What is a possible tool to manage costs in a contract to avoid a Nunn-McCurdy breach?

The identification of fixed-price incentive contracts as a tool to manage costs in a contract to avoid a Nunn-McCurdy breach is based on their design and structure. Fixed-price incentive contracts encourage contractors to control costs by providing a financial incentive for them to limit expenses. This type of contract incorporates a fixed price with provisions for additional payments if specific performance objectives or cost savings are achieved.

The key aspect of these contracts is their dual focus—meeting performance and staying within budget. By aligning the contractor's financial interests with the federal government's objectives, these contracts help maintain cost control and can mitigate the risks of significant cost overruns, which could trigger a Nunn-McCurdy breach. This breach specifically pertains to breaches of cost thresholds for major defense acquisition programs, signifying that keeping costs in check is vital.

On the other hand, cost reimbursement contracts provide less incentive for the contractor to control costs since they can pass expenditures onto the government, potentially leading to higher overall costs. Open-ended contracts lack the necessary structure for managing costs effectively, while competitive bids focus more on obtaining favorable pricing at the outset than ongoing cost management throughout the life of the contract.