Cost Overruns and Defense Contracting
Lessons Learned Track
This paper will show that incentive fee contracts in the Department of Defense (DOD) for the development phase are not effective in eliminating the cost overrun problem faced by the DOD. This will be examined first by analyzing the optimal share ratios with the Weitzman model on two specific DOD development programs, then through a comparison of various programs with extreme cost overruns and varying contract types and fee structures. Finally, reasons explaining the cost overruns will be explored.
Jennifer Leotta graduated from James Madison University (JMU) in 2002 with a BS Degree in Quantitative Finance and minors in Economics and Mathematics. Upon graduation, she worked for the US Census Bureau as a Survey Statistician and in 2005, started as an Operations Research Analyst for the Navy Engineering and Logistics Office (NELO). She is currently pursuing a Master’s degree in Economics at George Mason University (GMU).