[Federal Register Volume 75, Number 186 (Monday, September 27, 2010)]
[Proposed Rules]
[Pages 59195-59197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24104]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 8, 12, and 16

[FAR Case 2009-043; Docket 2010-0100; Sequence 1]
RIN: 9000-AL74


Federal Acquisition Regulation; Time-and-Materials (T&M) and 
Labor-Hour (LH) Contracts for Commercial Items

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (the Councils) are proposing to amend 
the Federal Acquisition Regulation (FAR) to implement recommendations 
of the Government Accountability Office (GAO) Report 09-579 dated June 
2009 to Congressional Committees on ``Minimal Compliance with New 
Safeguards for Time-and-Materials Contracts for Commercial Services and 
Safeguards Have Not Been Applied to GSA Schedules Program.''

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat on or before November 26, 2010 to be considered 
in the formulation of a final rule.

ADDRESSES: Submit comments identified by FAR Case 2009-043 by any of 
the following methods:
    <bullet> Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by inputting ``FAR Case 
2009-043'' under the heading ``Enter Keyword or ID'' and selecting 
``Search''. Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2009-043''. Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2009-043'' on your attached document.
    <bullet> Fax: 202-501-4067.
    <bullet> Mail: General Services Administration, Regulatory 
Secretariat (MVCB), Attn: Hada Flowers, 1800 F Street, NW., Room 4041, 
Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR Case 2009-
043, in all correspondence related to this case. All comments received 
will be posted without change to http://www.regulations.gov, including 
any personal and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT: Mr. Warren Blankenship, Procurement 
Analyst, at (202) 501-1900, for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAR case 2009-
043.

SUPPLEMENTARY INFORMATION:

A. Background

    This rule proposes to amend the FAR to implement the 
recommendations of GAO's Report to Congressional Committees 09-579 
dated June 2009 on ``Minimal Compliance with New Safeguards for Time-
and-Materials Contracts for Commercial Services and Safeguards Have Not 
Been Applied to the GSA Schedules Program.'' GAO was directed by the 
National Defense Authorization Act of Fiscal Year 2004 conference 
report to review the use of the new authority being authorized in 
section 1432 of the Act, the extent to which it had been used, the 
types of contracts for which the authority had been used, and the 
degree to which such use was in compliance with the safeguards included 
in section 1432 (including the requirement that time-and-material and 
labor-hour contracts be used only where no other contract type was 
suitable).
    GAO reviewed contract files, interviewed contracting and 
procurement policy officials, and utilized legal interpretations of the 
applicability of the determination and findings (D&F) requirement to 
the GSA Schedules program. GAO believes that the evidence and findings 
obtained during its audit substantiates the conclusions and associated 
recommendations in the report. The

[[Page 59196]]

