W HERE time is short or costs are unknown and unpredictable, it is impractical for the government to follow its usual procedure of soliciting competitive bids. In these circumstances, cost-plus contracts have been used-most widely during wars but recently in nondefense as well as defense research and development programs. For example, it has been estimated that the Atomic Energy Commission spends more than 8o per cent of its annual budget, currently nearly $3 billion, under cost-type contracts.' What are the effects on costs, incentives, allocation of labor and equipment, and workmanship under such conditions? Does the removal of traditional competitive conditions adversely affect the government interest in getting the most for its dollar? The general public probably sees the costtype contract as wasteful, violating principles of competitive bidding. This attitude is often expressed by Congress. It is true that World War I contracts paying cost plus a percentage of the cost resulted in some scandalous waste. But cost-plus-percentage contracts have been prohibited since 1918, and there is no evidence of similarly extensive waste in costplus-fixed-fee contracting. Yet the presumption remains that it must be uneconomical: price competition and the urge to maximize profit make for efficiency and economy; therefore, the absence of these incentives must result in inefficiency and waste. This in fact takes place in at least some instances, testimony of one businessman indicates: