Which system of contracting is explicitly prohibited?

Which system of contracting is explicitly prohibited?

• A. Cost-Plus-Fixed-Fee
• B. Cost-Plus-Incentive Fee
• C. Cost-Plus-a-Percentage-of-Cost
• D. Fixed-Price Contract

Answer: (C)

The correct answer is the Cost-Plus-a-Percentage-of-Cost contracting method. This system is explicitly prohibited because it creates inherent conflicts of interest and can lead to inefficiencies in government spending. In this type of contract, the contractor's profit increases as their costs increase, which can incentivize them to inflate costs rather than control expenses. This direct correlation between costs and profits doesn't align with principles of efficient allocation of resources and good financial management, especially in government contracts where taxpayer money is involved. To maintain fairness and encourage responsible spending, governments opt for contract types that do not result in a direct profit linked to escalating costs, such as fixed-price contracts or cost-plus-fixed-fee arrangements, which ensure that contractors are incentivized to manage their costs effectively. Therefore, the Cost-Plus-a-Percentage-of-Cost option is seen as a practice that can undermine the integrity of the contracting process.

The correct answer is the Cost-Plus-a-Percentage-of-Cost contracting method. This system is explicitly prohibited because it creates inherent conflicts of interest and can lead to inefficiencies in government spending. In this type of contract, the contractor's profit increases as their costs increase, which can incentivize them to inflate costs rather than control expenses. This direct correlation between costs and profits doesn't align with principles of efficient allocation of resources and good financial management, especially in government contracts where taxpayer money is involved.

To maintain fairness and encourage responsible spending, governments opt for contract types that do not result in a direct profit linked to escalating costs, such as fixed-price contracts or cost-plus-fixed-fee arrangements, which ensure that contractors are incentivized to manage their costs effectively. Therefore, the Cost-Plus-a-Percentage-of-Cost option is seen as a practice that can undermine the integrity of the contracting process.