Shift to fixed-price contracts: smart reform or recipe for disaster?

• Position: DEFENSE INSIDER - Brief article

One of the Obama administration's linchpin initiatives to rein in the cost of weapons systems is coming under heavy criticism by industry experts who claim these new measures are ignoring lessons from past failed military programs.

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Industry consultants and lawyers specifically object to new federal guidelines that require agencies to convert research-and-development contracts from cost-reimbursement to fixed-price contracts.

The administration's directive to shift to fixed-price contracts seeks to protect the government from excessive billing by contractors and from bearing the financial brunt when high-tech projects fail. The policy, however, "ignores history," says former Pentagon acquisition chief Jacques Gansler. He believes this is a shortsighted move that only creates incentives for contractors to bid low and after winning, try to maximize changes in the program as technology or threats evolve.

A veteran defense industry lawyer who requested anonymity put it bluntly: "The administration seems bent on repeating the idiotic attempts to convert highly...