Fixed-price, variable outcome contract type: A leap in reform or leap of faith?

Abstract

The Under Secretary of Defense for Acquisition, Technology and Logistics commissioned a group to study price-based acquisition in 1998. The Price-based Acquisition (PBA) Study Group reported out in November 1999. One report recommendation was to create and use a new contract type. The report states, "We have concluded that there is a place for a new contracting approach and contract type, Fixed-price, Variable Outcome. This approach is particularly applicable to and will allow many high-risk Science and Technology (S and T), risk reduction, and service contracts to be firm-fixedprice." The focus of this thesis is to analyze the concept behind FPVO, compare the FPVO to other existing contracting types, explore the most beneficial applications of the FPVO and finally to make recommendations based upon the data and analysis. The major conclusion is that the FPVO is an inappropriate contract type to use for any acquisition. The FPVO increases risk primarily as a result of placing control of the outcome in the hands of the contractor. The major recommendations are to either abandon the FPVO concept or develop a better vehicle to apportion risk. Two alternatives are suggested.