Navy Shipbuilding: Need to Document Rationale for the Use of Fixed-Price Incentive Contracts and Study Effectiveness of Added Incentives
U.S. Government Accountability Office Washington United States
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DOD encourages the use of FPI contracts because they allow for equitable sharing of costs savings and risk with the shipbuilder. Under FPI contracts, the shipbuilders ability to earn a profit or a fee is tied to performance. After costs reach the agreed upon target cost, the shipbuilders profit decreases in relation to the increasing costs. A ceiling price fixes the governments maximum liability. A House Report on the Fiscal Year 2014 National Defense Authorization Act included a provision for GAO to examine the Navys use of FPI contracts for shipbuilding. This report examines 1 the extent to which the Navy has entered into FPI contracts over the past 10 years, 2 how FPI contracts apportion risk between the Navy and the shipbuilder, and 3 the extent to which FPI contracts led to desired cost outcomes. GAO selected a non-generalizable sample of six contracts for 40 ships awarded during the past 10 years, analyzed Navy contract documents, and interviewed program, contract, and shipbuilding officials. This is the public version of a sensitive but unclassified report issued in November 2016.