Book Description

DPC 76-3 implemented several significant changes to DOD profit policy. Two of these changes are intended to directly encourage defense contractor investment in facilities. First, the imputed cost of capital for facility investment (as defined by CAS 414) is now considered to be an allowable cost. Second, the contractor's level of facility investment is now recognized as an element of the profit objective. The purpose of this study was to examine how these changes to the DOD profit policy could influence the amount of profit earned. Of particular interest was the level of facilities investment needed to maintain profits at the level attainable under the old DOD profit policy. There is a direct relationship between a contractor's facilities investment and the level of contractor total profits (net profit objective plus cost of money). It was demonstrated, however, that total profits attainable under the new profit policy may well be less than profits attainable under the old policy. Moreover, except at relatively high levels of facilities investment, the amount of profit offset normally is greater than the amount allowed for cost of money. (Author).