General Dynamics Corporation and Subsidiaries - Page 19

                                       - 19 -                                         

          difference between actual cost and target cost.  If the actual              
          cost was higher than the target cost, GENDYN would receive its              
          total final costs and target profit less 40 percent of the                  
          difference between actual and target cost.  Under no                        
          circumstances would GENDYN receive an amount greater than the               
          ceiling price, regardless of its actual cost.                               
               The negotiated target cost, ceiling price, and sharing ratio           
          implicitly defined an amount above which GENDYN bore 100 percent            
          of all additional cost.  Above this point, called the point of              
          total cost assumption, GENDYN's profit declined dollar-for-dollar           
          with every dollar of additional cost.  The negotiated contract              
          values and the formula by which the final contract price would be           
          determined were set out in the Incentive Price Revision clause,             
          which was added to Contract 2034 by Modification P00080 (POO 80),           
          dated July 31, 1983.  Consequently, a single target cost, target            
          price, ceiling price, and sharing ratio were established for the            
          entire quantity of 480 aircraft.                                            
               The final price for the aircraft delivered pursuant to                 
          Contract 2034 was to be determined upon the delivery of the last            
          aircraft, based upon a comparison of GENDYN's total costs with              
          the contract's target cost.  Contract 2034 did not prescribe a              
          mechanism by which price and profit could be separately computed            
          for any program year.  As of the beginning of 1993, a final price           
          determination had not been made for Contract 2034 and related               

Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011