By Dave Barnett on Monday, July 15, 2002 - 03:47 pm:

No, FAR Part 12 states that a firm fixed price contract or a fixed price with EPA is to be used when acquiring commercial items and that all other contract types are prohibited.

FAR 16.4 when addressing the use of incentive contract types states they may be used when the use of a firm fixed price type is inappropriate (see 16.401(a) General). Evidently, the fixed price incentive contract types are not envisioned by the FAR folks as falling within the realm of a firm fixed price contract type.

By anon1 on Monday, July 15, 2002 - 04:13 pm:

We have included "award fees" in standard FFP contracts, as an incentive for performance beyond the minimum requirements. What prevents one from including an Award Fee CLIN in a FFP contract with criteria for evaluating and awarding such a fee?

By Dave Barnett on Monday, July 15, 2002 - 04:26 pm:

Because a fixed price award fee is not a firm fixed price contract type as described is FAR 16.202. FAR 16.201 states that a "Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both." Notice the abscense of the word "firm" in the second sentence quoted above. An award fee arrangement within the fixed price context is adjustable, not firm.

By joel hoffman on Monday, July 15, 2002 - 04:44 pm:

Dave, The incentive contracts discussed in 16.4 bear little resemblance to FFP contracts or to the type of contract which I think Dan was referring to.

The "fixed price incentive" contract is like a cost reimbursement contract, in that payment to the contractor is based on actual costs, but is like a FFP contract, to the extent that the Contractor must complete the task or service. There are cost targets, cost ceilings, cost share formulae, and various "fee" mechanisms, but the Contractor is generally obligated to complete the task or service.

Cost reimbursement incentive contracts are basically cost reimbursement contracts with payment of "fees" related to performance. The Contractor generally makes a "best effort" to complete the task within the cost ceiling, but isn't obligated to complete the task or service, if it doesn't perform within the cost ceiling.

Dan, are you referring to a FFP contract with a provision for an award fee bonus, similar to what Anon1 mentioned? We have also used such contracts; we referred to them as firm-fixed price contracts with an award fee provision (but this wasn't specifically used for commercial item acquisition - they were construction contracts). However, if a FFP contract with an award fee bonus is ok, why can't you use such a FFP contract for a Part 12 acquisition? happy sails! joel

By joel hoffman on Monday, July 15, 2002 - 04:54 pm:

Dave, just read your message. So you say that, because a (FFP)contract provides for payment of an award fee, such a contract does not meet the definition of a FFP in 16.202-1?

I disagree with you. The award fee is not based on the cost experience of the contractor, but upon other performance factors. We don't measure "cost", but use other factors, such as schedule, quality, safety, effectiveness of management, etc. We have no means of measuring "cost" on a FFP contract. happy sails! joel

By joel hoffman on Tuesday, July 16, 2002 - 07:00 am:

Dan, did I answer your question? FAR says a FFP contract is one that isn't subject to adjustment in price based on the Contractor's cost experience. I assumed that you are speaking of a normal FFP contract with a line item for a "bonus" type award fee. There shouldn't be a problem, as long as the award fee determination is not based on some type of "cost" assessment.

Or, are you thinking that the Contractor's "profit" would be subject to an award fee determination? There is no way to tell in the latter case whether the Contractor has included profit or fee in the FFP portion of the contract price. I would advise against such an approach. happy sails! joel

By Dave Barnett on Tuesday, July 16, 2002 - 08:18 am:

Shall we read the FAR coverage in 16.201...

16.201 -- General.
Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances. The contracting officer shall use firm-fixed-price or fixed-price with economic price adjustment contracts when acquiring commercial items.

My emphasis added.

And...

16.401 -- General.
(a) Incentive contracts as described in this subpart are appropriate when a firm-fixed-price contract is not appropriate and the required supplies or services can be acquired at lower costs and, in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under the contract to the contractor's performance. Incentive contracts are designed to obtain specific acquisition objectives by --

The fixed price award fee contract type is then discussed in this Subpart 16.4.

By Roy on Tuesday, July 16, 2002 - 08:26 am:

A fixed-price with award fee is not a firm-fixed price contract, no matter how you cut it. A fixed-price award fee contract is a type of incentive contract described in 16.4. FAR specifically says that the incentive contracts prescribed therein are appropriate when a "firm-fixed price contract is not appropriate".

Given that specific language and the restrictions in FAR Part 12, I don't believe it would be an appropriate type of contract to use for a commercial item procurement.

Roy

By dom on Tuesday, July 16, 2002 - 09:50 am:


Per FAR 16.202-1, a contract with a fixed price not subject to change on the basis of the contractor's cost experience is a FFP contract. The contract Dan describes meets this definition of a FFP contract.

To the extent a FFP Award fee contract is authorized at all, Dan's contract is suitable for Part 12 as it is a FFP contract and that is all FAR 12.207 requires. The fact the contract is also an incentive contract does not take it out of the FFP definition and FAR part 12 doesn't indicate that only certain types of FFP contracts are suitable for commercial contracts.

