Over budget

#1
Yet more stuff goes over budget and taxpayers will foot the bill:

http://www.guardian.co.uk/politics/2008/jul/07/transport.localgovernment?gusrc=rss&feed=politics

We've seen loads of government schemes go over budget under Labour (the olymics, the dome, various defence contracts) and we, the taxpayer, ends up footing the bill more often than not. While the shareholders and directors of the private companies involved get richer.

I'm not an economist, so I don't understand all the nuances. However, if I employed you to fix my window and we agreed on £100 - you would be receiving £100 when the job is done - no more, no less.

If I went to a restuarant and ordered £20 worth of food off the menu and then I was presented with a bill for £30 I would politely tell the waiter to fook off and leave a £20 note and not return....

Now, why doesn't the government bloody well agree a price upfront, pay the company to do the job and leave it at that....making the company legally obliged to do the job for the amount that it has been paid for?

It does seem that the leaders of these companies are just sitting in their offices rubbing theit hands and laughing at us. Knowing full well that they can increase the bill as and when they feel like it...
 
#2
Because companies are in business to make a profit.

If they can do that by fleecing the government (which is a very easy way to make an awful lot of money) then they will.

Simple.
 
#3
And nowhere is that more prevelant than the defence industy as far I can see - the prices we pay for some sh!t astounds me!

But, like MSR states - if some clown is going to give you more money cos you went over time/budget - what you gonna do, turn it down? You wouldnt have a job for long - especially at the kinds of sums we're talking about.
 
#4
What also grips my $hit is that teh government constantly award contracts to the same companies that ripped them off previously....."crapita" anyone?

If I received a pisspoor service from a company I'd take my money elsewhere...
 
#5
I know where you are coming from but as you'll be aware, it aint as simple as that.

Take defence procurement for example.

We chuck out a requirement for a bit of kit. Industry come up with the widget to satisfy the requirement. We have a look at the widget and choose the 'best'* company. The initial price is set and a contract drawn up to buy x amount of widgets and set a date when it should be in service. Halfway through the process, we decide that we want the widget to be slightly different. The company now charges us a little bit more for going out of contract because we've changed it. The company know that we dont know our arse from our elbow due to the people we put in project/procurement jobs for only a couple of years. Of course industry knows this because most of the blokes flogging us kit have done those jobs whilst serving. The company adjust the price due to a shortage of flange pumps from Macedonia and the cost goes up. They know we know fcuk all about flange pumps so they cream a bit more dosh. We then change yet again what we want and the cycle continues. Due to design changes, the in service date changes and the cost increases. Eventually we actually get the widget. It doesnt work properly, costs 4 times as much as the originally quoted price and is already out of date because it took so long to build the bloody thing.

That process is of course much simplified and can be read across to any government type project. Any government contract is a golden goose cash cow cash machine for any contractor. They know that most of the people in the jobs arent good enough to be in the private sector so kick the arse out of ripping everyone off.

Think of it this way. If you let a women go to a car showroom and order a car, it would cost a fortune. The dealer would rub his hands that the doris wouldnt have a clue. He'd sell her what he wants and not what she actually wants. Once she'd ordered the car and put a deposit down, she'd change her mind and want it a different colour and want the sun roof removing, oh and want the estate converted to a saloon. Clearly the dealer will shove the price up because its going to cost him money to change it. He's laughing and she drives off in a Trabant costing as much as a Bentley.

Thats how it is and I dont think it will ever change.



*Best= One with the most former retired Brigs/Col/Gens on the board of directors.
 
#6
I know I grossly over simplified it - and I appreciate your explanation is a simple version too.

I'm not blaming the companies for making a profit - that's what they are there to do. I'm blaming the government; they are the ones whobugger the process up - by allowing themselves to be ripped off for starters and then changing their minds every 30 seconds.
 
#7
bensonby said:
I know I grossly over simplified it - and I appreciate your explanation is a simple version too.

I'm not blaming the companies for making a profit - that's what they are there to do. I'm blaming the government; they are the ones whobugger the process up - by allowing themselves to be ripped off for starters and then changing their minds every 30 seconds.
You need to look at the sort of people in government. That alone would answer your question.

I wouldnt trust any of them to buy a bag of sweets without a chaperone or the exact change.

The government buy stuff for political reasons and not because its useful, good value for money, fit for purpose or well made. That pretty much sums it up.
 
#8
They seem to manage in other areas - I've been in some of the bars in the HP and they are very good value and very well stocked!
 
#9
In reality it has less to do with political motives or profeteering by contractors and more to do with the physical administration of the contract. In many cases, a contract suite is selected for a job inappropriately. For instance, the mersey gateway was a Cost Reimbersable contract, that is similar to a cost plus but with greater controls on spending. The mistake was made in treating the contract as a cost plus. In reality, a target cost would have been more practical. Its easy to jump up and down and scream about political incopetance without thinking about whats actually happening. Often the political spin comes at the estimation end. IF a local authority said, we want to build a road that will cost 1.1billion, there would be severe hostility, so they run the cost down to please the public, hence the need for open ended contract suites. Its nice the think that ZanuLabour are running around major construction sites in the UK, blatting out orders and generally fcuking things up, the reality is sadly much more mundane.
 

mysteron

LE
Book Reviewer
#10
You must remember that the MoD and many other Govt departments have a propensity for change that is unsatiable. They can't help but change requirements halfway through and then wonder why it is later on delivery than the thing they ordered in the first place.

Don't get me wrong, the pace of life today is far greater than 10 or even 5 years ago but multi-billion dollar companies who influence world politics and have a larger GDP than most African nations also have similar procurement demands as Government. The main difference is that these companies are not held accountable by the shareholders as long as they are making the bottom line, Government is accountable as it is our money they are spending.

