Problem: Assume that as a negotiator for the Army Electronic Research & Development Command, you are about to place a contract for the development of a prototype model on and electromechanical device. Estimated cost of the development is $120,000, which appears reasonable and is well supported.

Costs might vary from that estimate by 10% or so. You have a little doubt about eh contractor's ability to succeed in the development. Not great advancement of the state-of-the-art is required, nor will any special know-how be developed by the contractor. The contractor has an excellent record of past performance, as do several close competitors for the job; but he has been chosen largely because his location is nearby, since most other factors are about equal, including estimated cost. No financial assistance or property will be required by the contractor. Subcontracting will amount to about 20% and will be of routine nature. A potential follow on contract may amount to $2,000,000 which would probably be awarded to the developer. The contractor has almost always been awarded fees of 7% on past jobs, which were generally similar in scope, and has proposed a fee of $9,000 for this contract.

Q1: What fee would you attempt to negotiate for this contract?

Q2: Would your answer change if your research indicated the other sources for similar work have usually been awarded CPFF contracts carrying fees of approximately 6%?