Cost Accounting Standard 414: How DOD's Budget Profit Policy and Contractors' Investments Relate to Standard 414
Abstract
Profit is the basic motive of business enterprise. Accordingly, it is DOD's policy to use profit to stimulate efficient contract performance. It is the government's policy that the best determinant of profit is competition. However, when competition is not available, some other method is needed to establish a profit level that will attract efficient contractors. In 1964 DOD developed a structured approach, called weighted guidelines, for estimating the level of profit to be negotiated on its contracts. The guidelines included three main categories: (1) estimated contract cost (contractor effort), (2) contract risk, and (3) past performance as a basis to negotiate a reasonable profit. Under this approach, the contracting officer would select a specific profit rate from a range provided by the guidelines and apply the rate to a category.
Document Details
- Document Type
- Technical Report
- Publication Date
- Nov 01, 1987
- Accession Number
- AD1171188
Entities
People
- Paul F. Math
Organizations
- United States Government Accountability Office