However, I question whether there is authority for a FFP award fee contract. While DFARS 16 appears to grant authority for a FFP award fee, I think it would be difficult for the contract to comply with the FAR's rules on incentive contracts (as discussed above, the fact Dan's contract is an incentive contract doesn't make it other than a FFP contract).

Per FAR 16.401(d), Dan's contract is an incentive contract, and per 16.402-1(a) Dan's contract must include a cost incentive. A cost incentive in a FFP award fee contract is not a clean fit. But to the extent Dan can find a way to incorporate a cost incentive into his contract, he can certainly use part 12.

By Anon on Tuesday, July 16, 2002 - 09:54 am:

From Ask a Professor:

The Question
Can we include an award fee provision with a fixed price contract to purchase a commercial item.

No. When using the procedures for buying commercially in accordance with FAR 12.207, a firm-fixed-price or fixed-price with economic price adjustment contract shall be used.
If you are using noncommercial procedures, a fixed-price award fee or cost-reimbursement award fee type contract may be considered.

Rationale: In accordance with FAR Part 12 the procedures for commercial contracting prescribe using only fixed price or fixed-price with economic price adjustment type contracts.

Army Logistics Management College (ALMC)

By joel hoffman on Tuesday, July 16, 2002 - 10:15 am:

Dave and Roy, I don't see anything in Subpart 16.202 (FFP), which would prohibit including paying an "award fee" in a FFP contract for performance, which exceeds contract requirements. Cost performance wouldn't be an applicable measure for an award fee on a FFP contract type.

I don't know what type of "award fee" contract type or arrangement that Dan Cronin is considering. I assumed that Dan is speaking of a "bonus", based on performance, not cost considerations.

However, if Dan considering an incentive type contract which calls for a reduction in the FFP price paid to the Contractor for less than satisfactory "performance", that is a type of performance based contract that still meets the definition of FFP in 16.202, in my opinion.

I need to do some more research, but Subpart 16.4 was rewritten and paragraph 16.404 "Fixed-price contracts with award fees" was added to the FAR in mid 1997 (FAC 90-46). I don't know if that paragraph is intended to distinquish a firm fixed-price contract with an award fee from a fixed-price incentive contract with an award fee - or did they just stick the paragraph under 16.4? It probably resulted from FARA.

At any rate, my organization has used FFP contracts, which contain an award fee incentive for increased performance, since at least 1989 - years before there was any discussion in FAR 16.404. happy sails! joel

By Anon on Tuesday, July 16, 2002 - 10:33 am:

Before we go any further, one clarification is requested. Dan wants to use an award fee arrangement for a commercial item (Part 12) buy. Is such a contract type allowed under the rules of FAR Part 12?

I have no problem with incentives in the noncommercial acquisition world, but feel the FAR is very limiting in the type of contract available for a Part 12 buy. That's why I posted the AAP inquiry.

Then again, I hear some procurement shops have allowed labor hour contracts to be used for Part 12 buys (despite the definition of commercial services, despite the differences between firm fixed price as opposed to fixed price, etc).

I can hear it now, "It's an elastic document man!"

By joel hoffman on Tuesday, July 16, 2002 - 11:04 am:

Anon, the question, which pertains to Dan's situation is this: "Can a firm fixed-price contract contain an award fee provision that isn't subject to the Contractor's cost experience?"

If so, Part 12 says you can use FFP for a Part 12 commercial acquistion.

If not, no.

Regarding FAC 90-46, I'm thinking of calling the contact person named in the FAC to get some clarification. The FAC stated that "fixed price contracts with award fees" was added to authorize such, because the then-current FAR only authorized incentives based on cost. However, the associated contract clauses mentioned in the FAC are specifically for the type of incentive contracts described in 16.4. So, I don't think that the coverage in 16.404 was intended to apply to 16.202, FFP contracts - a whole other contract type.

As I stated earlier, my organization was using FFP contracts with an award fee provision, long before 16.404 was ever added, and the 16.4 contracts are whole other critters from the one I described. The other fellows keep insisting that a FFP contract with an award fee is somehow one of the incentive contracts covered under FAR 16.4.
I don't think so.

Heck, maybe we aren't authorized to use a FFP contract with an award fee for increased performance. Perhaps the FAR writers only contemplated authorizing 16.4 type incentive contracts with award fees for non-cost performance, when they added the coverage in 1997. happy sails! joel

By Vern Edward on Tuesday, July 16, 2002 - 11:08 am:

Dan Cronin asked:

"We want to use a contract that meets the firm-fixed-price description at FAR 16.202-1, but also include an award fee provision.... If we were to do this, do you think we would be in compliance with 12.207?"

FAR § 12.207 says that agencies must use either a firm-fixed-price contract or a fixed-price contract with economic price adjustment when buying commercial items. It says: "Use of any other contract type to acquire commercial items is prohibited."

FAR § 16.401(a) says, in part: "Incentive contracts as described in this subpart are appropriate when a firm-fixed-price contract is not appropriate...."

