Nelson testifies cost-plus contracts have been a “plague” on NASA
Cost plus contracts are well intentioned, but create perverse incentives. It&#x27;s also a big issue in the defense industry. The idea is that a contract pays a company the cost of producing a product, plus N% for profit. Thus, profit is fixed  and companies cant profit <i>too</i> much off public money.<p>But in practice, this means that in order to increase profit companies have to increase costs. If you&#x27;re building a product and you can spend $10 million to build it efficiently or $20 million to build it inefficiently, it&#x27;s actually beneficial to do the latter. It&#x27;s disincentivizing cost reductions and incentivizing cost increases.