| When I was a young project
manager, my boss pulled me into his office to tell me
I needed to convert our cost-reimbursable development
contract to fixed price. Virtually every large cost-reimbursable
contract in the department, he explained, was overrunning.
I had my reservations about his solution to the problem.
There was significant risk remaining in the program,
and I felt a cost-reimbursable contract was appropriate.
While I understood we were going to overrun the cost
target, I believed the overall cost would still be less
than what was allocated for the program.
Shortly thereafter, I met with the contractor's program
manager. I did what I was supposed to, saying that I
thought it was best for the program to convert to a
fixed-price contract. I got along well with this program
manager. He hesitated, but because he trusted my judgment,
he agreed and we settled on a price and modified the
contract to fixed price.
As it turned out, during development there were a
number of technical problems, and solving these resulted
in a significant cost overrun to the contractor. Three
years later, we were negotiating the production contract
and we hit an impasse. The contractor was asking for
a lot more money than we were willing to pay. During
the negotiations, the same contracting officer I worked
with before told me that he realized the price was high,
but after what happened in development the company could
not afford to lose its shirt again during production.
Yet, he added, "because he trusted me," he would settle
on whatever price I came up with.
I went back to my contracting officer and told her
that we'd settled at the contractor's proposed price.
It was hardly surprising to me when she hit the ceiling.
I explained I would accept full responsibility, and
I put it in writing that I thought the price was fair
In the end, the contractor realized a 17 percent profit
on the fixed-price production contract, and on the third
production buy the price came down substantially. My
contracting officer received nothing but praise for
her "hard-nosed" negotiating style. What did I get?
Nothing, but then I was a young project manager. I did
learn, however, to stand up and say, 'No.'
Editor's Note: Another article in this issue,
Marty Davis's Horse
Trading, offers a different perspective
on coping with changes when operating in a fixed-price
Little is a civil servant with the Air Force,
where he has been a program manager for five major
defense acquisition efforts. He entered the Air
Force in 1967 and served on active duty until 1975.