Time-and-Materials Contracts: Industry, Government Officials Have Different Views Industry groups are urging the Federal Acquisition Regulation councils to allow the use of time-and-materials or labor hour contracts on a wide range of commercial services. But critics inside and outside the government argue that those contract types should be subject to strict controls to prevent contractors from overcharging. Regulators are moving to implement provisions of the 2004 Services Acquisition Reform Act. The law permits T&M and labor hour contracts for services that are commonly sold to the public on that basis, but only after a contracting officer determines that no other contract type is suitable. The FAR councils’ advance notice of proposed rulemaking drew 22 public comments. Among the issues addressed in the comments: What services will be eligible? Industry comments favored the broadest possible definition. Some urged the councils not to make a list of eligible services, but to let contract officers decide on a case-by-case basis. Typical was a comment by the National Contract Management Association: “The definition of what qualifies as a commercial service should be broad in scope. The key is not to try to develop a comprehensive list, but to require an affirmative determination by the contracting officer (through market research or other means) that the services are truly commercial in nature and supported by a commercial market.” However, the GSA inspector general’s office said a list of eligible services is required by law, and said the determination should not depend on individual contracting officers. Should a ceiling price be established for each T&M and LH contract? Industry commenters argued against a ceiling, saying the nature of these contract types is that the cost cannot be estimated in advance. But several government commenters said a ceiling is necessary to protect against overcharging. Should federal Cost Accounting Standards apply to these contract types? Industry’s answer is a resounding “no.” If companies are required to set up government-unique accounting systems, commercial companies will not bid on federal contracts, said Patricia H. Wittie, chair of the American Bar Association’s Section on Public Contract Law. The law requires a contracting officer to execute a determination and finding to justify the use of a T&M or LH contract. Industry groups argued that should not be required on each task order under a GSA schedule contract, but GSA’s inspector general said it must be done. In its notice in the Sept. 20 Federal Register, the FAR councils said T&M and LH contracts should be used only when it is impossible to predict how long the work will take or what it will cost, or when fixed pricing would unnecessarily inflate the government’s costs or impose unreasonable risk on the contractor. The Coalition for Government Procurement said such language discourages the use of the contracts and violates the intent of the law. The differing opinions show a wide gap between industry’s view – that these contract types have proved their effectiveness in the commercial marketplace – and government’s concerns about the risk of overcharging. Inspectors general at the Defense Department and GSA have previously expressed their opposition to wider use of T&M and LH contracts, and the DOD procurement policy director, Deidre Lee, recently stated, “Fixed-price contracts result in significant cost savings and efficiencies for the Department, including less oversight.” At a public meeting in October, officials of the FAR councils said they intend to move cautiously in crafting a rule. Robert Burton, associate administrator of the Office of Federal Procurement Policy, acknowledged that the contracts are “a very controversial topic.” (SAA, 10/22) The public comments are available at www.acqnet.gov/far/ProposedRules/2003-027-1c.pdf.