According to the president’s memorandum on government contracting, cost-reimbursement contracts liable to inefficient and wasteful use of the taxpayer funds, thereby adding unnecessary tax burdens to the American citizens. Between 2000 and 2008, the expenditure under this contracting increased from $71 billion to $135 billion (Obama, 2009). Cost-reimbursement contracts pose the risk of the government spending more than is required on the costs of the materials and other supplies. Unscrupulous contractors may hike the costs of the materials and the projects, making the government pay for services that were not offered.
In firm fixed contracts, unlike cost-reimbursement contracts, the total price for the materials and services is predetermined during the allocation of the contract. The price is considered constant, despite fluctuations in the cost of goods and services. This will allow the government contracting agencies to set the exact budget required for the projects, thereby curbing further unnecessary expenses that might be introduced by the contractor (Obama, 2009). It is therefore prudent to factor in all the anticipated costs during the contracting process to limit wastage and inefficient use of the taxpayer resources.
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The government accepts the greatest risks under the cost-reimbursement contract. There is uncertainty on the total expenses that will be incurred, and as such, the contractor may take advantage of this uncertainty and set exorbitant prices for goods and services used and provided. On the other hand, the contractor accepts the greatest risks under the firm fixed costs contract. This contract is less flexible in making changes, and therefore, the contractor will have to shoulder the costs of any new requirements that may arise during the implementation of the contract. Cost adjustments will affect the contractor’s payment and incentives.
Competition offers the government contracting agencies the opportunity to award the contract to the most qualified and efficient contractors. Unlike sole-sourcing, competition provides a wide variety of contractors to choose from, which provides a platform for discovering improved ideas, quality, technology, and designs, as well as enabling them to select those contractors that will accomplish the agency mission (Obama, 2009). The overall impact of competition over sole-sourcing is effective utilization of resources and a guarantee for high quality products and services.
References
Obama, B. (2009). Government contracting [Memorandum for the heads of executive departments and agencies].
