A Final Rule published in the Federal Register on December 31, 2013 that went into effect January 30, 2014 requires all U.S. Government (USG) agencies, except the Department of Defense (DoD), to include a new Federal Acquisition Regulation (FAR) clause in many USG service contracts.
The FAR clause requires service contractors and first tier subcontractors to track and report on an annual basis the hourly effort performed by their personnel on USG contracts. The clause applies to service contracts, regardless of contract type, including cost, time and materials and labor hour contracts above $150,000 and firm fixed priced (FFP) contracts above $500,000. It applies to commercial item services, and to prime contractors and first tier subcontractors. It will also apply to GSA Schedule contracts.
While the Final Rule may not impose a significant burden on many contractors attuned to cost and labor hour contracts, it may prove untenable for others that perform primarily FFP contracts and subcontracts and do not currently maintain detailed hourly contract performance records and accounting practices. Companies that provide commercial item services in particular will likely be impacted adversely by this new requirement. It is easy to imagine the difficulty this requirement will create for commercially oriented companies that measure the value and pricing for their services based upon metrics that may be completely disassociated with hourly effort.
The Rule will be implemented on a staggered basis for FFP and Indefinite Delivery Indefinite Quantity (IDIQ) contracts, which may provide some relief. There will be some delay in implementation given that the requirement will apply only to new contracts awarded after January 30th. Presumably, the requirement will not be imposed under existing contracts without a bilateral modification. However, for existing IDIQ contracts, the Final Rule indicates that the new FAR clause should be implemented by bilateral modification within six months of Final Rule implementation if the IDIQ contract period of performance extends beyond the current fiscal year and is expected to involve additional funding in excess of $2.5 million dollars. In addition, the new clause will only be implemented in new FFP contracts this fiscal year that exceed $2.5 million dollars and in new FFP contracts next fiscal year that exceed $1 million dollars. However, for FFP contracts awarded in Fiscal Year 2016 forward, the threshold is only $500,000.
It is questionable what value the USG gains from requiring contractors and first tier subcontractors to monitor and report hourly effort for services procured under contract types that do not normally require hourly time tracking, particularly for services that are not valued or priced based upon an hourly price metric commercially, and particularly where competition ensured a fair and reasonable contract price.