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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