§ Mr. Robert Atkinsasked the Secretary of State for Defence what is the extent to which contracts by his Department are on a fixed price or other incentive basis and the extent to which they are placed on a cost plus basis.
§ Mr. PattieThe information is set out in the following table: 21W
Value of Contracts placed by the Ministry of Defence in 1982–83 Value £ million Percentage of Total 1. Placed at fixed prices established either in competition or by reference to market prices 2,504 36 2. Placed on a single source basis and priced by reference to estimates of costs either at the outset or as soon thereafter as practicable 3,049 45 3. Placed on a single source basis with incentives to cost containment (eg a maximum price or a target cost arrangement with cost under/ over-runs being shared) 145 3 4. To be priced on the basis of incurred costs plus a percentage for profit 1,132 16 6,830 100 Note The characteristic of the types of contract at 1. to 3. above (84 per cent. of the total) is that the contractor is motivated to maximise his profitability by minimising costs.