Services acquisition panel discusses time and materials contracts

Administration of contracts where the price varies according to the amount of time and materials expended can be more labor-intensive than that of fixed-price contracts, a corporate lawyer told members of a government acquisition panel Thursday.

"It would take a lot more people to run in a time and materials environment," Michael Bridges, an attorney for General Motors Corp., told members of the services acquisition panel convened to study how federal agencies could adopt commercial best practices.

The Detroit-based automaker has outsourced almost all of its information technology work since 1996 when EDS, a technology services provider, split off from the company, Bridges said. Now "virtually every" IT project at GM is completed using firm fixed-price agreements instead of more open-ended time and materials contracts, he noted.

With a procurement staff of 2,000 worldwide, GM officials decided that they didn't have enough people or enough expertise to manage time and materials contracts, Bridges said. Such contracts require frequent maintenance and have high overhead costs, he said.

GM uses time and materials agreements very sparingly for some kinds of consulting work and turns to fixed-price contracts for other IT needs, Bridges said. "That is the only way that we do this business worldwide," he said. "That's the only way we've been doing it for the last 10 years."

Joshua Schwartz, a law professor at The George Washington University and a member of the services acquisition panel, asked what this might mean for government procurement shops, many of which are thinly staffed and facing a spurt of retirements.

Industry representatives testified that the administration of fixed-price contracts can require just as large a staff. It's often difficult for federal agencies to know exactly how long a project will last or what kinds of costs would be associated, said Bruce Leinster, a consultant for IBM and representative of the Information Technology Association of America.

In situations where the scope of work "cannot be defined upfront with reasonable certainty," time and materials contracts may be an agency's only viable option, Leinster said. Fixed-price contracts required a "level of discipline and organization that isn't always there," said Michael Del-Colle, a representative of the Coalition for Government Procurement, a nonprofit contractor association.

Agreements with set prices can require a lot of work because agency officials have to define performance requirements and check to see if contractors are meeting them, Leinster added. Federal officials may also have to supply Congress with reports on fixed-price contracts, Del-Colle said.