Fixed-Cost Contracts in Federal Procurement: Good or Bad?

The Obama administration has targeted cost-plus contracting a key federal procurement no-no, and the recently-passed stimulus bill places a clear emphasis on fixed-cost contracts. However, the reality is much more nuanced, as an article in Federal Computer Week yesterday explains:

It’s an old debate. While proponents say fixed-price contracts commit companies to performing work for a set amount and allow agencies to budget appropriately, some experts say other contract types offer a flexibility that is necessary in certain situations. And, they add, fixed-price contracts can eventually cost the government more because contractors are likely to base their bids on the upper end of their expected costs. Other contract types, such as cost-plus, allow agencies to pay less if the final cost to the contractor is closer to the lower end of the range.

Many see fixed-price contracts as “the panacea for waste, fraud and abuse,” said Ellen Brown, former legislative director for the Republican staff of the House Oversight and Government Reform Committee. “Those of us who understand government procurement…know it’s not true.”

Read the full article here.