PROFIT NEGOTIATION Review this case carefully and answer the questions at the end of the case in detail. Frank Murray, a contract administrator in the Army Munitions Command, and Harry Akers, contracts manager for Electron Technical Associates, were in the process of negotiating a change to a fixed price contract for the production of 173 units of a highly complex type of firing control electronic equipment. The Command had recently issued a design change to the contract, requiring the replacement of a power tube and some associated circuitry; the cost of purchasing the power tube was a major portion of the direct cost. After several hours of discussion, Murray and Akers had agreed on a cost of $43,170 for accomplishing the change. The only topic left for negotiation was profit. Akers had proposed a profit of $5,180, or 12 percent the same rate that the firm was receiving on the basic contract. At this point the following discussion took place: MURRAY: Harry, Im afraid that twelve percent profit of yours is much too high for us. AKERS: Too high? What do you mean? Thats what were getting on the basic contract, isnt it? MURRAY: Sure, but that doesnt mean this change should get the same rate. AKERS: Why not? Weve always received the same profit rate on changes that we had on the basic contract. MURRAY: Yes, but this change just isnt so complex. A lot of that cost is simply purchase of materials. AKERS: Weve been getting twelve percent on most of our fixed price contracts thats our standard rate. Complexity has nothing to do with it! MURRAY: Maybe so . . . But I consider that any procurements an individual deal. It has to stand alone. And that includes changes, too. AKERS: The guy after you wont think so. If I agreed to less than twelve percent on this one, pretty soon wed start having trouble getting twelve percent on our basic contracts. We have to hold the line on this one. If we dont we know were going to be in real trouble sooner or later. MURRAY: Harry, look at it my way for a minute. I have to justify whatever profit we agree on to the contracting officer. If I cant hell just reject the deal and well have to start all over. AKERS: Thats just it! The only real justification you need is that weve received twelve percent on practically all our changes in the past. QUESTIONS: 1. Comment on the discussion between Mr. Murray and Mr. Akers. 2. Is this a reasonable justification? 3. What importance in contract negotiation is the effect of precedent? 4. What actions should Mr. Murray take