Excerpt from Effects of Incentive Contracts in Research and Development: A Preliminary Research Report
In the past several years an effort has originated in the Defense Department (and followed by other government agencies) to discourage the use of cost-p1us=fixed~fee (cpff) contracts and substitute contractual incentive arrangements. This effort supposedly relies upon the profit motive to reduce requirements for direct government control and to stim ulate better contractor performance and cost estimating. Incentive type contracts are not new in government contracting. Production contracts have been awarded on a fixed price basis for many years. The fixed price contract provides maximum correlation of contract profits with contract cost, and in theory might offer maximum cost incentive. How ever the use of incentive arrangements on r&d contracts is the novel feature of the dod (and nasa) programs of the past several years.
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