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At 3.3%, Lieutenant Early needs to discover if this figure was based on factors specific to this project, or simply pulled out of the air. If the project is well-defined and there is little chance that the company will run into unknowns, this figure may be too high and another point of negotiation.
There are several options Lieutenant Early has available, should Trustworthy be unwilling to eliminate some of the unusual cost items. First, Early could simply pay the price Trustworthy wants. It has been determined that even at that price, the machines will still save the Navy money and time. Early may decide not to use the machines at all, and simply go with manual repair and maintenance, as before. Or, Early may decide to approach other manufacturers to see if they can design a machine to provide a similar function, or design something in house. If would be prudent for Early to use a combination of these alternatives, if Trustworthy refuses to make concessions on their costs. The Navy could buy some of the Trustworthy machines while exploring the options of making the remainder in house or contracting another manufacturer to come up with a similarly functioned machine.
Although Lieutenant Early and the Trustworthy...
The company may be requesting these unreasonable overhead costs simply because it doesn't realize how more efficiently it could be operating. Or, it may be making these demands because it believes it's 'the only game in town'. In the former case, showing Trustworthy where it can improve will not only help the Navy, but also help the company be more competitive with other products as well. This would create a win-win situation for both parties. If Trustworthy refuses to make concessions, however, the Navy may wish to look at the variety of alternatives they have available.
References
Bent, J. (2001). Evaluating and calculating contingency. AACE International Transactions. Retrieved December 2, 2009, from Business Source Complete.
Karrass, C. (13 Jul 1995). Dealing with a sole source. Purchasing, 119(1). Retrieved December 2, 2009, from Business Source Complete.
Mak, S., Wong, J., & Picken, D. (Nov 1998). The effect on contingency allowances of using risk analysis in capital cost estimating: A Hong Kong study. Construction Management & Economics, 16(6). Retrieved December 2, 2009, from Business Source Complete.
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