The role of contract type in the success of R&D defense projects under increasing uncertainty

This study attempts to reveal the effect of the contract type on the success of defense projects contingent with the level of technological uncertainty existing at the beginning of the project. Based on data collected on 110 defense development projects performed in Israel, it was found that when technological uncertainty at the start of projects is high, cost-plus contracts result in better performance. Fixed-price contracts are better suited for projects with lower levels of technological uncertainty. A combination of cost-plus and fixed-price contracts is suggested for use in projects suffering from high technological uncertainty, starting with a cost-plus contract for the early stages of the project and switching to a fixed-price contract when the uncertainty is reduced.
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