Buzz of the Week: McCain and cost-plus contracting

Sen. John McCain (R-Ariz.) clearly touched a nerve in the federal community when he proposed banning the award of cost-plus contracts as a way to trim federal government spending. The topic came up during the Republican presidential candidate’s Sept. 26 debate with Democratic Sen. Barack Obama when moderator Jim Lehrer asked the candidates how they proposed to cut government spending in the wake of the financial bailout. A switch to fixed-price contracts was one solution he offered.Based on the letters we received, readers are not impressed with McCain’s acquisition acumen. But the story generated a considerable amount of discussion that had nothing to do with presidential politics. McCain had echoed a concern often expressed about cost-plus contracting, in which the government pays vendors for the total cost of their work plus an award fee based on meeting contract requirements. The problem, critics often say, is that a cost-plus arrangement can tempt a company to drive up its costs and work slowly to generate higher payments. Fixed-price contracting, in theory, avoids that problem. Having agreed to work for a particular price, a company has every incentive to do the job on time and on budget.But readers, mostly current or former government employees, said it’s not that simple. Each approach has its place, and — here is the important point — neither one works if government does not develop and adhere to a clear set of requirements. The problem of expanding requirements, known as scope creep, is particularly vexing for a company bidding on a fixed-price contract. A contractor loses money if the requirements increase but the price remains relatively fixed, making the safest course a high bid or no bid at all. A retired Air Force reader summed it up this way: “I can’t tell you how many times the government has changed or added requirements midstream. The government typically requests a Chevy in the beginning but will add enough bling to make it a Porsche, yet expect to pay the Chevy cost.”Here are samples of comments from readers.