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The basic problem appears to be a sole-source contractor unwilling to provide adequate cost data to estimate the price for the new, toxin-free part. Of course, that would be an issue for the government contracting officer to resolve. As for using regression analysis, keep in mind that the inputs should be directly comparable to the output/estimate. If the input costs reflect the toxin-containing part, using them to estimate a cost for the toxin-free part could result in an "apples to oranges" comparison situation. The contractor may have had to sole-source the new part and is passing along an inflated price to the government. If the contractor is manufacturing the part, then the much higher price may reflect costs associated with reconfiguring its production process to accommodate the toxin-free part. However, computing even what may be an unrealistically low cost estimate can give the contracting officer at least a starting point for negotiation with the contractor...and may motivate the contractor to provide better cost data.
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