Industry hopeful about buying rule

OMB to allow some use of time-and-material contracts

What's the difference?

Time-and-materials


  • The government customer pays a fixed, hourly rate for supplies or services. Contractor-furnished material is provided at cost.

  • These contracts are typically used for engineering and design services, repairs, maintenance, overhaul or emergency services.

  • This contracting method puts the greatest burden on the government to control the time spent on the contract and, therefore, its ultimate cost.
 
Firm, fixed-price

  • The government customer pays a fixed price that is not subject to change.

  • These contracts are particularly suitable for standard or modified commercial items or military items for which sound prices can be established.

  • This contracting method puts the greatest burden on the contractor to control its costs.


Source: Immix Group

Michael Mason, an attorney for ITAA, said he'd like the rule to acknowledge that firm, fixed-price contracting may not be suitable for projects that impose significant risks on contractors.

Olivier Douliery

Bruce Leinster

Larry Allen

Industry executives said they like what they hear so far about a rule under development at the White House that will tell agencies when they can use time-and-materials contracts.

The new procurement rule will outline steps agencies must take to justify using contracts in which the government pays for a contractor's time and materials.

The White House prefers that agencies use firm, fixed-price contracts, because such contracts place the financial risk on contractors to complete the job on time and within budget. Time-and-materials contracts require the agency buyer to control the time a contractor spends on a project.

Bruce Leinster, a consultant to IBM Corp. of Armonk, N.Y., on procurement, said industry executives simply want the option of using time-and-materials contracts. Contractors said such contracts are necessary for complicated engagements in which all requirements cannot be known in advance of starting work.

[IMGCAP(2)]"I don't think we would quarrel with a rule justifying the use of time and materials," Leinster said. The justification would likely be that "contractors wouldn't bid the job otherwise," he said.

The Office of Federal Procurement Policy is drafting the new rule. "We need to make sure we don't just jump right to time-and-materials, but you go through the hoops of figuring out why it is unsuitable for a firm, fixed-price contract," Mathew Blum, a staff attorney at OFPP, said at a recent conference.

Before the proposal is published, OFPP will release advanced notice of proposed rulemaking this summer to get agency and industry input on how the private sector uses time-and-materials contracts.

"We want to understand what kinds of services are sold to the public on a time-and-materials basis predominantly, and what is rarely sold through time-and-materials," an official with the Office of Management and Budget said. "We don't want the government buying on time-and-materials when a smart commercial company wouldn't do the same."

The National Defense Authorization Act of 2004 requires that the White House issue the rule. The act states that time-and-materials or labor-hour contracts may be used to buy commercial services if the contracting officer:

  • Determines no other contract type is suitable

  • Includes in the contract a ceiling price that the contractor exceeds at its own risk

  • Authorizes any subsequent change in the ceiling price after determining the change is in the best interest of the purchasing agency.

According to the Defense Authorization Act, commercial services that may be considered for time-and-materials contracting are those bought for the support of a commercial item, and any other commercial services commonly sold to the general public through time-and-materials or labor-hour contracts where it would be best for the government to use these contracting methods.

Former OFPP Administrator Angela Styles said that time-and-materials contracts are often appropriate, but while at OFPP she tried to limit their use because agencies were often overpaying for services.

"My concern was that the agencies don't have the staff or capability to know what they need and buy on a firm, fixed-price basis, so they are just going out and buying something" on time-and-materials, said Styles, now a government contracts attorney at Miller & Chevalier Chartered in Washington. "It's hard to get a good price that way, and it's hard to manage the contract if you don't know what you are buying."

Rep. Tom Davis (R-Va.) drafted the new time-and-materials provision in the law to clarify when the contract type can be used to buy commercial services. He did so after Styles tried to block purchases of commercial services on time-and-materials contracts with streamlined acquisition procedures.

[IMGCAP(3)]Larry Allen, executive vice president of the Coalition for Government Procurement, a Washington trade group, said the new rulemaking effort is an attempt to get agencies to improve their acquisition planning.

"On a certain level, I don't think that is a bad thing. You have to have some idea of what your need is," he said.

Allen and other industry executives said they are eager to see the proposed rule to be sure it's not too restrictive.

"The details will be of interest," Allen said. "OFPP could say time-and-materials is acceptable, but only at the regulatory equivalent of midnight and 3 a.m. We would have concerns about anything that would put significant limitations on using time-and-materials contracts."

Michael Mason, an attorney for the Information Technology Association of America in Arlington, Va., said agency acquisition officials also should watch the rulemaking process carefully. Mason said he'd like to see the rule acknowledge that it may not be reasonable to engage in firm, fixed-price contracting for projects that impose significant risks on contractors or where the scope of work cannot be determined up front.

Acquisition officials' market research will help them decide which contract type to use, Mason said. If companies say they're not willing to bid on a firm, fixed-price contract, officials may need to choose time-and-materials.

"There needs to be built-in flexibility for the procuring agency to choose the type of pricing that best results in a fair allocation of risk between the contractor and the agency," said Mason, a partner at Hogan & Hartson LLP in Washington.

Government Computer News Staff Writer Jason Miller contributed to this story. Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com.

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