Recovery of Indirect Costs in the Pricing of Equitable Adjustments and Terminations for Convenience
Abstract
Equitable adjustments and terminations for convenience are noncompetitive pricing actions--cost rather than market forces determines whether price is fair and reasonable. Determining indirect costs for purposes of pricing an equitable adjustment or termination for convenience presents a number of problems for the contracting community: 1) lawyers, judges, and contracting officers often do not understand how contractors accumulate and assign indirect costs to the work performed during an accounting period. They do not understand what an indirect cost rate is or how it functions and for this reason are ill equipped to deal with the more complex issues of consistency and unabsorbed overhead. 2) All costs do not respond to changes in production volume in the same way. 3) Most contractors have unsophisticated cost accounting systems that cannot measure performance costs accurately at various stages of contract completion or the increase in costs caused by an event necessitating an equitable adjustment. 4) Consistent classification of costs as direct or indirect is necessary to prevent over recovery. 5) When contracts are terminated for convenience direct recovery of certain normally indirect costs is permitted. Unfortunately, the procurement regulations and accounting and legal literature give little guidance on how to determine indirect cots for purposes of equitable adjustments and terminations for convenience. The purpose of this thesis is, in part, to fill that gap.
Document Details
- Document Type
- Technical Report
- Publication Date
- May 01, 1988
- Accession Number
- ADA196120
Entities
People
- David G. Anderson
Organizations
- Air Force Institute of Technology