6. Michaels, Defense Contractors Resist Fixed-Price Jobs, 2009 (Price Strategy)

6. Michaels, Defense Contractors Resist Fixed-Price Jobs, 2009 (Price Strategy)

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Defense Contractors Resist Fixed-Price Jobs Airbus A400M Military Transporter, Which Has Blown Its Budget, Illustrates What Can Go Wrong, Critics Say http://online.wsj.com/article/SB10001424052748704121504574593662623381376.htmlBy DANIEL MICHAELS and AUGUST COLE DECEMBER 14, 2009 The Airbus A400M military transporter finally flew for the first time on Friday, but the delayed European airplane is still weighted down by an issue burdening defense projects on both sides of the Atlantic: an inflexible contract. The flying truck is being developed under a type of fixed-price deal that the U.S. and the U.K.— two of the world's biggest arms buyers—largely abandoned years ago because of repeated cost overruns. But the U.S. Department of Defense is again considering imposing such terms in an effort to trim its bills. Military contractors are grumbling, and some analysts say the A400M shows what can go wrong. "Everybody thought we learned our lessons," said Jacques Gansler, who was the Pentagon's top weapons buyer from 1997 to 2001. Mr. Gansler calls the A400M "a good example of the problem" posed by fixed-price contracts. When seven countries from the North Atlantic Treaty Organization ordered the four-engine A400M from Airbus in 2003, its parent company, European Aeronautic Defence & Space Co., agreed to build 180 of them for €20 billion ($29 billion). EADS promised to swallow any cost overruns. The project has since blown its budget by several billion euros and EADS wants the seven
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6. Michaels, Defense Contractors Resist Fixed-Price Jobs, 2009 (Price Strategy)

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