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Vern Edwards

Despite the plain language of the FAR definition of claim and an overwhelming amount of case law, many contracting practitioners falsely believe that claims and requests for equitable adjustment (REA) under a contract clause are categorically different, that a contractor must submit an REA before it can submit a claim, and that there can’t be a claim until the parties have reached an impasse or are in dispute. Those beliefs are untrue. My objective in this blog entry is to explain why.

What Is a "claim"?

The Contract Disputes Act, 41 U.S.C. 7101 – 7109, does not define claim. The only official definition is in FAR 2.101, which defines "claim" as follows:

“Claim” means a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. However, a written demand or written assertion by the contractor seeking the payment of money exceeding $100,000 is not a claim under the Contract Disputes Act of 1978 until certified as required by the Act. A voucher, invoice, or other routine request for payment that is not in dispute when submitted is not a claim. The submission may be converted to a claim, by written notice to the contracting officer as provided in 33.206(a), if it is disputed either as to liability or amount or is not acted upon in a reasonable time.

Reading that definition closely, we see that there are four sentences. The first sentence defines claim as: (1) a written demand or assertion, (2) by the prime contractor or the government, (3) seeking "relief" to which the contractor or the government believes it is entitled pursuant to the terms of a contract clause or due to breach of contract by the other party. (See Note 1.) In order to be a claim a contractor's request for contractual relief must have all of the elements stated in the first sentence.

The second sentence requires certification of claims for more than $100,000. (See Note 2.) A contractor request for more than $100,000 that is not certified is not a claim.

The third sentence says that routine requests for payment must be in dispute when submitted in order to be a claim. Thus, a request for payment upon completion of performance and acceptance of the work or a request for a progress payment is not a claim unless it was in dispute when submitted.

The fourth sentence says that a routine request for payment may be converted to a claim under certain circumstances.

We need to dig still deeper. First, the words "assertion" and "demand" in the first sentence are legal terms of art for requests for what one believes he or she is entitled to. See Blacks Law Dictionary 9th (2009). They should not be understood to mean that a contractor’s request must be strident, angry, or vehement, or be the product of strife or dispute.

Second, "sum certain" means a specific amount. There can be no equivocation using language such as “approximately,” “at least,” “in excess of,” “well over,” or “no less than.” However, the sum certain requirement can be met through the use of a formula that permits the amount to be determined mathematically. (See Note 3.)

Third, although the FAR definition does not say so, the CDA and the boards and courts require that in order to be a claim a contractor's request for relief must ask the CO for a decision on the matter. See 41 U.S.C. Sec. 7103( a ). The request need not be explicit, but may be implied from the context of the assertion or demand. See James M. Ellett Construction Co. v. United States, 93 F.3d 1537, 1543 (Fed. Cir. 1996); BLR Group of America, Inc. v. United States, 96 Fed. Cl. 9, 13 (2010).

Fourth, although the second sentence in the definition says that contractors must certify claims “seeking payment of money” in excess of $100,000, the CDA requires certification of any monetary claim in excess of $100,000, whether for immediate payment or price adjustment. See 41 U.S.C. 7103( b ).

Contracting practitioners must be able to recognize a claim when they see one.

The submission and receipt of a claim have four important legal consequences:

1. Interest begins to accrue when the CO receives a claim, but not when he receives a non-claim request for contractual relief. See FAR 33.208. (But see also Note 4.)

2. COs must make final decisions on claims within statutory deadlines, see FAR 33.211( c ), but they face no deadline for responding to non-claim requests for contractual relief.

3. Contractors cannot recover the costs of claim preparation and prosecution, but they can recover the costs of the preparation of non-claim requests for contractual relief. See FAR 31.205-33( b ) and 31.205-47( f )(1).

