DOD's Profit '76 Study and New Profit Policy
PSAD-77-75: Published: Feb 17, 1977. Publicly Released: Feb 17, 1977.
- Full Report:
Data generated by the Department of Defense (DOD) Profit 76 Study were reviewed in terms of its impact on the development of the DOD new profit policy. The profit policy is designed to motivate defense contractors to make investments which will increase productivity and reduce contract costs.
The study was generally approached in a competent and professional manner. GAO agreed with the new profit policy concerning: (1) holding average negotiated profits to prior levels; (2) attempting to encourage contractor investments in cost-reducing facilities; and (3) offsetting the aggregate effect of imputed interest in facilities capital. The basis for profit comparison could be improved, however, and it was felt that there is too little incentive to encourage increased contractor capital investments. Imputed interest may not be completely eliminated from the profit element. The potential exists for an overall profit increase in the negotiated contracts.