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B-170269 1 (1972-07-21)

handle is hein.gao/gaobaagii0001 and id is 1 raw text is: t ,, ' • o COMPTROLLER GENERAL OF THE UNITED STATES WASHINGTON, D.C. 20548 t , NITE LM096491 B-170269 ' i . JUL 2 1 I972 / ,Dear Mr. Aspin: In accordance with your request of April 17, 1972, and subsequent discussions with a member of your staff, we have examined_into-certain matters concerning escalation in the Department of the Navy's 30-ship DD-963 program. We have in- ) quired into the methodology used by the Navy and by Litton ..' Systems, Inc., in computing escalation to determine whether their estimates appear reasonable and whether one estimate may be more realistic than the other. METHODOLOGY OF COMPUTING ESCALATION A contract for production of the DD-963 ships was awarded by the Navy to Litton on June 23, 1970. The initial contract price for 30 ships was $1,789.2 million. The contract is a fixed-price incentive type and states that, regardless of ac- tual changes in the cost of labor or materials during the per- formance of the contract, adjustments for escalation will be made in accordance with a specific contract provision for la- bor and material compensation adjustments. This provision states that 14 percent of the initial tar- get cost will constitute the labor cost that is subject to adjustment for escalation and that 79 percent will constitute the material cost subject to adjustment for escalation. The amount of escalation recoverable by the contractor will be determined periodically by applying actual labor and material indexes' provided by the Bureau of Labor Statistics to the contract provision. The amount of escalation recoverable over the life of 0 the contract was a factor in award of the contract, and the Navy and potcntial contractors, including Litton, projected labor and material indexes to the end of the contract. The 'A labor index represents the monthly change in the straight- time average hourly earnings for selected shipyards, an(] a material index repr-esents a weighted selection [rem the BLS Wholesale Price Inex. sr DOCG EiI AVAILABL