Letter: Fixed-pricing for most awards is not reasonable
A reader writes, "The notion that everything can be awarded for a fixed price is a bit naive."
Regarding "McCain wants to end cost-plus contracting": The notion that everything can be awarded for a fixed price is a bit naive.
I can't imagine Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, Raytheon, KBR, L-3, etc. agreeing to submit a fixed-price bid for any sort of lengthy program with many complex variables (and requirements that keep changing).
They'd be crazy to, unless the government was going to renegotiate the contract every time the price changes, which is worse than having a cost-plus fixed fee contract in the first place.
There's no way they can accurately estimate every potential future cost over the life of the contract, so they are not going to assume the risk of committing to a truly fixed price. Maybe they could build in a ridiculously high profit rate as a buffer for unanticipated costs, but, again, how is this any better than having a cost plus fixed fee contract with adequate Government oversight to proactively identify potential cost overrun situations? In addition, such a profit rate would violate all the existing guidelines for profit analysis.
It's not the contract type that's a problem, it's the lack of clear and unchanging requirements at the start of the contract coupled with poor or nonexistent government cost surveillance over the life of the contract.
Ray Gruber III
Defense Contract Management Agency
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