Industry representatives said in a public meeting that providers of commercial services need flexibility under time-and-material and labor hours (T&M and LH) contracts if the government is to obtain maximum benefits of new proposed statutory authority to use such contracts.  (Under a T&M contract, the government acquires goods and services by paying a fixed hourly rate based on wages, overhead and profit for direct labor and obtains materials at cost (including handling costs) while an LH contract is like a T&M for labor charges while materials are not provided by the contractor.)  Industry representatives urged that (1) offerors should be allowed to propose either fixed price or T&M and LH contracts (2) prime contractors should not have to flow down to subcontractors the statutory requirement that T&M and LH contracts for commercial services be awarded competitively (3) requirements for government access to records that substantiate labor hours or material costs must take into account the record retention practices of commercial companies (4) commercial warranty provisions – such as the Uniform Commercial Code – may provide ways of dealing with nonconformance and (5) T&M and LH for commercial items should be exempt from Cost Accounting Standards.

Some government representatives expressed the view that T&M and LH gives the contractor more latitude to inflate costs (inspiring more oversight – see article below) saying adoption of more T&M and LH contracts should proceed “cautiously” to protect the public interest while others argued such contracts are more appropriate than fixed price vehicles where it is not possible to estimates accurately in advance.  Government representatives largely questioned the need to issue a “determination and findings” that other contract types are not suitable saying such D&F provisions should apply only at the contract, not task or delivery order level.  Government representatives also expressed sympathy with exempting T&M and LH contracts from CAS but questioned how items taken out of inventory or how to compensate contractors for material handling and subcontract administration since such indirect rates are based upon actual costs.

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