DISA to limit use of time-and-materials contracts

The information technology arm of the military plans to curb its use of time-and-materials contracts, where companies bill the government based on the number of hours worked and equipment used rather than progress toward predefined goals, agency officials said on Thursday.

"Time-and-materials contracts [are] going to be scrutinized," said Anthony Montemarano, component acquisition executive at the Defense Information Systems Agency, during the Federal Networks conference in McLean, Va. "We want to know the direction that [contractors] are going."

Agencies typically use time-and-materials agreements for large IT integration projects, where the degree of complexity can make assigning a fixed price difficult and risky since costs could easily exceed estimates. But critics note that the arrangement does not give companies incentives to control equipment costs or to work efficiently.

The Federal Acquisition Regulation requires contracting officers to conduct thorough reviews to determine that no other type of contract is suitable before entering into a time-and-materials arrangement for commercial support services for regular business operations. In November 2008, the Defense Department issued a FAR supplement requiring the same level of review for noncommercial time-and-materials contracts that contribute to the department's core missions.

Despite increased oversight, time-and-materials contracts remain a problem, Montemarano said.

"Certain projects have to be time and material -- we understand that," he said. "But it's being abused; we've gotten to the point where everything is time and materials, so we're turning the ship to bring [their use] down to a reasonable level."

Whenever possible, DISA will rely on performance-based agreements, which allow contractors to propose a cost-effective method for accomplishing goals. Agencies are required to pay for services only when these predefined milestones are achieved.

Time-and-materials contracts will be reserved for extraordinary circumstances, said Cindy Moran, director of network services at DISA.

"We need time-and-material contracts for the next Hurricane Katrina to make sure we can support a sudden surge [of requirements] and do something that might not be predictable," Moran said.