Contracts with incentive-fee or award-fee provisions generally experience less cost growth than contracts without such provisions, but this does not imply that greater use of these contracts by the Defense Department would produce better contract outcomes, according to a Pentagon study.rnThe February report, titled "Can Profit Policy & Contract Incentives Improve Defense Contract Outcomes?" states DOD cannot simply force contractors to take on the greater risk of a contract with incentive features.rnThe Pentagon's industrial policy shop issued the report along with a second study titled "Defense Department Profit and Contract Finance Policies and Their Effects on Contract and Contractor Performance." Both were conducted for DOD by the Institute for Defense Analyses.rn"Contracts are negotiated, and the degree of risk is not just a matter of provisions on fee; target cost also matters, and a contractor presumably would seek to offset the risk introduced by negotiating a higher target cost," the first report states. "The net result could be a contract that experiences less cost growth but with a cost to the Defense Department that is the same or even greater."
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