Using the Steel-Vessel Material-Cost Index to Mitigate Shipbuilder Risk

Using the Steel-Vessel Material-Cost Index to Mitigate Shipbuilder Risk

Edward G. Keating
Robert Murphy
John F. Schank
John Birkler
Copyright Date: 2008
Edition: 1
Published by: RAND Corporation
Pages: 30
https://www.jstor.org/stable/10.7249/tr520navy
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  • Book Info
    Using the Steel-Vessel Material-Cost Index to Mitigate Shipbuilder Risk
    Book Description:

    The more accurately a cost index captures a shipbuilder's risk, the less the Navy should have to pay its shipbuilders. The Navy uses such indexes to correct for significant cost risks outside its shipbuilders' control. A longtime material-cost index in Navy shipbuilding is the steel-vessel index, but it is outdated and volatile. The authors urge the Navy to develop a modern-vessel index that more appropriately represents the materials used today.

    eISBN: 978-0-8330-4603-1
    Subjects: Political Science, Technology

Table of Contents

  1. Front Matter
    (pp. i-ii)
  2. Preface
    (pp. iii-iv)
  3. Table of Contents
    (pp. v-vi)
  4. Figures
    (pp. vii-viii)
  5. Summary
    (pp. ix-x)
  6. Acknowledgments
    (pp. xi-xii)
  7. Abbreviations
    (pp. xiii-xiv)
  8. Using the Steel-Vessel Material-Cost Index to Mitigate Shipbuilder Risk
    (pp. 1-10)

    The U.S. Navy wants to provide its shipbuilders with appropriate incentive to produce militarily effective vessels at minimum cost to the Navy.

    Fixed-price contracts provide incentive to a shipbuilder to produce at minimum cost. After contract award, cost savings that the shipbuilder can implement flow directly to the shipbuilder, resulting in higher profit. Conversely, the shipbuilder bears cost overruns, resulting in lower-than-anticipated profits.

    Fixed-price contracting becomes problematic, however, when a shipbuilder is forced to bear risk outside of its control. For instance, ship construction requires material inputs such as steel, wire, cable, and a myriad of others. If the global...

  9. APPENDIX Time-Phasing Material- and Labor-Cost Indexes
    (pp. 11-14)
  10. References
    (pp. 15-15)