USE OF FIXED PRICED VERSUS TIME/MATERIALS

Earlier this year, FAR was amended to ensure that time-and-materials and labor-hour contracts are used to acquire commercial services only when no other contract type is suitable and to instill discipline in the determination of contract type with a view toward managing the risk to the government.  Read: emphasize fixed priced contracts over all other types.

Of particular interest is the amendment to FAR 8.405-3.  "The contracting officer should establish firm-fixed priced orders to the maximum extent practicable."  Specifically, contracting officers "should place these orders on a firm-fixed price basis to the maximum extent practicable.  All orders under the BPA shall specify a price for the performance of the tasks identified in the statement of work." 

FAR 16.201 is amended to instruct that ceiling prices are "subject to adjustment only by operation of contract clauses providing for equitable adjustment [read, changes clause] or other revision of the contract price under stated circumstances [read, special clauses]."  And just to be clear: "Time-and-materials contracts and labor-hour contracts are not fixed-price contracts." 

Prior to issuing a T & M order, the contracting officer must execute a determination and findings (D & F) that fixed pricing is not suitable with "sufficient facts and rationale to justify that a fixed-price order is not suitable."  The contracting officer must state that it is not possible to accurately estimate the extent or duration of the work or anticipate the costs with any reasonable degree of confidence in order to justify T & M.  The agency must also try to use the fixed priced approach as much as possible and take action to be sure future work is ordered only on a fixed priced basis.

We raise this subject because we are aware that agencies have muffed the switch from T and M to fixed priced orders.  They have announced the switch and tried to write contracts as fixed priced when in the administration of them, they treat them as T & M.  The new regulations make it clear.  Fixed priced contracts come first.  T & M can be used only when absolutely necessary.  This, of course shifts greater risk to the contractor, but that's what the changes clause is all about.

bill@spriggslawgroup.com