Defense Contracting: Improved Insight and Controls Needed over DOD's Time-and-Materials Contracts

Abstract : Under time-and-materials contracts, payments to contractors are made based on the number of labor hours billed at hourly rates and, if applicable, other direct costs. Because of the risk they pose to the government, their use is supposed to be limited to cases where no other contract type is suitable. GAO was asked to identify trends in the Department of Defense's (DoD) obligations under time-and-materials contracts; analyze what DoD is buying under these contracts; assess why DoD is using them and whether actions are being taken to ensure that they are used only when no other contract type is suitable; evaluate DoD's monitoring of contractor performance; and determine the differences between the labor rates prime contractors bill DoD and the rates in their subcontracts. GAO reviewed 82 time-and-materials contracts, agreements, and orders and examined prime contract and subcontract labor rates on 12 additional contracts or agreements. GAO is recommending that DoD require more diligence in justifying the use of certain types of time-and-materials contracts, analyze the use of time-and-materials on indefinite-quantity contracts to ensure that it does not become the default contract type, and require monitoring plans to reflect the risks inherent in this contract type. In written comments on a draft of this report, DoD concurred with the recommendations.