GAO audit revealed that, Governmentwide, contracting officers had the 
mistaken impression that the fixed labor rates in the time-and-
material/labor-hour contracts make them fixed price type contracts. The 
audit further revealed that there was a general lack of awareness of 
the FAR part 12 determinations and findings requirement among 
contracting officers across all Government agencies in their review of 
contract actions more than two (2) years after the determinations and 
findings requirement was implemented in the FAR. There was a failure of 
management to detect the lack of compliance with these safeguards. GAO 
recommended that further action was required for the use of time-and-
material contracts to acquire commercial services in order to help 
ensure that this contract type is used only when no other contract type 
is suitable and instill discipline in the determination of contract 
type with a view toward managing the risk to the Government. Therefore, 
GAO recommended that the following steps be taken:
    <bullet> Amend FAR Subpart 16.6 (Time-and-Materials, Labor-Hour, 
and Letter Contracts) and FAR Subpart 16.2 (Fixed-Price Contracts) to 
make it clear that contracts with a fixed hourly labor rate and an 
estimated ceiling price are time-and-materials or labor-hour contracts, 
not fixed-price type contracts;
    <bullet> Amend FAR Subpart 8.4 (pertaining to the Schedules 
program) to explicitly require the same safeguards for commercial time-
and-materials services, i.e., the FAR part 12 determination and 
findings and the justification for changes to the ceiling price, that 
are required in FAR 12.207; and
    <bullet> Provide guidance to contracting officials on the 
requirements in FAR 12.207 for the detailed determination and findings 
for time-and-materials or labor-hour contracts for commercial services 
and encourage agencies to provide training regarding the determination 
and findings requirement.
    The requirement for executing a determination and findings when 
acquiring commercial services on a time-and-material or labor-hour 
basis is not new. The FAR used to prohibit the use of any other 
contract type except fixed price for the acquisition of commercial 
items. However, in 2003, the Services Acquisition Reform Act (SARA), 
amended Section 8002(d) of Federal Acquisition Streamlining Act of 1994 
(FASA) to explicitly provide that the FAR shall include the authority 
for the use of time-and-materials and labor-hour contracts for the 
procurement of certain commercial services (the commercial services in 
such a category are ``of a type'' of commercial services that are 
commonly sold to the general public through the use of time-and-
materials and labor-hour contracts). FAR Case 2003-027 was published in 
the Federal Register at 71 FR 74667 on December 12, 2006, modified FAR 
12.207, FAR 16.601, and FAR 52.212-4 to include an Alternate I, to 
permit the use of time-and-materials and labor-hour contracts for 
commercial services when no other contract type is suitable. When using 
a time-and-materials or labor-hour contract, a ceiling price must be 
included in time-and-material and labor-hour contracts, it must 
incorporate Alternate I to payment clause FAR 52.212-4 to safeguard 
records and audit rights, provide insight into contractor costs, and 
ensure that costs are monitored by the Government due to the inherent 
risks associated with time-and-materials and labor-hour types of 
contracts. This FAR case proposes to modify FAR 8.405-2 and 12.207 to 
require the contracting officer, when acquiring commercial services 
using a time-and-materials or labor-hour order, to execute a 
determination and findings explaining why no other contract type is 
suitable for the acquisition; and FAR 16.201 and 16.600 to state 
explicitly that time-and-materials/labor-hour contracts are not fixed 
price contracts. The determination and findings is required to contain 
several elements, including a description of the market research 
performed for the acquisition and a description of the actions planned 
to maximize the use of fixed-price contracts on future or follow-on 
acquisitions. This is similar to the requirements in FAR 12.207 for a 
time-and-materials/labor-hour contract for commercial services. 
Currently, neither FAR 12.207 nor FAR subpart 8.4 explicitly mentions 
the requirement for the contracting officer to execute a determination 
and findings when placing orders against Schedules under FAR subpart 
8.4. GSA establishes contracts for commercial supplies and services 
against which Government agencies can issue orders.
    This proposed rule therefore builds on the existing Services 
Acquisition Reform Act (SARA) Panel recommendation to permit the use of 
time-and-materials and labor-hour contracts or orders when acquiring 
commercial services as long as a determination and findings is executed 
by the contracting officer consistent with FAR 12.207 and FAR 16.601 
when ordering services under Schedules. Therefore, the determination 
and findings requirement is proposed to be added to FAR subpart 8.4 for 
Schedule orders to make it clear that contracting officers must 
execute, prior to placing the order, a determination and findings that 
a fixed-price order is not suitable. The FAR is proposed to be further 
revised as follows:
    (1) At FAR 8.405-2, Ordering procedures for services requiring a 
statement of work, paragraph (e), Use of time-and-materials and labor-
hour orders for services, is added to incorporate the requirement for a 
determination and findings consistent with FAR 12.207 and 16.601(d).
    (2) Section 12.207(b)(4) is added as a cross-reference to 8.405-
2(e) for determination and findings when using Federal Supply 
Schedules.
    (3) Section 16.201, which sets forth the general description of a 
fixed-price contract, has been modified to clarify that time-and-
materials and labor-hour contracts are not fixed-price contracts.
    (4) Section 16.600, which sets forth the scope of time-and-
materials and labor-hour contracts, is added to clarify that time-and-
materials and labor-hour contracts are not fixed price contracts. This 
is not a significant regulatory action and, therefore, was not subject 
to review under Section 6(b) of Executive Order 12866, Regulatory 
Planning and Review, dated September 30, 1993. This rule is not a major 
rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils do not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because the rule does not impose any additional requirements on small 
businesses. An Initial Regulatory Flexibility Analysis has, therefore, 
not been performed. We invite comments from small businesses and other 
interested parties. The Councils will consider comments from small 
entities concerning the affected FAR Parts 8, 12, and 16 in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 601, et seq. (FAR case 2009-043), 
in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose information collection requirements 
that require the approval of the Office of Management and Budget under 
44 U.S.C. Chapter 35, et seq.

