Pete and Matt, once gain you’ve highlighted an important issue in contracting with some great examples. For all commercial items DoD procures, this should be at fixed prices regardless of the profit margin. This is how commercial companies do business (without government-funded IRAD). The other reason a commercial company can price lower with higher margins is that the cost base using much higher commercial volumes is completely different than building bespoke items for DoD. If DoD is procuring a consumer item, the volumes would be in the millions compared to perhaps thousands for DoD which implies incredible efficiencies in manufacturing and supplier component costs.
Thanks Mike! You make an important point that I think DoD often forgets. Rather than have to spend many months in negotiation, the economies of scale are often built in.
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The bar is "What's fair and reasonable to the taxpayer?" The better question is "What's fair and reasonable to the warfighter?"
I really like that Victor! Great perspective shift.
Pete and Matt, once gain you’ve highlighted an important issue in contracting with some great examples. For all commercial items DoD procures, this should be at fixed prices regardless of the profit margin. This is how commercial companies do business (without government-funded IRAD). The other reason a commercial company can price lower with higher margins is that the cost base using much higher commercial volumes is completely different than building bespoke items for DoD. If DoD is procuring a consumer item, the volumes would be in the millions compared to perhaps thousands for DoD which implies incredible efficiencies in manufacturing and supplier component costs.
Thanks Mike! You make an important point that I think DoD often forgets. Rather than have to spend many months in negotiation, the economies of scale are often built in.