Pentagon Reviews Contractor Profit Guidelines for Weapons

April 24, 2013

The Pentagon is reviewing guidelines used to negotiate profits for contractors under an initiative to improve weapons-buying practices.

The review is intended to “align profitability more tightly” with efforts to make defense programs more affordable, according to a memo released today by Frank Kendall, the undersecretary for acquisition.

The Pentagon has been increasing the use of fixed-price contracts that require companies to shoulder a greater share of cost overruns. The review of profit guidelines is included in the final version of the Department of Defense’s “Better Buying Power 2.0” initiative headed by Kendall.

“Profit is the key lever in motivating contractors to perform in alignment with DoD goals,” Kendall said in the memo. The industry “must be profitable or there will not be an industrial base, but the profits DoD provides should be consistent with the risks industry takes and the return needed to attract the required capital.”

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