SASC Wants to Penalize DOD for Cost-Plus Contract

The Senate Armed Services Committee is attempting to discourage the use of cost-type contracts in its version of the Fiscal 2017 National Defense Authorization Act. A SASC aide—who likened the Pentagon’s use of cost-based contracts to a drug addiction—said Monday its structure creates negative incentives for contractors and the government alike. Instead, SASC is calling for the use of fixed-priced contracts in most cases. One measure would toll military department and defense agency heads for the use of “some” cost-type contracts awarded over the next five fiscal years, according to the summary. The penalty for awarding a research, development, test, and evaluation cost contract would be one percent of the year-to-year obligation starting in 2018, the SASC committee aide said. A two percent penalty would be imposed for the use of procurement cost contracts. Most of those fees would then be used to fund advanced fixed-price prototyping. But cost-plus contracts won’t be done away with completely because some Pentagon acquisition programs are too unique to not use them. Even so, SASC’s draft would create a required approval mechanism for their use for contracts over certain amounts. The thresholds would be phased in, according to the SASC aide, and by Fiscal 2020, any cost-plus contract over $5 million will require approval. The proposed NDAA provisions are meant to reduce costs and widen the amount of businesses who are willing to deal with the Pentagon, according to a summary of the draft. (See also: McCain: NDAA Really a Reform Bill and Just Say No to Cost-Plus Contracts.)