In Defense of Cost-Plus

The Air Force went with a cost-plus contract for the engineering, manufacturing, and development of the B-21 Long-Range Strike Bomber because of the risks involved, Lt. Gen. Arnold Bunch told the House Armed Services Seapower and Projection Forces Subcommittee on Tuesday. “There is no one size fits all when it comes to deciding what kind of a contract you want to use on an acquisition program,” said Bunch, the military deputy in the office of the Secretary of the Air Force for Acquisition. “When there’s technical risk and you’ve never built something before, there’s a risk that’s out there, and a cost-plus environment is more frequently used in that case.” Sen. John McCain (R-Ariz.), chairman of the Senate Armed Services Committee, recently said he opposes the cost-plus contract for the LRS-B and called it “infuriating” that the Pentagon continues to allow them. But Bunch said technical risks and the ability of a contractor to absorb a loss were two main reasons to go with cost-plus in this instance. He said the Air Force knows there are concerns about controlling cost growth, and that is “a focus area that we’ve had from the very beginning of the program.” The service has limited some of that risk by using mature technologies that will be integrated into the platform, rather than developing a system along with the platform, Bunch said. It also created an incentive structure that works to the service’s advantage. “If they do not control costs and they do not control schedule, they will in the end not get any fee,” he said.