Thus, FAR distinguishes incentive contracts, including fixed-price contracts with incentives, from firm-fixed-price contracts. FAR § 16.404 describes fixed-price contracts with award fees, so they are not firm-fixed-price contracts.

FAR § 16.401(d) says: "Award-fee contracts are a type of incentive contract."

Now, if you read these FAR passages literally, it appears clear that you cannot use an award fee provision in a commercial items contract. So my answer to Dan is that based on a literal reading of FAR, the use of an award fee provision in a commercial items contract would be inconsistent with FAR § 12.207.

By joel hoffman on Tuesday, July 16, 2002 - 12:03 pm:

Vern, do you think that 16.401 and 16.404 were intended to include discussion of "FFP" with award fee or "FP" with award fee? That's what I'm not clear about. Reading the FAC seems to indicate that they were only intending to discuss 16.4 contracts when they added coverage of award fees for "fixed price contracts". happy sails! joel

By Vern Edwards on Tuesday, July 16, 2002 - 12:32 pm:

Joel:

Yes, because an FFP with award fee is one kind of FP with award fee.

A better question is whether the FAR Council intended to exclude fixed-price contracts with award fees when it wrote FAR § 12.207. The only information I have to go on is the language of the section, which is clear and unambiguous on its face.

Some people read the FAR literally. I am usually, though not always, one of those people. Others like to read it more liberally, even when it seems clear on its face. If you are a liberal reader, then you can probably convince yourself that FAR permits the use of firm-fixed-price contracts with award fees.

In my opinion, award fee provisions are not consistent with commercial practice and are not worth the time and effort to design or administer them. I would never use an award fee incentive with a commercial items contract.

By Anonymous on Tuesday, July 16, 2002 - 01:38 pm:

Vern,

You say that FFP with award fee is one kind of FP with award fee. But FFP with award fee is also a type of FFP as the price isn't subject to adustment on the basis of the contractor's cost experience (see 16.202-1).

I know 16.401(a) seems to indicate that FFP with award is something other than FFP, but the description at 16.202-1 should control what is and what isn't a FFP contract. Dan's proposed contract, whether or not a good idea, meets this description. It's a FFP contract and wouldn't violate FAR 12.

By joel hoffman on Tuesday, July 16, 2002 - 02:28 pm:

Vern,

1. Literally, "Fixed-price contracts with award fees" does not mean "fixed-price with award fee contracts."

If they intended a type of contract to be called "fixed-price with award fee contract", I believe they would have used the latter term, literally, to be consistent with the titles of the paragraphs that name all the other contract types in FAR.

2. Paragraph 16.404 (a) begins: "Award-fee provisions may be used in fixed-price contracts when..."

How does "using" an award fee "in" a firm fixed-price contract (literally, a type of FP contract)convert it to another type contract? What type contract would it be? There is no defined contract type called a "fixed price with award fee contract" and it doesn't fit the description of any other type than "FFP". In my opinion, a FFP contract is still a FFP contract, if it "uses" or doesn't "use" an award fee provision "in" it. That opinion is based on a literal interpretation of the title of Far 16.404.

3. Therefore, since it is a FFP contract, without or without using an award fee, I think that it meets the requirements stated in FAR 12.207. happy sails! joel

By Roy on Tuesday, July 16, 2002 - 03:40 pm:

I don't believe you will find anything in the FAR that describes a "firm-fixed price award fee" contract. It just don't exist. "Fixed-Price with Award Fee" OK, but not Firm-Fixed Price with Award Fee.

In reading FAR 16.2, one can discover that there is more than one type of "fixed-price" contract described. A firm-fixed price is just one of them. A "fixed price with economic price adjustment" is another type of "fixed price" contract. It is these two types that are referenced in Part 12 as authorized for use with a commercial item contract. All others are prohibited. Not much room for interpretation there.

I don't doubt that there will be some out there that will come up with a different interpretation. It is these types of liberal interpretations of the FAR that has some writing labor hour, time and material, and who knows what other types of contracts using Part 12 procedures, although they are specifically prohibited.

In another post dated 7/12/02, the Webmaster wrote:
"In a recent post, someone mentioned they were happy to see auditors show up at their activity
to fix things. That is a sorry state of affairs because ignorant auditors are a part of the
contracting problem."

This is wonderful web site and I visit it almost daily. I enjoy and get a lot out of the forum and the discussions. Reading his posts I think I know that Bob works or did work in an audit function.

I crossed paths with a lot of auditors in my career and I can't agree that they are part of the problem. It seems as if we have an acquisition workforce going a-stray out there and the IG types and other auditors seem to be the only ones that can reel them in. My gosh we can't even agree on what a firm-fixed price contract is.

