Regulators Wrestle With Rules For Time and Materials Contracts Regulators will “move very cautiously” in writing rules for the use of time and materials and labor hour contracts, said Robert Burton, acting administrator of the Office of Federal Procurement Policy. The Services Acquisition Reform Act, passed by Congress last year, authorizes the use of those contract types for procurement of commercial services, but with strict conditions. Regulators held a public meeting in Washington Oct. 19 to discuss how to implement the law. “This is a very controversial topic,” Burton said at the meeting. Many federal procurement officials believe time and materials and labor hour contracts give the contractor no incentive to hold down costs. Advocates of the procedures say such contracts have proved their usefulness in commercial transactions covering everything from auto repair to software development. Burton said, “There has always been a strong preference for firm fixed-price contracts…[but] sometimes it just makes since to use time and materials and labor hour contracts.” The congressional conference report on SARA states that a fixed-price contract “remains the preferred option for the acquisition of either commercial or non-commercial items.’’ The new law allows T&M and labor hour contracts for services that are generally sold to the public on that basis, but only after a contracting officer determines that no other contract type is suitable. In an advance notice of proposed rulemaking published Sept. 20, the Federal Acquisition Regulation councils suggested those contracts should be restricted to situations where it is impossible to predict how long the work will take or what it will cost, or where fixed pricing would unnecessarily inflate the government’s costs or impose unreasonable risk on the contractor. The rulemaking notice asked for industry comment to identify the types of services that are usually sold in the commercial marketplace on a T&M or labor hour basis. Comments so far listed repairs, legal services, accounting, cleaning, consulting, training, certain building trades (such as painting) and quality assurance. Deidre Lee, director of defense procurement and acquisition policy, added information technology to the list. But several industry representatives at the Oct. 19 meeting urged the regulators not to write a list of eligible services into their rule. Whether to use T&M or labor hour contracts should be determined on a case-by-case basis, after examining the circumstances of each individual procurement, they said. The law allows T&M or labor hour contracts only in competitive procurements; sole-source awards will not be eligible. But there is still a question of whether competition will be required on each individual task order under a GSA schedule or other indefinite delivery contract, said Matthew Blum of OFPP. In addition, the rulemaking notice suggests that every task order would require the contracting officer to execute a determination and finding that no other contract type is suitable. Members of the FAR Acquisition Strategy Team listed dozens of other issues that remain to be decided and indicated that a proposed rule is a long way off. For one thing, several of the regulators acknowledged they don’t know enough about the use of these contract types in the commercial marketplace. “We need help,” OFPP’s Burton said. The advance notice, FAR case 2003-027, is open for public comment until Nov. 19. Even before the new rule is issued, the Defense Department’s Lee underlined her objections to widespread use of T&M and labor hour contracts. In a Sept. 13 memo, Lee instructed acquisition officials, “When personnel prepare requirements for a follow-on contract to an existing cost-reimbursement or T&M contract for services, they should work with the contracting officer to determine if any portion can be broken out and ordered on a fixed-price basis. The experience gained on the prior contract may serve as a basis to reasonably price similar future efforts on a fixed-price basis.” She declared, “Fixed-price contracts result in significant cost savings and efficiencies for the Department, including less oversight.”