In the fall of 1971, as President Nixon was attempting to convince The Soviet Union to include submarines and ballistic missiles in the Strategic Arms Limitation Talks (SALT), the US Navy was planning on introducing a new class of submarines called the Trident. The Trident submarines were to succeed the Polaris submarines, which was developed in the 1950s. The Trident submarines were not only physically larger than the Polaris submarines, they also possessed revolutionary propulsion components and weaponry. If the US could successfully launch the Trident program, Nixon felt it would generate progress in SALT by demonstrating the United States’ commitment to strategic submarines and missiles. However, if the Trident program was unable to
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However, the Navy traditionally used fixed-cost contracts for products with known build times and little development effort. Cost-reimbursement contracts were typically used in first time development projects, where the time and costs could not be accurately estimated. The Navy has a history of using cost-reimbursement contracts on the first or lead ship and then using a fixed-cost contract for any additional ships.
While the rationale behind using a cost-reimbursement contract on the lead ship in a class is understandable, I believe the Navy would benefit more from a fixed-cost contract in this situation. More specifically, by taking into account the shortened time frame, strict management requirements, and the desire to protect the government’s interests, I believe the Navy should use a Fixed Price Incentive (FPI) contract. A FPI contract establishes a final contract price that includes a target cost plus a profit adjustment. FPI contracts can use a formula to calculate the final cost allowing for an adjustment in profit if the cost and schedule changes. An FPI contract also contains a negative fee feature, which can be applied to adjust the profit of the contractor if the final cost or schedule exceeds the target cost or schedule. I believe the FPI is applicable because there is not enough information to set a firm target cost for the work, but there is enough information to establish initial target cost, initial target profit, and an initial profit