Scenario: Kendahl Plastics Corporation contracts with NASA to manufacture component parts used in communications satellites. NASA reimburses Kendahl on the basis of the actual manufacturing costs it incurs, plus a fixed percentage. Prior to being awarded a contract, Kendahl must submit a bid that details the estimated costs associated with each project. An examination of Kendahl’s job cost sheets reveals that actual costs consistently exceed cost estimates quoted during the bidding process. As a consequence, NASA ends up paying considerably more than the bids Kendahl submits.
A Kendahl representative was recently quoted as saying, “We really aren’t overcharging NASA for the work that we do. The actual costs shown on our job cost sheets seem high only because we are forced to understate our bid estimates in order to be awarded contracts. It’s a common practice, and everybody does it. The truth of the matter is companies that quote realistic bid prices are not awarded contracts.”
Let us assume that it is common practice to purposely underestimate bids in order to win NASA contracts:
(MUST POST FIRST) Initial Post – As an employee, write an internal memo to your manager addressing the following:
Scenario: Kendahl Plastics Corporation contracts with NASA to manufacture component parts used in communicati...
Scenario: Kendahl Plastics Corporation contracts with NASA to manufacture component parts used in communications satellites. NASA reimburses Kendahl on the basis of the actual manufacturing costs it incurs, plus a fixed percentage. Prior to being awarded a contract, Kendahl must submit a bid that details the estimated costs associated with each project. An examination of Kendahl’s job cost sheets reveals that actual costs consistently exceed cost estimates quoted during the bidding process. As a consequence, NASA ends up paying considerably more...
Western Components, Inc. manufactures a variety of pinions,
gears and other component parts used by companies around the world.
Their major customer is a large west-coast aircraft manufacturer.
Currently, Western has substantial unused capacity due to a
downturn in production for this major customer. This in turn has
caused a significant drop in profits at Western since their workers
are highly skilled and Western does not want to reduce head-count
during this downturn which they expect to be temporary. Sally...
TORENTO CONSTRUCTION: ETHICAL CONTRACTING On December 27, 2010, Cary Holmes, manager of the Supply Chain Management (SCM) group at Torento Construction Inc. (NCG), was in his office in Torento, Ontario, trying to organize the thoughts running through his head as a result of a recent bidding to save operating costs at NCG. There was no problem in terms of the final outcome; in fact, the bid was going to result in cost savings of 25 per cent, which was exactly...