Cost-Plus Questions Persist

By Robert Brodsky

Federal agencies are failing to justify their use of risky cost-reimbursement contracts rather than using fixed-price contracts, according to a new report released Friday by the Government Accountability Office.

The watchdog reviewed 92 contracts and orders and found that roughly 30 percent did not include any supporting documentation explaining why a cost-reimbursement contract was selected. Agencies also failed to conduct a price analysis to determine if they can transition to a contract type with firmer pricing or to provide evidence that the contractor's accounting systems had been deemed adequate to determine costs applicable to the contract.

"Inadequate accounting systems, or accounting systems that had not been deemed adequate for many years, may result in the government making improper payments to contractors," the report said.

From fiscal 2003 through 2008 federal obligations under cost-reimbursement contracts increased from $16 billion to $136 billion. Those figures, however, actually represent a decrease in the total percentage of federal contract spending over that 6-year period, from 34 percent to 26 percent.

But, while cost-plus contracting appears to be on the decline, a significant increase has been reported for obligations using the "combination" contract type--a category that GAO found includes many contracts with cost-reimbursement obligations that are not recorded as such. The Office of Federal Procurement Policy recently decided to eliminate the use of "combination" as a Federal Procurement Data System-Next Generation contract type, effective for all new contract awards starting in fiscal 2010.