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Abstract: This case describes the Navy's efforts to contract for what was generally considered an impossible task--the construction in less than five years of a nuclear-powered submarine of unprecedented size and complexity. The first part focuses on drafting the request for proposals, highlighting the tension between the Navy's policy of contracting for construction of any first ship on a cost-reimbursement basis and the strong preference of Admiral Hyman Rickover for fixed-price contracts. Part B deals with the evaluation of bids. It considers the options available to the Navy when, having specified a fixed-price contract in its RFP, it receives cost-reimbursement proposals with unsatisfactory delivery schedules from the only two companies eligible to bid. Part C examines contract negotiations by the Navy and General Dynamic's Electric Boat (EB) division after the Navy has insisted that both companies resubmit fixed-price bids--and only EB has complied. The epilogue provides a brief summary of developments since the initial construction contract was signed in 1974.
Learning Objective: Taken together, the cases offer an introduction to the mechanics of various forms of contracts between government and industry. It follows the implications of choosing one contract form over another and explains how contracts may be crafted to fit both practical and political realities.