Scenario 7-2

This contract was for the delivery of Munitions & Armaments Deterrent (MAD) kits used for All-Terrain Personnel Transport Vehicles (ATPTV). A competitive (noncommercial) award was made to Armadillo Company as a Fixed-Price Incentive Fee contract. This contract was awarded with a base year target price of $42 million for the first 1,500 kits with 2 option years for 750 kits per year, which were separately priced. The kits were to be delivered in four lots of 375, with a 10% random sampling to field test the kits at a no more than 1% failure rate before acceptance. There were issues that began from the initial delivery that were tested and found to have a failure rate of 2%. The contractor has requested our intervention to assist in understanding the actual performance criteria towards testing the kits and communicated that there would be a delay in delivering the kits until this was resolved. This memo will identify, discuss, and explain the relevant issues and recommend viable options to resolve this issue. The initial 375 kits were delivered on time to the government representative who initiated the 10% random sampling field test. It is uncertain, at this time, if this representative processed this sample test in compliance with the awarded contract Quality Assurance Surveillance Plan (QASP) or performed an invalid test that was not part of the contract. A change to the sample testing criteria was not communicated through the contracting office or through the contractor.
If the government actually required more stringent testing, that might be the potential impact of this change? Explain and assess.

If it is determined the government actually required a more stringent testing, the government must submit a change order and an equitable adjustment may occur from this contract modification. This equitable adjustment would be towards the target cost so as to not penalize the contractor’s profit.

What are the contractor’s