American Graduate University Comprehensive Examination Master of Acquisition Management

ACME MANUFACTURING

Review this case carefully and answer the questions at the end of the case in detail.

You are the contracting officer in charge of radar procurement at the Federal Aviation Agency. You have awarded a firm fixed price contract for the design. development and test of a new radar pedestal to the Acme Manufacturing Co. at a price of $6,250,000. This contract was given with Acme proposing the lowest price and being among the top three companies in technical and management ability. (The next lowest price was $6,925.000.) The specification is a performance type specification calling for numerous requirements including maximum weight of the pedestal a low natural frequency and strict accuracy requirements. These requirements were discussed with all of the companies at a pre-contract bidders conference at which time the FAA engineering group exhibited their concept of the proper design technique and agreed to furnish this concept to the successful contractor for whatever assistance it might be. This FAA concept is not mentioned in the contract.

After several months on the job, Acme reports that they have made every attempt to use the FAA concept but that while it will allow satisfactory achievement of the requirements on natural frequency and accuracy. it will not allow the construction of a pedestal within the specified weight (conversely, the weight requirement could be met at the expense of the others). Acme attaches several copies of studies they have made and of preliminary design work which you furnish to your engineering group. After study of these documents and substantial discussion with Acme engineering personnel your technical group informs you that they agree - the specification as written is impossible to perform within the contract schedule. To meet the specification would require a major effort in materials research and development which would consume at least eight months time and $350.000 in funds. They suggest several changes to the specification which will correct the difficulties.

When you submit these suggested changes to Acme for comment. they agree that they will solve the problem. However, they point out that over $200,000 has been expended in the effort to meet the impossible performance specification and that they would like to be compensated for this expenditure before they continue the work.

QUESTIONS:

1. What course of action would you undertake in these circumstances - issue the proposed change? - insist that Acme perform the contract? - terminate the contract and reprocure the pedestal? Explain and justify your position.

2. If you decide to issue the change, what equitable adjustment would you make?