Congress Requires Fixed Price Contracts for Stimulus Money

Last Updated Feb 18, 2009 6:25 PM EST

A short provision in the Stimulus Bill that Obama signed today requires the maximum use of fixed price contracts for spending the money. Federal Computer Week writes about this issue here. The government tends to use Fixed Price contracts when there is little development work or fear of requirements changing for the contractor. This in defense means that they are used once a system is fully developed and tested and going into maximum production. The contractor knows the cost pretty well and little will change that could affect the cost. Cost Plus contracts are used for development and initial production of items. Of course in the past the Department of Defense has tried to use Fixed Price contracts only to have requirements, schedule and needs change over time which meant the contractor either has to have the contract adjusted or loses money. One assumes that much of the stimulus money is going for roads, bridges and other infrastructure where a fixed price contract might work. For services or IT projects, especially software, fixed price may not work as there could be significant requirement changes or schedule issues. Congress included this provision as a way to minimize contract cost, but it will have to be seen if it is effective.
  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website,