Avoiding Terminations, Single-Offer Competition, and Costly Changes with Fixed-Price Contracts
Contracts that are fixed-price provide the benefit of cost control and certainty but are less likely to succeed when uncertainty exists regarding other contract requirements. Their use remains contentious in certain areas of defense acquisition, such as development, and existing acquisition literature largely fails to provide empirical foundations that would guide contracting officers in choosing between fixed-price and cost-based mechanisms. This study seeks to illuminate this debate by testing several hypotheses regarding relationships between contract characteristics and fixed-price contract performance. Here, performance is measured across four dependent variables, in the form of contract characteristics relevant to the risks and potential benefits of fixed-price contracts: the number of offers received for competed contracts, the number of change orders per contract, the extent to which change orders raised the contract, and whether the contract was terminated.