Using the Steel Vessel Material-cost Index to Mitigate Shipbuilder Risk
Keating, Edward G.
Schank, John F.
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This paper describes how the US Navy structures fixed-price and fixed-price, incentive-fee shipbuilding contracts and how labor- and material-cost indexes can mitigate shipbuilder risk in either type of contract. The Navy frequently uses the Steel Vessel material-cost index, a Bureau of Labor Statistics-derived cost index based on the mix of materials in a typical commercial cargo ship constructed in the 1950s. The Steel Vessel Index has excessive weighting on iron and steel, thereby providing shipbuilders with a mismatch between their actual and the Index-assumed material-cost structure. We recommend the Navy use a material-cost index with more up-to-date weightings.
Proceedings Paper (for Acquisition Research Program)
NPS Report NumberNPS-AM-08-039
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