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.
Recommendations for Executive Action
|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.|
|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.|
|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.|
|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.|