To meet urgent needs, federal agencies, including DoD, can authorize contractors to begin work and incur costs before reaching final agreement on contract terms, specifications, or price, using an undefinitized contract action.
Such types of contractual actions are considered risky for the Government because contractors have little incentive to control costs as the Government normally reimburses contractors for all allowable costs incurred during the undefinitized period. Further, the Government may incur unnecessary costs if requirements change before the contract is definitized.
To help minimize these risks, defense acquisition regulations generally require undefinitized contract actions (UCAs) to be definitized within 180 days of issuance or before more than 50 percent of the estimated contract price is obligated, whichever occurs first.
The GAO (Government Accountability Office) recently issued a report on the Air Force's practices with respect to UCAs. Between 2010 and 2014, the Air Force obligated $14 billion on UCAs. For UCAs reviewed by GAO, the most common reason cited for awarding them was to meet urgent needs. The GAO didn't have a problem with the rationale or justification. They did find however that the Air Force never met the definitization time frames for the UCAs under review.
As mentioned, the Government (and particularly contract auditors) consider UCAs to be high risk procurement actions. Auditors are instinctively suspicious that contractors will try to dump everything, including the kitchen sink, onto the contract. With little or no incentive to control costs, prior to definitization, contractors tend to be less concerned with expenditures.
As a result of the GAO findings, contractors with UCAs can expect heightened awareness and more oversight of UCAs. DoD, at least, will be tightening up its policies with respect to definitization time frames. And, with DCMA (Defense Contract Management Agency) buildup of pricing capabilities, the turn-around time to conclude negotiations should decrease significantly.