1.2.2: Fixed-Price Contracting

Expanding the Use of Fixed-Price Contracting

Other Information:

Between FY 2000 and FY 2008, total government-wide spending on cost-reimbursement contracts increased from $71 billion to $151 billion. Dollars obligated under time-and-materials/labor-hour contracts (T&M/LH) shot up from just $8 billion to $29 billion. Agencies are now committed to increasing their use of fixed-price contracts, where appropriate, which provide greater incentive for contractors to control costs and perform efficiently than cost-reimbursement and T&M/LH contracts. The chart to the right shows the percentage of dollars obligated for new non-fixed-price contracts in FY 2009 and FY 2010. To put progress on use of competition into a larger context, agencies awarded 5% of total obligations, which include new and existing contracts, as time-and-materials contracts and 30% as cost-reimbursement contracts in FY 2010. The percentages of total dollars obligated for these contract types are typically larger than new awards, because additional funding is awarded as the contracts progress and costs become known. The chart is based on data from the Federal Procurement Data System (FPDS). More information is provided in the Frequently Asked Questions. Cost-reimbursement contracting increased slightly government-wide between FY 2009 and FY 2010. The Office of Management and Budget is working with agencies that did not meet the targets to identify ways to make progress. However, in certain instances, cost reimbursement contracts may present less risk to the Government than other contract types. First, on the risk continuum for types of government contracts, cost-reimbursement contracts present less risk to the government than T&M/LH contracts. In addition, some agencies are utilizing “hybrid contract types”, which allow the parties to choose the appropriate pricing structure – fixed-price, cost-reimbursement or T&M/LH – for individual work orders. These contracts enable agencies to move part of the requirement to a lower risk pricing structure without awarding a new contract, but this conversion to lower risk contract types is not captured in FPDS. Recently published changes to acquisition regulations will help to ensure that cost-reimbursement contracts are used only when circumstances warrant, such as to help agencies obtain critical research, leading-edge innovation, and other needs where there is considerable uncertainty regarding the agency’s requirements.

Indicator(s):

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