Cost Risk and Contract Type: A Normative Model,
Abstract
This article presents a model which describes the relationships among the cost risk inherent in a particular procurement situation, the degree to which that cost risk is shared between the government and the contractor, and the risk premium awarded to the contractor for assuming his share of the cost risk. The model is normative in that it provides a framework for analyzing the possible combinations of risk assumption on the part of the government and risk premiums which are logically consistent. The model requires that the price analyst estimate the cost of contract performance, the general shape of the distribution of probable costs, and the standard deviation of that distribution. In addition, a policy decision is required concerning what constitutes a reasonable probability that the contractor would incur a loss. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 1983
- Accession Number
- ADP002781
Entities
People
- Ricardo Murphy
Organizations
- Air Force Institute of Technology