Cost realism in defense contracting

In this article the authors report and evaluate a technique developed by the U.S. Navy for the purpose of choosing winners of Research and Development (R&D) contracts from among several competing contractors. The technique is intended to discourage ‘buy-in’ bidding (i.e., submitting unrealistically low bids for the purpose of winning the bidding competition). The authors conclude that, within the present decision scenario, the technique tends to induce bids that are close to the contractor’s expectation of the government cost estimate. The article is descriptive (the authors discuss the scenario and an existing approach), prescriptive (they offer cost realism scoring rule admissibility requirements), and projective (the authors explore how admissible realism scoring rules should affect contractor behavior).