A Uniform Profit Policy for Government Acquisition
LOGISTICS MANAGEMENT INST BETHESDA MD
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This report presents a policy to enable the government to determine equitable profit objectives for use in contract negotiations. The need for such a policy was recognized in 1972 by the Commission on Government Procurement. It was noted then that current profit policies were non-uniform from agency to agency. Further, current policies are thought to discourage cost savings and there is no criterion by which to judge the adequacy of profits. Two principles are embodied in the uniform profit policy 1 the policy should support the primary government acquisition goal of least overall cost to the government and 2 the target profit rates should be derived from commercial rates and incorporate recent experience. The policy has two formulas for contracts in the service sector of the economy, a profit formula based upon cost is applied for contracts in the manufacturing and construction sectors, a profit formula based upon both cost and capital is used. The authors acknowledge that the recommended profit policy will not by itself ensure that contractors configure themselves most efficiently for government work. Many other government policies have influence. They believe that it will, however, increase recognition and reward for the functions of profit and alleviate impediments to savings and cost saving investment.
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