The Effect of Price Competition on Weapon System Acquisition costs

Abstract

Abstract : This paper examines the impact of price competition on weapon systems acquisition. The multidimensional impact of competition on price and non-price aspects of weapon system production and acquisition are discussed. The importance of cost quantity relationships for measuring the effect of competition on price and the theoretical basis of those relationships are reviewed. The problems of and the techniques for accomplishing the transfer of technology associated with competition for production contracts are briefly outlined. Previous estimates of savings due to competition are reviewed, and their underlying methodology criticized. It is proposed that the introduction of competition be analyzed as an investment. The eventual reductions in procurement costs must be balanced against the initial costs of introducing competition and establishing a second source. The opportunity cost of government funds should be incorporated by calculating the net discounted present value or the rate of return of introducing competition for the procurement of a particular system. Finally, conclusions and policy recommendations are presented, based upon both empirical analyses and qualitative findings from interviews.