The Department of Defense (DOD) June 28, 2013 “Performance of the Defense Acquisition System” annual report states that little difference exists between fixed price and cost-plus contracts when it comes to predicting or controlling costs.
The first annual study focused on Major Defense Acquisition Programs (MDPAs) and concluded that no individual contract type was found to be better than others in controlling costs, particularly for development or early production contracts. The report stated in part, “relying on contract type alone to achieve better affordability outcomes will not likely be successful”.
The report contradicts the long-standing belief by the White House and certain legislators that cost reimbursable contracts foster government contractor irresponsibility in controlling costs, thus creating unnecessary cost overruns moving from the award of cost plus to fixed price contracts has been a center piece in the Obama Administration’s government acquisition reform program the outcome of which has always been a presumption that contractors would be forced to better manage its contract costs.
The DOD Under-Secretary of Defense for Acquisition, Technology, and Logistics, Frank Kendall, stated that fixed price contracts are not in themselves the answer to improving the procurement system. He stated, “The finding that fixed price contracts are not a magic bullet to controlling costs has reinforced my experience that we need to consider and select the most appropriate contract type given the maturity, system type and business strategy for each system.” Translated, sometimes cost reimbursable contracts cannot be avoided when program development requirements and scope of effort are ill-defined in the early stages of a new program.
It remains to be seen whether the report will impact the White House’s never-ending persistence in achieving a goal of all but eliminating cost reimbursable (or flexibly-priced) contracts. The reported finding that no one contract type can ensure better control of contract costs, albeit limited to major acquisition programs, should at least “incentivize” the government acquisition reform scholars to moderate its position on killing off cost-reimbursable contract types.
Darryl Walker is a Emeritus Advisor for Government Compliance with Redstone Government Consulting, Inc., and formerly served as an Owner and Technical Director for the Beason & Nalley Government contract consulting group for over ten years. He provides content for our Government Insights Newsletter, provides training courses to government contractor and business community leaders, and consults with government contractors regarding a vast range of issues including cost proposals and presentations, internal controls, proposal preparation, compliance with the FAR and Cost Accounting Standards, litigation support, specialized claims, defective pricing issues, liaison with procurement and DCAA audit officials, and accounting and management systems compliance. Prior to joining Redstone Government Consulting, Darryl worked with the Defense Contract Audit Agency (DCAA) for almost 34 years in a variety of technical and management capacities. During his tenure with DCAA, Darryl provided audit services to a wide range of government agencies, including the Department of Defense, NASA, Department of Energy, Department of Interior, General Services Administration, and Department of Justice. During his experience with DCAA, Darryl audited over 3,000 government contractors throughout the Southeastern United States, Europe, and the Middle East. Education Darryl is a graduate of Texas Wesleyan College with a major in accounting and minor in economics.