Special Tooling and Special Test Equipment: A Case Study Analysis
Abstract
DOD is considering a change in policy governing the acquisition of special tooling/special test equipment (ST/STE). An IDA study team analyzed the potential effect on contractor profits, using a case study analysis to evaluate how five alternative ST/STE policies would affect target profits. Three conclusions emerged from the analysis. * First, it can be much more profitable for a company to acquire test equipment as ST and STE on behalf of the government when prices covering no more than (roughly) 70% of a company's business adjust to reflect the acquisition. * Second, acquiring ST and STE appears more profitable from the perspective of a particular contract-that is, ignoring price adjustments on other contracts than it is to the company as a whole. * Third, acquiring contractor-owned assets tends to be profitable when prices covering more than (roughly) 85% of a company 5 business adjust. In this case, however, profitability may require that the equipment be worth at least its book value to the company at the end of the contract, which may pose a substantial risk.
Document Details
- Document Type
- Technical Report
- Publication Date
- Oct 01, 1996
- Accession Number
- ADA387513
Entities
People
- Herbert R. Brown
- James P. Bell
- Robert M. Rolfe
- Sarah H. Nash
Organizations
- Institute for Defense Analyses