time and material | The Contracting Education Academy

December 17, 2014 By AMK

Patent & Trademark Office lacks oversight of time-and-materials contracts, says IG

The Patent and Trademark Office didn’t follow best practices when monitoring its time-and-materials contracts for the amount of work done by a contractor, says a Dec. 3 Commerce Department inspector general report.

The IG reviewed 103 contracts worth $35.4 million and found that $24.6 million in contracts lacked the proper oversight to determine whether payments made to the contractors were warranted.

In a time and materials contract, the government agrees to be billed by a contractor for the work performed as well as the materials used.

Contracting officers often did not prepare service level agreements, which define the scope of the service, and the managers didn’t maintain documentation of contractor performance, the report says.

Keep reading this article at: http://www.fiercegovernment.com/story/ig-uspto-lacks-oversight-time-and-materials-contracts/2014-12-09

March 14, 2011 By AMK

Army skeptical of fixed-price contracts

The Obama administration might be embracing fixed-priced contracts as the preferred method for purchasing goods and services from the private sector, but that strategy is not necessarily being implemented by the Army.

During a speech on Wednesday to service contractors, Malcolm O’Neill, assistant Army secretary for acquisition, logistics and technology, offered a surprisingly frank critique of fixed-price contracts.

“There is risk when you take something fixed-price,” O’Neill told members of the Professional Services Council, an industry trade association. “But my experience has been that when you offer a fixed-price bid, it’s 10 percent to 15 percent more than you need.”

O’Neill’s office often has argued against using fixed-price awards because of the belief that contractors build a cushion into their bids to compensate for the potential risks that occur during the length of a contract.

The Army wants the contractor to share the risk using more cost-plus, incentive-based contracts in which the vendor is rewarded for coming in ahead of schedule and potentially punished, through the loss of award fees, for delays. Cost-type contracts also can be more easily modified if the government’s requirements change, O’Neill said.

The Obama administration has repeatedly classified cost-plus contracts as “high risk,” lumping them in with time-and-materials contracts and sole-source awards. The Office of Federal Procurement Policy has encouraged agencies to cut by 10 percent their use of each of the three contract types.

Recent data, however, suggest that agencies’ use of cost-plus contracts actually has gone up. While agencies have cut their spending on time-and-materials contracts — considered the highest risk to taxpayers because of the potential for escalating costs — most of those contracts were converted to cost-reimbursement vehicles rather than fixed-price contracts, OFPP Administrator Daniel Gordon said last month.

O’Neill said he has received no direction from the Pentagon or the White House to use fixed-price contracting when he thinks it’s inappropriate. In some instances, he has counseled against fixed-price contracts because the Army’s estimated costs were 20 percent less than the lowest offer. He described the dichotomy as “should cost versus would cost.”

In a brief presentation, O’Neill stressed the principles of the Defense Department’s ongoing efficiency initiative to save money through reducing overhead costs, improving business practices — including more contract competition — and eliminating troubled programs.

“We have every reason to do our jobs better,” O’Neill said. “If I can do the job of 10 people with eight people, that makes me feel good.”

The funds saved from the efficiency initiative will largely be reinvested in the warfighter, Defense officials have said. The ultimate goal is a 2 percent-to-3 percent net annual growth in warfighting capability without a commensurate budget increase.

O’Neill said contractors will play a critical role in helping reach that goal. “You have got to play shortstop on our team,” he said.

The Army, for its part, recently completed a study that looked at contract requirements, overall funding and acquisition policies. The resulting plan, which eventually will be made public, now is being reviewed by Pentagon leadership.

– by Robert Brodsky – GovExec.com – March 9, 2011

September 28, 2010 By AMK

More guidance coming on time-and-materials contracting

Officials intend to clarify the rules that require contracting officers to explain their decisions for awarding time-and-materials contracts for commercial services.

Because of some confusion in the past years about the rules, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council have proposed amending acquisition rules to make it obvious to contracting officers the definition of a time-and-material contract and about explaining why they awarded that type of contract, according to a notice in the Sept. 27 Federal Register.

The Government Accountability Office reported in 2009 about several misunderstandings among contracting officers across the government. Many of them thought the fixed-price labor rates in time-and-materials contracts made them a fixed-price type of contract. GAO also found a general misunderstanding about when it’s necessary to justify the use of a time-and-materials contract when purchasing commercial services. During an audit, GAO concluded that managers were not detecting that contracting officers were failing to comply with these safeguards around time-and-materials contracts.

When buying commercial services, officers must give an account for their decision to use the type of contract in which a company bills the government for its time or labor hours and its materials. A contract with a set price is safer for the government because the time-and-materials contracts can get out of control, officials say. Regulations also tell the officers to give details about their market research efforts and describe how they will use fixed-price contracts on future or follow-on acquisitions, the councils said.

Contracting officers have been allowed to buy services with this type of risky contract, but the officers also have to justify why they’re using it. Certain parts of the Federal Acquisition Regulation are clear about when a justification is necessary, but other parts are not so obvious, the councils said. And that’s caused some problems. Through the proposed modifications, the councils hope to fix those problems.

The councils are accepting comments on their proposal through Nov. 26.

