Governmentwide usage of fixed price contracts decreased slightly as a percentage of total contractor spending during the last fiscal year when compared to adjusted figures from the year before, says a July 8 report from the Office of Federal Procurement Policy.
Obama administration policy has been to encourage agency use of fixed-price contracts on the grounds that they offer less risk to the government. A July 29, 2009 memo (.pdf) from then-Office of Management and Budget Director Peter Orszag called on agencies to reduce by 10 percent in fiscal 2010 spending on noncompetitive, cost-reimbursement, and time-and-materials/labor-hour contracts.
As a percentage of total spending, however, federal use of various contract types in fiscal 2010 changed little from the previous year, although usage of fixed price contract decreased by a percentage point.
Agency use of cost-reimbursement contracts–under which contractors are reimbursed for costs and given a “fee,” which is what the government calls “profit”–also increased by a percentage point, according to report figures.
Because total obligations to federal contractors decreased in fiscal 2010 relative to the previous year, the absolute number of cost type obligations actually declined slightly–by $900 million, to $162.23 billion, according to OFPP adjusted fiscal 2009 figures. OFPP adjusted fiscal 2009 figures to account for a change in reporting methodology in the Federal Procurement Data System, which stopped accepting in fiscal 2010 reports of “combination” contracts, which government officials have said led to an underreporting of cost-type contracts.
Nonetheless, Gordon acknowledges in the report that an increase of some sort did occur–and, that it was driven at least in part by administration efforts to limit agency use of time-and-materials/labor-hour contracts, under which contractors charge the government for costs (“materials”) and an hourly rate (“time”). Unlike cost type contracts, company profit is embedded into the hourly rates companies charge. (Labor hour contracts are time-and-material contracts minus the materials.)
“Some increase in spending through cost-reimbursement contracting was expected as agencies moved away from T&M/LH contracting in situations where the level of uncertainty regarding the agency’s requirements prevented the agency from negotiating a fixed price,” Gordon states.
In the report, Gordon points to an interim rule the Federal Acquisition Regulation Secretariat published March 16 that added to the FAR additional guidance on when cost type contracts may be used. Among the changes, which were effective immediately, is a call for contracting officers to consider making portions of contract fixed price even when not all of a contract can be fixed price (FAR 16.104(e)).
The interim rule also limits the use of cost type contracts to when “adequate government resources are available to award and manage” the contract (FAR 16.301-3(a)(4)).
— by David Perera, Fierce Government – July 12, 2011 at http://www.fiercegovernment.com/story/fixed-price-contract-usage-down-says-ofpp/2011-07-12?utm_medium=rss&utm_source=rss
For more:
– download the OFPP report (.pdf)
– download the interim rule on cost type contracts
