General Dynamics Corporation and Subsidiaries - Page 10

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          submitted a firm price for all 480 aircraft to be delivered at              
          the rate of 8 per month assuming, on the one hand, a single                 
          multiyear contract spanning 5 program years and, on the other               
          hand, a series of 5 annual buys.  GENDYN also submitted                     
          comparative price proposals for a multiyear contract and a series           
          of 4 annual procurements assuming a delivery rate of 10 per                 
          month.  GENDYN's comparative price proposals demonstrated that              
          the price for the aircraft would be significantly lower if                  
          purchased under a multiyear contract rather than under a series             
          of annual buys.  Savings would inure whether the delivery rate              
          was assumed to be 8 or 10 aircraft per month.  Assuming a                   
          delivery rate of 10 per month, GENDYN estimated cost savings to             
          the Air Force of approximately $325 million, or 11.2 percent of             
          the total contract price.                                                   
               From its point of view, GENDYN was unwilling to commit to a            
          single 1982 program-year contract and fixed-price options for               
          program years 1983-1985 because that would have exposed GENDYN to           
          all of the risks of cost overruns in prior program years while              
          allowing GENDYN none of the potential rewards of cost underruns.            
          GENDYN believed that if costs were overrun, the Air Force would             
          exercise the options at the predetermined price and thus avoid              
          having to share in the overrun; and that if the costs were                  
          underrun, the Air Force would decline to exercise the options and           
          simply negotiate new, lower prices for subsequent program years.            

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