4. The jurisdiction of the boards of contract appeals and the U.S. Court of Federal Claims to adjudicate a contractor's appeal under the CDA is predicated upon ( a ) the submission of a CDA "claim" and ( b ) issuance of a CO final decision. See Reflectone, Inc. v. Dalton, Secretary of the Navy, 60 F.3d 1572, 1575 (Fed, Cir. 1995), and James M. Ellett Construction Co. Inc. v. United States, 93 F.3d 1537, 1541 - 42 (Fed. Cir. 1996). Unless a contractor has submitted a claim and the CO has issued a final decision, the boards and the Court of Federal Claims have no jurisdiction under the CDA. They have no jurisdiction under the CDA over non-claim submissions, not even if the CO mistakenly issued a final decision when none was required. See Agility Defense & Government Services, Inc. v. United States, 103 Fed. Cl. 366 (2012). In that case the contractor submitted a document that did not possess the required elements of a claim as defined in FAR 2.101. Nevertheless, the CO issued a "final decision." The contractor appealed the decision, but the court dismissed the appeal for lack of subject matter jurisdiction, because the contractor's submission did not have all of the elements of a claim as defined in FAR 2.101. The court said:

"For the above reasons, the Court finds that it does not have jurisdiction to adjudicate Agility's complaint. The Court makes this ruling with some reluctance, given the contracting officer's contribution to a confused set of circumstances."

Thus, acquisition practitioners must know when they are submitting or when they have received a claim. Claims are not always easy to recognize, however.

A claim need not be in any particular format or use any particular language.

The definition of claim specifies no format for a claim and does not require the use of specific words of terms, except for the claim certification. The courts and boards have consistently held over the course of many years that a claim need not be in any particular format or stated in any particular language. A claim need not be labeled "Claim." See Contract Cleaning Maintenance, Inc. v. United States, 811 Fed. 2d 586, 592 (Fed. Cir. 1987):

We know of no requirement in the Disputes Act that a “claim” must be submitted in any particular form or use any particular wording.
All that is required is that the contractor submit in writing to the contracting officer a clear and unequivocal statement that gives the contracting officer adequate notice of the basis and amount of the claim.”

See also SITCO General Trading and Contracting Co. v. United States, 87 Fed. Cl. 506, 508 (2009).

A submission need not include a cost breakdown or other supporting cost data in order to be a claim. See H.L. Smith, Inc. v. Dalton, Secretary of the Navy, 49 F.3d 1563, 1564 (Fed. Cir. 1995):

“[N]either the CDA nor its implementing regulations, the Federal Acquisition Regulations (FAR), requires submission of a detailed cost breakdown or other specific cost-related documentation with the claim.”

Thus, a claim could be a simple letter. See Transamerica Insurance Corp. v. United States, 973 F.2d 1572, 1576 (Fed.Cir.1992):

“This court will not require contractors to do more than to comply as fully and reasonably as possible with the statutory requirements of the CDA when this court has definitively stated that certain “magic words” need not be used and that the intent of the “claim” governs.”

A simple claim under $100,000 might be stated in a single sentence. See Cibinic, Nash & Nagle, Administration of Government Contracts 1264 (4th ed., 2006):

"As long as the contractor's assertion contains the minimum information necessary to inform the contracting officer of what is being claimed and the grounds of the claim, the contracting officer must act on the claim and deny it if the information is insufficient to approve it,
Fred A. Arnold, Inc
., ASBCA 27151, 83-3 BCA para. 17,517."

Thus, a request for relief without supporting data might be a claim, but without the supporting data it might not be sufficient to prove the contractor's entitlement to the relief sought.

In pointing these things out I am not suggesting that contractors submit undocumented claims. My only purpose is to show that a contractor's submission need not be thoroughly documented in order be a claim and thus trigger the legal consequences of submitting a claim. Best practice is, of course, to prepare claims carefully and document them as thoroughly as possible.

The content is what matters, not what you call it.

The determination of whether a contractor’s submission to a CO is or is not a claim does not depend on what the parties call it. The mere fact that a contractor calls its submission a claim will not make it a claim if it lacks any necessary element of a claim. And calling a submission an REA does not mean that it is not a claim if it possesses all of the necessary elements of a claim. Claims and REAs are not categorically different things. It is the content of a submission, not what the parties label it or call it, that determines whether it is a claim.

