Seeking to reduce oversight and compliance costs, the Defense Department is considering a shift to performance-based payments for all fixed-price contracts. The change should also help contractors manage cashflow and permit better focus on technical and schedule progress.

Tony Bertuca filed this report on the Pentagons new contract guidelines for Inside Defense:

“DOD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2017 that requires the preference for the use of fixed-price contracts in the determination of contract type, requires review and approval for certain cost-reimbursement contract types at specified thresholds and established time periods, and requires the use of firm fixed-price contract types for foreign military sales unless an exception or waiver applies,” the April 1 notice states.

One of several proposed changes would add a new requirement to use firm fixed-price contracts for foreign military sales unless a preference for a different contract type is established.

Another proposed change incorporates approval from the office of the undersecretary of defense for acquisition and sustainment on the authority to use cost-reimbursement contracts for research and development greater than $25 million if it is determined that the “risk level does not permit realistic pricing and it is not possible to allocate that risk equitably between the government and the contractor,” the notice states.

“Risks associated with a program is a major factor and consideration point for choosing the contract type,” the notice continues. “Since development efforts are inherently risky and do not lend themselves to a fixed‐price type of contract; a cost‐reimbursement contract is more appropriate and customary for most development programs.”