Subcontracting Policy in Major Systems Acquisitions
LOGISTICS MANAGEMENT INST BETHESDA MD
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This report presents an analysis of the flow-down of risk reducing and incentive provisions from prime contracts to selected, associated subcontracts for four major weapon systems The XM1 tank, YAH-64 helicopter, Harpoon missile, and B-1 bomber. Emphasis was placed on the subcontracting precepts and practices of prime contractors with analysis based on the comparisons of contracts and comments from four primes and selected subcontractors. It was found that, by and large, the subcontracting process is functioning in a satisfactory manner within existing DoD guidelines. Subcontractors occasionally have problems when inappropriate contract types or inappropriate option clauses are used, but generally both prime contractors and subcontractors are satisfied with their working relationships. Prime contractors, in the subcontracting process, adhere to DoD regulations, have established procedures to insure competition, and attempt to balance risk and contract type. Subcontractors actively seek work on defense programs and accept as a rule, though sometimes reluctantly, the contract type dictated by the prime. The subcontract type in development programs is more related to the size of subcontract than to the size of the subcontractor. This report does not recommend any new mandatory flow-down of prime contract provisions to associated subcontractors. It does recommend monitoring of subcontract type and provision for economic price adjustments in fixed-price subcontract options.
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