In Zafer Taahhut Insaat ve Ticaret A.S., ASBCA 56770, 11-2 BCA ¶ 34841 (2011), the government argued that a contractor’s REA was not a claim because the contractor used the word “request” instead of claim in its claim certification. The board rejected that argument:

“The government objects to Zafer's 1 August 2007 REA as the basis for our jurisdiction, alleging that the document is a preliminary request for equitable adjustment, and does not adhere to CDA certification requirements because 'request' is twice substituted for 'claim' and the authority of the certifier is not stated. We find that the REA is a cognizable claim, as it adequately informs the government of the basis and precise amount of the claim and that the use of the word 'request' in lieu of 'claim' is inconsequential.”

Request for reconsideration denied, Zafer Taahhut Insaat ve Ticaret A.S., ASBCA 56770, 12-1 BCA ¶ 34951 (2012). See also Saco Defense, Inc., ASBCA 44792, 93-3 BCA ¶ 26029:

“[T]he threshold question is whether that submission constituted a “claim” under the CDA. To that end, it does not matter if the submission is styled as a ‘claim,’ a ‘proposal,’ a ‘request for equitable adjustment,’ or something else. What matters is that the submission satisfies the definition of ‘claim’ prescribed in applicable implementing regulations and contract clauses, as interpreted by the Federal Circuit.”

What is an REA?

The CDA does not mention REAs. Although the term REA appears in 31 places in the FAR System -- ten places in the FAR itself, the rest in seven agency FAR supplements -- the FAR does not define REA.

"Request for equitable adjustment" is a term of art for just what the name indicates: (a ) a request ( b ) for an equitable adjustment to one or more contract terms. REAs are grounded on contract clauses that provide for such relief, such as the "Changes" clauses, FAR 52.243-1 through - 5; the "Differing Site Conditions" clause, FAR 52.236-2; and the "Government Property" clause, FAR 52.245-1.

Contractors doing business with the Department of Defense that submit non-claim REAs valued at more than the simplified acquisition threshold must certify them as required by DFARS 243.204-71 and 252.243-7002. The certification reads as follows:

“I certify that the request is made in good faith, and that the supporting data are accurate and complete to the best of my knowledge and belief.”

An REA valued at more than the simplified acquisition threshold that includes the REA certification, but not the claim certification, is an REA that is not a claim, because it lacks one of the necessary elements of a claim. If the same REA is certified as a claim, and has the other necessary elements of a claim, then it is an REA that is a claim.

What if a contractor includes both the REA certification and the claim certification? Assuming that the REA has all of the other necessary elements of a claim, it is an REA that is a claim, notwithstanding the inclusion of the REA certification. However, the dual certification might indicate some confusion on the part of the contractor and make its intentions unclear.

Bottom line: An REA is a claim if it has the required elements of a claim as defined in FAR 2.101. An REA that lacks any required element of a claim is not a claim.

An impasse or dispute is not necessary for an REA to be a claim.

Many contracting practitioners think that there must be an impasse in negotiations or that the parties must be in dispute before REAs can be claims. That is not true, as determined in the landmark decision Relectone, Inc. v. Dalton, Secretary of the Navy, 60 F.3d 1572, 1577 (Fed. Cir, 1995):

"[W]e hold that FAR 33.201 does not require that 'a written demand ... seeking, as a matter of right, the payment of money in a sum certain' must already be in dispute when submitted to the CO to satisfy the definition of 'claim,'
except
where that demand or request is a 'voucher, invoice or other routine request for payment.' This interpretation, based on the plain language of the FAR, examines and reconciles the text of the entire regulation, not simply isolated sentences."

Reflectone is must reading for all practitioners. (At the time of that decision the definition of claim was in FAR 33.201. It has since been moved to FAR 2.101.)

See also Systems Development Corp. v. McHugh, Secretary of the Army, 658 F.3d 1341, 1346 - 47 (Fed. Cir. 2011):

"SDC contends that our precedent holds that a claim does not accrue until there is an impasse in negotiations between the contractor and the government. SDC, however, misapprehends our precedent. Impasse is not required for SDC's equitable adjustment claims to accrue.

