American Horse wrote:
You seem to be arguing my side on this. Of course it is very difficult to keep track of all expenses; do we write off the complete cost of an item or of a thousand items when we have no further use for surplus items after the contract is complete, or keep them for later use incurring storage costs - how to charge for those? the problems with those types of contracts are endless and need clarification up-front.
I've always refused cost plus contracts because of the jeopardy of disagreements later over value provided and challenges to my honesty. I've always said that I will give a price including a percent for profit, and take my chances. But big corporations have platoons of accountants and systems set up, and will do those to keep their "oar in the water" for future work, otherwise they'll loose their customer base.
But I doubt that all but a miniscule number enter into a cost plus contract planning to over charge; those who would do that are almost certainly comfined to the companies which are on the verge of bankruptcy or business failure. The reason for that is that to do that despoils the whole purpose for doing the work; it certainly is not the profit motive, but it's more-so patriotic duty, and to provide continued service for an established customer base.
Cost plus contracts go for only fractional mark-up as compared to the usual competitive profit mark-up for bid, where a company might generate a percentage of profit over costs of 15% (a very high mark-up) going with a cost plus agreement, the mark-up might be limited to 5 to 7%. But then they get to recognize all their costs direct and indirect required to accomplish the job. I apologize for taking up space for this explanation, but this comes up too often not to at least be seen in a clear light; this reply is a point of personal priviledge; my credibility relative to a lifetime of work was questioned.
Someone who actually knows about government contracts and bidding. Thanks for the much needed post. Now if everyone would actually read (and understand) it that would be miracle.
You seem to be arguing my side on this. Of course it is very difficult to keep track of all expenses; do we write off the complete cost of an item or of a thousand items when we have no further use for surplus items after the contract is complete, or keep them for later use incurring storage costs - how to charge for those? the problems with those types of contracts are endless and need clarification up-front.
I've always refused cost plus contracts because of the jeopardy of disagreements later over value provided and challenges to my honesty. I've always said that I will give a price including a percent for profit, and take my chances. But big corporations have platoons of accountants and systems set up, and will do those to keep their "oar in the water" for future work, otherwise they'll loose their customer base.
But I doubt that all but a miniscule number enter into a cost plus contract planning to over charge; those who would do that are almost certainly comfined to the companies which are on the verge of bankruptcy or business failure. The reason for that is that to do that despoils the whole purpose for doing the work; it certainly is not the profit motive, but it's more-so patriotic duty, and to provide continued service for an established customer base.
Cost plus contracts go for only fractional mark-up as compared to the usual competitive profit mark-up for bid, where a company might generate a percentage of profit over costs of 15% (a very high mark-up) going with a cost plus agreement, the mark-up might be limited to 5 to 7%. But then they get to recognize all their costs direct and indirect required to accomplish the job. I apologize for taking up space for this explanation, but this comes up too often not to at least be seen in a clear light; this reply is a point of personal priviledge; my credibility relative to a lifetime of work was questioned.
Someone who actually knows about government contracts and bidding. Thanks for the much needed post. Now if everyone would actually read (and understand) it that would be miracle.
