Research Paper: 2013 Characteristics and Contract Type Report

Products vary on two key dimensions, how easy or difficult it is to define the product’s requirements and the degree to which specialized investments are required to produce the product. While contracts for complex products pose greater risks of cost overruns, delivery delays, and failed products, these risks are exacerbated when there is a mismatch between the type of contract used to acquire the product and the product’s characteristics. Consistent with contracting best practice and regulatory guidance, fixed price contracts are best suited for simple products and cost reimbursement contracts are best suited for complex products. This report provides measures of product characteristics that are sources of risks in contracting, namely the degree to which it is difficult to specify the product’s attributes or requirements, and the degree to which specialized investments are required to produce the product.