Investigating the Relationship between the Independent Government Cost Estimate and Actual Contract Costs for Knowledge-Based Service Contracts

Abstract

The DoD remains on the Government Accountability Office’s (GAO) High-Risk List for contract management, and the DoD Inspector General (DoD IG) declared that DoD contract management is a top ten management challenge. One of the significant causes to acquisition program risks is cost overruns, which can be mitigated by establishing an accurate and reliable independent government cost estimate (IGCE). Although the IGCE provides a baseline for contract cost, many DoD acquisition professionals believe that the ICGE has little to no value in determining the actual contract cost. However, per the DoD’s Independent Government Cost Estimate Handbook for Services Acquisitions, the IGCE serves as the best estimate of a contract’s potential costs and is an essential factor in awarding and administering services contracts. Using multiple linear regression and correlation techniques, this study aimed to identify the relationship between IGCE and actual contract costs and how other procurement variables affect that relationship. One of the keys findings was IGCE has a strong relationship to and is a good predictor of actual contract costs. Additionally, this relationship is affected when additional explanatory variables are introduced to the model. Overall, this study deepened our understanding of the relationship between the ICGE and actual contract costs, providing insight into the need for accurate and reliable cost estimates for government contracting.