Multiple cycles are running at once in the Trump administration’s push for structural changes in how the federal government buys $1 trillion in goods and services each year.
One cycle involves a rewrite of the Federal Acquisition Regulation, the rules of the road that govern the purchasing. A second cycle focuses on shifting those buys more toward what is commercially-available and away from the custom-made route that dominates much of government acquisition.
A third cycle centers around how the government buys what it needs, especially on the technology front, and in particular the contracting mechanisms used to do so. Outcome-based or fixed-price contracting is high on the discussion agendas everywhere across public sector, and a focus for new leadership at the General Services Administration.
So if the government wants to move in the outcome-based direction that many at agencies and contractors have long wanted to go in, what does that mean for the GovCon industry and how does it alter the way tech services are priced?
At the Professional Services Council’s Federal Acquisition Conference on Thursday, GSA’s chief acquisition officer Larry Allen recommended companies both “promote those commercial best practices” and to not “assume that people in government know what they are.”
“Some will, some will not, but I think the general direction that we want to go in is getting away from government-unique pricing constructs,” said Allen, who also serves as GSA’s associate administrator for government-wide policy. “A large part of that is going to be looking at how we use cost-plus contracting and where we use cost-plus contracting.”
Wholesale changes in how those practices inform the structures of government contracts is likely to be a multi-year effort as FAR reforms and the movement to more commercial-like purchasing work their way through the system.
By the same token, elements of fixed-price contracting are being added as line items into larger programs as a way of introducing both the contractor and customer to that method.
Whereas cost-plus contracting means the risk is shared on both sides of the arrangements, outcome-based or fixed-price methods put substantially all of that risk onto the contractor. But the potential reward is higher based on savings achieved, which could mean higher profits for the contractor as opposed to cost-plus.
Carving out pieces of contracts and making them fixed-price is a method Leidos uses with its customers as a way to get both sides more familiar with the concept, Leidos’ chief growth officer Jason Albanese told us in an interview for our 2025 Top 100 ranking release.
During a June 4 earnings call, Science Applications International Corp.’s chief executive Toni Townes-Whitley told investors that some contracts could be better positioned for a fixed-price structure like enterprise IT.
Allen did caution PSC conference attendees that even if the idea is to bring down the overall use of cost-plus contracting, “it probably will not be eliminated” in its entirety.
The end result of how GovCon pricing structures change seems likely to be a hybrid of how commercial industries operate and the unique fabric of government buying, but Allen recommended companies make the connection between both worlds in talking with customers.
“I would try to emphasize, particularly to the senior leaders in our agency and other agencies, how these mirror your standard commercial practices,” Allen said. “The government isn’t going to be able to get there entirely, but we would like to move closer to those, and this is a particularly receptive audience to that theme.”
