The SARA clause

2002 OMB GISRA guidance

I was surfing a procurement Web site recently (I know — don't say it. My wife tells me the same thing all the time.) and came upon an interesting discussion. An anonymous questioner asked how the General Services Administration "gets away with" using time-and-materials task orders on its information technology schedule contracts. An animated, six-week online discussion followed, but no answer to the original question arose.

The participants were not being evasive. It's just that no one really knows how GSA "gets away with" allowing schedule contract vendors to enter into time-and-materials buys. Sometimes I wonder whether GSA knows. (I suspect most vendors don't know either. They simply are satisfied that it happens.)

The reason the question even arises is because the Federal Acquisition Regulation (FAR) provides that agencies "shall use firm, fixed-price contracts...for the acquisition of commercial items."

A schedule contract is, by definition, a commercial items contract, but a time-and-materials contract is also, by definition, not a firm, fixed-price contract. Regardless of this seeming conflict, vendors that hold schedule contracts enter into time-and-materials contracts all the time. Indeed, GSA's ordering procedures for acquiring professional services explicitly contemplate the award of time-and-materials task orders.

GSA officials probably would explain away this seeming contradiction by noting that the agency's ordering guidelines explicitly require that a ceiling price be established for time-and-materials orders. Including a ceiling price, they would say, moves the task order out of the time-and-materials contract arena and into (or at least closer to) the fixed-price arena.

Although I tend to agree with this position, GSA has another arrow in its defensive quiver. The FAR makes clear that "commercial items" include services sold in the commercial marketplace at "established catalog or market prices for specific tasks performed."

The FAR also makes clear that services sold at hourly rates "without an established catalog or market price for a specific service performed" are excluded from the definition. Consequently, services sold at hourly rates with an established catalog or market price are included in the definition of a commercial item.

Fortunately, this debate is about to end because the Services Acquisition Reform Act, first introduced by Rep. Tom Davis (R-Va.) in March 2002, is about to be reintroduced. Among other things, SARA explicitly authorizes the use of time-and-materials contracts to procure commercial services.

Although the Office of Federal Procurement Policy has taken a position against the bill's time-and-materials language, I suspect the combination of strong industry support — and the fact that GSA already is doing that which SARA proposes to explicitly make legal — will help preserve this important provision.

Aronie is an attorney with Fried, Frank, Harris, Shriver & Jacobson in Washington, D.C., and co-author of "Multiple Award Schedule Contracting." He specializes in the federal procurement process and can be reached at (202) 639-7336.