Georgia Tech Procurement Assistance Center

  • Home
  • About Us
  • Training
    • Class Registration
    • On-demand Training
  • Useful Links
  • Team Directory
    • Albany Counselor
    • Atlanta Counselors
    • Augusta Counselor
    • Carrollton Counselor
    • Columbus Counselor
    • Gainesville Counselor
    • Savannah Counselor
    • Warner Robins Counselor
  • Directions
    • Atlanta – Training Facility
    • Atlanta – Office
    • Albany
    • Augusta
    • Carrollton
    • Columbus
    • Gainesville
    • Savannah
    • Warner Robins
  • New Client Application
  • Contact Us

Army skeptical of fixed-price contracts

March 11, 2011 By ei2admin

The Obama administration might be embracing fixed-priced contracts as the preferred method for purchasing goods and services from the private sector, but that strategy is not necessarily being implemented by the Army.

During a speech on Wednesday to service contractors, Malcolm O’Neill, assistant Army secretary for acquisition, logistics and technology, offered a surprisingly frank critique of fixed-price contracts.

“There is risk when you take something fixed-price,” O’Neill told members of the Professional Services Council, an industry trade association. “But my experience has been that when you offer a fixed-price bid, it’s 10 percent to 15 percent more than you need.”

O’Neill’s office often has argued against using fixed-price awards because of the belief that contractors build a cushion into their bids to compensate for the potential risks that occur during the length of a contract.

The Army wants the contractor to share the risk using more cost-plus, incentive-based contracts in which the vendor is rewarded for coming in ahead of schedule and potentially punished, through the loss of award fees, for delays. Cost-type contracts also can be more easily modified if the government’s requirements change, O’Neill said.

The Obama administration has repeatedly classified cost-plus contracts as “high risk,” lumping them in with time-and-materials contracts and sole-source awards. The Office of Federal Procurement Policy has encouraged agencies to cut by 10 percent their use of each of the three contract types.

Recent data, however, suggest that agencies’ use of cost-plus contracts actually has gone up. While agencies have cut their spending on time-and-materials contracts — considered the highest risk to taxpayers because of the potential for escalating costs — most of those contracts were converted to cost-reimbursement vehicles rather than fixed-price contracts, OFPP Administrator Daniel Gordon said last month.

O’Neill said he has received no direction from the Pentagon or the White House to use fixed-price contracting when he thinks it’s inappropriate. In some instances, he has counseled against fixed-price contracts because the Army’s estimated costs were 20 percent less than the lowest offer. He described the dichotomy as “should cost versus would cost.”

In a brief presentation, O’Neill stressed the principles of the Defense Department’s ongoing efficiency initiative to save money through reducing overhead costs, improving business practices — including more contract competition — and eliminating troubled programs.

“We have every reason to do our jobs better,” O’Neill said. “If I can do the job of 10 people with eight people, that makes me feel good.”

The funds saved from the efficiency initiative will largely be reinvested in the warfighter, Defense officials have said. The ultimate goal is a 2 percent-to-3 percent net annual growth in warfighting capability without a commensurate budget increase.

O’Neill said contractors will play a critical role in helping reach that goal. “You have got to play shortstop on our team,” he said.

The Army, for its part, recently completed a study that looked at contract requirements, overall funding and acquisition policies. The resulting plan, which eventually will be made public, now is being reviewed by Pentagon leadership.

— by Robert Brodsky – GovExec.com –  March 9, 2011

Filed Under: Contracting News Tagged With: acquisition, Army, cost plus, fixed price, incentive, sole-source, time and material

Recent Posts

  • Contractors must update EEO poster
  • SBA scorecard shows federal government continues to prioritize small business contracting
  • The risk of organizational conflicts of interest
  • The gap widens between COFC and GAO on late is late rule
  • OMB releases guidance related to small business goals

Popular Topics

8(a) abuse Army bid protest budget budget cuts certification construction contract awards contracting opportunities cybersecurity DoD DOJ False Claims Act FAR federal contracting federal contracts fraud GAO Georgia Tech government contracting government contract training government trends GSA GSA Schedule GTPAC HUBZone innovation IT Justice Dept. marketing NDAA OMB SBA SDVOSB set-aside small business small business goals spending subcontracting technology VA veteran owned business VOSB wosb

Contracting News

SBA scorecard shows federal government continues to prioritize small business contracting

OMB releases guidance related to small business goals

OMB issues guidance on impact of injunction on government contractor vaccine mandate

Changes coming to DOD’s Cybersecurity Maturity Model Certification under CMMC 2.0

Judge issues nationwide injunction halting enforcement of COVID-19 vaccine mandate

Read More

Contracting Tips

Contractors must update EEO poster

The risk of organizational conflicts of interest

The gap widens between COFC and GAO on late is late rule

Are verbal agreements good enough for government contractors?

CMMC 2.0 simplifies requirements but raises risks for government contractors

Read More

GTPAC News

VA direct access program events in 2022

Sandia National Laboratories seeks small business suppliers

Navy OSBP hosting DCAA overview (part 2) event Jan. 12, 2022

Navy OSBP hosting cybersecurity “ask me anything” event Dec. 16th

State of Georgia hosting supplier systems training on January 26, 2022

Read More

Georgia Tech News

Undergraduate enrollment growth reflects inclusive excellence

Georgia Tech delivers $4 billion in economic impact to the State of Georgia

Georgia Tech awards first round of seed grants to support team-based research

Georgia Tech announces inaugural Associate Vice President of Corporate Engagement

DoD funds Georgia Tech to enhance U.S. hypersonics capabilities

Read More

  • SAM.gov registration is free, and help with SAM is free, too
APTAC RSS Twitter GTPAC - 30th Year of Service

Copyright © 2023 · Georgia Tech - Enterprise Innovation Institute