How can I reply to this peer post while also asking a question?

Good evening everyone,

Having now been on both sides of government contracting, including as part of a government project management team overseeing FFP contracts, I have some experience with this topic.

Understanding the difference between these two contract types and their associated risks, is central to understanding President Obama's reasoning behind this memorandum. Firm-Fixed Price, or FFP, and Cost Reimbursement contracts are the two most common types of contracts used by the government. In an FFP contract, prospective contractors submit bids to the government, which details the total cost for that entity to meet the government's needs. These bids, or proposals, typically break down the factors, such as labor and materials, which comprise the total cost. Once a contractor is selected, the terms finalized, and the period of performance has begun, the contractor assumes all risk of completing the requirements of the Performance Work Statement (PWS) within the amount they estimated. FFP contracts require the contractor to absorb any costs exceeding the agreed-upon amount, barring any contract modifications or other such changes authorized by the government. Additionally, they retain any surplus if they complete the work under cost.

Regarding Cost Reimbursement, the bidding and selection processes are remarkably similar. It is the terms of the contract which vary. A Cost Reimbursement contract is comparable to a contract you might sign for a contractor to remodel your house. The contracting party agrees to pay all costs associated with completing the identified tasks, or PWS. If the contractor exceeds the estimate, you must still reimburse them for expenses incurred while performing the contract. In the case of the government, they typically set a ceiling or maximum pre-authorized cost. The contractor must submit justification for any costs above the pre-determined threshold. However, these costs are typically covered if the contractor proves they were necessary and applied to the contract work. Therefore, the government holds all financial risks associated with these types of contracts.

President Obama wanted to transition away from using Cost Reimbursement contracts because the contractor holds minimal risk and therefore lacks incentive to perform efficiently. As a result, the contractor can mismanage the work performance and use excessive labor and materials, with very little chance they won't be compensated. In contrast, FFP contracts force contractors to perform in line with what they presented during the bidding process if they do not want to lose their estimated profits. This is also why the government frowns on sole-source contracts and supply sources.

Competition breeds efficiency and high quality, which is advantageous to the government. From experience, the bid typically selected is the one that will supply the most benefit for the government for the least cost. When there is a potential for multiple entities to submit a bid to the government, companies will work to identify the least amount of cost possible based on the requirements and potential risk. This involves a detailed estimation of the necessary labor, materials, overhead costs, timeline, and acceptable profit margin. Sole-source solutions are not motivated to do more for less. The sole-source entity essentially has a monopoly on the government's needs in this area and can submit a highly advantageous proposal. I have worked on sole-source contracts, which always require a detailed explanation of why the product or service is necessary and why the sole-source entity is the only option. The government's preference for FFP contracts and the aversion to sole-source contracts are both financially beneficial to the government and the taxpayers who fund its activities.