The Controller and Auditor-General Expects an Improvement

When the Controller and Auditor-General prepared his report for the financial year ended March 1941, he seems to have been hopeful that improvements made in the special types of wartime contract would do away with some of the earlier abuses. He wrote:¹

‘In my last report I referred to the examination of accounts in connection with the erection of emergency defence buildings under “cost plus” contracts. Modifications of this form of contract have been introduced with the object of providing contractors with an incentive to urgency or economy.

‘One useful modification lies in the direction of reviewing a completed contract and fixing the final price in accordance with an investigation of the contractor's books by Government costing officers. This procedure permits the Government to ascertain more closely the cost of the contractor's operations, and gives a more accurate result than is yielded when indirect costs are fixed by

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estimate, as in the simpler type of “cost plus” contract. This form has been adopted in respect of numerous contracts for the manufacture of warlike stores in New Zealand.

‘The construction of several vessels has been entrusted to shipbuilding firms under a variation of the “cost plus” contract whereby a “target” or estimated price is fixed plus an agreed upon fee. If the contractor is able to introduce economies so that he undercuts the target price he shares in the savings. If, on the contrary, the target price is exceeded no fee in excess of the fee originally agreed upon accrues to the contractor.’