We define near-substitutable systems as systems that have overlapping capabilities, but are substantially different in some dimensions. Competition between such systems is examined in the context of the dominant “Weapon System Franchise” model of competition for major defense acquisition programs (MDAPs).
Authors: Scot Arnold, Bruce Harmon, Susan Rose, and John Whitley
An Economic Price Adjustment (EPA) clause in a contract allows for adjustment of contract price if certain conditions are met. The Department of Defense (DoD) often uses an EPA clause in contracts where there is an increased risk that the costs of inputs used by the contractor will diverge from the forecasts used in the original pricing of the contract. EPA clauses transfer risk from the contractor to the government; thus, they are of economic value to the contractor. This article reviews EPA clauses, analyzes the value of risk transfer, and discusses how DoD could account for this value in negotiating fees for contracts that contain EPA clauses. Other government costs and risks associated with EPA clauses are also discussed.