GAO: T&M Contract Rules Widely Misunderstood Restrictions on time-and-materials contracts have not worked, because some contracting officers don’t understand the rules and the General Services Administration has refused to follow them, the Government Accountability Office said. Although T&M contracts are supposed to be a last resort when no other contract type is suitable, GAO found contracting officers often provided no justification for their use. GAO said the government spent $10.4 billion on T&M contracts for commercial services in a 22-month period from February 2007 to December 2008, but nearly 40% of them were miscoded in official records. A contracting officer is required to issue a determination and finding that a T&M contract is in the best interest of the government. The D&F was either missing or incomplete in most contracts the auditors examined. More than 90% of the T&M contract dollars were spent through GSA schedules. GSA said schedule contracts did not require a D&F, but GAO said no law exempts the schedules. GSA said it planned to begin requiring D&Fs this year. “When these safeguards are not used, the government may be assuming more risk than necessary,” GAO said. Because the contract price is tied to the number of hours worked, GAO said, “the government bears the risk of cost overruns.” Auditors have found that contracting officers turn to T&M contracts as a convenience when requirements are unclear or funding is uncertain. “The cost growth on T&M and labor-hour contracts can be significant; we and agency inspectors general have reported numerous instances in which the costs grew to more than double the original value—in one case a contract increased to almost 19 times the original price,” they said. Compounding the problem was a lack of understanding of the rules. GAO said some contracting officers considered T&M contracts to be fixed price because the hourly labor rate is fixed, even though the total contract amount is not. Many procurement officials said they had received no guidance on the use of T&M contracts. Some said they only learned of the rules through their own research. The Office of Federal Procurement Policy agreed that a clarification of the rules is needed. The report is GAO-09-579, available at www.gao.gov.