In support of its impasse theory, SDC points to
Rex Systems, Inc. v. Cohen,
224 F.3d 1367 (Fed.Cir.2000). In
Rex Systems,
we considered when a submission by a contractor to a CO meets the definition of a 'claim' for the purposes of the CDA.
See also James M. Ellett Constr. Co. v. United States,
93 F.3d 1537 (Fed.Cir.1996). We acknowledged that not all contractor submissions to a CO are claims.
Rex Sys.,
224 F.3d. at 1372 ('[A]ny non-routine submission by a contractor meets the definition of a claim if it is: (1) a written demand; (2) seeking as a matter of right; (3) the payment of money in a sum certain.'). In this line of cases, we clarified that termination settlement proposals submitted under the termination for convenience clause of the FAR generally are not CDA claims. Under certain circumstances, however, a termination settlement proposal may ripen into a claim.
Id.
For example, as we explained in
Ellett,
a termination settlement proposal may ripen into a CDA claim when the parties' negotiations reach an impasse. 93 F.3d at 1543–44. Contrary to SDC's assertion, nothing in these cases addressed situations beyond termination settlement proposals. Indeed, we emphasized that the FAR “anticipate
the submission of claims independently of the termination settlement proposal.”
Id.
at 1548. We have never indicated that such independently submitted claims require an impasse.

* * *

SDC's equitable adjustment claims were wholly separate from its termination settlement proposal.
Nothing precluded SDC from presenting them to a CO as soon as SDC knew of their basis as provided in the FAR."

An REA is not a "routine request for payment."

According to the definition of claim in FAR 2.101, the only thing that has to be in dispute in order to be a claim is a “[a] voucher, invoice, or other routine request for payment,” and REAs are not routine requests for payment. That was settled by the Federal Circuit 17 years ago, in the landmark decision Reflectone, Inc. v. Dalton, 60 F.2d 1572, 1577 (Fed. Cir. 1995):

“[A]n REA is anything but a ‘routine request for payment.’ It is a remedy payable only when unforeseen or unintended circumstances, such as government modification of the contract, differing site conditions, defective or late-delivered government property or issuance of a stop work order, cause an increase in contract performance costs.
Pacific Architects and Eng'rs Inc. v. United States
, 491 F.2d 734, 739, 203 Ct.Cl. 499 (1974). A demand for compensation for unforeseen or unintended circumstances cannot be characterized as “routine.” The Supreme Court has confirmed the non-routine nature of an REA by equating it with assertion of a breach of contract.
Crown Coat Front Co. v. United States
, 386 U.S. 503, 511, 87 S.Ct. 1177, 1181, 18 L.Ed.2d 256 (1967) (‘With respect to claims arising under the typical government contract, the contractor has agreed in effect to convert what otherwise might be claims for breach of contract into claims for equitable adjustment.’). Thus, an REA provides an example of a written demand for payment as a matter of right which is not ‘a routine request for payment’ and, therefore, it satisfies the FAR definition of ‘claim’ whether or not the government's liability for or the amount of the REA was already disputed before submission of the REA to the CO.”

Some contracting practitioners think that REAs are routine because "they happen all the time." Indeed, they are common in some contracting offices. However, the boards and courts do not interpret "routine" on the basis of frequency, but on the basis of the nature of the cause. See Parsons Global Services, Inc., ex rel. Odell International, Inc. v. McHugh, Secretary of the Army, 677 F.3d 1166, 1170 (Fed. Cir. 2012):

"The distinction between a routine and non-routine request for payment is a factual one, dependent on the circumstances in which the requested costs arose. A routine request is one incurred and submitted ‘in accordance with the expected or scheduled progression of contract performance.’
Ellett Constr
., 93 F.3d at 1542–43. Such requests are ‘made under the contract, not outside it’ and include invoices, vouchers, progress payments, and other requests for costs under the contract's terms.
Reflectone
, 60 F.3d at 1577. By contrast, a non-routine request is one ‘seeking compensation because of unforeseen or unintended circumstances.’
Ellett Constr
., 93 F.3d at 1543;
Reflectone
, 60 F.3d at 1577. Such requests include requests for equitable adjustments for costs incurred from “government modification of the contract, differing site conditions, defective or late-delivered government property or issuance of a stop work order” and other government-ordered changes,
Reflectone
, 60 F.3d at 1577; for damages resulting from the government's termination for convenience and termination settlement proposals that have reached an impasse,
Ellett Constr
., 93 F.3d at 1542–43; for compensation for additional work not contemplated by the contract but demanded by the government,
Scan–Tech Sec., L.P. v. United States
, 46 Fed.Cl. 326, 333 (2000); for the return of contractor property in the government's possession,
J & E Salvage Co. v. United States
, 37 Fed.Cl. 256, 261 n. 4 (1997),
aff'd
, 152 F.3d 945 (1998) (table); and for damages stemming from the government's breach of contract or cardinal change to the contract,
Ky. Bridge & Dam, Inc. v. United States
, 42 Fed.Cl. 501, 518–19 (1998). A common thread among these examples is the presence of some unexpected or unforeseen action on the government's part that ties it to the demanded costs."

