A technique for lowering risks during contract negotiations

Abstract

In this day and age of sophisticated weapon and space system procurements, negotiations of the statement of work, technical requirements, and schedule may be as protracted as the negotiation of costs and profit. A major problem facing the program manager during contract negotiations is what affect changes in schedule, technical requirements, and contract terms have on the price. In many instances, after the statement of work has been redrafted, the contractor will be obliged to reprice the work, either on the spot or after a short recess in the negotiations. In this paper, a method for organizing the negotiation process is presented to reduce the risks incurred by the seller. The method is built upon regression analysis and two illustrative examples of its use are provided.