[[Page 59197]]

List of Subjects in 48 CFR Parts 8, 12, and 16

    Government procurement.

    Dated: September 20, 2010.
Edward Loeb,
Director, Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 8, 12, 
and 16 as set forth below:
    1. The authority citation for 48 CFR parts 8, 12, and 16 continues 
to read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 8--REQUIRED SOURCES OF SUPPLIES AND SERVICES

    2. Amend section 8.405-2 by redesignating paragraph (e) as 
paragraph (f); and adding a new paragraph (e) to read as follows:


8.405-2  Ordering procedures for services requiring a statement of 
work.

* * * * *
    (e) Use of time-and-materials and labor-hour orders for services. 
(1) Except as provided in paragraph (e)(2) of this section, agencies 
shall use fixed-price orders for the acquisition of commercial services 
to the maximum extent practicable.
    (2) A time-and-materials or labor-hour order may be used for the 
acquisition of commercial services only when--
    (i) It is not possible at the time of placing the order to estimate 
accurately the extent or duration of the work or to anticipate costs 
with any reasonable degree of confidence; and
    (ii) The agency acquires the services through a competitive 
procedure under paragraph (c).
    (3) Prior to the issuance of a time-and-materials or labor-hour 
order, the contracting officer shall--
    (i) Execute a determination and findings (D&F) for the order, in 
accordance with paragraph (e)(4) of this section that a fixed price 
order is not suitable;
    (ii) Include a ceiling price in the order that the contractor 
exceeds at its own risk; and
    (iii) Authorize any subsequent change in the order ceiling price 
only upon a determination, documented in the order file, that it is in 
the best interest of the procuring agency to change the ceiling price, 
and the change does not affect the scope of the task order as awarded 
(see 12.207(b)(1)(ii)).
    (4) The D&F required by paragraph (e)(3) of this section shall 
contain sufficient facts and rationale to justify that a fixed-price 
order is not suitable. At a minimum, the D&F shall--
    (i) Include a description of the market research conducted (see 
8.404(c), Acquisition planning, and 10.002(e));
    (ii) Establish that it is not possible at the time of placing the 
order to accurately estimate the extent or duration of the work or 
anticipate costs with any reasonable degree of certainty;
    (iii) Establish that the current requirement has been structured to 
maximize the use of fixed-price orders (e.g., by limiting the value or 
length of the time-and-materials/labor-hour order; establishing fixed 
prices for portions of the requirement) on future acquisitions for the 
same or similar requirements; and
    (iv) Describe actions to maximize the use of fixed-price orders on 
future acquisitions for the same requirements (see 12.207(b)(2)).
    (5) Additional approval is required for orders with a total 
performance period, including options, of more than three years:
    (i) The D&F prepared in accordance with paragraph (e)(3) of this 
section shall be signed by the contracting officer and approved by the 
head of the contracting activity prior to the execution of the base 
period; and
    (ii) The order shall include a ceiling price that the contractor 
exceeds at its own risk. The contracting officer shall document the 
order file to justify the reasons for and amount of any subsequent 
change in the ceiling price.
* * * * *

PART 12--ACQUISITION OF COMMERCIAL ITEMS

    3. Amend section 12.207 by adding paragraph (b)(4) to read as 
follows:


12.207  Contract type.

* * * * *
    (b) * * *
    (4) See 8.405-2(e) for requirement for determination and findings 
when using Federal Supply Schedules.
* * * * *

PART 16--TYPES OF CONTRACTS

    4. Revise section 16.201 to read as follows:


16.201  General.

    (a) Fixed-price types of contracts provide for a firm price or, in 
appropriate cases, an adjustable price. Fixed-price contracts providing 
for an adjustable price may include a ceiling price, a target price 
(including target cost), or both. Unless otherwise specified in the 
contract, the ceiling price or target price is subject to adjustment 
only by operation of contract clauses providing for equitable 
adjustment or other revision of the contract price under stated 
circumstances. The contracting officer shall use firm-fixed-price or 
fixed-price with economic price adjustment contracts when acquiring 
commercial items.
    (b) Time-and-materials contracts and labor-hour contracts are not 
fixed-price contracts.
    5. Add section 16.600 to read as follows:


16.600  Scope.

    Time-and-materials contracts and labor-hour contracts are not 
fixed-price contracts.

[FR Doc. 2010-24104 Filed 9-24-10; 8:45 am]
BILLING CODE 6820-EP-P