Enhanced Use of Fixed Price Contracts Encouraged by Obama

(MoneyWatch)  Back during the campaign one of the things the Senator McCain, a noted budget hawk, discussed was increasing the use of Firm Fixed Price (FFP) contracts. The new "Recovery" or "Stimulus" bill requires maximum use of these types of contracts. Federal Computer Week discusses how this may not necessarily be the best plan. The whole government contracting process as outlined in the FAR relies on the contracting service and their contracting officers to choose the best contract for what is being bought. The government primarily uses Cost Plus and FFP contracts in most of their acquisitions. In a cost plus the contractor gets their actual costs plus a small fee on top to make profit. Yes there can be problems with these types of contracts when they end up costing more then the initial estimates. That is why they are used for development contracts or buying things that have risk in their costs or schedule. A good example is the G/ATOR contract we talked about last week. There have been issues with the work and that has caused schedule slips or more effort then originally thought hence the cost increase to the total contract. It is up to the government and the contractor to have a reasonable cost estimate when the contract is awarded. In a program that requires tests, like a missile development one, one failed test may add months to the program and thus dollars. FFP is preferred to buy things when the cost is well known and stable. They are used for procurement of large quantities of something -- a vehicle that has been developed or a service that is routine. One issue of using FFP contracts for almost everything is that it may prove difficult to find any company willing to bid on a contract they feel they might lose money on. Everyone who is involved in contracting wants the same thing: the delivery of the best product at the best price. Forcing all types of contracts into one from may end up not doing that.