11 thoughts on “Color Me Skeptical”

  1. It’s true. Prior to the contract being awarded there was a 2 year period where IRAD money was spent solving problems unique to Orion. In the process the LMs proposal becomes more attractive.

    Since Orion is its own business unit it receives IRAD funds which are nominally used to enhance the capability of the craft. This sort of thing is common to all large projects. Of course no one would deny that the IRAD spending is also done to improve the company’s chances of winning the “next big thing”.

    There is one huge (many $10sM) asset I know of that built using company money that is now regularly “pimped” as something useful for whatever comes next.

  2. That’s what I suspected. I don’t consider IR&D a company’s “own money,” in the same sense as coming off the bottom line. It’s discretionary, but they have to spend it on something.

  3. So they spent $4 billion of taxpayer money AND tens of millions of company funds to get a capsule to PDR? That makes it even worse than we thought.

    Mike

  4. If “own money” isn’t IRAD money, what would own money be? Capital? B&P, Overhead? Let’s put it this way, if LM didn’t spend say $100M in IRAD money this year where would it show up on the balance sheet? Are you saying it WOULDN’T show up as profit?

    And for the record, the total number isn’t just the cost of one the investment I was referring to, it’s probably $200M or more. Anyway don’t look for me to defend Orion, I think it should be canceled, and hence forth NASA shouldn’t spend any money on human spaceflight at all, including COTS. If human space flight is as valuable as all the space nuts say, then there isn’t any reason to fund it with tax money. SpaceX has proven they can do it, so let them start selling their services to those who want them.

  5. It may be that Lockheed has a different idea of what constitutes a “significant” amount of internal investment in a project.

    If they are used to paying only for putting together the proposal and then 100% of the cost is covered by the contract they may think funding 5% of a project’s cost internally is significant.

  6. If “own money” isn’t IRAD money, what would own money be? Capital? B&P, Overhead? Let’s put it this way, if LM didn’t spend say $100M in IRAD money this year where would it show up on the balance sheet? Are you saying it WOULDN’T show up as profit?

    Yes. I’m not particularly familiar with the accounting specifics, but you cannot convert unspent IR&D to profit. If you could, it would effectively arbitrarily increase the profit rate on a cost-plus contract. The intent of IR&D is to support future research and contracts, and it’s use it or lose it.

  7. “If you could, it would effectively arbitrarily increase the profit”

    Incorrect.

    You get the profit you negotiate under the CPAW contract then you decide what you want to do with it. Send it out as a dividend to stock holders, IRAD, B&P, etc. Your profit doesn’t increase, but it can decrease.

    If this is truly what you believe then your position is that LM can’t ever spend any of its own money because it doesn’t have any of its own money. Therefore why ask the question in the first place?

  9. You get the profit you negotiate under the CPAW contract then you decide what you want to do with it. Send it out as a dividend to stock holders, IRAD, B&P, etc. Your profit doesn’t increase, but it can decrease.

    Don’t quit your day job to become an accountant.

    Profit is the “fee” in “cost plus fixed fee.” Everything else — B&P, IR&D, G&A, labor, materials, is “cost.”

  10. IRAD is not charged to the contract period it is not “cost”. It taken out of whatever fee the company is awarded thus it comes out of the company profit. It is a crime to do otherwise. This is a subject that I’ve dealt with for many years.

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