Stimulus law provision could raise prices

The preference for fixed-price contracts in the economic stimulus law could cause government agencies to pay more for some products and services, some experts say.

That law, the American Recovery and Reinvestment Act, states that “to the maximum extent possible, contracts funded under this act shall be awarded as fixed-price contracts through the use of competitive procedures.”

Fixed-price contracts cannot be adjusted to account for increases in labor or material expenses that occur after work has started. Contractors generally take on more risk in fixed-price deals, so in some cases, their prices might be higher than if they had entered into a contract with greater flexibility.

“Fixed price does not mean the cheapest price,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council, a trade group for services contractors.

Congress has added similar provisions in the past. For example, the fiscal 2009 National Defense Authorization Act restricts the use of non-fixed-price contracts, such as those based on cost reimbursements or incentives.

It is unclear whether contracting officers will follow the new law’s advice closely, especially because time is of the essence, said Larry Allen, president of the Coalition for Government Procurement.

“Preference for firm-fixed-price contracts involving lots of money awarded in an expedited time frame by an understaffed acquisition workforce is setting the expectation bar unrealistically high,” Allen said.

About the Authors

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Tue, Feb 24, 2009

Clearly these so-called "experts" don't have a clue. For years, the Government has been contracting for the best value to the Government; that's doesn't always mean the lowest price. Often the lowest price equates to lowest quality when we want something better than that. Contractors like cost plus, time & materials, or labor-hour contracts becaue the risk is on the Government and they still get paid even if they don't deliver (which also doesn't equate to the lowest price if you have to pay them more to do what they didn't complete the first time). They don't like fixed price because they have to perform to specified performance standards. This is still the best value to the Government, even if it isn't the lowest price. How do "experts" get quoted in publications when they don't know what they're talking about? Or were their quotes taken out of context? A few words taken out of an entire paragraph can totally change the context they were written in.

Tue, Feb 24, 2009

It would be nice if a legislator with a true contracting background were to write the "restrictions". The statement above, "Fixed-price contracts cannot be adjusted to account for increases in labor or material expenses that occur after work has started", is patently WRONG! Other laws, such as Service Contract Act, would force increases in labor when the Area Wage Determination (the MINIMUM that must be paid) is updated. Guess what?! That means modifications to all these fixed contracts! That means our small acquisition staff is further burdened with contracting actions and analyses. PUH-LEEZ! Let the Contracting Officers do their jobs and award contracts that are in the BEST INTEREST OF THE GOVERNMENT! It's ridiculous when they state that competition will now be used! HELLO!! The Govt is already REQUIRED to compete, and if they don't they must justify it in writing. Like I said, let's get someone who knows Federal contracting to write these laws. They would realize that good COs already compete and already select the best vehicle. Put the $$ into professional training of more COs so the work can get done properly!!!!!

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