Excerpt from the Proceedings of the Nineteenth Annual Acquisition Research SymposiumDepartment of Defense (DoD) guidance encourages the use of fixed-price-incentive contracts to acquire major weapon systems, where appropriate. These contracts can provide contractors with incentives to keep costs in check and stay on schedule. This presentation looks at (1) the extent to which the DoD has awarded fixed-price incentive contracts associated with Major Defense Acquisition Programs from Fiscal Years 2010 through 2019, and (2) the factors that influenced the DoD’s decision to use fixed-price incentive contracts and the extent to which the DoD has assessed their use, among other objectives.Approved for public release; distribution is unlimited

Clark, Julie A.

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Calhoun, Institutional Archive of the Naval Postgraduate School

Calhoun: The NPS Institutional ArchiveDSpace RepositoryAcquisition Research Program Acquisition Research Symposium2022-05-06DOD Has Increased its Use of Fixed-PriceIncentive Contracts, but is it Getting Better Outcomes?Clark, Julie A.Monterey, California. Naval Postgraduate Schoolhttp://hdl.handle.net/10945/70259This publication is a work of the U.S. Government as defined in Title 17, UnitedStates Code, Section 101. Copyright protection is not available for this work in theUnited States.Downloaded from NPS Archive: CalhounDOD Has Increased its Use of Fixed-Price Incentive Contracts, but is it Getting Better Outcomes?Julie A. ClarkAssistant DirectorU.S. Government Accountability OfficeReport Objectives, Scope, and Methodology• This report examines (1) the extent to which DOD has awarded fixed-price incentive (FPI) contracts associated with major defense acquisition programs (MDAP) from fiscal years 2010 through 2019, and (2) the factors that influenced DOD’s decision to use FPI contracts and the extent to which DOD assesses their use, among other objectives.• GAO analyzed government contracting data by contract type for fiscal years 2010 through 2019 on contracts for 101 MDAPs. GAO further analyzed a non-generalizable sample of 12 contracts including six FPI and six firm-fixed-price (FFP) (two of each type from each of the three military departments); conducted file reviews; reviewed policy documentation; and interviewed DOD officials.Finding 1: DOD Obligations on FPI Contracts for MDAPs Increased Over the Past 10 Years, While Use Across Military Departments Varied• Over a 10-year period (FY10-19), DOD’s obligations on FPI contracts associated with MDAPs grew to account for almost half of the $65 billion in obligations for fiscal year 2019. Specifically, obligations on FPI contracts for MDAPs increased from $1.3billion, or 17 percent, in fiscal year 2010 to $32 billion, or 49 percent, in fiscal year 2019. The obligations on FFP contractsdecreased, and obligations on cost-type contracts fluctuated between 11 percent and 26 percent during the same time period.Percentage of Obligations by Contract Type for Major Defense Acquisition Programs from Fiscal Years 2010 through 2019 The frequency of the use of FPI contract types varied across military departments for the 10-year period from fiscal years 2010 through 2019• During this period, DOD awarded 374 contracts associated with MDAPs and 86 of those, or 23 percent, were FPI contracts. • While the Army awarded fewer contracts associated with MDAPs, it also used FPI contracts less frequently than the Air Force and the Navy as a percentage of the total contracts awarded in the selected time period. • For the 10-year period, the Navy had the largest proportion of FPI contracts at 29 percent. 23 percent of the Air Force contracts were FPI. In comparison, 15 percent of the Army’s contracts were FPI. Finding 2: DOD Guidance and Other Factors Influenced the Use of Selected FPI Contracts, but Use Has Not Been Assessed • Based on our review of 12 selected fixed-price-type contracts and interviews with DOD officials, we found that a variety of factors influenced contract type selection. • For the 6 FPI contracts, we found that reasons for using this contract type were often related to addressing cost concerns. • For our 6 selected FFP contracts, we found that these contracts were often used when the program was mature and well into production, where requirements and costs were understood. • Although the Better Buying Power initiatives encouraged the use of FPI contracts, and the use of FPI contracts has increased over the past 10 years, DOD has not assessed the extent to which its use of FPI contracts has helped achieve desired cost and schedule performance outcomes. Conclusions and Recommendations• DOD and Congress have encouraged or facilitated the use of fixed-price-type contracts, and specifically FPI contracts that use share lines and other incentives to encourage better cost and schedule performance. DOD’s obligations on FPI contracts associated with MDAPs have grown over the past 10 years. However, the Department has not assessed its use of FPI contracts, which makes it difficult to determine if this contract type is helping to achieve the desired cost and schedule performance outcomes at an agency-wide level. • The Secretary of Defense should conduct an assessment of DOD’s use of FPI contracts for MDAPs, including the extent to which share lines and other contract elements contributed to achieving desired cost and schedule performance outcomes. • See GAO-21-181 for additional details. https://www.gao.gov/products/gao-21-181

DOD Has Increased its Use of Fixed-Price Incentive Contracts, but is it Getting Better Outcomes?

