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Companies don't like cost plus. The amount of profit is limited, and the govt has total access to all book keeping. In addition, the govt program doesn't have a
by bdavis__ 7y ago
Companies don't like cost plus. The amount of profit is limited, and the govt has total access to all book keeping.
In addition, the govt program doesn't have an unlimited budget. They have some 'management reserve' that can be added to a cost plus contract when the initial funding is consumed. When that is gone, it is a big problem.
Companies like Firm Fixed price. Possibility to bring in more than a 5 or 6% profit.
- ceejayoz 7y agoThe JWST serves as a pretty good counterpoint to this argument. Initial budget $0.5B. Current budget: $10.0B.
- bdavis__ 7y agoI am sure there are exceptions. Let me try to add some clarity, from my work experience. Cost Plus work is only done when there is risk. It is monitored on a cost and schedule basis by the customer (govt). At certain cost milestones, there is a decision to stop, add more money, change requirements; deal with reality after more has been learned about the problem. It is agile to the extreme (from the development lifecycle perspective). As a government contractor it is extremely bad for business to not deliver on a cost plus contract (meaning your customer has exhausted his budget; not what he originally OK'd you starting with). In this case the contractor can not finish the work and take a loss, as that is against the FAR. What happens is the customer is stuck and, in general, they remember. Now, if you are the only game in town, perhaps it is a way to force the govt to throw you more cash. Most contracts are not like this.