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Increase in Fixed Price Government Contracts

Posted by Mike Anderson on Mon, Mar 25, 2013 @ 02:00 PM

There is no question that the Defense Department issues more contracts to suppliers than any other branch of the government.  So with all the pressures on spending in Washington lately, all agencies are reviewing how they might save more money and be more efficient going forward.  When you look at trends over teh last 10 years you can see the number of Fixed Price contracts in the Defense Department grew from about $158 Billion in 2003 to about $250 Billion in 2013.  Cost Reimbursement contracts grew over the same period so some of this increase can be explained by the department just increasing the spending (due in main to the efforts in Iraq and Afghanistan).  In the fall of 2009 the President encouraged agencies to use more Fixed Price contracts as a way to control spending.  The effectiveness of the President's request is debatable.  But since then, the defense budget has come under extreme scrutiny and we have wound down one war and are in the process of winding down the efforts in Afghanistan.  Last week the Director of Defense Procurement and Acquisition Policy, Richard Ginman, issued a memo calling for a class deviation and Prohibition on the use of Cost-Type contracts for production of major defense acquisition programs.  This memo affects any contracts that are entered into on October 1, 2014 or after. 

It seems that with these events there is a recognition within the government that the Fixed Price contract represents the least amount of risk to the government and therefore may result in more efficient spending of the Federal Budget.  As we watch the Federal Budget crisis we can only guess what will actually happen but the trend to more Fixed Price contracts and the trend toward more IDIQ contracts (See my blog from March 20, 2013) will almost certainly transpire.  So the question becomes, will it be easier to handle a Federal Contract or harder?  My guess is that contractors will have more pressure to control their costs in order to make a profit so some will find this very difficult to do.  Others have been doing this in the commercial marketplace for years and will find it a little less restricting (hopefully) in regards to the controls and terms put on the contract.  My advice is to be flexible in looking at the different types of contract vehicles that are becoming more popular.  If you have a difficult time wading through the requirements, terms, conditions, FAR, DFARS, CFR's and OMB regulations, give me a call. 

Topics: qu