That is why business succeeds where Government fails. The greatest irony of all being that if we did not spend quite so much money on checking that all was good on Govt projects but that most was good, the deficeit would even out and the right product might come out more often!! The most successful OGC style projects have been the small ones because they had limited budget and time constraints. The requirements were clear and the supplier delivered.

The big projects always overrun and overspend because people have to meddle with the design because they think they are more clever than the other guy. Result: Scope and requirement creep = overspend and overtime. Supplier rubs his hands with glee and takes the money whilst offering some consultancy to tell them where they went wrong.

The other thing is that Govt departments are cr@p at commercial stuff. They agree to contracts that don't have a hope of making the schedule the supplier is trying to sell as a deal winner. That also means that it goes over time and guess what that means.....yep - more money being spent on that supplier as the Govt is fixed with that contract and dare not back out.
 
#13
Forgive me for being simple here, but wouldn't the sensible solution be to do thorough research on requirements for the widget, settle on the wish list and then lock the design spec so nobody can tamper with it and thus run up extras?
 

mysteron

LE
Book Reviewer
#14
Juvenal - you would not believe how many processes out there say exactly that. But they still break the rules and that is why the get a busted flush!!
 
#15
Juvenal said:
Forgive me for being simple here, but wouldn't the sensible solution be to do thorough research on requirements for the widget, settle on the wish list and then lock the design spec so nobody can tamper with it and thus run up extras?
Yes it would. Trouble is no-one seems willing or able to do that.

And don't forget many of these projects do not operate in a vacuum - they have dependencies on other projects and resource (read budgets) pools.

msr
 
#16
The economic model for a meal at a resturaunt is different because of the product of offer. The owner can offer a fixed price because he or she will have supplied identical meals before and will therefore know the exact cost of its production.

Governament contracts on the other hand tend to be large custom-made projects that are impossible to cost because nothing exactly like it has been done before. Your problems doubles in defence because not only are the projects custom (except those taken off the shelf - TLAM came in on time and on budget) you are are also dealing with cutting edge technology that may or may not work first time. No private company in their right mind would accept a fixed-price contract under those curcumstances - and hence the scope for over-run.
 

Unknown_Quantity

War Hero
Moderator
#17
The civil service also suffer from people being moved around or wanting to make their mark, for instance a couple of years ago I started work on a project that didn't look too complicated. Similar things had been done before by my company and the important bits like the scope of works, the fee and the timetable were all agreed. Simply, we were to aid the government and draw up some technical documents before a job went out to tender.

The first problem was that the project director for the govenment had no clue what the job was for, what was involved or what the work may entail. We offered to recommend courses of action that would be of benefit to the government and were largely ignored.

The second problem was that after a few months, just as we were ready to put out the culmination of month of work a new project director was appointed by the govenment and he wanted to make his mark. Work ground to a halt before he decided he wanted a totally risk free approach taken to the job despite the extra cost that this would incur. The whole process started again at great expense, extra ideas were added and the work began to pick up slowly

The third problem was that as part of the 'near zero risk' approach of the new project director, lawyers were brought in to tighten up the text that we'd created. That wasn't a problem as it could have saved a lot of issues later on except that the lawyers were looking at technical documents and asking that the words be changed so that easy to understand concepts like 'maintenance' were tightened up into legal gibberish. This process alone probably added thousands to the bids for the final job as none of the tenderers would have been sure of what they were looking at.

Finally the job got put out, very late and very expensively, but not before all of the government workers scattered to the 4 winds and either retired or moved department. This meant that since our work was done and our advise was no longer available another clueless project director arrived from the government to meet a new contractor who was holding a tub of KY jelly and with a big smile on his face. The contract that the contractor had signed up to was essentially forgotten and the contractor can now focus on milking as much cash as possible for the life of his contract.

The project could have gone well if there was any continuity in government staff at all, but as there was none, it's gone badly and won't improve. It did not seem to occure to anyone on the government side of this process that since we were being paid to advise then on good practice, that we might want more work like this and would be keen to show our usefulness.

Don't get me started on the Best Practice eejits either. Useless bunch.
 
#18
parapauk said:
Governament contracts on the other hand tend to be large custom-made projects that are impossible to cost because nothing exactly like it has been done before. Your problems doubles in defence because not only are the projects custo
This is rather disingenuous. By definition, all project are a unique undertaking. The private sector manages to undertake them all the time, although when there is a screw-up it normally results in redundancy.



msr
 
#19
parapauk said:
The economic model for a meal at a resturaunt is different because of the product of offer. The owner can offer a fixed price because he or she will have supplied identical meals before and will therefore know the exact cost of its production.

Governament contracts on the other hand tend to be large custom-made projects that are impossible to cost because nothing exactly like it has been done before. Your problems doubles in defence because not only are the projects custom (except those taken off the shelf - TLAM came in on time and on budget) you are are also dealing with cutting edge technology that may or may not work first time. No private company in their right mind would accept a fixed-price contract under those curcumstances - and hence the scope for over-run.
ideally, partnering agreements should be the next step then? There has to be a level of seperation from client and prime cost. It's not completely unreasonable to request a contractor provide a cost framework to work within, considering that much of the increase on these jobs cited comes from unforseen uplift.
 
#20
parapauk said:
No private company in their right mind would accept a fixed-price contract under those curcumstances - and hence the scope for over-run.
I see your point but couldn't the risks of budget over-running be minimised by building in some slack into budgets and getting the project underwritten by insurers?
 

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