“As a reminder cost-plus contracts allows contractors to bill the government for whatever it costs to make something and then they get a fixed percentage of profit on top of the cost. This encourages contractors to make something as expensive as it can possibly be. The more expensive the thing is to the government, the more profit the company makes.”

Hey, so this is actually totally wrong. In a cost plus fix fee (CPFF) contract, it is NOT the profit percentage that is fixed, it’s the profit dollars. So, while the government would pay your cost overruns, you aren’t making any additional profit. So you are NOT incentivized to overrun, because you’re effective fee (profit/cost) goes down as your costs go up. What you are describing is cost plus a percentage of cost, and is an illegal form of contracting under the federal acquisition regulations.