Mr. Paul Sanders, a negotiator in the Air Force Aeronautical Systems Center (ASC) received an urgent procurement request for 500 units of new type of electronics equipment. The equipment has been developed under an initial ASC research and development contract by Electronics, inc., a medium sized development-production firm. Exhaustive ground and flight testing had shown that the performance characteristics of the new equipment were markedly superior to those of similar equipment then in service. Accordingly ASC decided to proceed immediately with quantity production of the new equipment.

It was decided to place this initial production contract for 500 units with Electrosonics on a sole-source basis because of: 1. the firm's previous experience in developing and fabricating ten units of the equipment for test purposes; and 2 urgent nature of the project production quantities were needed immediately.

Upon solicitation, Electronics quoted a price of $39,500 each for the 500 units, with deliveries scheduled to begin three months after receipt of a contract, at the rate of 100 units per month. Although this price appeared reasonable as compared to ASC's estimate of $40,300 each for the new units Mr. Sanders was not sure that the price was realistic, because Electrosonics lacked previous cost experience with the equipment and the firm had a reputation for being fairly high-priced on production work. Firm plans and specifications for the new equipment existed, and ASC intended to promote an additional source of supply as future requirements developed.

Q1: What contract would be most appropriate to negotiate for the AirForce in this procurement?

Assume same facts as above, except that the ASC had estimated the cost of the new units at $30,000 each.

Q2: What type of contract would you attempt to negotiate for the proposed equipment, assuming you were unable to effect any reductions in Electronics' quotation?

Assume same facts as stated above, except: (1). ASC had not developed any estimate of costs for the new equipment. (2) the procurement is not urgent, (3) quotations have been solicited from three firms, Electrosonics' quotation being the lowest; and (4) the firm has a reputation for fair and reasonable prices on production work.

Q3: what type of contract would you attempt to negotiate for the proposed procurement?