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War Economy

Target Prices for Shipbuilding

Target Prices for Shipbuilding

Shipbuilding contracts also received further attention. The Auditor's 1943 report said:

‘These contracts have been the subject of comments in my reports since the outbreak of war. To New Zealand's requirements have now been added the local requirements of the United States authorities. During the financial year a Controller of Shipbuilding was appointed by the Government to control all classes of Government shipbuilding, and his policy has been to retain the target price type of contract. The essential point in this type of contract is that a “target” price is set as the estimated cost of constructing the vessel. Overhead charges are recouped to the contractor as a percentage of the target price, and his profit fee is fixed on the same figure. As an incentive to economy, the contractor receives a bonus if the final cost is less than the target price and receives no additional overhead charge or profit fee if the target price is exceeded….

page 353

‘The Audit Office has endeavoured to maintain a close and effective check on expenditure on shipbuilding activities, particularly at the main shipbuilding centres, but it has experienced difficulty in satisfying itself that capital charges to be borne by certain contractors and construction costs to be paid by the Crown have been charged correctly in terms of the relative subsisting contract. Where the Audit Office was of opinion that a payment did not fall within the terms of contract the attention of the Treasury and Marine Departments was drawn to the matter….

‘“Cost plus” contracts appear to be unavoidable in some classes of ship repair work, as distinct from shipbuilding, but the Audit Office has not had the staff necessary to verify actual costs. In this class of contract the Navy Office and the Marine Department are expected to exercise close supervision, particularly as regards the time entered as the basis of the claim in respect of direct wages, and departmental officers enface appropriate certificates on the claims submitted for payment. The Audit Office has been able to do little more than try to ensure that Departments realise fully their responsibilities in the matter.’