Jump to content

Can Time-and-Materials Contracts be Incrementally Funded?

Recommended Posts

This question has probably been asked many times. I'll be happy if someone can provide me with a link to a previous thread that answers it.

The FAR differentiates between cost reimbursement contracts and Time-and-Materials / LH contracts. T&M contracts at my agency include the Limitation of Funds clause, which does not specifically make mention of T&M contracts. I would venture to say that most of our T&M contracts are incrementally funded, and the funded amount is less than the contract ceiling price.

My question is this: If the government and a contractor have agreed on a ceiling price under a T&M contract. By definition of the ceiling price, the government has told the contractor it will pay up to the ceiling amount for the contractor's best effort and the contractor cannot exceed the ceiling, except at its own risk. This leads me to believe that the government has created an obligation up to the contract's ceiling price and that an equivalent amount of funds must be obligated against the contract to keep from being anti deficient.

How can we limit this obligation by simply stating in the contract that we have obligated only "X" amount of dollars (less than the ceiling) and telling the contractor that it cannot exceed this amount? I ask this because I'm seeing contracts with a ceiling price - the price that we agreed the work might cost - but then the contracts in question include language titled Obligated Amount that notify the contractor that there is less money than the ceiling price on the contract and that they cannot exceed the obligated amount, except at their price. Doesn't this contradict the stated and agreed upon ceiling price?

If incremental funding is permissible, what is the appropriate method of stating this in the contract, versus the ceiling price?

Link to comment
Share on other sites

Guest Vern Edwards

Yes, you may incrementally fund a T&M contract, unless it's against your agency's policy.

To avoid confusion keep in mind that the term incremental funding is used in two ways. Used in one way it refers to incremental appropriation of funds by Congress for a specific program. Used in the way that most contracting people use it, incremental funding refers to incremental contractual obligation -- the government enters into a contract in which the government's obligation is conditioned upon periodic allotment of funds to the contract.

Use of incremental funding in the sense of incremental contractual obligation is not limited by contract type except by agency policy. If agency policy does not prohibit incremental funding of a particular contract type, then use of incremental funding is limited only by the availability of appropriations for the increments and the bona fide needs rule. If agency policy permits you can incrementally fund a contract of any type, including T&M, if funds are available for each increment and if you can use the available funds without violating the bona fide needs rule.

Again, agency policy aside the issue is not contract type. The issue is availability of appropriations and the bona fide needs rule. For a discussion of the issues see Department of Health and Human Services, Acquisition Policy Memorandum 2010-01, "Guidance Regarding Funding of Contacts Exceeding One Year of Performance," which is available at http://www.hhs.gov/a...ar-06282010.pdf. See also this discussion from the Wifcon Archives: http://www.wifcon.com/arc/forum387.htm. The latter discussion should be checked for updating. You can also find some good things to read if you Google "incremental funding policy".

As for contract language, use language similar to that in FAR 52.232-22, Limitation of Funds, which is for cost-reimbursement contracting.

Finally, if you do not understand incremental funding don't try to use it without checking with your legal and finance offices.

Link to comment
Share on other sites

This topic is now closed to further replies.
  • Create New...