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There are multiple contract types, and you're correct that the "cost-plus" paradigm (where the contract covers the contractor's costs plus a profit margin) has
by giaour 4y ago
There are multiple contract types, and you're correct that the "cost-plus" paradigm (where the contract covers the contractor's costs plus a profit margin) has some perverse incentives. I saw a number of smaller efforts at Medicare use the "firm fixed price" paradigm (where the total cost of the contract is agreed to up front), which allows the contractor to keep whatever they save by delivering early or using a smaller than predicted staff but makes the contractor liable for any cost or staffing overages. That system seemed to produce better aligned incentives, but it's more difficult to apply to larger projects.
- lumb63 4y agoYeah, there is a push to move to the firm fixed price contracts. The contractors hate those, since they’re higher risk. Both parties would benefit from something more incremental and agile. For example, maybe 10% of the contract is paid at specific, agreed-upon milestones. That would allow for better incentives at lower risk to the contractor, since forecasting a decade-long contract is immensely difficult.