Why Northrop Grumman turned down billions of dollars
The WSJ published an article titled:
Why Defense Contractors Are Saying No to Their Biggest Customer: The Pentagon
Now, multi-billion dollar defense contracts are not something you really need to pay attention to as a 1099 (except maybe, to find a new gig), but the article had this gym that is useful piece of knowledge.
"The Pentagon typically uses what are called cost-plus contracts to develop new weapons systems. Companies earn a fixed profit and the government covers unexpected expenses if problems emerge or contract requirements change.
When those plans are ironed out and weapons are ready for production, the Pentagon often switches to fixed-price deals. The parties agree on a price, but companies are left on the hook if costs run higher.
Executives said the balance between risk and reward from some deals has swung too far toward the Pentagon, pushing them to avoid projects that could fuel growth."
In my book, I mostly cover Time and Materials (T&M) contracts. You figure out a billable rate and then for every hour your work, you get paid that rate.
However, I do cover Firm Fixed Price (FFP) contracts where you guarantee an outcome or deliverable in exchange for a fixed price.
If you deliver in record time, it's highly profitable. If you go over your estimates, you "lose money" in the sense that your effective hourly rate went down.
As a solo 1099, you assume some risk but honestly it's not that much. Even if you work more than you expect on a FFP contract, you still keep the money.
However, if you're running a multi-billion dollar contract with thousands of employees, that money can easily walk out the door to your employees, vendors, etc.
I wanted to share this because as a new 1099, you may not be used to thinking in terms of risk and reward, and if you're only considering the "reward" part of going 1099, you might end up losing money by being not billable or end up with a sucky project that you resent.
Want the full playbook? Check out Going 1099.