DOD's cost-plus contracts misusing taxpayer money

Defense Department officials shouldn't forbid cost-plus contracts when building major weapons systems, but they need to get a better grasp early on about the validity and specifications for expensive programs, an acquisition expert said this week.

Bonuses offer incentives for companies to take on those enormous projects while the government assumes the risk, said Michael Sullivan, the Government Accountability Office's director of acquisition and sourcing management.

"No contractor would take on that risk under a fixed-price contract," Sullivan said.

James Finley, deputy undersecretary of Defense for acquisition and technology, said DOD has moved away from firm fixed-price contracts to cost-plus contracts, which pay companies for their work and offer bonuses or incentive fees to motivate firms to bid on large jobs. He said officials use objective criteria, whenever possible, to measure contract performance.

However, lawmakers argue that companies receive the bonuses even when they fail.

Rep. Henry Waxman (D-Calif.), chairman of the Oversight and Government Reform Committee, said DOD's weapons systems are some of the biggest sources of wasteful spending, and "the American people are footing the bill."

The committee and its National Security and Foreign Affairs Subcommittee held a joint hearing April 29 in response to a GAO report issued last month. The report cites billions of dollars in waste as DOD attempts to build major weapons systems that often fail.

Waxman said the government isn't holding contractors responsible for their work, adding that the message is "no matter how bad a job you do, there will be no accountability."

Waxman cited the example of a $1.2 billion amphibious tank designed to transfer Marines from ship to shore. However, the tank came in over budget and behind schedule, and it didn't work as projected. Nevertheless, the contractor received its award fee, he said.

"I'd want my money back," Waxman said.

Rep. Tom Davis (R-Va.), the committee's ranking member, said technical expertise and sound management should drive benchmarks, not internal DOD budget fights or rivalries among the military services.

DOD officials have a rough road ahead if they want to fix the cost overruns and schedule delays for weapons systems, Sullivan said.

He added that officials must also make tough decisions about which programs are worth billions of tax dollars and the accompanying risks. They need to take a hard look at whether DOD and contractors can perform the work, he said.

Matthew Weigelt writes for Federal Computer Week, an 1105 Government Information Group publication.