So why the persistent belief in the need for a dispute? It may due to the fact that claims are addressed in FAR clause 52.233-1, "Disputes." The reasoning goes that since claims are discussed in the Disputes clause if follows that there has to be a dispute in order for there to be a claim. Not so. The Disputes clause prescribes the procedure for submitting and processing claims and issuing CO final decisions. The clause does not state that a dispute must precede the submission of a claim, nor does anything in the CDA or in FAR Subpart 33.2, "Disputes."

FAR 33.204, "Policy," might be another reason for the mistaken belief in the need for a dispute. It states, in pertinent part, “Reasonable efforts should be made to resolve controversies prior to the submission of a claim.”

That’s the government’s policy, and it makes good sense from the government's perspective. It is designed to avoid the accrual of interest by encouraging settlement before the contractor submits a claim, on which interest accrues. However, the government’s policy in no way restricts what contractors can do. It does not require that contractors submit non-claim REAs before they submit claims. The CDA requires only that contractors believe they have a right to what they want in order to submit claims. Contractors do not have to first submit a non-claim REA and then wait while the government takes its own sweet time to evaluate the submission and to make repeated requests for more information before getting down to business.

To avoid confusion about claims and REAs, read the definition of claim.

Some of my students express shock and disbelief when I tell them that an REA can be a claim. "Are you saying that all of those REAs we get are claims and have to be treated like claims?" No, I'm not saying that. Here is what I'm saying:

First, when COs receive contractor requests for relief they should use the FAR 2.101 definition of claim as a checklist. No matter what the contractor calls it, a contractor’s request should be treated as a claim if it has all of the elements of a claim as defined in FAR 2.101. If it lacks any element of a claim it need not be treated as a claim.

Second, some inexperienced contractors may not understand that "claim" is an officially defined term with legal implications. If for any reason a CO is not sure about a contractor’s intention the CO should ask the contractor. If the contractor says that it meant to submit a claim, and if the submission lacks any element of a claim, then the CO should tell the contractor so it can correct its submission. The CO should explain the implications with respect to preparation costs if the contractor says it intended to submit a claim. If an REA has the elements of a claim, but the contractor says that it did not intend to submit a claim, the CO should ask for confirmation in writing.

Finally, contractors should check the definition of claim when submitting REAs and make sure that they understand what they are submitting -- either an REA that is not a claim or an REA that is a claim -- and the consequences of submitting it. They should make their intentions clear to COs. A warning: If your intention as a contractor is to submit a claim, then make sure that you get it right. Prepare the claim document well and document it fully. That improves the chances of a successful settlement. The government will not hesitate to challenge board or court jurisdiction over the slightest flaw in your submittal. If they succeed it will result in a significant loss of time and money. If your claim is significant, hire an attorney who knows the rules to assist in its preparation.

Every year we see board and court decisions in which one of the parties disputed the tribunal's jurisdiction on the ground that an REA was not a claim. The government does so to force the parties back to the negotiating table and avoid interest. Contractors do so to retain their entitlement to submission preparation costs. Such litigation is a needless and avoidable waste of money and time.

Knowledge, clear communication, good faith, and good will can prevent misunderstandings and needless jurisdictional litigation. But knowledge must come first.

