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Army Acquisition Chief: Fixed-Price Contracts Lead to Inflated Bids

Assistant Secretary of the Army for Acquisition, Technology and Logistics Malcolm O'Neill, Photo: army.mil

A top member of the Army’s acquisition personnel said the Defense Department’s growing reliance on fixed-price contracts could have unnoticed side effects.

Assistant Army Secretary for Acquisition, Technology and Logistics Malcolm O’Neill, at a Professional Services Council event last week, said Army contracting officers have increasingly noticed contractors submitting inflated bids, likely as a way of offsetting the risk that is typically shifted to industry under a fixed-price deal, Federal Times reports.

“There is risk when [contractors] take something fixed price,” O’Neill said. “But in my experience when you offer a fixed-price bid, it’s 10 percent to 15 percent more than you need.”

That, O’Neill said, is an example of a contractor shirking risk and providing itself with a “cushion.”

Other types of contracts, such as cost-reimbursement, time-and-materials and sole-source, have been frowned upon by the Office of Management and Budget as “high risk,” Federal Times reports.

But O’Neill suggested there were ways to tweak some of those contracts to balance the risk between government and contractors more equitably.

For example, he proposed adding incentive fees to typical cost-reimbursement contracts to reward contracts delivered on time and within their budgets. The Defense Department’s top acquisition chief, Ashton Carter, has also touted the use of incentives in contracts, as well as more balanced “share lines” if a contract begins racking up costs beyond the original budget.

An Army review of its acquisition procedures is forthcoming, O’Neill said, mentioning that he has already received the preliminary results. First, though, he said, he and other Army leaders must decide how to use the data, Federal Times reported.

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