Contractor's Investment in Work-in-Progress Under Fixed-Price Government Contracts

PSAD-77-48: Published: Dec 21, 1976. Publicly Released: Dec 21, 1976.

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A current study investigated contractor's investment in work-in-progress under fixed-price government contracts. An earlier study evaluated the impact of a proposed increase in the progress payment rates made to defense contractors. The concern was expressed that increased progress payment rates would cause a situation in future contracts where financing from sources external to the contractor would exceed the cost of work-in-progress.

The current study used the Air Force model to process actual cash-flow data under three fixed-price contracts with three different contractors. The actual contract data showed some cases in which a higher rate of contractor investment was involved than was indicated by the simulated cash-flow data discussed in the earlier study. Only a relatively small part of this financing; however, had to be provided directly by the contractor. On the basis of the actual contract data, no increase in the rate of progress payments appears warranted.

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