Proposed T&M rule increases oversight

Proposed rule

A proposed new rule would increase the oversight of time-and-materials and labor-hour contracts, a move that some procurement experts say is long overdue.

The Defense Acquisition Regulations Council and Civilian Agency Acquisition Council jointly proposed the rule, published Monday. A public meeting will be held at the General Services Administration headquarters Oct. 18, and the councils will accept written comments until Nov. 25.

The rule implements measures in the National Defense Authorization Act of 2004, which authorized the use of time-and-material or labor-hour contracts for commercial services acquired in support of a commercial item. It also approves other services that the Office of Federal Procurement Policy determines are commonly sold to the general public on that basis.

The key feature of the contracts is that they pay contractors based on time worked and materials used rather than a fixed price. The variability makes it harder for agencies to budget for such contracts.

Here are some of the important provisions in the proposed rule.

* Agencies must make a formal determination that a fixed-price contract is not suitable because it is not possible at the time of the order to accurately estimate the extent or duration of the work.

* Contracting officers must identify what portion of an hourly rate is profit. If the contractor must redo work, agencies will pay it only for costs, not additional profit.

* Contractors are responsible for substantiating the hours that their subcontractors work and receive payment.

* The rule allows agencies to access company records and interview employees when considered necessary to verify work.

Chip Mather, a senior vice president at Acquisition Solutions, said the councils did an exceptional job in creating the proposed rule.

“If agencies actually start to apply this, you’re going to see significant oversight being applied to time-and-materials" contracts, he said. “This is going to have a significant impact on the way business is done with time-and-materials contracts, as it should be.”

The rule will make such contracting more burdensome, which Mather said is also a benefit. It will discourage the use of the contracts except when they are necessary, he said.

“They are the least preferred contract type for a reason," he said. “If you can make it fixed price, and it’s reasonable to make it fixed price, then you should be doing so.”