My Favorite Contract Type: Time-and-Materials-Hours (T&M) – Part 2

In my previous blog, we looked at how the T&M contract type and the “business arrangement” between the government (customer) and the contractor (supplier) is defined. Then, I made note of the fact that T&M and labor-hour (LH) type contracts are generally considered the least favored, only permitted when nothing else is “suitable” — and “suitable” is determined at very high levels in any federal agency. This is because, as illustrated, the T&M business arrangement presents a significant triple-threat to the government customer agency. In other words:

T&M is only ALLOWED when there is a high degree of uncertainty, i.e., when inherent in the performance of the contract is significant risk of cost growth and/or schedule slips and/or required performance objectives that are not completed/achieved.

and

Any adverse impact from these risks materializing is absorbed by the government.

At the end of Part 1, I left you with the question:

What can be done about all this risk, and why is T&M/LH my favorite contract type?

SWOT

I begin with the classic strategic- and project-level analysis concept called “SWOT” — Strengths, Weaknesses, Opportunities and Threats.  My academic background had little to do with SWOT and project management, but long ago I learned to focus available strengths and turn threats (here, those = risks of unsuccessful contract outcomes) into opportunities for ultimate success.

The FAR Offers Strengths

1. The Federal Acquisition Regulation (FAR) essentially requires government to increase the importance of government contract performance “surveillance,” in order to reasonably assure efficient methods and effective cost controls.
2. Couple this with the FAR Guiding Principle called Acquisition Team — a cross-functional integrated product team (IPT) with a membership that begins with the customer (user) and includes the project manager (PM), contracting officer (CO) and other appropriate functional specialists … plus the contractor upon award and throughout performance. The contractor’s inclusion in the acquisition team is frequently overlooked. But the Guiding Principles explicitly encourage fostering government-contractor cooperation, while also empowering team members to employ innovation with sound business judgment via procedures/practices not explicitly prohibited in law or regulation.

Coupled with the increased need for surveillance, the Guiding Principles offer extraordinary strength for overcoming the recognized and inherent risks in the underlying requirement.

Why? Because the T&M/LH contract type is actually a highly flexible business arrangement. It enables a government/contractor team to work together via a shared focus. 

Inherent uncertainty in a project essentially mandates in-process/in-scope detail-level guidance that cannot definitively be spelled out at award. Such real-time direction delegated to the contracting officer’s representative (COR) can help minimize or avoid adverse impacts when risks materialize.

Thus, a diligent, enlightened and innovative acquisition team can “SWOT” them away: by effectively applying the team’s strengths, enabled under the FAR Guiding Principles, to maximize contract success. Indeed, because it ideally capitalizes on an acquisition team’s strength and capability to flexibly and efficiently accomplish a contract’s underlying objectives, T&M is my favorite contract type.

As the Seventh Sense Consulting LLC (SSC) Director of Acquisition Practice, Mr. Patrick Shields has over 45 years of experience as an acquisition/contracting professional and innovative leader.  As a Navy Department civilian, he was a major weapons systems contracting officer and manager.  Since his civil service retirement, with 2 firms he has provided subject matter expertise support to numerous Federal civilian and DoD organizations, including acquisition strategy/ documentation support for key acquisitions, policy development, and personnel training.  He also managed a subscription “ask the expert” response team and authored numerous topical publications for over 25,000 professional employees of subscribing agencies.

Image by aymane jdidi on Pixabay