Republican presidential nominee Sen. John McCain said he would stop the government from entering into cost-plus contracts and require fixed-price contracts.

In a cost-plus contract, a vendor is paid for its total costs of doing the work plus an award fee if it meets specific performance objectives. In fixed-price contracts, vendors work for a fee agreed upon ahead of time, so their profit depends upon finishing the work in a reasonable time.

“We have to do away with cost-plus contracts,” McCain said Sept. 26 during the first debate with Sen. Barack Obama, the Democratic presidential nominee, in Oxford, Miss.

McCain said the government has to get a hold on its spending “particularly in defense spending, which is the largest part of our appropriations.” He said the Defense Department has systems whose costs are out of control.

“So we need to have fixed-cost contracts,” he said. “We need very badly to understand that defense spending is very important and vital, particularly in the new challenges we face in the world, but we have to get a lot of the cost overruns under control.”

House and Senate members have supported fixed-price contracts in recently passed legislation. Most recently, the fiscal 2009 National Defense Authorization Act (S. 3001), which both chambers have passed, includes provisions to change the Federal Acquisition Regulation guidance on tying award and incentive fees in contracts to actual contract performance.

During the debate, Obama didn’t mention contracts specifically but said legislation he supported with Sen. Tom Coburn (R-Okla.) in 2006 that ultimately created the government Web site USASpending.gov makes information about agencies’ contracts and spending online for public to see. It’s a means of keeping the government’s spending habits accountable, he said.

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