— by Matthew Weigelt – Sept. 28, 2010 – Federal Computer Week.

June 28, 2010 By AMK

Pentagon tightens reins on contractors

The Defense Department is calling on government contractors to do their part to reduce inefficiencies in procurement as part of a larger stratgey to address expected shrinking budgets that DOD will face over coming years , according to a senior DOD official.

The announcement follows up on recent plans released by Defense Secretary Robert Gates to shave $100 billion from the DOD budget over the next five years.

Ashton Carter, undersecretary of defense for acquisiton technology and logistics, outlined his new initiatives for garnering the 2 percent to 3 percent net growth needed to fund the war, without increasing budgets, by eliminating some overhead costs and transferring the savings to combat capabilities.

“Everybody knows we’re entering a new era. We need to play the game that’s on the field,” Carter said at a Pentagon press briefing today. Defense contractors need to “look at their activities, practices and processes, and see where you can identify savings.”

The approach is two-pronged, looking within the DOD workforce for better techniques and acquisition analysis and challenging industry to do a better job of providing goods and services on time, on budget, and on schedule for less, one industry executive said.

“The goal is laudable, unquestionably,” said Alan Chvotkin, executive vice president and counsel for the Professional Services Council, who attended an invitation-only summit this morning that Carter held to meet with defense industry executives. “There isn’t enough money to sustain the military’s long-term needs.”

In efforts to close the gap, Carter and his office are taking aim at contracting activities, particularly at the different types of contracts, program costs and the practices that surround them.

One concern is what type of contracts are used for particular needs. Carter’s plans include a move to phase out award-fee or cost-plus contracts that reimburse contractors for legitimate costs plus award additional bonus revenues, instead favoring fixed-price contracts “in which government and industry share equally in cost overruns and underruns,” according to Carter’s memo to industry. Fixed-price contracts also would be favored over less-certain time-and-materials contracts as well.

It’s a move that is causing a considerable stir in the defense contracting industry as the companies remain unsure as to what the new guidelines will mean for their business. In a client memo, FDR Markets predicted the initiative “will likely increase uncertainty, and the risk profile, of the defense industry and we expect it to cause the group to weaken as a result.”

“There’s a lot of uncertainty of the implementation,” Chvotkin said, expressing concern about unnecessarily eliminating a contract type that could still be of use, depending on the goods or services. “You want to match what you want to buy with the right contract type. You don’t want to decide how to buy before you decide what to buy.”

Contracted goods and services “cover a broad span of activities and no one size fits all. Yet some of his initial recommendations may unnecessarily limit flexibility,” Chvotkin said in a released statement from his association. “For example, the department is right to focus on choosing the right contract vehicle, but why take a tool out of the toolbox by eliminating time and material contracts?”

Still, Carter insisted he wants to work with industry and understands the vital role defense contracting serves. “We do not have an arsenal system in the United States: the Department does not make most of our weapons or provide many non-governmental services essential to warfighting. These are provided by private industry,” Carter said in the memo.

At the Pentagon briefing, Carter also outlined plans to incentivize the trimming of excess spending, while leaving open the repercussions for companies that don’t work to get leaner.

“This is about costs, not profits. We want to use profits as an incentive for the defense industry, an incentive for saving taxpayer dollars. We want to foster productivity growth,” he said. Companies that do participate “will retain programs, get new programs and remain profitable if you’re leaner.”

Carter added that final guidance would be released in coming weeks.

— by Amber Corrin – June 28, 2010 – Federal Computer Week

June 24, 2009 By AMK

Agencies turn to GSA Schedules for T&M contracts

The vast majority of commercial services purchased on time-and-materials contracts went through the General Services Administration’s Multiple Award Schedules program, according to a report issued today. But it also said regulations showing that a T&M contract was the only option have not been applied to the program.

Agencies bought $9.1 billion worth of services on T&M contracts from February 2007 to December 2008, the Government Accountability Office said in the report. However, contracting officers could circumvent a Federal Acquisition Regulation’s rule requiring more details on why the officer wasn’t using a type of contract with less risk than a T&M contract.

Under T&M contracts, companies are paid for their time and their materials. The contract type is very risky for the government because costs can grow significantly in a short amount of time.

In 2007, the FAR was revised to allow agencies to use T&M contracts to buy commercial services using a streamlined procurement process. There were safeguards though. One of them required contracting officers to write a detailed determination and findings report to proving why no other contract type was suitable for the purchase.

GSA officials told GAO that the GSA administrator can decide what procedures apply to the program. The program is unique from usual contracts, and legislative language is unclear as to whether the rule requiring contracting officers to justify their decisions to use a T&M contract applies to the Schedules. In a legal opinion, GSA said the Schedules program has other safeguards requiring contracting officers to check that prices are reasonable.

GAO wasn’t convinced though. “It is not apparent to us that the regulations cited by GSA provide the government with risk mitigation equivalent to that provided by” the FAR requirement, it wrote.

However GSA officials said they were working to develop a similar rule that requires contracting officers to show why the T&M contract was the only option.

GAO recommends that regulators amend the regulation to make it clear that the FAR’s safeguard applies to the Schedules program.

— by Matthew Weigelt – June 24, 2009 – Federal Computer Week

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