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Defective Pricing

BRADSHAW CORPORATION
As a Government contracting officer, you completed negotiations on March 15, 2000 with Bradshaw Corporation for a $580,000 firm fixed-price contract for 100 units of a major system component. Because Bradshaw was the only firm considered for award, you required certified cost or pricing data. The certificate was signed on April 1, 2000 and contract award was made on April 8, 2000.

Progress payments began on May 31, 2000. Half of the components ($290,000) were delivered and accepted on June 1, 2000 and the invoice paid on July 1, 2000.

In July 2000, a post-award audit revealed that Bradshaw had made a breakthrough in production technology that reduced their production scrap rate from 50 percent to 5 percent. Intrigued by the breakthrough, the auditor conducted an in-depth review of the history behind it. During the review, the auditor found a memorandum, dated February 21, 2000 from the Production Manager stating that Production Engineers may have finally licked the scrap problem. It may be down to 5 or 10 percent in six months. This finding was never disclosed to the Government.

On August 23, 2000, Bradshaw's President agreed with your position that the contract price had been inflated by $1,000 per unit because of the defective cost or pricing data. Unfortunately, you were transferred temporarily to a special project and did not complete the contract modification until May 15, 2001.

1. What should be the adjusted contract price?

2. The Government is due interest?

Starting on what date?

On what amount?

At what rate?

Ending on what date?

3. Should the contractor be required to pay the Government a penalty? If so, how much?

Solution Preview

1. What should be the adjusted contract price?
$580,000 - $1,000*100 = $480,000.

2. The Government is due interest?
Starting on what date?
July 1, 2000 - payment of invoice.

On ...

Solution Summary

The solution discusses defective pricing for the Bradshaw Corp.

$2.19