How Cost-Plus Contracts Inflate Government Spending by Billions

The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending · Jul 28, 2026 · 4m · transcript

Episode 137 of The Fiscal Policy Podcast with Fexingo digs into the perverse incentives of cost-plus contracts, which give government contractors a guaranteed profit margin on top of their expenses—encouraging waste and driving up costs. Lucas and Luna examine the Government Accountability Office's finding that major defense programs have accumulated $2 trillion in cost overruns, with the F-35 program as a prime example. They explain why cost-plus contracts lead to inefficiency, how fixed-price alternatives have saved billions on projects like GPS III, and why reform remains difficult…