2 Government Contracts: Law, Admin & Proc § 19.90

Summary

A “cost-plus-percentage-of-cost contract” is an arrangement whereby the contractor is paid its costs of performance plus a specified percentage of those costs as an allowance for profit. It should be obvious at once that a method of contracting such as this tends to encourage the dissipation of the public money and the promotion of inefficiency and extravagance, because the contractor’s profit increases in direct proportion to the amount it expends in performing the contract. See United States v. Bethlehem Steel Co., 315 U.S. 289 (1942).

This system of contracting is now outlawed specifically by statute. See Section 2306(a) of the Act of August 10, 1956, 70A Stat. 130, 10 U.S.C. § 2306(a); Section 304(b) of the Act of June 30, 1949, as amended, 63 Stat. 395, 41 U.S.C. § 254(b); United States ex rel. Becker v. Tools & Metals, Inc., No. 3:05-cv-627, 2011 U.S. Dist. LEXIS 76248, at *7 (N.D. Tex. July 13, 2011) (noting, in a false claim action claiming that a contractor sought payments ...