By Chuck Solloway on Tuesday, July 16, 2002 - 04:15 pm:

Dan,

In my opinion you are doing exactly what OFPP Policy Letters on service contracts encourage you to do. They tell you to use firm fixed price contracts with incentive/award features. The problem is, of course, that there is no such animal in FAR 16. Nonetheless, it makes sense to use firm fixed price contracts that provide for so-called "deducts" for unacceptable services and rewards for better than acceptable services that enhance mission accomplishment. These rewards may be either objective/quantitative rewards that are known as "incentives" or subjective/qualitative rewards known as "awards", or both.

Someday, the FAR and OFPP Policy will be the same.In the meantime I would take the view that you are using common sense rather than being restricted by an arbitrary rule. Along that line, GSA has "commercial service" contracts that provide for T&M task orders. How about that?

By Dave Barnett on Tuesday, July 16, 2002 - 04:29 pm:

Yeah, how about that?

And that just makes Roy's comments all the more salient.

If services are priced on a task or job standard which task/job price is determined to be based on a catalog or market price then the definition of a commercial service is met. If just a bunch of hours are being bought and the prices are hourly prices then how does that service meet the definition requirements in FAR Part 2?

Regarding the incentive/deducts best practice, I believe that is geared towards Performance Based Services Contracting not commercial services acquisition.

By Chuck Solloway on Tuesday, July 16, 2002 - 04:42 pm:

Dave,

Commercial services are, to the best of my knowledge, not excluded from the OFPP policy to use performance based service contracts to the "maximum degree practicable". Or did I miss something somewhere?

By Vern Edwards on Tuesday, July 16, 2002 - 05:28 pm:

Chuck:

Well, you might have missed the following FAR sections --

The second sentence in FAR § 12.102(c) says:

"When a policy in another part of this chapter is inconsistent with a policy in this part, this Part 12 shall take precedence for the acquisition of commercial items."

So, no matter what FAR Subpart 37.6 says, it doesn't apply if it is inconsistent with FAR Part 12.

However, FAR § 2.101 defines performance-based contracting as follows:

"Performance-based contracting means structuring all aspects of an acquisition around the purpose of the work to be performed with the contract requirements set forth in clear, specific, and objective terms with measurable performance outcomes as opposed to either the manner by which the work is to be performed or broad and imprecise work statements."

Italics added. That definition, including the word "objective," came from Public Law 106-398, so it is statutory.

Moreover, if you look at FAR § 37.602-4, which discusses contract types for performance-based contracts, the second and third sentences say:

"To the maximum extent practicable, performance incentives, either positive or negative or both, shall be incorporated into the contract to encourage contractors to increase efficiency and maximize performance (see Subpart 16.4). These incentives shall correspond to the specific performance standards in the quality assurance surveillance plan and shall be capable of being measured objectively."

Then, if you go to FAR Subpart 16.4 and read FAR § 16.404(a), it says:

"Award-fee provisions may be used in fixed-price contracts when the Government wishes to motivate a contractor and other incentives cannot be used because contractor performance cannot be measured objectively."

Italics added.

So even if you write a performance-based commercial items contract, you can't use an award fee incentive, because the FAR says incentives in performance-based contracts "shall be capable of being measured objectively," and that award-fee provisions are to be used in fixed-price contracts when performance cannot be measured objectively.

Do you think these sections don't mean what they say?

Vern

By Vern Edwards on Tuesday, July 16, 2002 - 05:46 pm:

Joel:

You say: "Literally, 'Fixed-price contracts with award fees' does not mean 'fixed-price with award fee contracts.'"

Are you really saying that you discern a difference between a fixed-price contract with award fees and a fixed-price with award fee contract? If so, I don't get it. I love ya, buddy, but please don't tell me you meant that.

FAR Part 16 is entitled "Contract Types." Section 16.000 says: "This part describes types of contracts that may be used in acquisitions." FAR § 16.101(c), which provides an overview of the various types, says: "In between are the various types of incentive contracts (see Subpart 16.4), in which the contractor's responsibility for the performance costs and the profit or fee incentives offered are tailored to the uncertainties of contract performance."

Italics added.

Subpart 16.4 is entitled, "Incentive Contracts." FAR § 16.401(c) says:

"The two basic categories of incentive contracts are fixed-price incentive contracts (see 16.403 and 16.404) and cost-reimbursement incentive contracts (see 16.405).

FAR § 16.404 is entitled, "Fixed-price contracts with award fees." It says:

"Award-fee provisions may be used in fixed-price contracts...."

I take all this to mean that any type of fixed-price contract that includes award fee provisions is a different type of contract than a firm-fixed-price contract.

There is what we'd like to be true based on what we'd like to do, and then there is what is true based on the plain language of the FAR. Show me how I'm wrong, because if we're free to interpret the FAR any way we'd like, then we're playing TIGWAR -- The Incredible Game Without Any Rules.

Vern

By joel hoffman on Tuesday, July 16, 2002 - 07:35 pm:

Vern, it appears that you believe that "fixed-price contracts with award fees" are a separate, distinct FP contract type or that they fundamentally change the FP contract type that they are used in.

