Federal cost-reimbursement contract overview is a mess, GAO says

Federal agencies spend about $136 billion in cost-reimbursement contracts a year but the reasons they have for selecting that contract type are murky because of missing documentation and incomplete accounting, according to a new report from the Government Accountability Office.

“The complete picture of the government’s use of cost-reimbursement contracts is unclear,” the GAO concluded in the 53-page report published on Oct. 30.

In the last six fiscal years, federal cost-reimbursement contracts rose to $136 billion for 2008, from $120 billion in 2003. As a percentage of all federal contracts, the use of that contract type deceased to 26 percent, from 34 percent, over the period.

However, that trend may be misleading, the GAO warned, because many billions of contracts are uncoded as to type, or the type is coded as missing.

Also, there are signs governmentwide of significant increases in recent years of “combination” contracts, which are contracts that utilize more than a single contract type. The Office of Federal Procurement Policy has eliminated the “combination” category for awards starting in fiscal 2010.

Some of these combination contracts use cost-reimbursement features but do not record them as such, the GAO said, and this possibly underestimates the total value of cost-reimbursement awards. The value of federal combination contracts rose to $39 billion in fiscal 2008, from $1.3 billion in 2004. An examination of fiscal 2008 contracts showed that half had at least some cost-reimbursement features, the GAO said.

“Because many of the combination contracts include cost-type obligations, those contracts coded as cost-reimbursement do not portray the full picture of the government’s use of cost-reimbursement contracting,” the GAO report states.

Also, agency contracting officers frequently do not document why they choose cost-reimbursement contracts. A recent review of 92 contracts showed that about 30 percent did not include any documentation on the matter, the GAO said.

“The documentation we did find, for the most part, used boilerplate language; was short, vague, and repetitive; and did not show why a cost-reimbursement contract was selected,” the GAO said.

Furthermore, agencies are not conducting analyses to determine if they can effectively transition to a fixed-price contract type, the GAO wrote.

The GAO requested comments on the draft report from OFPP and from the Defense, Energy, Health and Human Services, and Treasury departments, as well as NASA; the Environmental Protection Agency; National Science Foundation; and the Corporation for National and Community Service.

The agencies mostly agreed with the findings and said they were implementing changes and reminding contracting officers of their responsibilities with regard to cost-reimbursement contracts. The EPA, NSF and service corporation did not respond.

Concerns about cost-reimbursement contracts are not new. The Office of Management and Budget began formulating new guidelines for use of the contract type in April.