March 18, 2005

Roger Johnston has shed some light on a practice which has been around the Laboratory for as long as I can remember. In order to justify the "make," in many make/buy decisions, for products or services required for Laboratory projects, high overhead rates, in bids submitted by outside vendors are cited as a reason for doing the job "in-house." It appears that the Laboratory's low overhead has been set by the recharge system cited in Johnston's letter. Outside vendors are required to present a very detailed breakdown of their overhead costs, while the Laboratory has the advantage of adjusting their overhead, to drive it down to an artificially low level, through the system of "taxing" one another for goods and services rendered.

While this may be a perfectly legitimate way of doing business, it is important that it be taken into account when comparing bids in make/buy decisions, where technical capabilities are equivalent, and cost has become the deciding factor.

--James L. Haynes