By Jason Miller
Executive Editor
Federal News Radio

A new rule could change the way agencies purchase commercial services.

The Federal Acquisition Regulations Councils issued a proposed rule today implementing recommendations by the Government Accountability Office to require stronger justification for using time-and-materials (T&M) and labor hours contracts when buying commercial services.

If this rule becomes final, contracting officers would be limited in using T&M and labor hours contracts for commercial items. The rule would require agencies to develop a determination and findings that shows why a fixed price contract is not suitable.

The FAR Council’s proposed rule comes as the Office of Management and Budget is requiring agencies to reduce the number of contracts that put the government at risk, such as T&M and labor hours. Agencies also are spending more money on these types of contracts, according to GAO. Auditors found last October that agencies spent $136 billion on cost reimbursement type contracts in 2008, up $16 billion since 2003, and they are not managing these contracts well because, in part, they do not have the required data.

The proposal states that for an agency to use T&M and labor hours contracts for commercial services, it must:

• Not be able to estimate the extent or duration of the work or the anticipate costs with any reasonable degree of confidence;
• Acquire the services through a competitive procedure;
• Include a ceiling price in the order that the contractor exceeds at its own risk;
• Authorize any subsequent change in the order ceiling price only upon a determination that it is in the best interest of the agency to change it, and the change does not affect the scope of the task order as awarded;
• Justify in the determination and findings why a fixed-price order is not suitable;
• Establish that the current requirement has been structured to maximize the use of fixed-price orders (e.g., by limiting the value or length of the time-and-materials/labor-hour order; establishing fixed prices for portions of the requirement) on future acquisitions for the same or similar requirements;
• Describe actions to maximize the use of fixed-price orders on future acquisitions for the same requirements;
• Gain additional approval for orders with a total performance period, including options, of more than three years:
• Have the determination and findings signed by the contracting officer and approved by the head of the contracting activity prior to the execution of the base period.

The proposed rule isn’t introducing a so much a new requirement as it is clarifying the existing FAR rule. The FAR Council says part of the confusion over this comes from the Services Acquisition Reform Act (SARA) of 2003 that let agencies use T&M and labor hours contracts for certain commercial services, which are commonly sold to the general public through the use of types of contracts.

The proposed rule comes after the GAO found in an audit that contracting officers had the mistaken impression that fixed labor rates in T&M and labor hours contracts made them fixed price contracts.

“The audit further revealed that there was a general lack of awareness of the FAR part 12 determinations and findings requirement among contracting officers across all government agencies in their review of contract actions more than two years after the determinations and findings requirement was implemented in the FAR,” the proposed rule states. “There was a failure of management to detect the lack of compliance with these safeguards.”

Comments on the proposed rule are due Nov. 26.

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