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The Problem with LMG
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This response at least answers the most important question. They are paying Billet for the prototype. Personally I think they should do more than cover the raw cost, but at least they have done something.
Linus commented on this later in the thread saying "Billet sent us a quote. I don't know or care how they arrived at the value. If they're good, I'm good." So hopefully that was all taken into account.
Thanks for the update!
They should cover R&D costs too, not just the cost of manufacture and materials.