GAO: Agencies relying too much on time-and-material contracts A. Martin UW Photography

In the Government Accountability Office's eyes, T&M contracts put too much risk on agencies instead of companies.

Fixed-price and other types of contracts that use an “as-a-service” model get a lot of attention, but agencies still buy a ton of stuff the old-fashioned way -- by the hour.

A new Government Accountability Office report says the federal government’s use of time-and-materials contracts has changed little over the last five years even as cloud computing and other managed services offerings have gained momentum.

GAO found that between fiscal years 2017 and 2021, the government obligated $139 billion in spending against time-and-material contracts.

Civilian agencies were by the far the heaviest users of T&M contracts with 11% of their contract dollars flowing to these types of procurements. By comparison, only 1% of all defense contract dollars went to T&M contracts.

DOD officials said their use of T&M contracts was low because they made an effort to reduce reliance on them.

One main danger of time-and-material contracts is that compared to other types, companies have less incentive to find ways to work more efficiently. Contractors take in more money the longer a program goes.

The government also owns all of the risk. On the other hand, a fixed-price contract puts the burden on the contractor.

GAO found the most common instance agencies cited in turning to T&M contracts is when requirements are difficult to define.

A second area of criticism from GAO is that few agencies have established a path to move toward other contract types.

Three agencies increased their use of T&M contracts during time period GAO studied: the Air Force, State Department and Social Security Administration

GAO wants agencies to justify when and how they use T&M contracts, plus identify opportunities to reduce their reliance on them. One approach GAO recommends is to structure T&M contracts in a way that allows for transitioning to another contract type such as fixed-price, as more is learned about the requirements.

The recommendations were specific to the Air Force, State Department and SSA because those were the agencies where GAO took a deeper dive into their contracts. But the lessons can be applied to any agency.

Each of the three agencies acknowledged the GAO study, but have not implemented any changes yet.