Mr. John Mark Taylorasked the Secretary of State for Defence if he will make a statement about the effect upon his Department's budget and upon his Department's relations with its suppliers of the transition from cost-plus to fixed price as the basis of contracting for defence procurement.
§ Mr. Norman LamontThe proportion by value of MOD contracts placed under cost plus percentage fee terms is, indeed, declining under the the influence of the MOD's drive for better value for money.
Where a contract is now placed under fixed price terms it will have the twin advantages of providing an incentive for the contractor to perform efficiently to meet the contract requirement, and it will place a limit on the Ministry's financial commitment.
However, it is not possible to specify the overall effect on the Ministry's budget resulting from increased fixed price contracting, because the costs of the alternative procurement routes would be purely speculative.