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GAO: Tighten rules on time-and-materials contracts

Jun. 24, 2009 - 06:00AM   |  
By ELISE CASTELLI   |   Comments

Government spends more than $10 billion a year on commercial services using contracts known as time-and-materials contracts. But most of that spending circumvents statutory safeguards designed to ensure less-risky contracts are used instead, a new government report finds.

Time-and-materials contracts allow vendors to be paid for the actual costs of materials and at a negotiated rate for the number of hours they work. They are considered risky because a contractor's profits are tied to the time it takes to perform the task. That means contractors have little or no incentive to control costs.

"When these safeguards are not used, the government may be assuming more risk than necessary," said the">report by the Government Accountability Office.

Since 2007, Congress has allowed agencies to use time-and-materials contracts to buy commercial services such as project management, medical, legal, and information technology services but only if contracting officers provide written documents to show they took steps that ruled out using other, less-risky contracting forms, such as fixed-price contracts.

However, those rules do not apply to purchases on the General Services Administration's Multiple Award Schedule program, where most of the time-and-materials contract spending for commercial services occurs. About $6 billion of the time-and-materials contract spending was through the program, none of which had to be justified by the contracting officer, GAO said.

"The fact that safeguards put in place by Congress are not applied to GSA schedule contracts or orders raises concerns that the safeguards are not being used for the vast majority of [time-and-materials contracts] for commercial services," GAO said.

Where agencies are required to use the safeguards, they're not.

GAO reviewed 82 time-and-materials contracts for commercial services. Five were fully documented to show they were appropriate based on the market research conducted and an inability to estimate cost or define requirements.

Thirty-three of the contracts reviewed had no determinations justifying their use, GAO said. The remainder had partially documented files. Many contracting officers told GAO that they were not aware they had to document their reasoning for choosing the type of contract they use.

GAO urged the Office of Management and Budget to amend procurement rules to ensure that time-and-materials contract orders made through the GSA federal supply schedules program are justified. GAO also recommended new guidance for contracting officials to ensure they're aware of rules affecting time-and-material contracts.

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