Are Cost-Plus Defense Contracts (Justifiably) Out of Favor?
San Miguel, Joseph G.
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A common tenet is that the use of cost-plus contracts contributes to cost overruns in the context of Major Defense Acquisition Programs (MDAPs). Accordingly, policy-makers express a preference for fixed-price contracts as opposed to cost-plus contracts. While fixed-price contracts may be superior in certain scenarios, such scenarios are limited in the MDAP context. We document three potential unintended negative consequences of fixed-price contracts. We argue that the notion that fixed-price contracts are better than cost-plus contracts for limiting cost overruns is misleading.
The article of record as published may be found at http://dx.doi.org/10.2308/ogna-50558
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