Posted by: graemebird | November 5, 2006

Ebay Approach To Weapons Buying

We need to change the way we go about making purchases for military equipment and also the way we develop our infrastructure. Cost reductions come from reinvestment. So that therefore a rushed approach will always lead to cost over-runs (a fact oddly lost on the current labour leadership team.) What you would really want, with infrastructure, is for the projects to go ahead at a rate that makes possible the constant reinvestment, on the part of ones subcontractors. Here is a post from back in 2006. With similar thinking as applied to weapons purchases.

As a country of only twenty million people we need to find a way to make our defense budget go further. So far I’ve claimed that we ought not be borrowing for defense until we have to go for a massive build-up to prevent war. In my model that might come after a short burst of military action. I’ve thought that we ought otherwise keep our financial powder dry. If we have to pay as we go for the weaponry it creates a tension that will hopefully help us get rid of nearly all of our non-defense tax-eaters.

We saw how the B2 was so useful in the Afghan war. How it could do the work of many older aircraft. There are some weapons that its just hard to imagine getting too many of. Could we really have too many of the latest tanks, or too many of these Ospreys or Raptors?

Nontheless with each additional unit one might decide that the additional benefit is growing less.

I don’t see why we can’t piggy-back on the Americans and the others development of new weapons. We already do this of course. But I mean in terms of buying a few units of something. Then saying that we expect to buy more over time. But always at a lower (inflation adjusted) price.

And there is nothing that we ought not consider buying if the price is right.

Supposing we get four Raptors at the price of (lets say) 1 billion USD. And we then let the developer know that we would likely buy another unit, and another, and so on, indefinitely if each additional unit was 1% less costly then the last. And that in any case we would be open to negotiation for the price of an individual unit any time.

Because the thing is its cheaper if these guys stay in production, don’t feel rushed to come up with another unit, but concentrate on cutting costs.

With a price tag of perhaps $339 million USD it makes sense to be leveraging anything else associated with these things.

So supposing that we had these four Raptors. What do we need to keep three of them in the air the whole time, round the clock, with no-one losing sleep and all due holidays taken?

We would need all the maintenance people geared up. The stored and hidden fuel supplies. An enourmous amount of ordnance. Just shitloads of it stored in hard to find places. Dummy ordance for training flights. Second-hand and new refueling aircraft. Too many rather then too few. Perhaps another satellite (this one particularly hardened) up in space to make sure we have redundant capacity on that score. And perhaps a dozen well-trained pilots.

Or considering the costs involved we might want twice this many pilots since we are loading in to have the people before we will buy the next lot of planes. We would want the maintenance facilites to be mobile. So we can move things closer and closer to the risky end of the battle-space as time goes on.

We would want the added transport equipment to move the added gear closer to the nasty area (or indeed to retreat as we were beaten back) and we might want more theatre missile defense to keep all this added gear protected….. thats if we even have ANY theatre missile defense in the first place.

In view of the great expense of the actual gear it would make sense to err on the side of overdoing the support that is needed to keep these things going round the clock indefinitely.

Also if you’ve got that redundancy built in, in a time of great tension you can get to a whole new level of readiness by quickly leasing or buying on credit a whole bunch more primary gear. But without the associated support to keep the gear working around the clock indefinitely then the hurried aquisition of more gear would be something of a bluff.

In fact one doesn’t want to leave anything to some sort of hoped-for vast manageriel heroism and organisational skill that the American people showed during World War 11. What with the cost of this gear you want to have all that side of things developed well in advance.

Which gets to another point. If your defense force has to be suddenly able to work around the clock indefinitely at a much greater level of activity it makes sense that your armed forces in peacetime would be overstocked with permanent part-timers. You know you might have the requirement that all these guys work two-twelve-hour shifts every eight days. Then if they want, the rest of the time they might be doing work for private work agencies. Or they might be students. Or having some other career. Or layabouts.

Now I don’t see why we can’t do this for pretty much all our new aquisitions. Bascially your budget is bidding against itself. You are saying what you’d like and at what price and in what order. And you would have to rank potential purchases with price being a big factor. If someone makes you an offer for some second-hand gear, if thats cheap enough that will alter the ranking of your purchases.

