Justification for Use of Time-and-Materials Contracts
Abstract
The Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS) provide for a variety of cost-reimbursement contract types whenever contracting officers cannot realistically predict the amount or duration of the contractual effort performed or the costs of that effort. The FAR also states that the least preferred type of cost- reimbursement contract is a time-and-materials contract. This contract provides for the acquisition of supplies and services based on reimbursing the contractor for labor hours at a specified fixed hourly rate and purchasing materials at cost. Fixed hourly rates include wages, overhead, general and administrative expenses, and profit. Time-and-materials contracts are not considered beneficial because they provide the contractor with no incentive to control material costs or manage the labor force efficiently. FAR and DFARS guidance on the use of time-and-materials contracts is minimal; however, the FAR contains two requirements for the use of this type of contract. The contracting officer must determine that no other contract type is suitable, and the contract must contain a ceiling price. In addition, the FAR requires that the Government maintain appropriate surveillance of the contractor's performance and costs to ensure that efficient methods are used. Contracting officers are allowed to insert a payment clause for time-and-materials contracts which requires the withholding of 5 percent of the total labor amount claimed by the contractor, but not more than $50,000 on a contract or on an order issued under an indefinite delivery contract that requires a separate release by the contractor.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 08, 1991
- Accession Number
- ADA380371
Entities
Organizations
- Office of the Inspector General, U.S. Department of Defense