CREDIT FOR OLD WORK ON THOSE UNITS ON WHICH NONE OF THE WORK

AFFECTED BY THE CHANGE HAD BEEN PERFORMED

Contractor's Estimate

Air Force

40 hrs

70 hrs

In attempting to determine what credit should be given for the old work on those units on

which it had not been performed, Mr. Foster ran into considerable difficulty. He reviewed a copy

of the contractor's original estimate but the cost of the work affected by the change had not been

separated from the overall estimate.

Relating the ratio of the changed work to the total number of hours in the original estimate,

Mr. Foster determined that a credit of 70 hours should be used.

To this the contractor replied that while Mr. Foster's estimate of 70 hours for the changed

work in the original estimate was reasonable, he had again failed to take into account the

improvement curve. The contractor contended that the 70 hours was the average for the entire

quantity of 175 required by the contract while the credit should be based on the average for the

last 60 units which would be considerably below the average for the entire 175 units.

11. Is the contractor's approach a reasonable one?

12.

Assuming the buyer accepts the contractor's contention, should he require that the

contractor furnish an improvement curve to substantiate his claim?

MANUFACTURING BURDEN

Contractor

Air Force

180%

110%

The contractor had used a manufacturing burden rate of 180% in the change proposal. Mr.

Foster agreed that the increased rate would probably prevail during the period of performance for

the changed work. He felt, however, that since the contractor has used a rate of 110% in his

original proposal, that this rate should be used in pricing the change to prevent the contractor

from repricing what otherwise might be a loss contract.

QUESTIONS:

13. Do you agree with this approach of the cost analyst?

7

14. Assume that the situation was reversed, viz; that the contractor had used a rate of

180% in his original proposal and his rate for the period of performance of the

change was 110%, would you approach the matter any differently?

5.

MATERIAL

Mr. Foster reviewed the estimated quantities and associated costs for both old and new

material. Since he found no major discrepancies, he accepted the material costs without further

question.

6.

GENERAL AND ADMINISTRATIVE EXPENSE

Contractor

Air Force

15%

6%

Mr. Foster used the same approach in computing G & A as he had for the manufacturing

burden. The contractor had used 6% in his original estimate and Mr. Foster thought that the same

rate should be used in pricing the change.

QUESTIONS:

15.

Do you agree with this approach?

16. If the situation was reversed, viz; the contractor had used a G&A rate of 15% in

his original proposal, and his anticipated G&A rate during the period of

performance of the changed work was 6%, would you approach the matter any

differently?