Mr. Chairman, before I discuss “should cost,” which is a complicated subject, I might, point out that as far as I know the Navy has no intention of not using “should cost.” […] The major “should cost” philosophy is basically that DOD should not endorse contract inefficiency by paying excess costs. This philosophy is fully stated in the ASPR, in our pricing policy and practice. In part, at least, it is being continually implemented. The big question is how to fully implement it in a practical manner.
As Mr. Rule has discussed… and I must agree with him, that consideration [of should cost] should be confined to procurement areas of sole source. He and I are in agreement that it is impossible to realistically apply the technique used in Pratt & Whitney “should cost” approach to research and development….
Hence, we are talking about this, we are talking primarily, with reference to production procurement.
That was Frank P. Sanders, Assistant Secretary of the Navy (I&L), discussing the “should cost” technique during a 1969 Congressional hearing. Here, Sanders brings up the very important point that using time-motion studies and new cost accounting techniques cannot necessarily improve productivity in research and development. Perhaps it works well in reproducible manufacturing.
Indeed, the Navy pointed out that it performed “should cost” as a matter of course for production contracts. But it is difficult to see how time-motion studies, supplier price fighting, scheduling, material inventory, and so forth, can really improve the exploration of new ideas or methods. They are best suited to optimizing the repeated operations associated with producing or maintaining tangible goods.
[The featured picture is P&W’s TF30 jet engine for the F-111 program. The contract was the first case of the so-called “should cost” technique, which really is a thorough application of Taylorism, or scientific management. The TF30 contract was a production contract, which reportedly saved the Navy $100 million (in 1967 dollars). Ultimately, the Navy backed out of the F-111B and its associated TF30 engine — “should cost” did not save the program.]
Source: THE ACQUISITION OF WEAPONS SYSTEMS, HEARINGS BEFORE THE SUBCOMMITTEE ON ECONOMY IN GOVERNMENT OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-FIRST CONGRESS, SECOND SESSION, PART 1, DECEMBER 29, 30, AND 31, 1969.
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