We are going to need to do things differently to make these dollars stretch further.

We are going to have to get our immigration right. Get our economy growing much faster. Do everything differently.

But take heart. The China threat will likely reduce a tiny bit each year after 2020 as their population grows older.

And after 2040 their population will be reducing in absolute numbers. But between now and 2020 the threat from China will be growing powerfully every year. We have to get everything right. We cannot blow it. We have to get it right for our sakes and for theirs.

Now consider the effect of this methodology on our negotiating power to get cheap gear.

http://originmedia.mgnetwork.com/breaking/f22raptor/

“How much an F-22 costs depends on who’s giving the figure and which cost index he uses.

The Air Force quotes “flyaway” costs – the price for only the airframe, engines, electronics and maintenance equipment. By that measure, each plane costs $133 million. But that does not include research and development and testing costs, which are also paid by taxpayers.

Government auditors and outside watchdogs prefer program costs, which include R&D, testing and buying the planes, engines, electronics and other equipment. That price runs $339 million to $361 million each”

See how there is a great deal of variability for how much the Americans could charge us for each unit?

Or in fact any country of defense contractor for any weapons system of component.

So much of the cost is sunk it always remains to be seen as to how close to marginal costs we can buy the stuff. Or if it is second-hand AT WHAT DISCOUNT?

It ought be known world-wide that out door is always open.

I mean, speaking of the Raptor, there is just no way they are going to sell the first unit for anything less then $133 million any time soon. But then again they could charge us anything up to half a billion to make a bit of profit on the deal over and above our per-unit-contribution to the sunk costs.

So if we have this sort of E-bay approach we are more likely to get more gear more cheaply and not make horribly costly mistakes.

Since in general we are only taking stuff that other countries are “dumping” on us at something not too far above their marginal costs. Like maybe we would be willing to take the first four Raptors at premium but we would quickly get to where we might not be prepared to buy them for a great deal more then marginal cost. Which itself might be falling under this approach.

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Responses

  1. GMB:
    Good one ….. will save it and reread it over next few days,

    You’ve made no allowance for Kickbacks and Corruption. Do you think the decision-makers are in the game for salary, retirement package and Patriotism? Come on!

    It mightn’t hurt to have a look at how military procurement worked in Rhodesia during Sanctions or, better still, in the former regime in South Africa,

    Four words say it all – Simplicity, Commonality, Adaptability and …. Frugaliry.

  2. Yeah thanks Graham.

    I’ll have to look at this COMMONALITY principle a bit more. Because that looks like it might come into conflict with the above proposal.

    The corruption thing is likely to be easier to contain under this way of doing things though. Since you are spending a bit at a time.

    Any good links you have on how Rhodesia and the former regime of South Africa handled things would be cool. Or on this issue of commonality. Since the above scheme is more like the concept of “open access” which could be disastrous. That strikes me as a really neat idea to see how it was the benighted regimes mentioned got by. Being undere seige like that and without foreign aid might have pushed them into some sort of innovative methods one would think.

  3. In other words, we will get a discount based on good behaviour. As people on eBay aren’t always who they seem, so any materiel equivalent will face the same problems. Weapon sales are political. End of.

    The China threat will likely reduce a tiny bit each year after 2020 as their population grows older.

    This doesn’t allow for the kind of technological advancement that enables us to be a middle power. I thought this population=power stuff was shot to bits at the Somme.

  4. I’ll take this opportunity to apologise to you for my uncalled for nastiness the other day.

    And I like your small-government leftism. I mean I wouldn’t quite go in for it myself but it seems your concscience is in the right place. A good thread at your site……

    What I’m saying with China is that it has a young population now. In terms of average age. But its average age will rise quickly and particularly after 2020.

    So its not JUST an appraisal of its ABILITY to go to war but its tendency to do so.

    Taking the longer view of things, amongst all civilisations, the Chinese need to be congratulated for its admirable reticence in not projecting their power far beyond their immediate neighbours when they had the ability to do so. And of course they are admirable for many other reasons.

    But what I’m saying is that for historical reasons we have a sort of danger-time-period. Where, for our sakes, as well as for theirs, we cannot let them delude themselves into thinking its in their interest to push out far beyond their own borders.


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