I don't. FAR 16.404 simply says that "Award-fee provisions may be used in fixed-price contracts..." under certain conditions. Using a provision in a fixed-price category contract of a particular type doesn’t necessarily change the contract type any more than using other contract provisions. I read the sentence literally to mean that a provision “may be used in a” …contract. One must read something extra into that clear statement to conclude that we now have a separate contract type. A FFP contract is one type of the FP category of contracts. Using an award fee provision in a firm fixed-price contract does not alter the nature of that contract type, as described in FAR 16.202-1.

It is a stretch of the literal reading of the FAR to say that a FFP contract containing a provision for an award fee, based on performance factors, becomes some other type of FP contract type. The Background statement for FAC 90-46 simply states: “The FAR currently provides for the use of performance incentives when used with cost incentives. This FAR revision allows the use of performance incentives alone. This revision will allow agencies to recognize and reward contractors who exceed minimum standards in terms of quality, timeliness, technical ingenuity, and effective management.”

I also stated that the title of Paragraph 16.404 isn’t consistent with the format used for identifying separate contract types.

Happy sails! joel

By Chuck Solloway on Tuesday, July 16, 2002 - 08:41 pm:

Vern,

The FAR frequently lags behind what is being done in the field. For example, ID contracts were used for services long before there was FAR coverage on task order contracts. And, of course, everyone was using oral presentations before there was FAR coverage on oral presentations.

I think it makes sense on service contracts to use either objectively measureable or subjectively measureable (or both)"rewards" to motivate contractors to give better than acceptable performance. (This assumes that there is some commensurate benefit for the government in the better than acceptable performance.) I also believe this was what was intended by OFPP Policy Letter 93-1 even though they said to use "incentives" in fixed price contracts, apparently not realizing that fixed price incentive (FPI) contracts are not firm fixed price. I further believe that the FAR people tried to fix the OFPP created problem by inventing the fixed price award fee (FPAF)contract. However, they strangely limited use of the contract to situations when performance could not be measured objectively. This limitation precludes the use of the FPAF contract in service contracts where exceptional performance can be measured objectively.

So what is a contracting officer to do when he or she wants to reward a contractor for exceptional performance on a service contract? I think that they write fixed price contracts with rewards that are measured objectively or subjectively or both. And I think the FAR will eventually catch up. After all, task order contracts were used for more than a decade when the only ID contracts permitted by the FAR and the predecessor regulations were for fixed price supplies.

And I guess I still don't understand why the policy on performance based service contracts does not apply to services that can be defined as "commercial items". I see no inconsistency between parts 12 and 37 on this matter.

By joel hoffman on Tuesday, July 16, 2002 - 09:53 pm:

Vern, I think I understand what you were asking me, earlier. You asked:

"Are you really saying that you discern a difference between a fixed-price contract with award fees and a fixed-price with award fee contract? If so, I don't get it. I love ya, buddy, but please don't tell me you meant that."

I meant that I think that the title of Far 16.404 does not describe a separate contract type. Rather, the title refers to award fee provisions used in FP type contracts. I love ya too, buddy. We have to stop meeting this way. Good night. happy sails! joel

By Vern Edwards on Tuesday, July 16, 2002 - 11:02 pm:

Joel:

I believe that FPAF is a distinct subspecies of FP contract and thus a different "type" than FFP. I believe that you cannot use an FPAF contract to buy commercial items because FAR § 12.207 says to use only an FFP or FP with EPA contract type when buying commercial items.

Now, am I reading FAR more rightly than you? Is my interpretation more consistent with what the FAR Council intended than yours? I don't know. Given our fundamentally different approaches to reading the FAR, how could we ever resolve our differences?

I can't argue logically with you, because our frames of reference are different. We appear to have fundamentally different notions about what constitutes a "contract type." FAR does not explain or define the concept of contract type in a way that will help us sort things out. It says that Part 16 includes descriptions of types. It says that there are two "broad categories" of types. It says that incentive contracts fall "in between" those broad categories, which suggests to me that they constitute a third category. It lists "fixed-price contracts with award fee" in the subpart on incentive contracts, which suggests to me that it is not the same type as FFP.

How are we going to resolve this, Joel? I don't think we are. If FAR were clearer, we wouldn't need to have this discussion.

Chuck:

There is a difference between doing something in the absence of coverage -- a la task order contracts and oral presentations -- and disagreeing about what coverage means. We are disagreeing about what the coverage on contract types means.

When FAR says "Do X," or "Do not do X," it does not make sense to say that FAR hasn't caught up with what's being done in the field. FAR says do it or do not do it. Why is the field doing something different? The guiding principles in FAR § 1.102(d) say:

"In exercising initiative, Government members of the Acquisition Team may assume if a specific strategy, practice, policy or procedure is in the best interest of the Government and is not addressed by law (statute or case law), Executive order or other regulation, that the strategy, practice, policy or procedure is a permissable exercise of authority."

