Escalation Provisions in DoD Procurement: A Review of the Problem and a Framework for Analysis
NAVAL POSTGRADUATE SCHOOL MONTEREY CA
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The study reviewed the opinions and concerns expressed by various government and private industry sources with regard to the use and structure of escalation i.e., economic price adjustment provisions in government procurement contracting. A framework was designed to facilitate the analysis of the relationship of escalation provisions and price level uncertainty. The specific model employed examined interacting objectives of the government and a firm in a sole-source contract negotiation scenario. A method was developed to approximate the increase in contract price required by the firm as compensation for accepting the risk of uncertain price levels. A criterion was established for the employment of the escalation provision in the modeled scenario.
- Logistics, Military Facilities and Supplies