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| Malcolm O'Neill addresses PSC members. |
The Obama administration has promoted increased use of fixed-price contracting as a way of shifting risk and generating savings in government contracting. But smart contractors know that fixed-price isn’t the smart choice for all procurements. It appears the Army knows that too.
Malcolm O’Neill, the assistant Army secretary for acquisition, logistics and technology, joined PSC for a Dialogue Series lunch on March 9 and explained why he thinks fixed-price contracting is just as risky to government as the much derided cost-reimbursement style contracting when used inappropriately.
“My experience has been that when [contractors] offer a fixed-price bid, it's 10 percent to 15 percent more than [they] need,” because rather than accept risk contractors pad their bids to avoid it, O’Neill said. Cost-plus-incentive fee contracts, however, encourage contractors to stick to cost and schedule estimates because they will be rewarded for good performance and punished for poor performance, he said.
Additionally, “a fixed-price contract gives license to steal,” if the government needs to change the requirements after the contract is awarded, as it often does. “If I was the contractor I’d come back and say ‘All bets are off, I have a new bid.’ Whereas with cost-type contracts all you do is modify it and say ‘What would it cost to add to this program?’” O’Neill said. “In fixed price it’s a whole different ballgame”
While the arguments for and against using fixed-price contracts may vary, knowing the most appropriate contract type to acquire specific goods and services is smart government contracting.
