Fee and Profit: What Is the Real Meaning. Business Understanding Can Lead to Better Contract Negotiations

摘要

During Department of Defense (DoD) contract negotiations, fee becomes the primary metric for determining contractor profits. But does fee necessarily equate to 'profit' where profit is defined in commercial terms as the net income for the company. This paper addresses the following question: Is the fee in a contract the primary metric for determining contractor profits. A specific goal of the paper is to reduce the knowledge gap between the contractor and the government with respect to profit in order to have better collaborative relationships with respect to the contracts. The research uses financial management techniques and valuations to better understand the top-10 defense contractors. The analysis identifies metrics that provide meaningful data to the government and how the government can interpret that data. Of the various metrics calculated in the financial analysis, the growth rates and profitability may provide the most relevant information to the government. These show interrelated factors relative to the health of the company. Information is available for the government to gain a better understanding of the financial aspects of defense contracting. This information can aid the government in developing different strategies for each acquisition. The government and contractors can use this information to generate better dialogue between the parties. The research also identifies trends that may cause concern for the DoD over the long-term. Based on the research, additional questions have become apparent and recommendations are made for further study.