Well, the FAR does address the contract types that may be used to buy commercial items and we have to resolve our differences about how to interpret the FAR before we can talk about what the field is doing. But I don't think we can resolve our differences, because our frames of reference are entirely different.

To me, an FPAF contract is a "type" distinct from FFP and FP with EPA and, therefore, cannot be used to buy commercial items. I'm basing my position on the plain language of FAR. I cannot cite any official statement in support of my position. I don't whether or not the members of the FAR Council would agree with me, or each other for that matter.

Fellas, you can settle this: Why don't one of you call somebody at the FAR Council and get the straight skinny. Make sure that whoever you talk to gives you a name and is willing to be cited as speaking authoritatively.

It's interesting -- Ralph Nash and I were talking recently and he was complaining about how badly the FAR was written when I had a sudden insight: I think (I'm not sure) that Title 48 of the CFR is the only title in the C.F.R. for which more than one agency is responsible. That might explain why it's such a mess. And it is a mess -- if it weren't we wouldn't be having this conversation.

I wouldn't use an award fee provision on a commercial items contract in any event, because it isn't a commercial practice and it costs more to administer than its worth.

By Anonymous on Wednesday, July 17, 2002 - 11:12 am:

Every once in while on this thread, someone points out that Dan's contract meets the description of a FFP contract at FAR 16.202-1 because it has a price that is not subject to adjustment on the basis of the contractor's cost experience. Dan's contract is therefore FFP even though it may also be governed by the incentive rules at FAR 16.4.

For some reason, this point goes unheard despite the fact it demonstrates Dan's contract is a form FFP contract and thus within the gambit of FAR 12.207.

This is a plain meaning analysis; stringing together citations from FAR 16.4, CFRs, and OFPPs ad naseum (not directed at any particular person but the thread in general) is not plain meaning.

By joel hoffman on Wednesday, July 17, 2002 - 11:47 am:

I called the FAC 90-46 reference, but he's out until the 22nd of July. If I remember then, I'll call back to ask:

1) Was FAR 16.404 a convenient "parking place" to insert the language on discussion of performance incentives/award fees, etc.?

2) Or was it intended to describe a new contract type?

3) Specifically, when an award fee provision is used in a FFP contract, is it no longer a FFP contract, per FAR 16.202?

Any thing else that I should ask?

happy sails! joel hoffman

By Vern Edwards on Wednesday, July 17, 2002 - 12:53 pm:

Anonymous of 11:12 a.m.:

I well understand that Dan's contract is FFP. That point is not going unheard, at least not by me. However, the contract described in FAR § 16.404 is also FFP. It does not provide for adjustment based on the contractor's cost experience. But I think that FAR treats it as distinct from the FFP contract described in § 16.202-1 by placing its coverage in Subpart 16.4, about incentive contracts. As Dave Barnett pointed out early on, FAR § 16.401(a) says that an incentive contract is appropriate when an FFP contract is not. Why do you think that the FAR Council placed the coverage of FP contracts with award fee in FAR Subpart 16.4?

Some of you guys are in denial, stricken by cognitive dissonance. Because something seems right to you, makes perfect sense, you cannot accept what the FAR says on its face. So, some of you cannot accept what FAR 37.602-4 says about the need for objectively measurable incentives, because that would prohibit the use of award fee incentives in performance-based contracts, which doesn't make sense to you. It doesn't make sense to me, either, but there it is.

Where were all the contracting officers and contract specialists when the FAR Council published the proposed rule for FAR § 37.602-4? How many of them asked if the Council really intended to preclude the use of award fee provisions in performance-based contracts? How many asked about FP contracts with award fees when they published the proposed rule for FAR § 12.207? Now we've got these goofy rules, some of you want to pretend that they're not there, or that they don't mean what they say. You'd rather fault me for reading the FAR as a whole instead of piecemeal.

Why bother to read the FAR at all? Why not just do whatever you want to do -- the heck with the FAR? Who cares?

It's still too early for a beer on the West Coast, but as soon as it's time I'll pour one and laugh in it.

By joel hoffman on Wednesday, July 17, 2002 - 01:15 pm:

Me thinks you read too much into FAR 16.404, but I'll have to ask the guy in charge of the FAR case. I ran out of beer; thanks for reminding me to stop at Winn-Dixie on the way home...

In fact, we need to bet a beer on the official translation!

H.S. joel

By Vern Edwards on Wednesday, July 17, 2002 - 01:25 pm:

Joel:

I'd be happy to buy you a beer, and Anonymous of 11:12 a.m., too, but I don't want to bet. I have no idea what the official translation is -- and that's part of my point. What I've been doing is reading the FAR and reaching a conclusion based on the words I'm reading. I'm not reading anything into it or out of it. I think that what you are effectively arguing for is a "common sense" reading, rather than a plain language reading. Call me the Antonin Scalia of the FAR (at least for this case).

Except for the fact that I think that most incentives are a waste of time and that award fee incentives aren't a commercial practice, I don't care if Dan wants to put an award fee provision in a commercial items contract. If I was a contracting officer and wanted to do it, I'd just do it, and make the same kind of argument that you are.

