Time-and-materials contracts reduced by $1 billion, says OMB

The Obama administration's move to reduce the number of federal contracts that are not fixed price cut the government's reliance on cost-plus contracts by $1 billion in fiscal 2010 over the previous year, the Office of Federal Procurement Policy said in a newly posted report dated July 8.

OFPP Administrator Dan Gordon wrote to lawmakers in a required annual update that dollars obligated under time-and-materials and labor-hour contracts, which the Obama administration considers a greater risk for wasteful spending, dropped from $29 billion to $28 billion, a 19 percent reduction in the proportion of dollars allotted to nonfixed-price contracts. "Agencies are more closely monitoring decisions involving contract type to ensure cost-reimbursement and T&M/LH contracts are used only in situations when these authorities are appropriate," Gordon wrote in a letter to Sen. Joe Lieberman, I-Conn., chairman of the Senate Homeland Security and Governmental Affairs Committee, and 11 other senators and House members. "In many cases, these efforts are being supported by contract review boards or peer reviews that bring seasoned contract and other experts together to help contracting and program offices identify and address high-risk practices."

The effort to favor predetermined contracts stems from a March 2009 memorandum on government contracting issued by President Obama to promote more competitively bid and fixed-price contracts governmentwide and to strengthen the acquisition workforce. The larger contract reform campaign, Gordon reported, cut contracting spending by $15 billion between fiscal 2009 and 2010, the first annual decrease since 1997.

As examples of successful agency efforts, Gordon cited the Commerce Department's "tiered risk management review process [that] gives greater scrutiny to acquisitions that are deemed riskiest based on dollar value and criticality to mission accomplishment." He also cited NASA's master buy database that boosts headquarters' visibility into and understanding of its scattered acquisition plans.

Stan Soloway, president and chief executive officer of the Professional Services Council, welcomed the letter but cautioned, "If we focus solely on the contract type, we risk losing sight of the strategic thinking that determines what we're buying and whether we're buying it the right way." A lot of federal contracting work cannot be done responsibly at a fixed price, either because the government demanded it or a company offered it, he said, giving as an example building a transmission line in a war zone such as Iraq where there are uncertainties in requirements, security and available technology.

In fact, Soloway said, "most companies would prefer fixed-price contracts, because the measures of performance are clear. [But] you have to match the type of contract to the mission, and focusing on one type doesn't necessarily translate to better outcomes or performance."

CLARIFICATION: This story has been modified to make it clear that the $1 billion reduction in time-and-materials and labor-hour contracts does not automatically translate into direct savings for the government, though achieving savings is the overall purpose of the administration's initiative.