Agencies slowly moving to fixed-price contracts

A new report from OFPP finds agencies spent a billion dollars less on time-and-materials and labor hours type contracts in 2010. Still, OFPP found an overall in...

By Jason Miller
Executive Editor
Federal News Radio

Agencies spent a billion dollars less on time-and-materials and labor hours type contracts last year.

The Office of Federal Procurement Policy sent a report to Congress Monday detailing the decline to $28 billion from $29 billion in 2009.

“Heightened attention by agency management is helping the government to stabilize its total expenditures through high-risk contracts,” wrote Dan Gordon, OFPP administrator, in the report. “In FY 2010, the percentage of dollars awarded in new T&M/LH contracts dropped by 19 percent when compared to the same time period in FY 2009.”

OFPP found that while time-and-materials and labor hours contract types dropped last year, overall, cost reimbursement type contracts-which T&M/LH are categories within the type-increased by $9 billion.

“This report will give more accurate information about competition. In the current report, which will be superseded, if an umbrella contract was competed, task orders under may be automatically reported as competed even if they weren’t,” Gordon said in an exclusive interview with Federal News Radio before the report came out. “That tended to lead to inflated numbers about competition and we want competition up, but we want it to be factually correct. This new report corrects that mistake. If an umbrella, IDIQ contract for example, was competed, but they individual orders were not compete under the fair opportunity process, those orders will show up as uncompleted so the data will e more accurate and more useful.”

Gordon attributed that increase to better reporting by agencies, not necessarily an increased use of these types of contracts.

“Although the Federal Procurement Data System (FPDS) shows annual obligations increasing under cost-reimbursement contracts, from $151 billion to $162 billion, between FY 2009 and FY 2010, OMB believes the FY 2009 figure may be underreported by as much as $9 billion, meaning that the increase was much less than the FPDS numbers would indicate,” Gordon wrote. “A report from the Government Accountability Office (GAO) explains that $9 billion of federal spending on cost-reimbursement contracts in FY 2008 was separately reported in FPDS under ‘combination’ contracts, which allow the parties to choose the appropriate pricing structure – fixed-price, cost-reimbursement or T&M/LH – for individual work orders.”

Gordon told lawmakers that some increase in cost reimbursement type contracts was expected as agencies moved away from time-and-materials and labor hours type contracts.

He said agencies had a level of uncertainty regarding their requirements and that prevented them from moving to a fixed price type of deal.

“When you compare fiscal ’09 to fiscal ’10, using the same methodology, you’ll see an increase in competed dollars, which is good news, we are succeeding in driving the use of sole source contracts,” he said in the interview. “The percentage and dollars will be lower if you compare the old report to new because it was reported things as competed when they weren’t. It was a methodological glitch that we said we need to fix.”

The administration mandated agencies reduce these types of contracts. In July 2009, the Office of Management and Budget told agencies to reduce new cost type contracts, including modifications of task and delivery orders, by 10 percent in 2010, and save $40 billion by either stop using these high risk contracts or renegotiating them between 2010 and 2011.

The report comes on the heels of OMB requiring agencies to cut 15 percent of their management support services contracts.

“In FY 2010, the percentage of dollars awarded in new T&M/LH contracts dropped by 19 percent when compared to the same time period in FY 2009,” Gordon wrote. “However, the relative share of dollars awarded in new cost-reimbursement contracts during this same period increased by 2 percent. These figures reflect an adjustment to account for the combination contracts noted above. Fifteen of the 24 Chief Financial Officers Act agencies reported a decrease of at least 10 percent in one or both categories. Several agencies also reported savings in connection with shifting away from cost-type contracts to fixed-price contracts by using their knowledge of historical costs paid under prior cost-type contracts.”

Gordon highlighted two agencies for their efforts to reduce high risk contracting. He wrote the Commerce Department recently instituted a tiered risk management review process to give greater scrutiny to acquisitions that are deemed riskiest based on dollar value and criticality to mission accomplishment. And NASA relies on a “master buy” database to increase its headquarters’ visibility into and understanding of its components acquisition plans and strategies.

A March 2011 interim rule by the Federal Acquisition Regulations Council also is helping agencies determine when to use these contract types.

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