By Anonymous8 on Wednesday, July 17, 2002 - 01:41 pm:

Chuck S. wrote: Along that line, GSA has "commercial service" contracts that provide for T&M task orders. How about that?

Do I tell people that T&M buys using Part 12 can only be done via GSA? That to use in-house staff to contract for T/M type services, must use Part 15?

By joel hoffman on Wednesday, July 17, 2002 - 01:44 pm:

Vern - let me clarify by stating that I'm not advocating use of an award fee in a commercial acquisition. I have no idea whether or not it would be useful or appropriate for Dan's project. happy sails! At any rate, I'll try to remember to call the fellow and figure out what they meant in the FAC 90-46, Item IV change. happy sails! joel

By Vern Edwards on Wednesday, July 17, 2002 - 04:32 pm:

Anonymous8:

A July 3 article by Jason Peckinpaugh at the Government Executive website reported that OMB is trying to put a stop to GSA's use of T&M contracts under FAR Part 12. Here is a link to the article:

http://www.govexec.com/dailyfed/0702/070302p1.htm

By anonymous8 on Wednesday, July 17, 2002 - 09:08 pm:

Hi Vern,

I know, Former Fed posted it in another thread. I was trying to see what others do and think. I'm partial to the idea that T/M are fixed unit prices and can be used in Part 12.

Unfortunately, my opinion is strongly influenced by ease and shorter lead time of Part 12 (and "if GSA can do it, why can't I") rather than on a scholarly review of the FAR, case law and analysis of angels dancing on the heads of pins.

After thinking about conversation above, it is hard not to go with literal words of FAR and avoid T/M and L/H with Part 12 when doing procurements (except GSA orders).

By Vern Edwards on Wednesday, July 17, 2002 - 10:12 pm:

Anon8:

The thing is, FASA prohibited only "cost plus" contracts for commercial items, which I interpret to mean cost-reimbursement contracts. FASA does not prohibit the use of T&M and L-H contracts, which are used in the commercial sector.

By Chuck Solloway on Thursday, July 18, 2002 - 01:44 pm:

Vern,

As always I enjoy and appreciate your comments. However, I take exception to the comment that an award fee (firm fixed price with one or more award fee features) on a commercial service contract costs more than it is worth. If you said, "the way most people design and administer award fee contracts, it would probably cost more than it is worth", I might agree. You can design and administer an award fee provision using the KISS principle. You do not have to create an administrative nightmare.

By Anonymous on Thursday, July 18, 2002 - 02:22 pm:

Vern,

Since you understand that Dan's contract is FFP and FAR 12.207 doesn't limit the types of FFP contract it applies to, what's the problem.

I think it is your analysis, which focuses on FAR 16.4, fails to consider the FAR as a whole. FAR 16.4 is seriously flawed in it's treatment of FP award fee and should never be the basis for reversing the plain language of FAR 16.202-1 and FAR 12.207.

Consider the phrase "and the required supplies or services can be acquired at lower cost... by relating the amount of or fee payable under the contract to the contractors performance" in FAR 16.401(a) and the last sentence of FAR 16.402-1. To me, both sentences mean Dan's contract isn't covered by FAR 16.4 at all, yet 16.404, which appears to describe Dan's contract, is plugged right in the middle of FAR 16.4.

I don't know what it all means and I admit that the reference in FAR 16.401(a) to FFP contracts not being appropriate only confuses the matter more. Sometimes we strive too hard to reconcile the regs when the answer is simply the drafters messed up and no one caught it.

As stated FAR 16.202-1 and 12.207 have a plain meaning, FAR 16.4 has no plain meaning. Therefore, when the FAR is read as a whole, the plain meaning of FAR 16.202-1 and 12.207 should control.

By Dan Cronin on Thursday, July 18, 2002 - 03:07 pm:

Wow!

I've been away since Monday afternoon. What a pleasant surprise to find that my simple inquiry has generated such a response. And I do mean pleasant, because it affirms my initial belief that the answer was not clear.

Joel, you asked if I were referring to an FFP contract with a provision for an award fee bonus. That's exactly what we are considering. We would award a firm-fixed-price contract consistent with the definition in FAR 16.202-1. Its price would not be subject to any adjustment on the basis of the contractor's cost experience in performing the contract. It would include a CLIN that would allow the contractor to earn a bonus based on its quality in performing the contract. So, based on that and that alone, I believe we would be clearly in compliance with the requirement at 12.207.

The problem as several of you point out is sections 16.401 and 16.404. And I see it as a problem, not an answer, because I don't like to take sections from the FAR and read them without considering other - perhaps conflicting - sections.

I do not use the FAR cavalierly. I believe very sincerely in doing what it requires and not doing what it prohibits. I believe also there are areas where neither the requirement nor the prohibition is clear.

