Federal agencies can choose from among several different contract types, including T&M contracts, to acquire products and services. This choice is the principal means that agencies have for allocating cost risk between the government and the contractor. The government’s basis for payments, contractor’s obligations, and the party assuming more risk for cost overruns changes depends upon the type of contract used—fixed-price, T&M, or cost-reimbursement. T&M contracts constitute a high risk to the government. The contractor provides its best efforts to accomplish the objectives of the contract up to the maximum number of hours authorized under the contract. Each hour of work authorizes the contractor to charge the government an established labor rate which includes profit. These contracts are considered high risk for the government because the contractor’s profit is tied to the number of hours worked. Thus, the government bears the risk of cost overruns. Therefore the FAR provides that appropriate government monitoring of contractor performance is required to give reasonable assurance that efficient methods and effective cost controls are being used. Further, because of the risks involved, the FAR directs that T&M contracts may only be used when it is not possible at the time of award to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence. For many years, federal regulations have required contracting officers to justify in writing that no other contract type (such as fixed-price) is suitable before using a T&M contract. Commercial services comprise services for support of commercial items and services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices. During the 1990s, Congress enacted a number of laws to increase the government’s use of commercial practices to make government buying more efficient. The benefits of using commercial practices were seen as creating greater access to commercial markets (products and service types) with increased competition, better prices, and new market entrants and/or technologies. Commercial acquisition practices also present several advantages to contractors when doing business with the government, such as generally not being required to submit cost or pricing data. While the acquisition procedures in FAR Part 12 for purchasing commercial services allow for a streamlined process, prices are accepted based on competition and availability in the marketplace rather than the government’s review of a contractor’s cost and pricing data. Improperly classifying an acquisition as commercial can leave the government vulnerable to accepting prices that may not have been established by the marketplace. FASA authorized the use of fixed-price contracts for the acquisition of commercial items, but it did not explicitly authorize the use of T&M contracts for such acquisitions. SARA specifically authorized the use of T&M contracts for the acquisition of commercial services with certain safeguards to ensure proper use of these contracts. The implementing regulations included additional requirements as safeguards under FAR Part 12. Table 2 summarizes the FAR safeguards when using T&M contracts under FAR Part 12 acquisition procedures for commercial items; under FAR Part 16, acquisition procedures for noncommercial services; and under FAR Subpart 8.4, GSA schedule contracts. The FAR Part 12 revisions also added safeguards for agencies using T&M pricing on indefinite-delivery contracts for commercial services. Specifically, indefinite-delivery contracts for commercial services awarded using Part 12 procedures may allow for the use of fixed-price or T&M orders, and contracting officers are required to execute the Part 12 D&F for each order placed on a T&M basis. If the contract only allows for the issuance of orders on a T&M basis, the Part 12 D&F is required to be executed to support the basic contract and also explain why using an alternative fixed-price structure is not practicable. The D&F for this type of contract is required to be approved one level above the contracting officer. By contrast, the section of FAR Part 16 pertaining to T&M services does not explicitly address the D&F requirement for indefinite-delivery contracts. Concerns by DOD and Congress over the increased use of T&M contracts have sparked some actions to curb DOD’s use of T&M in general and for the acquisition of commercial services in particular. In June 2007, we reported that DOD’s use of T&M contracts had steadily increased and that contracting officials frequently failed to ensure that this contract type was used only when no other contract type was suitable. Little effort had been made to convert follow-on work to a less risky contract type when historical pricing data existed, despite guidance to do so. Based on our recommendations for improved oversight, DOD’s Defense Procurement and Acquisition Policy office, in March 2008, began requiring military departments and defense agencies to establish procedures for analyzing whether T&M contracts and orders under indefinite-delivery contracts are used when other contract types are suitable. Each department or agency was to provide an assessment of the appropriate use of T&M contracts for any contracting activity that obligated more than 10 percent of its total fiscal year 2007 obligations for services using T&M contracts or orders. The assessment was to include actions that will be taken to reduce the use of T&M contracts whenever possible. Further, the Acquisition Improvement and Accountability Act of 2007 required DOD to revise its acquisition regulation to require contracting officers to determine in writing that the offerer has submitted sufficient information to evaluate price reasonableness for commercial services that are not offered and sold competitively in substantial quantities in the commercial marketplace but are “of a type” offered and sold competitively in substantial quantities in the commercial marketplace. The act also specifies that DOD’s revised regulation shall ensure that the procedures applicable to T&M contracts for commercial services may be used only for the following: services procured for support of a commercial item; emergency repair services; any other commercial services only to the extent that the head of the agency approves a determination in writing by the contracting officer that the services to be acquired are commercial services; the offeror has submitted sufficient information to evaluate the price reasonableness of the services, if they are not offered and sold competitively in substantial quantities in the commercial marketplace; such services are commonly sold to the general public through use of T&M or labor-hour contracts; and the use of a T&M or labor-hour contract type is in the best interest of the government. We did not assess DOD’s compliance with these provisions because they have not yet been implemented. Federal agencies have reported relatively limited use of T&M contracts and GSA schedule T&M orders to purchase commercial services, based on those obligations coded in FPDS-NG as using T&M contracts and orders under commercial item procedures. From February 12, 2007, when the FAR change that allowed T&M acquisitions for commercial services was implemented, to December 31, 2008, $4.4 billion—less than 1 percent of total federal obligations for services—was reported. Figure 1 presents information on the total reported obligations for services (i.e., commercial and noncommercial) compared to obligations coded as (1) having acquired commercial services, (2) as T&M contracts for services, and (3) as T&M contracts for commercial services from February 12, 2007, to December 31, 2008. (.5% of total) Obliation coded a T&M contract for commercial ervice $4. billion (0.% of total) The vast majority of the $4.4 billion in obligations coded as T&M for commercial services were for services actually acquired under GSA schedule contracts ($3.1 billion). The FPDS-NG user manual defines commercial item procedures as those that use FAR Part 12 acquisition procedures, but our analysis of FPDS-NG data showed that these orders had been issued through FAR Subpart 8.4, pertaining to GSA schedule contracts, and thus had been miscoded based on the definition in the user manual. Although our overall focus was on nonschedule T&M orders for commercial services, we identified additional obligations under T&M orders placed on GSA schedule contracts. From February 2007 to December 2008, approximately $6 billion of the $47.6 billion in obligations coded as T&M contracts were through the GSA schedule program, in addition to the $3.1 billion that had been miscoded as having used FAR Part 12. Thus, the full picture of the government’s use of T&M for commercial services for this time period was approximately $10.4 billion— about 90 percent of which was under GSA schedule contracts. Agencies reported purchasing a variety of commercial services using T&M contracts and orders during this time period. The top 10 types of commercial services reported as purchased using T&M contracts were as shown in table 3. Our sample of 149 contracts and orders provides additional details on the variety of commercial services procured under T&M contracts. For example: The Army purchased patent legal services for inventions resulting from biomedical, chemical, and other research. The Indian Health Service, within HHS, entered into a contract for emergency nursing services and inpatient nursing services for a healthcare center. The Navy contracted for repair services for a Navy vessel undergoing overhaul at the Norfolk Naval Shipyard. The VA purchased project management services for its MyHealtheVet Web site, which provides access to health information, tools, and services. The Federal Bureau of Investigation (FBI) purchased certified gunsmith services to repair and perform preventative maintenance on firearms. NASA entered into a contract for translation, interpretation, visa processing, and logistical support services. Maintaining accurate data is an essential component of good oversight and helps lead to informed decisions. In our sample of T&M contracts for commercial services, we found that the quality of the data reported in FPDS-NG was compromised in several ways.