FCW Insider: Is McCain off-base about cost-plus contracts?
Several readers from the Defense Department have responded to our story about McCain and cost-plus contracts.
In case you didn't catch it, during last week's presidential debates, Sen. John McCain said one way the government could save money (in the wake of a $700 billion banking bail out) is by moving from cost-plus to fixed-cost contracts.
“We need very badly to understand that defense spending is very important and vital, particularly in the new challenges we face in the world, but we have to get a lot of the cost overruns under control,” McCain said (read the FCW story here).
But each of these readers argues that the cost-plus contracting itself is not the problem. The problem, they say, is government's inability to define requirements clearly.
"Cost plus contracts, if properly used, save money," wrote one reader. "If contractors bid on work that is not well defined, but necessary (repairing jet aircraft, when you don't know everything that is broken???), the contractor must cover his cost. If in doubt, he will bid the maximum cost possible… Senator McCain is correct to challenge misuse of cost-plus contracts, but we all should challenge any misuse of any type contract."
Another reader digs deeper:
"Back in the mid-80's Washington was up in arms over spiraling program costs. Their solution was to outlaw cost-plus contracts and require only fixed-price contracts. Didn't work then and won't work now because the type of contract (pricing agreement) is NOT the problem. Contract pricing is a function of the customer's ability to define the requirement. This ability to define the requirement directly establishes the contractor's ability to project the risk of performance under the contract. The less we (the government) are able to define the requirement the more risk the contractor assumes with respect to performance. More risk = more profit." (Read the full letter here.)
What do you think? Send a letter to the editor or post a comment on this blog.
I will highlight more letters/comments in the days ahead.
Posted by John S. Monroe on Sep 30, 2008 at 12:17 PM