Is a cost-plus-a-percentage-of-cost system of contracting permitted?

A cost-plus-a-percentage-of-cost system of contracting is not permitted in federal contracting practices because it can lead to inefficiencies and lack of accountability. In this type of contract, the contractor's profit increases with the total cost of the project. This creates a potential conflict of interest, as the contractor may not have an incentive to control costs; in fact, higher costs could result in higher profits.

The federal government seeks to promote cost control and effective management of taxpayer funds, which is not aligned with the potential pitfalls of a cost-plus-a-percentage-of-cost arrangement. Therefore, standard practices and regulations heavily favor fixed-price contracts or variations that cap costs in some way to align the contractor's financial interests with the efficiency and cost-effectiveness needed for government projects.

Options that suggest the permissibility of such contracts, either under certain circumstances or depending on the agency, may not fully adhere to the strict regulatory environment surrounding federal contracting guidelines.