Will most stimulus contracts be fixed price?

Matthew Weigelt at WashingtonTechnology wrote in an article this morning that “contractors are likely to see more fixed-price contracts” for work funded by money from the stimulus bill. The premise is that the law (H.R. 1) requires the money to be spent competitively and on fixed price contracts – “to the maximum extent possible.” And, to provide incentive for the agencies to comply, contracts awarded on a basis other than fixed price AND non-competitively will be posted on the Recovery.gov web site.

Sounds good, but “maximum extent possible” has wiggle room you could drive a truck through. And how much of a deterrent is posting a contract summary on a web site? Please. Even that is only required if the contract is BOTH non-competitive AND not fixed price.

Just four days ago, Elise Castelli at the Federal Times wrote that agencies avoid fixed price contracts for complex work. Her article quotes a just-released study by the Center for Strategic and International Studies that shows the use of cost-type contracts increasing at a much faster rate than fixed price, though both are increasing. And, T&M contracting is on the decline.

That’s no surprise. All the agencies have been under pressure to reduce use of T&M contracts for years. The study Elise reviewed showed clearly that 15 years of anti-T&M pressure has had an effect. But the effect was to shift more contracts to cost-type than to fixed price and there’s a good reason for it.

Fixed price contracts are hard to write. They take more time and more people to evaluate and award. They’re more likely to generate protests during the competition and constructive changes and claims during performance. T&M would be much faster, but they’ve become the “third rail” of the acquisition world. Cost-type contracts are almost as fast and don’t carry the T&M stigma.

I don’t think anyone would argue against the intent of the stimulus bill language. Fixed price contracts would be good. The question is “Do you want it fast or do you want it good?”

The whole point of the stimulus is to do it fast. That being the case, fixed price, competitive contracting is likely to be the last choice of an already over-worked acquisition shop trying to get a contract awarded No one wants to touch the “third rail” of T&M contracting and all that leaves is the cost-type contract.

Sorry, Matthew. Part of the infrastructure money going to the states may be spent on fixed price contracts. That’s normal for construction contracts let by state and local governments anyway. But I think it’s a safe bet that most of the Federal contracts, particularly IT, will be cost-type.

That’s where I’d put my money. And, I’m betting Uncle Sam will, too.