense of competition, which the gentleman would remove by his amendment, we have seen in the case of cost plus and fixed cost contracts between 80 percent and 95 percent of the cases were involved in low balling.

There is a vast literature, going back to the 1950s, testifying to the evils of buying-in and the harmful effect that it has had on government contracting. All contracting professionals should have a problem with it.

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Vern,

It shouldn't surprise you that I'm trying to weasel out of what I wrote, given my utter lack of integrity.

You wrote:

Don's idea of submitting a below-cost bid with the expectation of being able to mitigate the losses by earning legitimate profits on necessary changes is not buying-in and is not improper. If that's all he means by "buying-in," then his mistake has been calling such a practice "buying-in."

I guess that means that you agree that the savvy contractor was not doing anything improper in my scenario. However, you seem to be reading definition (1) of "buying-in" as saying that "unnecessary or excessively priced change orders" are the exclusive machinations to "increase the contract price after award." Why?

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Guest Vern Edwards
[Y]ou seem to be reading definition (1) of "buying-in" as saying that "unnecessary or excessively priced change orders" are the exclusive machinations to "increase the contract price after award." Why?

Gee, I just spent my last two posts quoting extensively from other descriptions of buying-in. Did you miss those posts?

Buying-in is officially an improper practice. It is not merely submission of a below-cost offer. It is submission of such an offer with the intent of subsequently getting well by taking advantage of the buyer. You took a pretty aggressive stance that buying-in is savvy and said that you have no problem with it. I don't think you understood buying-in. Looking back at your posts, you seem to have believed that all forms of below-cost bidding are buying-in, but they're not, as the FAR definition of buying-in should make clear to someone with your knowledge and experience. Your posts prompted responses from me and others, drawing sarcastic ripostes from you: "I see that you can copy and paste from the FAR, but you should probably take some time to understand it before doing so." I think it's you who should take time to understand.

And I didn't say that you have no integrity. If I thought that we wouldn't be working together, so knock that off. What I believe is that you wrote without thinking things through. No DOD official should be on record as saying that an officially-declared improper business practice is savvy and that he or she has no problem with it.

I'm not going to continue going back and forth with you. My position in this matter is and has been absolutely clear and you know where I stand and why. If you want to continue declaring buying-in to be savvy and that you have no problem with it, that's your business.

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