OFPP trying to stem the use of cost-plus contracting

Monday - 4/13/2009, 2:04pm EDT

By Jason Miller
Executive Editor
FederalNewsRadio

The amount of federal procurement dollars awarded through cost-type contracts has nearly doubled over the last eight years.

In a recent report to Congress, the Office of Federal Procurement Policy says agencies spent $135 billion in 2008 on cost-type contracts, which include cost-plus-fixed fee, cost-plus-award fee, cost-plus-incentive fee and cost-sharing types of contracts. These types of contracts place more risk on agencies than the preferred type of contract, fixed price.

"This near-doubling in cost-reimbursement contracts calls into question whether these vehicles are being used excessively or without adequate justification, and whether agencies have the necessary skills and capacity - within both acquisition and program offices - to successfully administer these contracts," OFPP states in the report to the Senate Homeland Security and Governmental Affairs Committee.

The Defense Authorization Act of 2009 required OFPP to submit a report to the committee on dollar value and number of cost-type contracts agencies use each year.

OFPP states that five agencies - the Departments of Defense, Energy, Health and Human Services and Homeland Security as well as NASA - accounted for about 95 percent of all cost-type contracts in 2008.

DoD alone spent $88.5 billion on cost-type contracts, while Energy spent more than $19 billion last year.

OFPP, however, points out that the use of cost-type contracts accounts for only 25 percent of all procurement dollars agencies spend. This is down from 35 percent in 2000.

Agencies used fixed price contracts on 60 percent, or $315 billion, of all federal procurements last year.

"[A] gencies are authorized to use cost-reimbursement contracts only when uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use a fixed-price contract," OFPP states. "Agencies must apply appropriate surveillance during performance to provide reasonable assurance that efficient methods and effective cost controls are used. This oversight requires more resources and the involvement of a broader range of disciplines than are typically required to administer a fixed-price contract. In addition, the contractor's accounting system must be adequate so that the government and contractor may accurately identify costs applicable to the contract."

OFPP is taking several steps to improve how agencies use this type of contracting, including reviewing current practices and identifying areas agencies can strengthen.

OFPP will monitor the use of cost-type contracting for Recovery Act funding, and the Federal Acquisition Regulations Councils are developing additional regulations on cost-type contracts.

OFPP states that the councils are evaluating:

  • When and under what circumstances cost-reimbursement contracts are appropriate,

  • What are the acquisition plan findings necessary to support a decision to use cost-reimbursement contracts,

  • Whether the acquisition workforce has the resources necessary to award and manage cost-reimbursement contracts.

"To address weaknesses in the federal acquisition system, the President directed OMB to take a series of steps to significantly improve the acquisition process," OFPP states. "Specifically, by July 1, OMB must develop guidance to assist agencies in 'reviewing, and creating process for ongoing review of, existing contracts in order to identify contracts that are wasteful, inefficient, or not otherwise likely to meet the agency's needs, and to formulate appropriate corrective action in a timely manner.'"

Additionally, OMB by Sept. 30 must issue guidance to agencies to govern the use and oversight of sole-source and other types of non-competitive contracts, and to maximize the use of full and open competition. OMB also will issue guidance to govern the proper use and oversight of all types of contracts to minimize risk to agencies.

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On the Web: GPO - Defense Authorization Act for 2009 (pdf)

OFPP - Report to Congress on cost-type contracts (pdf)

FederalNewsRadio - Beefing up the acquisition workforce

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