Gil: Cost-plus contracts incentivize defense firms to run late and overrun costs
Elad Gil · Elad Gil: How to Spot a Billion-Dollar Startup Before the Rest of the World · May 13, 2025 · at 1:29:31
Investor Elad Gil explains the business model flaws of traditional defense prime contractors to Shane Parrish.
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“The way that the business model for the defense industry works is this cost plus. So you basically make, say, five to 12% on top of whatever your cost to work the product out is, and that includes your labor, that includes every component, and that's why there's a very big incentive in the defense industry to overrun on time. Because you charge 10% on that time, right? So if something's late, you make more money.”
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