New Time and Material Requirements Glenn Baer March 2007

Page 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

Page 3 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 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” 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

Page 4 T&M RULE MATRIX RequirementFAR Commercial Rule FAR Non- Commercial Rule WITHOUT Adequate Price Competition. FAR Non- Commercial. Rule WITH Adequate Price Competition DFARS Non- Commercial Rule WITH Adequate Price Competition Determinations and Findings (D&F) must be developed pre- contract Pre-contract, CO must develop a D&F and document: Market research Can’t estimate duration or cost Structured for future FFP Actions to maximize use of FFP Sole Source Not authorized Pre-contract, CO must develop a D&F stating no other contract type other than T&M is suitable for the requirement. Consent to Subcontract No consent required FAR applies: Government not required to reimburse subcontract costs incurred prior to obtaining consent for subcontractors. Approved purchasing systems authority remains unchanged

Page 5 T&M RULE MATRIX RequirementFAR Commercial Rule FAR Non- Commercial Rule WITHOUT Adequate Price Competition FAR Non- Commercial. Rule WITH Adequate Price Competition DFARS Non- Commercial Rule WITH Adequate Price Competition Qualifying Labor Hours Payment Payment for all labor hours for the prime and subcontractor at contract- specified labor rates for employees satisfying labor category qualifications. Include wages, indirect costs, G&A, profit. prompt payment act now applies to T&M contracts Prime can include profit on subs cost Hourly RatesOfferor must specify in proposal if non-FAR Part 12, labor rates apply to prime, subcontractor, and/or division, subsidiary, or affiliate of prime. No separate rates for prime or sub. are required to be in the contract. Offeror must identify the labor categories for each subcontractor to which proposed hourly labor rates apply; in addition to the labor rates of the prime. More flexibility due to competition Offeror not required to include separate rates for subcontractors but may blend prime or sub rates or list sep. interdivisional transfer includes no profit. Offeror specify sep hourly labor rates for prime, each sub, and each division, subsidiary, or affiliate of prime

Page 6 Rule/Acquisition Type RequirementFAR Commercial Rule FAR Non- Commercial Rule WITHOUT Adequate Price Competition FAR Non- Commercial. Rule WITH Adequate Price Competition DFARS Non- Commercial Rule WITH Adequate Price Competition Interdivisional Subcontract Services No separate rates for prime or sub. are required to be in the contract Catalog or Market prices can apply No profit pyramiding for transferring org., unless service is commercial item. Incidental Services Services not corresponding with any labor category in the prime contract are incidental and reimbursed as “materials” at actual cost.

Page 7 T&M RULE MATRIX RequirementFAR Commercial Rule FAR Non- Commercial Rule WITHOUT Adequate Price Competition FAR Non- Commercial. Rule WITH Adequate Price Competition DFARS Non- Commercial Rule WITH Adequate Price Competition MaterialsComm. Items reimbursed at catalog or mkt. price, Non-Comm items reimbursed at actual cost. Contractor’s “own” commercial items reimbursed at contractor’s catalog or market price; Non-comm items reimbursed at cost plus M&H, per FAR cost principles and Allowable Cost and Payment clause. Amend FAR to specifically state that the government does not pay profit or fee on the prime contractors materials or ODC’s materials also include supplies and ancillary services transferred between Divisions under common control ODCsReimbursed actual costs for types of ODCs designated in contracts; CO may limit recovery Reimbursed at actual cost provided indirect costs comprised only of costs excluded from hourly labor rates and allocated in accordance with contractor’s written/established accounting practices.

Page 8 T&M RULE MATRIX RequirementFAR Commercial Rule FAR Non- Commercial Rule WITHOUT Adequate Price Competition FAR Non- Commercial. Rule WITH Adequate Price Competition DFARS Non- Commercial Rule WITH Adequate Price Competition Indirect Costs M&H Reimbursed fixed amount, excluding costs included in hourly rates, allocated on pro- rata basis set by payment schedule; CO may limit recovery Reimbursed at actual costs allocated to material excluded from hourly labor rates and allocated in accordance with contractor’s written or established accounting practices. Rebates, Refunds, Discounts Eliminated the requirement for commercial contractors to give credit for rebates, refunds & discounts Contractor must credit the Government for cash and trade discounts, rebates, scrap, commissions, other amounts that have accrued to the benefit of the contractor.

Page 9 T&M RULE MATRIX RequirementFAR Commercial RuleFAR Non- Commercial Rule WITHOUT Adequate Price Competition FAR Non- Commercial. Rule WITH Adequate Price Competition DFARS Non- Commercial Rule WITH Adequate Price Competition GSAFSS Commercial9 GSA GWACS is considered Non-Commercial sales and require Mods to include subcontractor rates SurveillanceIncreased Contracting surveillance to assure efficient methods and effective cost controls are being used. CO will evaluate labor qualifications to contract requirements up to final payment. Contractors to maintain records to support subcontractor invoice including original timecards, timekeeping procedures distribution and qualifications of labor and invoices for material ApprovalsApprovals by the head of the agency prior to execution of base and option exceeding three years WithholdsNo specific withhold requirements 5% or 50 K on contracts and task orders