Calhoun: The NPS Institutional ArchiveDSpace RepositoryAcquisition Research Program Acquisition Research Symposium2022-05-02DOD Has Increased Its Use of Fixed-PriceIncentive Contracts, but Is It Getting Better Outcomes?Clark, Julie A.http://hdl.handle.net/10945/70343This publication is a work of the U.S. Government as defined in Title 17, UnitedStates Code, Section 101. Copyright protection is not available for this work in theUnited States.Downloaded from NPS Archive: CalhounAcquisition Research Program Department of Defense Management Naval Postgraduate School SYM-AM-22-051  Excerpt from the Proceedings of the Nineteenth Annual  Acquisition Research Symposium    Acquisition Research: Creating Synergy for Informed Change May 11–12, 2022  Published: May 2, 2022 Disclaimer: The views represented in this report are those of the author and do not reflect the official policy position of the Navy, the Department of Defense, or the federal government. Approved for public release; distribution is unlimited. Prepared for the Naval Postgraduate School, Monterey, CA 93943. Acquisition Research Program Department of Defense Management Naval Postgraduate School  The research presented in this report was supported by the Acquisition Research Program at the Naval Postgraduate School. To request defense acquisition research, to become a research sponsor, or to print additional copies of reports, please contact any of the staff listed on the Acquisition Research Program website (www.acquisitionresearch.net). Acquisition Research Program Department of Defense Management - 311 - Naval Postgraduate School DOD Has Increased Its Use of Fixed-Price Incentive Contracts, but Is It Getting Better Outcomes? Julie A. Clark —is a senior analyst with the U.S. Government Accountability Office. She has written reports on several topics in the areas of acquisition and contracting including fixed-price incentive contracts, weapon system reliability, and acquisition reform. [clarkja@gao.gov] Abstract Department of Defense (DoD) guidance encourages the use of fixed-price-incentive contracts to acquire major weapon systems, where appropriate. These contracts can provide contractors with incentives to keep costs in check and stay on schedule. This presentation looks at (1) the extent to which the DoD has awarded fixed-price incentive contracts associated with Major Defense Acquisition Programs from Fiscal Years 2010 through 2019, and (2) the factors that influenced the DoD’s decision to use fixed-price incentive contracts and the extent to which the DoD has assessed their use, among other objectives. Background The Department of Defense (DoD) spends billions of dollars annually using fixed-price-type contracts to acquire its major defense acquisition programs (MDAPs), among other things. In 2010, the DoD’s Better Buying Power guidance encouraged the use of fixed-price-incentive (FPI) contracts as a way to obtain greater efficiency and productivity in defense spending. Report Objectives, Scope, and Methodology Congress included a provision in statute for the GAO to report on the DoD’s use of fixed-price-type contracts, including FPI. This report examines (1) the extent to which the DoD has awarded FPI contracts associated with MDAPs from Fiscal Years 2010 through 2019, and (2) the factors that influenced the DoD’s decision to use FPI contracts and the extent to which the DoD assesses their use, and (3) the extent to which the DoD has faced challenges in closing out fixed-price-type contracts. The GAO analyzed government contracting data by contract type for Fiscal Years 2010 through 2019 on contracts for 101 MDAPs. The GAO further analyzed a non-generalizable sample of 12 contracts including six FPI and six firm-fixed-price (two of each type from each of the three military departments); conducted file reviews; reviewed policy documentation; and interviewed DoD officials. Summary The DoD has encouraged the use of FPI contracts where appropriate. These contracts can provide defense contractors with a profit incentive for effective cost control and performance depending on how they are structured. Over the 10-year period from Fiscal Years 2010 through 2019, obligations on FPI contracts for MDAPs grew to account for almost half of the $65 billion in obligations for Fiscal Year 2019.       Acquisition Research Program Department of Defense Management - 312 - Naval Postgraduate School Percentage of Obligations by Contract Type for Major Defense Acquisition Programs From Fiscal Years 2010 Through 2019  Source: GAO (2021).  DoD guidance, including Better Buying Power initiatives, influenced the DoD’s use of FPI contracts over the last decade for the selected contracts the GAO reviewed. In addition, when selecting a contract type, contracting officers also considered factors including the availability of cost or pricing data, previous experience with the contractor, and the previously used contract type. The DoD has not assessed the extent to which use of FPI contracts has contributed to achieving desired cost and schedule performance outcomes.  See GAO-21-181 for additional details. https://www.gao.gov/products/gao-21-181  References GAO. (2021). Fixed-price-incentive contracts: DoD has increased their use but should assess contributions to outcomes (GAO-21-181). https://www.gao.gov/products/gao-21-181     Acquisition Research Program Naval Postgraduate School 555 Dyer Road, Ingersoll Hall Monterey, CA 93943 www.acquisitionresearch.net  

DOD Has Increased Its Use of Fixed-Price Incentive Contracts, but Is It Getting Better Outcomes?

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DOD Has Increased Its Use of Fixed-Price Incentive Contracts, but Is It Getting Better Outcomes?

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