Accession Number : ADP002781

Title :   Cost Risk and Contract Type: A Normative Model,

Corporate Author : AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH

Personal Author(s) : Murphy,R. L.

Report Date : 1983

Pagination or Media Count : 5

Abstract : This article presents a model which describes the relationships among the cost risk inherent in a particular procurement situation, the degree to which that cost risk is shared between the government and the contractor, and the risk premium awarded to the contractor for assuming his share of the cost risk. The model is normative in that it provides a framework for analyzing the possible combinations of risk assumption on the part of the government and risk premiums which are logically consistent. The model requires that the price analyst estimate the cost of contract performance, the general shape of the distribution of probable costs, and the standard deviation of that distribution. In addition, a policy decision is required concerning what constitutes a reasonable probability that the contractor would incur a loss. (Author)

Descriptors :   *GOVERNMENT PROCUREMENT, *CONTRACT ADMINISTRATION, *RISK, *COST ESTIMATES, MODELS, DATA ACQUISITION, STATISTICAL ANALYSIS, STANDARD DEVIATION, DECISION MAKING, POLICIES, CONTRACTS, MANAGEMENT PLANNING AND CONTROL, SYMPOSIA

Distribution Statement : APPROVED FOR PUBLIC RELEASE