End of the Road Looming for Cost-Type Construction Projects

The Department of Defense is proposing a change to its Federal Acquisition Regulation Supplements (DFARS) that will prohibit any form of cost-plus contracting for military construction projects or military family housing projects. This prohibition will appear at DFARS 216.301-3. Currently, the prohibition applies to Cost-Plus-Fixed-Fee contracts. The new regulation broadens that to include all form of Cost-Plus contracting.

It seems to us that this is rather a DoD formality because cost-type contracts for military construction has been pretty much taboo for a long time. According to the Federal Procurement Data System, DOD awarded only 15 cost-reimbursement construction contracts in Fiscal Year 2015. 

The Hanford Waste Treatment Plant project illustrates the dangers of cost-plus contracting for construction projects. The Department of Energy (DOE). DOE has watched the cost of its Hanford Waste Treatment Plant balloon from $4.3 billion in 2000 to now over $12 billion and the project is still not finished. That latest estimate is going higher. Cost-type contracts for construction are not good for whoever is paying the bill and everyone knows it.

This new rule comes as a result of a provision in the Fiscal Year 2012 National Defense Authorization Act. Although it doesn't significantly change existing practices, the fact that it is not based on Statute (Public Law 112-81 and 10 USC 2306(c) makes it more difficult for DoD to seek a waiver or to otherwise find a way around the prohibition.