---------------------------------------------------

Note 1: Relief, as used in the context of the CDA, is a legal term of art that means "The redress or benefit, esp., equitable in nature, ... that a party seeks in court." Black's Law Dictionary, 9th ed. (2009). According to FAR 33.213( a ), a claim for relief` "arising under a contract" is a claim that can be resolved under a contract clause other than the Disputes clause, FAR 52.233-1. A claim for relief "relating to a contract" is a claim for which no contract clause except for the Disputes clause provides for the relief sought. It is a breach of contract claim.

Note 2:

The certification for claims in excess of $100,000 is stated in FAR 33.207 as follows:

I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the contractor.

The dollar value of a claim for certification purposes is the absolute value of increases and decreases. See FAR 33.207( d ).

Note 3: Professor Ralph C. Nash, Jr. discusses the sum certain requirement in the August 2012 edition of The Nash & Cibinic Report: “Contract Disputes Act claims: the 'sum certain' requirement." 26 N&CR para. 41.

Note 4: FAR 33.208(a) says that interest begins to accrue when the CO receives the claim or when payment otherwise would be due, whichever is later. The FAR is wrong. The U.S. Court of Appeals for the Federal Circuit has thrice ruled that there is a single “red letter date” for the accrual of interest, and that is the date that the CO receives the claim. Furthermore, interest on a claim can accrue even before the contractor incurs any cost. See Richlin Security Service Co. v. United States, 437 F.3d 1296 (Fed. Cir. 2006) (rehearing and rehearing en banc denied); Caldera v. J.S. Alberici Construction Co., 153 F.3d 1381 (Fed. Cir. 1998); and Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991).]

Vern Edwards

In Government contracting under the FAR, a contract option is an offer contained in a contract that Government can accept in accordance with its terms, and that the contractor cannot revoke, until the acceptance period has expired. See also the definition of option in FAR 2.101.

The recent Federal government budget problems and the government shutdown have caused confusion with respect to the exercise of annual options in service contracts. I want to try to clear up some of that confusion.

A Primer On Contract Options

When a Government contract contains an option, the option is an offer that the Government can accept or reject. Acceptance of the offer is called "exercising the option."

The most common options in Government contracting are offers to (1) deliver additional quantities of supplies or (2) provide services for an extended period. It is the options in service contracts that are at issue.

In the main, options have two contractual components: (1) an option line item that describes the offer with reference to product specification, service statement of work, product or service pricing, and delivery date or performance period, and (2) an option clause that describes the rights and obligations of the parties with respect to exercise of the option. A standard rule of contract interpretation says that a contract must be interpreted as a whole. Thus, any attempt to answer questions about a contract option must consider both the terms of the contract line item and the terms of the applicable option clause.

FAR provides five standard clauses that stipulate the rights and obligations of the parties with respect to options. There are two standard clauses for supply contracts: FAR 52.217-6. Option for Increased Quantity (MAR 1989) and FAR 52.217-7, Option for Increased Quantity--Separately Priced Line Item (MAR 1989). There are two standard clauses for services contracts: FAR 52.217-8, Option to Extend Services (NOV 1999) and FAR 52.217-9, Option to Extend the Term of the Contract. In addition, there is FAR 52.237-3, Continuity of Services (JAN 1991), which requires a contractor to provide phase-in training and best efforts to “effect an orderly and efficient transition to a successor. While the latter clause is a kind of option, it is a special case, and I am omitting it from the remainder of this discussion.

FAR Subpart 17.2 describes two standard service contract options: (1) the so-called -8 option, named after its standard clause, FAR 52.217-8, which provides for short term extensions of up to six months, supposedly for use when award of a new contract is delayed, and (2) the so-called -9 option, named after its clause, FAR 52.217-9, which is the common "annual" extension option (although extensions need not be for a full year).

Exercising Options

When it comes to exercising a contract option (i.e., accepting the option offer), it is well established in Government contracting case law that an option must be exercised “in exact accord” with its terms. See System Planning Corp. v. U.S., 107 Fed. Cl. 710 (2012), quoting the U.S. Court of Appeals for the Federal Circuit in Freightliner Corp. v. Caldera, 225 F.3d 1361 (Fed. Cir. 2000):

“For an option order to be effective, the Government must exercise the option in exact accord with the terms of the contract.” Freightliner Corp. v. Caldera, 225 F.3d 1361, 1366 (Fed. Cir. 2000); see also Arko, 553 F.3d at 1379.

