More guidance coming on time-and-materials contracting

Contracting officers have been confused about how time-and-materials contracts work and how to justify them

Officials intend to clarify the rules that require contracting officers to explain their decisions for awarding time-and-materials contracts for commercial services.

Because of some confusion in the past years about the rules, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council have proposed amending acquisition rules to make it obvious to contracting officers the definition of a time-and-material contract and about explaining why they awarded that type of contract, according to a notice in the Sept. 27 Federal Register.

Related stories:

Agencies turn to GSA Schedules for T&M contracts

DOD tightens reins on contractors

The Government Accountability Office reported in 2009 about several misunderstandings among contracting officers across the government. Many of them thought the fixed-price labor rates in time-and-materials contracts made them a fixed-price type of contract. GAO also found a general misunderstanding about when it's necessary to justify the use of a time-and-materials contract when purchasing commercial services. During an audit, GAO concluded that managers were not detecting that contracting officers were failing to comply with these safeguards around time-and-materials contracts.

When buying commercial services, officers must give an account for their decision to use the type of contract in which a company bills the government for its time or labor hours and its materials. A contract with a set price is safer for the government because the time-and-materials contracts can get out of control, officials say. Regulations also tell the officers to give details about their market research efforts and describe how they will use fixed-price contracts on future or follow-on acquisitions, the councils said.

Contracting officers have been allowed to buy services with this type of risky contract, but the officers also have to justify why they’re using it. Certain parts of the Federal Acquisition Regulation are clear about when a justification is necessary, but other parts are not so obvious, the councils said. And that's caused some problems. Through the proposed modifications, the councils hope to fix those problems.

The councils are accepting comments on their proposal through Nov. 26.

About the Author

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

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Reader comments

Thu, Jul 27, 2017 David Ukraine

A fixed-price contract is a type of contract where the payment amount does not depend on resources used or time expended. This is opposed to a cost-plus contract, which is intended to cover the costs with additional profit made. Such a scheme is often used by military and government contractors to put the risk on the side of the vendor, and control costs. However, historically when such contracts are used for innovative new projects with untested or undeveloped technologies, such as new military transports or stealth attack planes, it can and often results in a failure if costs greatly exceed the ability of the contractor to absorb unforeseen cost overruns. Also these contracts widely used in software development industry - Read about that in Wiki page.

Thu, Sep 30, 2010 Steve Chantilly

Here's an open secret (or lie) for the DoD "officials" to savor. Contract officers label their contracts as Firm Fixed Price, but they ask vendors to bill for their hours worked. The vendor asks, "Is this Firm Fixed Price or Time and Material?" The Contracting officer answers, "It's firm fixed price at the hourly rate." This is how the contracting officer can lie about the nature of the order and still get billed as though it's T&M or Labor Hour. It is one of the great open lies of the business right now. It represents a fine blend of inflexible and overly complex rules, a Soviet-like culture of lying to make numbers, and plain old ignorance on the part of Federal Acquisition employees, topped off with clueless leadership.

Thu, Sep 30, 2010

The fact is that most USG PMs are not up to managing a project well (either by correctly specifying the performance levels/funding requirements or by managing to them - proven by all our own research) and COs just don't have the time to train the PMs on how to PM AND how to correctly acquire services and contractually administer them (with a few saints out there and you know who you are!). We can wag our fingers at them and tsk, tsk to our heart's content but in the end they've got to get the work done and we've got to help. The myth that contractors somehow are the weakest link here and don't have incentives to be efficient simply isn't true (T&M contracts run out of $ too) - sure there are bad contractors but they're not the root cause or the rule. We've got to be realistic and manage to our limits and capabilities - not to our dreams, wishes and myths.

Wed, Sep 29, 2010 Steve

T&M contracts are probably closer to Cost Plus Percentage of Cost contracts than to FFP contracts. The contractor receives a fixed profit per hour and typically has no motivation to use those hours efficiently.

Wed, Sep 29, 2010 RT

I agree that we need many different types of contracts -Although "smartering up" the CO on this issue will cause us some pain, the reason I see this as positive is that now we will accurately identify the type of contract we are using and if we must use them and justify it then we provide visibility on what is really required from a contract or agreement. Or we will see that FFP can be structured to work - but only if we take estimating seriously. A concern that I had when I did oversight on major acquisition programs was that when we called labor hour contracts fixed priced we distorted measurements of progress or earned value unless the progress system includes a milestone of progress value for hours. This often left the project manager without the justification that he or she needed to change course when levels above him just wanted to survive the next budget cycle, hearing or review.

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