DOD officials to monitor time-and-materials contract usage

Defense Department officials must determine if they have been using time-and-materials contracts and task orders when other types of contracts might have worked just as well.

In a March 20 memo, Shay Assad, director of Defense procurement, acquisition policy and strategic sourcing, wrote that he wants officials to establish procedures that will make that determination clear.

Time-and-materials contracts require agencies to pay a contractor based on the number of labor hours in addition to other costs. This type of contract is risky for the government, and officials and legislators want to limit risks by finding other types of contracts to use whenever possible.

Defense agencies must set procedures to evaluate their use of time-and-materials contracts. Also, the head of a contracting organization that spent more than 10 percent of its total fiscal 2007 funding for services must include an assessment of when it's appropriate to use the contracts, Assad wrote.

Agencies must then tell Assad how they plan to reduce the use of time-and-materials contracts, he wrote in the memo.

Assad cited a Government Accountability Office report from June 2007, which  found that DOD’s reported use of time-and-materials contracts doubled in less than a decade. In 1996, DOD spent nearly $5 billion, and the obligations climbed to $10 billion in 2005, GAO found.

But $10 billion is understated, GAO said, because department officials have not kept good records of contract types for orders placed under federal schedules contracts.

“These trends and findings are a major concern,” Assad wrote.

The Federal Acquisition Regulation restricts time-and-materials contracts to instances when it’s not possible at the outset to estimate accurately the extent or duration of the work or to anticipate costs with any confidence.

But GAO wrote that DOD uses time-and-materials contracts because they are quick to award and easy to adjust if requirements are unclear or funding uncertain.

Meanwhile, contracting officers almost never include in their written determinations a reason for choosing the riskier time-and-materials contract over another type. The officers also make little attempt to convert follow-on work to a different type of contract, GAO wrote.

As a result, GAO recommended that DOD analyze its use of time-and-materials orders on indefinite-delivery, indefinite-quantity contracts to ensure that it doesn’t become the default contract type. GAO also urged DOD to require monitoring plans.

In his June 29 response to GAO, Assad agreed with the recommendations.

About the Author

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

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