An Analysis of Profit Margin in Relation to the Better Buying Power Initiative
Abstract
Recent Better Buying Power (BBP) initiatives have sought to better contractually align contractor profit with performance. Profit should incentivize efficiency in cost and schedule and only be awarded when earned. The current research seeks evidence that BBP has been effective in improving performance. The first part of the research examines the trends of profit margin and cost growth both before and after the implementation of the first BBP initiative. BBP recommended the use of incentive type contracts over award fee contracts, where appropriate. This research found an increased use of incentive type contracts and a reduced use of award fee contracts since BBP commenced. Incentive contracts, in particular, showed increasing profits and decreasing cost variance from 2001 to 2016 year, and a test for significance shows that contracts with reductions of cost growth corresponded to higher profit margins. Macroeconomic factors seem to have played a minimal role, suggesting the trends correspond to the changing business environment and practices which government reform initiatives have sought to institute. The research was unable to link BBP initiatives to the improving relationship between performance and profit with complete certainty, finding instead that the trend improved throughout the time period studied.
Document Details
- Document Type
- Technical Report
- Publication Date
- Mar 22, 2019
- Accession Number
- AD1076681
Entities
People
- Jerry Iii L Baker
Organizations
- Air Force Institute of Technology