Administration stands firm in favor of fixed-price contracts

Bob Little

There is a delightful debate brewing between Rep. Tom Davis (R-Va.) and Angela Styles, the administrator of the Office of Federal Procurement Policy. At issue is whether General Services Administration schedule task order contracts must be firm fixed-price.

If that's what they're arguing over, Styles, contending that they should be fixed-price contracts, has already won.

What Davis doesn't seem to realize is that he is not in charge, Styles is. Moreover, she has the better'nay, only valid'legal position.

The story goes like this. During recent hearings on acquisition reform legislation, Styles had the temerity to tell it like she saw it: Labor-hour-type service contracts are antithetical to performance-based contracting. They pay for 'process' and leave the risk of obtaining the desired result to the government.

Fixed-price, performance-based, service contracts, on the other hand, pay only for results and place the risk of nonperformance on the contractor.

The service contractor associations, not amazingly, contend that agencies will be injured because of the loss of flexibility in fixed-price contracts. It is not clear what this reported loss of flexibility might entail.

Whatever it means, Styles isn't worried about a hypothetical loss of flexibility. She's worried that the law limiting time-and-materials services contracts is actually being flouted.

Davis reportedly has argued that Styles is incorrect as a matter of law'that Section 8002(d) of the Federal Acquisition Streamlining Act (FASA) only establishes a preference for fixed-price commercial-service contracts. Therefore, he might argue, labor-hour task orders are not actually prohibited. But he would be wrong.

What the law says is that the Federal Acquisition Regulation (FAR) requires that contracts for commercial items'which would include the types of services on GSA schedules'be firm fixed-price 'to the maximum extent practicable.' Under 41 USC 405, the administrator of OFPP gets to decide whether it is ever practicable to use other than a fixed-price contract for commercial services. If the administrator so decides, the FAR necessarily would reflect that decision.

Styles has made it clear that the FAR means what it implies. It is never impracticable to have a firm fixed-price for commercial services.

Early in the 1990s, GSA realized that it needed to make schedule contracting easier, so it developed the concept that fixed rates were the same as fixed prices. Thus, indefinite-quantity service contracts based on periodic rates for services were legitimized. It became fashionable to buy hours off of the GSA schedule, which is nothing more or less than a labor-hour service contract.

So, labor-hour contracting for GSA schedule services was firmly entrenched by the time FASA appeared. Since the agencies had already convinced themselves that fixed rate meant fixed price, no one noticed when the FAR changed things back in 1995 to eliminate fixed-rate contracting.

Now, somebody has.

Bob Little, an attorney who has worked for the General Accounting Office and a Washington law firm, teaches federal contract law. E-mail him at [email protected].

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