Whilst analysis shows that fixed and firm price contracts generally outperform other types in terms of cost overrun (see Appendix F), it is clear to all involved that once a capability requirement has been identified as essential, the fundamental risk associated with failing to deliver that capability, lies with the MoD.
Furthermore, the cancellation of contracts is difficult, and will typically incur considerable costs. The MoD is in a weak negotiating position if a contractor is in a situation where walking away is an economically viable proposition, e.g., if cost overruns become too great.
It should also be noted that the behaviour of the MoD can also lead to overruns on fixed and firm price contracts. Given the uncertain funding environment on a year-to-year basis and the relatively long project development lead times during which time requirements can (and generally will) evolve, the MoD can often be in a position where it is a supplicant in requesting contract changes - giving the contractor an opportunity to recoup underperformance in their side of the contract.