The 2 main contract types that DOD uses to acquire its major weapon systems are:
- Cost-type contracts—DOD pays allowable contractor costs (e.g., labor) and risks paying more if costs increase
- Fixed-price-type contracts—DOD pays a fixed price, at which the contractor must deliver the item or service
The Government Accountability Office analyzed 21 weapon acquisition programs and found that the type of contract DOD used didn’t affect how well programs stuck to cost or schedule estimates.
DOD used to centrally review acquisitions and share what it learned about contract types. Now, the military departments do the reviews; GAO recommended requiring them to share their findings.
From fiscal years 2011 through 2019, DOD used cost-type contracts for a small proportion—under one-fifth on average—of obligations for its major acquisition programs. This proportion varied across the military departments.
A change to DOD’s peer review process for its largest contract awards reduced a means for sharing best practices and lessons learned about contract choice across the military departments. In 2019, the Office of the Secretary of Defense announced the end of its peer reviews for most competitive procurements above $1 billion. While these contracts will instead be reviewed through the military departments’ own processes, DOD currently does not require the departments to collect and share their findings. DOD has an online compendium of peer review findings; however, this was last updated in 2013. Using an existing centralized resource such as the compendium could help contracting officials learn from the experiences of peers across DOD by exposing them to good practices for structuring contracts.