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OMB Urges Federal Agencies to Pay More Attention to Contract Type Selection

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The Office of Management and Budget (OMB) has issued a memo reminding agencies to practice caution when it comes to selecting the type of federal contracts they award. OMB Director Russell Vought wrote in the Jan. 5 memo that agencies should be vigilant when considering cost-reimbursement contracts for support beyond research and development work.

“Cost-reimbursement contracts require only that the contractor provide its best efforts to deliver the service or product at the negotiated price. They do not require delivery of a finished product or service without any price adjustments, as is required under a fixed-price contract,” Vought wrote.

The document states that fixed-price contracts awarded through a competition could help agencies reduce risk and maximize value for taxpayers because such contracts “provide the contractor with the greatest incentive for efficient and effective performance while minimizing the administrative burden on both parties.”

OMB suggested several steps agencies should take when it comes to considering the contract type: documenting contract type rationales in business cases; reviewing and clarifying policies that support risk reduction in relation to contract type decisions; and supporting the use of tools that could assist agency acquisition, budget and program officials in making contract type decisions.