Letter: Where there is high risk, fixed-price contracts don't fit

Regarding "McCain wants to end cost-plus contracting":  Sen. [John] McCain's decision to put a stop to cost-plus contracts and to only use firm, fixed-price contracts shows his lack of understanding of the FAR and government contracting in general.

I retired from [the Defense Department]  in 2003 and became a Defense contractor. In DOD, I developed and managed many information technology support services contracts. The reason there are cost overruns on weapon systems is because there are many unknowns. In Contracting 101 you learn that when there is low risk you are able to use a firm, fixed-price contract.

When there are many unknowns as in a research and development contract there is much more risk. With high risk the government must assume that risk and issue a cost type contract. Use of incentive fee or award fee can provide the contractor assurance that when there is a problem they will be compensated for their work to resolve the problem. It should also be known that the government frequently does not define their requirement which brings significant risk to the effort. If the government goes to only firm, fixed-price contracts,  the contractors have no option but to bid high to cover their risk or to no bid.

You know what they say, "you get what you pay for."

Anonymous


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