New Time and Material Requirements

1. New Time and Material Requirements Glenn Baer April 2008

2. The new Time and Material changes are to expressly authorize the use of T&M and labor hour contracts for commercial services To ensure fair and reasonable prices under non-commercial T&M and labor hour contracts To eliminate the confusion related to the payment amounts for subcontractor provided labor These new rules also introduce some confusion

3. Objectives of new policy • Discourage the use of T&M contracts • Least advantageous – FFP preferred • Legislative efforts to limit commercial T&M • Section 805 of DOD Authorization Bill • FAR 16.601 only use when it is not possible to estimate to total cost of the requirement and FFP not suitable • Must process D&F signed by agency head >3 yrs • Distinction on rules – adequate price competition • Separate rates, blend or combination • DFARS - DOD only apply separate rates

4. Legislative limitations applying to DOD • Section 805 of DOD Authorization Bill • DOD Must amend its regulations regarding T&M and Labor Hour contracts for commercial items. Such contracts can only be used to procure. • Services supporting a commercial item ( Ancillary Services • Commercial Repair Services • When an agency head approves a CO determinations that the services • Services are commonly sold to the general public through the use of T&M and Labor Hour contracts

5. Profit and cost clarification of subcontractor cost • Clarifys that the Prime can add profit to qualified subcontractor labor • DCAA Audit Memo of 7/31/07 Subcontractor rates include all cost and include prime contractor profits on such cost • Prime Profit does not permit additional interdivisional transfer profits • Both Prime and Subcontractor labor must meet the labor Qualification in the contract to be fully reimbursed – FAR 52.232-7(a)(1) • Who proposes labor Qualifications ? • Contrary to PBSA concepts • FAR 39-104 IT contracts not specify labor qualifications • Lee Memo 1/28/03 use labor qualifications in very limited situations to permit maximum flexibility

6. Payment of subcontractor by Prime • New rules in need of some clarifications • DCAA Audit guidance requires the Prime to review subcontractor labor qualifications.. Time record keeping and cost prior to payment • “Evidence of actual payment” Does this requirement attempt to reinstate the paid cost rule ?

7. Payment of Materials and incidental cost • New rules make clear that all material cost are reimbursed at actual cost further all labor expended that is not identified in the contract rates or meets the labor qualifications will be considered “incidental cost” • It is incumbent on the prime to verify the subs rates are include in the contract and meet all qualifications or risk loosing the application of profit

8. Time and Material – Changes • All commercial categories of services can be procured on a T&M basis if competitively awarded. • Specify that Allowable Cost & Payment Clause is included in T&M Contracts for Material Items. • Redefines “Materials” in a T&M Contract. See FAR Section 16.601. • Specify if a contractor provides it own commercial material, it may sell it at its catalog or market price. • Except as otherwise stated, the government does not pay fee on “Materials or incidental cost ” • Labor that does not meet the qualifications in the contract is considered to be incidental services. Prior approval of the Contracting Officer is required in order to be paid for the incidental services. • Specify that all labor hours that qualify under the labor requirements are to be paid at the rate in the contract which includes wages, overhead G&A and Profit. • Prompt Payment Act applies for interim payments under T&M and LH contracts for services • Incorporate three new solicitation provision that address contract labor

9. T&M RULE MATRIX

10. T&M RULE MATRIX

11. Rule/Acquisition Type

12. T&M RULE MATRIX

13. T&M RULE MATRIX

14. T&M RULE MATRIX