If I read only subsection 16.202-1 I can do it. If I read only sections 16.401 (a) and 16.404 I can't do it. But when I read them together I see a conflict. So I'll have to consider the diverse wisdom from all of you, my own experience, the experience of others in my agency, and do what I believe is the right thing in this particular situation.

By Roy on Thursday, July 18, 2002 - 03:54 pm:

I think the confusion with some is that they have this mistaken belief that all "fixed-price" contracts are "Firm-Fixed Price" contracts. In reallity, any fixed-price contract that has a provision allowing for adjustment of the price based on some specific process set forth in the order, i.e, economic price adjustment provision or incentive provisions is not a "firm-fixed price" contract.

Roy

By Eric Ottinger on Thursday, July 18, 2002 - 04:14 pm:

Dan,

Pardon me for jumping in late in the game.

I’ve used DFARS 216.470 to put an award fee kicker on another contract type. In my opinion, if you put a DFARS 216.470 award amount on a FFP contract, the contract is still a FFP contract.

Of course, I would want to have higher management and legal on-board before I did this.

Two pragmatic comments about award fee—

Some people seem to think it is like fertilizer, “Shovel it on, more must be better.” You don’t need to do that. Any award fee will get the appropriate attention from the contractor's higher management.

If you keep the award amount small, you can justify keeping the “award review board” and procedures small and simple.

DFARS 216.470 Other applications of award fees.

"The “award amount” portion of the fee may be used in other types of contracts under the following conditions--"

(1) "The Government wishes to motivate and reward a contractor for management performance in areas which cannot be measured objectively and where normal incentive provisions cannot be used. For example, logistics support, quality, timeliness, ingenuity, and cost effectiveness are areas under the control of management which may be susceptible only to subjective measurement and evaluation."

(2) "The “base fee” (fixed amount portion) is not used."

(3) "The chief of the contracting office approves the use of the “award amount.”"

(4) "An award review board and procedures are established for conduct of the evaluation."

(5) "The administrative costs of evaluation do not exceed the expected benefits."

Eric

By joel hoffman on Thursday, July 18, 2002 - 04:39 pm:

Roy, that is not the problem. The problem is in determining what the intent of 16.404 is. Is it intended to authorize award fee provisions for use with FFP AND FPI contracts, or does it simply address FPI contracts?

If it only addresses FPI contracts, are award fee provisions otherwise allowed in FFP contracts?

Was the intent simply to address Incentive contracts? If so, "why"?

I haven't been able to contact Ralph DeStefano yet, to discuss the background of FAC 90-46. However, I found the proposed rule in the June 20, 1996 issue of the Federal Register (61 FR 31798).

It's interesting to note that the writers originally intended the new paragraph (now cited as "16.404 Fixed-price contracts with award fees") to be a new "16.403-3 Fixed-price contracts with award fees".

That designation would have made the coverage a subparagraph under 16.403 "Fixed-price incentive contracts"). Then, it clearly would have related the award fee coverage only to "fixed-price incentive contracts". The originally proposed paragraph simply stated :

"16.403 Fixed-price contracts with award fees.

Award fee provisions may be used in fixed-price contracts as provided in 16.405."

Another new paragraph was proposed:
"16.405 Other applications of award fees"

This proposed paragraph contained details concerning approvals and administration of award fees.

The final rule in FAC 90-46, in March 1997, explained that one comment was received and taken into consideration in drafting the final rule. I don't know what the comment was. The final rule, 16.404, is a paragraph under SUBPART 16.4 Incentive Contracts.

It appears that the original intent was to authorize an award fee provision, addressing FPI contracts, only.

As currently written, the FAR coverage is less clear, but may still literally apply to SUBPART 16.4 Incentive Contracts, only - or does it apply to any FP contract? I will try to determine the final intent by contacting Mr. DeStefanos.

By joel hoffman on Thursday, July 18, 2002 - 05:04 pm:

Roy - I don't believe "all 'fixed-price' contracts" are 'Firm Fixed-Price' contracts". I have no idea how you concluded that some here were under such a "mistaken belief". I didn't get that impression at all.

You also said, "In reallity, any fixed-price contract that has a provision allowing for adjustment of the price based on some specific process set forth in the order... is not a 'firm-fixed price' contract." You cited two examples 1) "economic price adjustment provision" and 2) "incentive provisions."

Two questions:

1) If, by "incentive provisions", you mean "award fees", is there any other reason for your statement other than the fact that award fee provisions are addressed in 16.404, under Subpart 16.4 Incentive Contracts?

2) Are you saying that a FFP contract cannot vary in the actual price paid to a Contractor?

happy sails! joel

By joel hoffman on Thursday, July 18, 2002 - 09:58 pm:

Eric, the words in DFARS 16.470 are similar to the originally proposed FAR paragraph 16.405 in the FAR Case for FAC 90-46. I don't have personal access to Westlaw, where our paralegal copied the original Federal Register Notice and am at home, so can't type it in here. However, your cite of the DFARS is close to what the original FAR proposal said.

I believe the FR Notice indicated that the FAR Case was a DOD initiative.

happy sails! joel