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The document discusses the risks associated with different types of government contracts, with a preference for firm fixed contracts over cost-reimbursement contracts due to lower financial risk for the government. Competition is also favored over sole sourcing as it leads to better pricing, quality, and incentives for contractors.

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9 views3 pages

Forum 1

The document discusses the risks associated with different types of government contracts, with a preference for firm fixed contracts over cost-reimbursement contracts due to lower financial risk for the government. Competition is also favored over sole sourcing as it leads to better pricing, quality, and incentives for contractors.

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Surname 1

Student Name:

Instructor:

Course Title:

Date:

Discussion on Contracts and Risks.

The President wants to reduce cost-reimbursement contracts because they pose more

significant financial risks for the government. This is because this type of contract posits that

contractors are to be reimbursed for involved expenses which are only an estimate since it is

impractical to pinpoint the exact costs at the time of writing the contract (Suprapto 1072).

This model is not preferred because the government is not really guaranteed an end product

within the estimated costs.

The preferred alternative to this is the Firm Fixed type contract. This sort of contract

sets for a fixed price despite the possibility of the end product exceeding or falling short of

the paid amount (Lowenstein & Lagrotta). Despite the opportunity that allows for a possible

performance-related incentive, this option provides the government with significantly lower

financial risk. Under the Cost-reimbursement contract, the government carries the most risk

because they get to pay a contractor a largely unspecified fee without the guarantee of a

finished item whether of sufficient quality or severely out of pocket. On the other hand, under

the Firm Fixed Type, the contractor carries the highest risk because they suffer the possibility

of incurring more costs than the government is meant to pay as stipulated by the contractual

obligations.
Surname 2

Competition is favored over sole source because it has a telling effect on the pricing

and quality of government procurement. A sole source may dictate inflated products for a

sub-standard end product, while competition means that contractors will have a chance to

compete equally for the government to choose the one that carries more benefits (Elmaghraby

350).
Surname 3

Works Cited

Suprapto, Mohammad, et al. "How do contract types and incentives matter to project

performance?." International Journal of Project Management 34.6 (2016): 1071-

1087.

Lowenstein, Duane, and Joe Lagrotta. "Test Strategies for minimizing the overall cost of test

in moving from “cost based/government furnished equipment” to “firm fixed price”

contracts." 2012 IEEE AUTOTESTCON Proceedings. IEEE, 2012.

Elmaghraby, Wedad J. "Supply contract competition and sourcing policies." Manufacturing

& Service Operations Management 2.4 (2000): 350-371.

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