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(c) Payment for Increased Baffle Production
One of ERG’s principal customers was Hercules. During the
years at issue, ERG produced a baffle system on behalf of
Hercules with respect to the Trident II D-5 U.S. Navy Fleet
Ballistic Missile Program.14 At some point, Hercules requested
an increase in the production of baffle sets. ERG, through
Burton, indicated that to increase production ERG would require
additional equipment and materials.
On or about November 22, 1989, Hercules and ERG entered into
a memorandum of agreement (MOA), whereby Hercules agreed to pay
$483,098 as an add-on cost to increase production of the baffle
sets delivered by ERG.15 The MOA was unique because it called
for Hercules to “facilitize” or fund ERG’s plant and equipment,
the cost of which is normally paid for by the owner of the plant
and equipment. Attached to the MOA is “schedule 1", which lists
the equipment and their associated prices as contemplated by the
14The baffles were made from ERG’s foam metal.
15Under the MOA, the add-on cost was spread over the
invoicing of the baffle sets delivered. The MOA states in
pertinent part:
The add-on cost per Baffle per year will be the sum of
the seven year double declining schedule amount for
that particular year plus the Cost Accounting Standards
cost of money, * * * evenly divided among the number of
Baffles that are scheduled to be delivered within that
year. * * *
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