Agilent Pursuing Test Strategies that Address the Realities of Firm-Fixed-Price Contracts - Application Note free download

File name Pursuing Test Strategies that Address the Realities of Firm-Fixed-Price Contracts - Application Note

Keysight Technologies Solutions for Pursuing Test Strategies that Address the Realities of Firm-Fixed-Price Contracts Application Brief Introduction In defense contracting, firm-fixed-price (FFP) contracts are becoming more common than cost- plus contracts. This fundamental shift in the business model begs an essential question: How can organizations evolve to compete successfully in an FFP world? Compared to cost-plus, FFP transfers much of the risk from the government to the prime con- tractor. To mitigate these risks, contractors may want to reassess their assumptions and look for opportunities to streamline or redesign their processes. The math is simple: profit equals price minus cost. When the price is fixed, greater attention must be paid to any and all costs that whittle away at the resulting profit. It may come as a surprise, but test equipment is often the third-most expensive capital investment across the life cycle of a system. To reduce the cost of test, two high-leverage action steps are available: pursue greater reuse of test assets across multiple products and product lines, and implement new strategies for test-asset acquisition. This note presents context for the shift to FFP, suggests a few important implications, and offers recommendations for effective reuse and acquisition of test assets. Problem: Juggling risks and costs As noted above, FFP burdens the contractor with a greater share of the risks. The nature of this shift is shown in Table 1. Table 1. Cost-plus contracts versus Firm-fixed-price Cost-Plus Firm-fixed-price contracts Promise Best effort Delivery Cash flow As incurred Delivery Administration High Low Fee limit Predetermined None Burden of risk Greater on government Greater on contractor When faced with an emerging set of risks, the natural response is to identify ways to mitigate those risks. For prime contractors, existing product lifecycle (PLC) processes were created