A longtime and well-known proponent of defense acquisition reform, Senator John McCain assumed the chairmanship of the U.S. Senate Armed Services Committee (“SASC”) on January 6.  Sen. McCain has been particularly outspoken concerning cost overruns on major systems procurement projects.  He has characterized the “cost-plus” contract structure as among the key causes of these overruns, and has described implementing a ban on “cost-plus” contracts as among his top three priorities for the 114th Congress (along with countering cyber-threats and addressing sequestration).

Sen. McCain’s antipathy toward cost-plus contracts is nothing new:  during the 2008 presidential campaign, he made waves in the contracting community by declaring during a debate with then-Senator Barack Obama that “particularly in defense spending, which is the largest part of our appropriations – we have to do away with cost-plus contracts.  We now have defense systems [in which] the costs are completely out of control. So we need to have fixed-cost contracts.”

Sen. McCain renewed his criticism of cost-plus contracts in a recent public appearance:  “I’m continuing to try to ban them [a]ll. . . If you don’t ban them, here’s what happens:   [contractors] come in with a lowball contract, so they can get the contract, and then . . . the costs mount.”  By way of analogy, the veteran lawmaker highlighted the faulty incentives he believes are created by such an arrangement:  “If you had a roof that leaked would you ask a guy to come and fix it with a cost-plus contract?!”

At the time of Sen. McCain’s 2008 high-profile criticism of cost-plus contracts, many experts in the contracting community expressed skepticism that an outright ban was desirable or even possible.  They posited, for example, that cost-plus contracts can be the best tool for the job in certain circumstances, such as high-risk research and development projects where the requirements (and thus the expected costs) are ill-defined.  A prominent contracting official even contended, as summed up by one think tank’s analysis of the issue, that “contractors would simply not bid on high-risk endeavors . . . if they were operated under fixed-priced contract structures.”

While the merits of cost-plus contracts remain a subject of vigorous debate, the Arizona senator’s SASC chairmanship and his party’s control of the Senate better position him to pursue this issue in 2015.  In addition, other key stakeholders appear favorably disposed toward defense acquisition reform.  Representative William “Mac” Thornberry, the new chairman of the U.S. House Armed Services Committee, has been studying the issue and collaborating with industry on recommendations.  Additionally, Ashton Carter, President Obama’s pending nominee to be the next Secretary of Defense, is a former chief acquisitions official at the Pentagon and a proponent of reform.

Acquisition reform figures to play a prominent role in Carter’s upcoming confirmation hearing, although the most likely forum for a specific proposal on cost-plus contracts is the FY2016 National Defense Authorization Act (“NDAA”).  One factor to watch as the NDAA process gets underway is whether Sen. McCain is able to build bipartisan support in Congress – and identify key allies across the aisle, and across the Hill – for the reform or elimination of cost-plus contracts.  Outgoing SASC Chairman Carl Levin, who co-authored a symposium-style report on defense acquisition reform with Sen. McCain in October 2014, has retired from Congress.  Also recently departed from the Hill is Representative Henry Waxman, whose proposal to require agencies to minimize cost-plus contracts passed the House in 2008.

It thus remains uncertain how Sen. McCain plans to realize his vision of ending cost-plus defense contracting.  However, given the emphasis that the new SASC chairman has consistently placed on the issue, cost-plus contracts will likely remain a prominent topic within the broader and seemingly dynamic context of acquisition reform in the 114th Congress.

Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.


Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.

She has particular expertise in advising clients on intellectual property and data rights issues under the Federal Acquisition Regulations (FAR) and obligations imposed by the Bayh-Dole Act, including march-in and substantial domestic manufacturing. Jen also has significant experience in negotiation and compliance under non-traditional government agreements including Other Transaction Authority agreements (OTAs), Cooperative Research and Development Agreements (CRADAs), Cooperative Agreements, Grants, and Small Business Innovation Research agreements.

For over 20 years, Jen’s practice has focused on advising clients in the pharmaceutical, biologics and medical device industry on all aspects of both commercial and non-commercial agreements with various government agencies including:

  • the Department of Veterans Affairs (VA);
  • the Department of Health and Human Services (HHS), including the Biomedical Advanced Research and Development Authority (BARDA), the National Institutes of Health (NIH), and the Centers for Disease Control (CDC);
  • the Department of Defense (DoD), including the Defense Threat Reduction Agency (DTRA), the Defense Advanced Research Projects Agency (DARPA), and the Joint Program Executive Office for Chemical Biological Defense (JPEO-CBRN); and
    the U.S. Agency for International Development (USAID).

She regularly advises on the development, production, and supply to the government of vaccines and other medical countermeasures addressing threats such as COVID-19, Ebola, Zika, MERS-CoV, Smallpox, seasonal and pandemic influenza, tropical diseases, botulinum toxin, nerve agents, and radiation events. In addition, for commercial drugs, biologics, and medical devices, Jen advises on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as on the obligations imposed by participation in the 340B Drug Pricing program.

Jen also has significant experience in domestic sourcing compliance under the Buy American Act (BAA) and the Trade Agreements Act (TAA), including regulatory analysis and comments, certifications, investigations, and disclosures (including under the Acetris decision and Biden Administration Executive Orders). She also advises on prevailing wage requirements, including those imposed through the Davis-Bacon Act and the Service Contract Labor Standards.