760
Special Procedures: Product Development
He is then given a contract to develop and test prototypes, which, if
successful, the government may then order in volume. In this way, the
manufacturer is guaranteed the bulk of development costs, and no
commitment on purchase of the final product is required. A major
disadvantage to the building industry is that the resultant designs and
processes are in the public domain. This denies the manufacturers the
right to patent, which is an important competitive incentive. It becomes
difficult to convince manufacturers to undertake such efforts if no
competitive advantage results.
764.2.3
"Predesign and Competitive Bidding
"As a compromise between the above approaches, partial subsidy of
innovation may be considered. One approach might be to contract for
product design. For example, the Veterans Administration might contract
with a professional organization or joint venture combining systems and
medical architecture/engineering capability to complete design of a
component system. Competitive bidding for production of components
would then take place. Components, as produced by alternative
manufacturers, might then be placed on a supply schedule similar to a
GSA schedule, and could then be purchased as required. No guarantee
market would be mandatory, though it would be preferable. Even though
the manufacturer is spared design cost, he would still face plant,
equipment, tooling and testing costs, and he may not be willing to bid
unless he sees a market, or unless his designs require relatively little
innovation, minimizing such costs.
"A potential disadvantage is that the design team may not posses the full
technical expertise of a team of designers within the manufacturer's own
operation.
764.2.4
"Sales Payback
"Another innovative approach was developed by the Federal government
in cooperation with industry for the development of the supersonic
transport aircraft. A prime contractor was selected on the basis of
preliminary design and cost information. The government loaned him the
money for research and development, on the stipulation that this loan
would be paid back out of sales revenue. The rate of payback is geared
to sales volume. Thus, if total sales are as the government predicts, they
will recover the entire loan.
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