The more accurately a cost index captures a shipbuilder's risk, the less the Navy should have to pay its shipbuilders. The Navy uses such indexes to correct for significant cost risks outside its shipbuilders' control. A longtime material-cost index in Navy shipbuilding is the steel-vessel index, but it is outdated and volatile. The authors urge the Navy to develop a modern-vessel index that more appropriately represents the materials used today.

This paper describes how the US Navy structures fixed-price and fixed-price, incentive-fee shipbuilding contracts and how labor- and material-cost indexes can mitigate shipbuilder risk in either type of contract. The Navy frequently uses the Steel Vessel material-cost index, a Bureau of Labor Statistics-derived cost index based on the mix of materials in a typical commercial cargo ship constructed in the 1950s. The Steel Vessel Index has excessive weighting on iron and steel, thereby providing shipbuilders with a mismatch between their actual and the Index-assumed material-cost structure. We recommend the Navy use a material-cost index with more up-to-date weightings.

The more accurately a cost index captures a shipbuilder's risk, the less the Navy should have to pay its shipbuilders. The Navy uses such indexes to correct for significant cost risks outside its shipbuilders' control. A longtime material-cost index in Navy shipbuilding is the steel-vessel index, but it is outdated and volatile. The authors urge the Navy to develop a modern-vessel index that more appropriately represents the materials used today.

Defence inflation is a recurring factor in determining defence spending. It is widely reported in official government publications and in the trade press, but remains relatively neglected by defence and peace economists. In this book, international contributors from Finland, Norway, Sweden, the UK and the USA distinguish between defence inflation and cost escalation, and identify the causes of both. They use specific case studies to address a wide variety of theoretical and empirical issues and key questions, including the following: Does defence inflation affect all countries? What are its effects? Why does it occur? How (if at all) can defence inflation be controlled? While most industry and trade press devote considerable ink and space to the discussion of defence inflation, cost escalation, and their consequential impact on the purchasing dollars of the armed forces, economists have been relatively silent. This book aims to rectify this oversight through a multinational survey and analysis of the topic, while also identifying the opportunities for further theoretical and empirical research in the field. This book was originally published as a special issue of the journal Defence and Peace Economics.

This volume contains the following panel sessions and the papers included in each session: Panel 11. Academic Research on Contracting. Panel 12. Budgeting and the Acquisition Process - Rethinking Acquisition Reform: Cost-growth Solutions May Aggravate More Important Problems. Panel 13. Perspectives on COTS Implementation. Panel 14. Issues in Cost Estimating for US Naval Shipbuilding - Dynamic Cost Risk Assessment for Controlling the Cost of Naval Vessels; Using the Steel Vessel Material-cost Index to Mitigate Shipbuilder Risk. Panel 15. Key Issues in Defence Acquisition for the UK - Issues for other Nations? - Five Key Changes for the Management of UK Defence An Agenda for Research? Panel 16. Public Procurement: Environment, Limitations and Innovations. Panel 17. Cost Estimating Initiatives in Defense Acquisition - A Non-simulation Based Method for Inducing Pearson's Correlation between Input Random Variables; Application of Transaction Cost Economics to Capabilities-based Acquisition: Exploring Single Service vs. Joint Service Programs and Single Systems vs. System-of-Systems. Panel 18. International Perspectives on Acquisition - Summary of Echoes Across the Pond: Understanding EU-US Defense Industrial Relationships; Australian Naval Procurement Cycles: Lessons for Other Small Countries; Defense Acquisition Policy and Defense Industrial Base Reinforcement Strategy Enhancing the International Competitiveness of the Korean National Defense Industry. Panel 19. Exploring the Boundaries of Outsourcing - Contracting Out Government Procurement Functions: An Analysis; The Evolving Private Military Sector: A Survey. Panel 20. Issues in Supply Chain Management - Managing the Services Supply Chain in the Department of Defense: An Empirical Study of Current Management Practices; Robotics Program. Additional papers which are not a part of the panel sessions are also included in this volume.