To this end, cost-plus contracts
, where the government bore all of the risk of cost overruns, were the primary contract types.
As a result, there was a greater use of firm-price, fixed-price, and target-incentive contracts, with cost-plus contracts
used only where unavoidable.
Consider further the situation where the manufacturer sustains a section 1231 gain or loss on the sale of equipment used in fulfilling the contract, and the cost-plus contract
provides that such gain or loss is to be taken into account in determining the net amount due.
"I am saying I will not authorize a program that has a cost-plus contract
- and I told them that," McCain said at a Defense Writers Group breakfast in Washington last month, according to a Defense News (http://www.defensenews.com/story/defense/air-space/2016/03/08/air-force-secretary-warns-consequences-if-mccain-blocks-b-21/81457700/) report .
Although in TAM 200803017 the National Office specifically addressed income earned for the provision of research, information technology, engineering, consulting, and similar services under a cost-plus contract
, its analysis may be applicable to a service provider that enters into contracts with customers under which billing and payment are deferred and the required services are not divisible into separate components, even where fees are not determined on a cost-plus basis.
At the very least, a cost-plus contract
forces you to look at actual costs, invoice by invoice, while the job is still under way.
Another common type of contract fraud is "cross charging," where a company may charge employees' time or other costs associated with a fixed-price contract to a cost-plus contract
. There obviously is a strong financial incentive to charge as many costs as possible to the cost-plus contract
This understanding is critical to a cost-plus contract
where, if costs are not allowed, they come out of the bottom line and can greatly reduce profits.
If billings are a function of costs incurred (such as in a cost-plus contract
or a contract using costs incurred to measure the percentage of completion), the feasibility of using an early accounting cutoff should be considered.
(5) In addition, the contractor had to capitalize any costs which it identified as attributable to the contract, pursuant to a cost-plus contract
or a contract for which costs were certified under federal statute of regulations.
If you have only proved out component technologies and have significant integration work remaining, a cost-plus contract
is worth considering.