Buying Flexibility: Converting Cost-Plus to Firm-Fixed-Price to Strengthen Mission Resilience

Abstract

The Department of War has long relied on cost-reimbursement (CP) contracts to manage technical uncertainty, but continued use of cost-type instruments on mature, stable efforts imposes unnecessary administrative burden, diffuses contractor accountability, and slows delivery of warfighting capability. This paper proposes a readiness-gate framework for determining when and how to convert CP contracts to firm-fixed-price (FFP) arrangements. Drawing on Federal Acquisition Regulation authorities, historical case studies from space and defense programs, Government Accountability Office assessments, and recent senior-leader direction to accept greater acquisition risk in order to reduce operational risk, the study defines eight readiness gates—including requirement maturity, configuration stability, cost-data transparency, and supply-chain robustness—and operationalizes them as go/no-go criteria. It develops five archetypal conversion pathways, ranging from progressive risk transfer through fixed-price incentive and economic-price-adjustment instruments to direct CP-to-FFP conversion for mature recurring work. A practitioner toolkit provides checklists, sample contract line-item structures, financing-method comparisons, and risk–benefit tradeoff analysis. The paper argues that disciplined, selective conversion improves cost discipline, reduces audit and compliance burden, and frees resources for mission-focused oversight—while cautioning that premature FFP conversion can increase price, default risk, and change-order costs.