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Cities of Dublin and Pleasanton | Disaster Debris Management Plan | 2022 94 4. Contract Types FEMA reimburses costs incurred by Tribal and local governments and PNPs using three types of contract payment obligations: fixed price, cost-reimbursement, and, to a limited extent, T&M. The specific contract types related to each of these are described in FEMA’s Procurement Guidance for Recipients and Subrecipients Under 2 C.F.R. Part 200 (Uniform Rules).172 Tribal and local governments and PNPs must maintain oversight on all contracts to ensure contractors perform according to the conditions and specifications of the contract and any purchase orders. a. Time and Material Contracts T&M contracts do not provide incentives to the contractor for cost control or labor efficiency. Therefore, use of T&M contracts are only allowed if all of the following apply:  No other contract type was suitable  The contract has a ceiling price that the contractor exceeds at its own risk  The Applicant maintains a high degree of oversight to obtain reasonable assurance that the contractor is using efficient methods and effective cost controls FEMA generally limits the use of T&M contracts to a reasonable timeframe based on the circumstances during which the Applicant could not define a clear SOW. Therefore, the Applicant should define the SOW as soon as possible to enable procurement of a more acceptable type of contract. Some entities, such as Rural Electrical Cooperatives, provide the materials necessary to restore the facilities and refer to such contracts as Time and Equipment (T&E) contracts. The limitations and requirements that apply to T&M contracts also apply to T&E contracts. b. Cost-Plus-Percentage-of-Cost or Percentage-of-Construction In addition to limiting reimbursement to costs that can be determined to be reasonable, FEMA does not reimburse the increased cost associated with the percentage on a cost-plus-percentage- of-cost calculation or percentage-of-construction cost method. This type of contract billing is prohibited as it does not provide incentive to contractors to control costs because the contractor’s profit increases as the costs of performance increase. Instead, it provides a financial interest to the contractor to increase costs so that its profit increases. FEMA identifies these cost methods by determining whether:  Payment is on a predetermined percentage rate  The predetermined percentage rate is applied to actual performance costs  The contractor’s total payment amount is uncertain at the time of contracting  The contractor’s payment increases commensurately with increased performance costs