You are the contracting officer in charge of administering a $3,550,000 firm-fixed-price contract with Electron Corporation. The contract calls for the manufacture of 530 electronic reading machines. It contains general provisions, a normal schedule and a Federal Specification describing the reading machine. This specification, in general, is a performance specification containing numerous performance requirements and an elaborate set of test procedures and test results which must be complied with to achieve satisfactory performance. In addition the specification calls for a large number of specific electronic components which must be used by the contractor. The delivery schedule allows appox. Two months for design of the reading machine(first delivery is eight months after the contract date and the lead time for several of the electronic components is six months). The contract was let to Electron after competitive negotiation in which Electron submitted the third low proposal out of eight companies. The procurement rejected the tow lower on technical and management and negotiated Electron down in price by $165,000.

After six weeks of work the CM of Electron asks you to attend a conference at which the company is going to discuss the progress of the contract. March 15 it appears that Engineering Dept. is having some difficulty in completing the design on time-the difficulty sees to be that several of the circuits have failed to their initial testing with the result that systems cannot be undertaken in accordance with the original design schedule. After a discussion the department heads decide to delay the manufacturing schedule by one month but to order the specified long lead time components in order to assure that the contract delivery schedule will be met.

Three weeks later, April 5, the CM and Director of Engineering(DE) of the Electron tell you that continued difficulties have been encounter in the engineering process and the cause seems to be several of the specified electronic components. The DE is quite certain that the reading machine could be made to meet the test specifications in newer (and more expensive) components are used. He suggest that yo issue a change to the specs substituting these components at an estimated price increase of $430,000(including $180,000 termination charges for long lead time components already on order). You immediately submit the request to your technical branch. Two days later your technical people tell you that they do not object to the substitution of the components at no increase in price. However they assert that the contractor's difficulty is really one of circuitry which he does not want to redesign. They point out that the development contractor of this electronic reading machine, Neutron Company, used the specified components on their development model and successfully completed almost all of the tests in the specification without too much difficulty. They also pointed out that the use of Electron's suggested components will eventually raise the costs of the government since the specified components are in stock and hence maintenance costs during operation would be cheaper if the original specs is followed.

When you talk to Electron personnel, they are quite incensed and point out that the Neutorn development model was developed to an earlier modes of the specs which did not include all of the tests specified in the present specs. They do admit, however that improvements could be made in the reading machine with a redesign of the circuitry but that effort would take six weeks and cost over $500,000. They will do it if the government is willing to order it by a change to the contract.

Q1. What action would you take in these circumstances? Why?

Q2. What responsibilities has the government assumed in this procurement?

Q3. Would your answer be different if the contract had been awarded though a sealed bid procedures?