An Analytical View of Advance Incentivized Overhead Agreements in the Defense Industry.

摘要

Overhead costs constitute a substantial portion of the DOD dollars spent in the procurement of defense systems. Therefore, overhead control has become an area of special concern to government contract managers. Previous attempts to negotiate an advance agreement on total overhead costs have been unsuccessful due to a number of factors. This study examined those factors and another step in the evolution of advance agreement theory. This step involves the application of a sharing arrangement to underruns or overruns of the advance agreement target expenditure levels. In this study the authors outline the strengths and weaknesses of the current government overhead monitoring process, provide a basic structure for an advance incentivized overhead agreement and present the advantages and shortcomings of using such an agreement. The authors conclude that utilization of an advance incentivized overhead agreement will improve the current overhead monitoring process by establishing goal congruency between contractor profit and government cost goals and by facilitating the communication of government cost objectives to defense contractors.