Impacts of transitioning from firm fixed price to fixed price incentive firm target contracts in PEO Missiles and Space

Abstract

The objective of this project is to analyze the impacts to major weapon systems programs in Program Executive Office (PEO) Missiles and Space as a result of transitioning from firm fixed price (FFP) contracts to fixed price incentive firm target (FPIF) contracts. This project presents an in-depth examination of FFP and FPIF contract types, including definitions, profit mechanisms, and advantages and disadvantages associated with each type. This project reviews three iterations of Better Buying Power, with a specific focus on profitability and the use of FPIF contracts. The project presents and analyzes data collected through interviews with PEO Missiles and Space program management and contracting personnel who support programs that have transitioned from FFP to FPIF. The project also examines defense industry profitability and considers the perspective of defense contractors regarding Department of Defense profit policy. The analysis results indicate that the PEO is appropriately applying guidance for choosing FPIF contracts in follow-on production, and that there are both benefits and challenges associated with FPIF contracts. Recommendations include continuing to assess FPIF use for production programs, obtaining actual cost data, and improving incentive contracting workforce training. Further research on the longer-term effects of transitioning to FPIF is recommended.