OMB has told federal agencies to pay more attention to the types of contracts they issue, in particular cautioning against overuse of cost-reimbursement contracts for mission support outside of research and certain development work.
Cost-reimbursement contracts “require only that the contractor provide its best efforts to deliver the service or product at the negotiated price” in contrast to fixed-price contracts which require delivery of a finished product or service without any price adjustments, memo M-21-11 says.
“While there is a legitimate role for cost-reimbursement contracts in supporting research, early development, and development in a non-commercial, non-competitive environment, the significant annual contract spend through this contract type, especially for work outside of these situations, suggests a need for greater management attention. By managing contract types effectively, agencies have better leverage to ensure timely, efficient, and cost-effective completion of contractor work supporting critical and high priority goals,” it says.
Competitively awarded fixed-price contracts “are preferred for minimizing risk and maximizing value for the taxpayer because they provide the contractor with the greatest incentive for efficient and effective performance while minimizing the administrative burden on both parties,” it says.
It tells agencies to: document why other contract types are not suitable and the steps planned for migrating to more balance risk-sharing during the life of the acquisition when developing business cases contemplating the use of cost-reimbursement contracts; strengthen or to clarify agency policies that support reduction of risk in contract decisions; and use tools designed to assist decisions on contract type, including those that help comparisons with other agencies that used lower risk contract types to achieve similar goals.