Details on the suppressed waste study by the Pentagon

Tangent: Allow me to explain why the Pentagon spent $500 for a hammer and $1000 for a toilet seat (spoiler: there are good reasons and bad reasons). I know the "why" here because I interned in the cost engineering department of a major contractor many years ago (think "nuclear aircraft carriers" and "Virginia" and you can figure out the company easily).

Cost engineering is responsible for doing estimates on how much things will cost to produce, so a company knows how much to bid on a job (and so the company and the government can track actual costs and adjust payments accordingly, especially for no-bid jobs). Now aside from the really big jobs--like nuclear aircraft carriers and subs--there are lots of small ones that various Pentagon/Defense department agencies request. And because they already have relationships with manufacturers like the one I worked at--with full machine shop and production capabilities--that's where they send these jobs. So let me give a real example that I actually did:

A request came in for parts: 10 small springs (like what you might find in a ballpoint pen). I was tasked with estimating the cost in order to bill the government. I had no idea what the springs were for; they could have been critical pieces for a weapons system repair, for some mechanism on a sub, plane, or ship, or replacement pen springs for some high-ranking officers. Seriously. But the order came in for 10 springs with exact specifications, material, size, etc. So, my estimate included the cost of materials, the cost to do the manufacturing templates (which were one-off things), the hours that different departments would bill for this work (including my own), the cost of packaging, the cost of delivery, etc. In the end, my estimate was for a cost of around $800, or $80 per spring. And that's exactly what the government paid. But check this out: many of the costs in my estimate were fixed, regardless of quantity. And the variable costs--like materials--were very small. Had the government ordered 100 springs, the cost would have been around $1200, or $12 per spring. This is the "why" in a nutshell. And it gets worse. First, because the government knows that contractors can't and won't store the templates and casts to remake these items (not cost effective), so if the government ordered 10 more springs a year later, the price would be the same, more or less. Second, because the government sucks at tracking things that aren't immediately used. Chances are, they only needed one or two of those springs to begin with, but deemed it a good idea to order 10, "just in case," and the springs not used got put in a box somewhere and quickly forgotten.

I note all this because the common theme on the "$500 hammer" was that contractors were gouging the government. And generally, that wasn't the case at all. Because the government did the same thing as above with things like hammers. No lie. They wanted a minimal number that had exact specifications. And you know what else? They spent a ton of man hours researching what those "exact specifications" should be, as well. If Black and Decker made a hammer that was "almost" right, that wouldn't do. They want exactly what they want and they have to pay for that privilege.