Skip to Highlights
Highlights

Federal agencies obligate billions of dollars annually using cost-reimbursement contracts. This type of contract involves high risk for the government because of the potential for cost escalation and because the government pays a contractor's costs of performance regardless of whether the work is completed. As such, cost-reimbursement contracts are suitable only when the cost of the work to be done cannot be estimated with sufficient accuracy to use fixed-price contracts. Agencies may use this contract type only if certain conditions are met. At your request, GAO assessed (1) the extent of agencies' obligations under these contracts, (2) the rationales for using this contract type, (3) determinations that contractors' accounting systems are adequate for determining costs applicable to the contracts, and (4) procedures for monitoring contractor cost controls. GAO analyzed federal procurement data and contract files and interviewed contracting and other government officials.

Skip to Recommendations

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Office of Federal Procurement Policy 1. To address the cost-reimbursement contract issues, and to help ensure that analysis is conducted to determine whether to continue using cost-reimbursement contracts when experience may provide a basis to transition to firmer pricing, the Administrator of the Office of Federal Procurement Policy (OFPP) should take steps to amend the FAR. Specifically, the Administrator should require procedures for contracting officers (in conjunction with the requiring activity) to analyze, before the award of a new contract or at other appropriate times during a contract's period of performance, the agency's requirement and determine if its experience with a procurement provides a basis for firmer contract pricing. The results and findings of this analysis should be documented in the contract file. If the analysis indicates that a basis for firmer pricing does exist, the procedures should require consideration, modification, and implementation, if feasible, of an acquisition plan to transition to a contract type with firmer pricing.
Closed - Implemented
According to an Office of Federal Procurement Policy (OFPP) official a Federal Acquisition Regulation (FAR) rule addressing cost reimbursement contracting is in the final stages of review and an interim rule will be published shortly. The rule specifically addresses transitioning away from cost reimbursement contracts. The interim rule (FAR Case 2008-030) was published in the Fed. Register on March 16, 2011 with comments due by May 26, 2011. The interim rule addresses our recommendation.
Office of Federal Procurement Policy 2. To address the cost-reimbursement contract issues, and to help clarify reporting requirements in the Federal Procurement Data System (FPDS-NG) to provide a clearer picture of the extent to which various contract types, including cost-reimbursement, are being used, the Administrator of OFPP should implement controls in FPDS-NG to preclude information from being entered without a contract type being identified, that is, eliminate the "missing" contract type option.
Closed - Implemented
An Office of Federal Procurement Policy (OFPP) official confirmed contract type is now a mandatory field. The contract types "combination" and "other" are no longer choices in the Federal Procurement Data System Next Generation (FPDS-NG).
Office of Federal Procurement Policy 3. To address the cost-reimbursement contract issues, and to help clarify reporting requirements in the Federal Procurement Data System (FPDS-NG) to provide a clearer picture of the extent to which various contract types, including cost-reimbursement, are being used, the Administrator of OFPP should reconcile the conflicting instructions in the FPDS-NG user manual for coding combination contracts versus coding based on the preponderance of contract type.
Closed - Implemented
In a September 28, 2009 response to a draft of GAO-09-921, the Office of Federal Procurement Policy (OFPP) reported that a change was approved to FPDS-NG, anticipated to be effective for all new contracts awarded in fiscal year 2010 that would eliminate combination as a contract type. GAO's review of the FPDS-NG user manual shows this was done. Specifically, as of October 1, 2009, combination is not a valid option for new base award actions.
Department of Health and Human Services 4. To address the cost-reimbursement contract issues, the Secretary of Health and Human Services (HHS) should direct the Director of the Agency for Healthcare Research and Quality (AHRQ) to provide guidance to the agency's contracting staff to ensure that they are aware of their responsibility to ensure that contractors' accounting systems have been deemed adequate before awarding cost-reimbursement contracts.
Closed - Implemented
In September 2009, the HHS Office of Acquisition Management and Policy issued a department-wide notice to remind contracting staff of the need to ensure adequacy of contractors' accounting systems prior to award of a cost-reimbursement contract.

Full Report