See also DeMarco Dirzo Development Co. v. U.S., 69 Fed. Cl. 262 (2005):

[T]he United States Court of Appeals for the Federal Circuit has held that “to properly exercise [an] option, the government's acceptance of the offer had to be in exact accord with the terms of the contract[.]” New England Tank Indus. of New Hampshire, Inc. v. United States, 861 F.2d 685, 687 (Fed.Cir.1988); see also Uniq Computer Corp. v. United States, 20 Cl.Ct. 222, 231–32 (1990) (quoting A. Corbin, CORBIN ON CONTRACTS, A COMPREHENSIVE TREATISE ON THE WORKING RULES OF CONTRACT LAW § 264) (1963) (The exercise of an option “must be unconditional and in exact accord with the terms of the option.”) (emphasis added)) (quoting Civic Plaza Nat'l Bank v. First Nat'l Bank of Dallas, 401 F.2d 193 (8th Cir.1968)) (“The acceptance of an option, to be effective, must be unqualified, absolute, unconditional, unequivocal, unambiguous, positive, without reservation, and according to the terms or conditions of the option ... An acceptance of an option must be such a compliance with the conditions as to bind the parties, and if it fails to do so it binds neither.” (emphasis added)). Therefore, as a matter of law, an attempted exercise of an option is ineffective, unless it is in “exact accord” with the terms of the option. See Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d 319, 323–24 (Fed. Cir. 1997) (holding the “partial exercise” of an option improper); International Telephone and Telegraph, ITT Defense Communications Div. v. United States, 197 Ct.Cl. 11, 453 F.2d 1283 (1972) (holding that a contracting officer's telegraphic notice that was sent on last date for giving notice, but not received until following morning, and contracting officer's oral notice on last date for notifying contractor was insufficient as a matter of law to “exercise an option,” where the contract provided that the contracting officer must notify the contractor of the exercise of an option, in writing, not later than a specified date); Uniq Computer, 20 Cl.Ct. at 231 (citing S. Williston, A TREATISE ON THE LAW OF CONTRACTS § 61D (3d ed.1957) (“This requirement is strictly construed.”).

As the Federal Circuit explained in Freightliner:

As option holder (optionee), the Government possesses what is generally called a power of acceptance. The option binds the optionee to do nothing but grants it the right to accept or reject the offer therein in accordance with its terms within the time and in the manner specified in the option. In order to bind the optionor, “the notice by which the power of an option holder is exercised must be unconditional and in exact accord with the terms of the option.” Nothing less will suffice, unless the optionor waives one or more of the option's terms. It is settled that the exercise or “acceptance of an option, to be effectual, must be unqualified, absolute, unconditional, unequivocal, unambiguous, positive, without reservation, and [strictly] according to the terms or conditions of the option.” Civic Plaza National Bank v. First National Bank in Dallas, 401 F.2d 193, 197(8th Cir. 1968); Holly Corp., ASBCA No. 24975, 83-1 BCA ¶ 16,327 at 81,164-65; see Corbin on Contracts § 264 (1963); Williston on Contracts §§ 61B, 61D (3d ed., 1957).

Do not confuse this common law rule, which requires the contracting officer to exercise the option in exact accord with the terms of the contract, with the rules in FAR 17.207 about exercising options, which are internal rules of the Government, not terms of a contract.

If a contracting officer fails to comply with FAR 17.207, the Government can declare the exercise of the option to be invalid on the ground that the CO exceeded his or her authority. Thus, if the CO exercises an unpriced and unevaluated option without first complying with FAR Part 6 (see FAR 17.207(f)0, the Government could repudiate the exercise without breaching the contract. But if the exercise was in accord with the exact terms of the contract, failure by the CO to otherwise comply with FAR 17.207 will not be grounds for the contractor to successfully argue that the exercise of the option was invalid. See Freightliner again, in which the contractor argued, among other things, that the CO had not complied with FAR 17.207(f) in exercising the option and for that reason the exercise of the option was improper and ineffective. The court rejected that argument, saying:

In order for a private contractor to bring suit against the Government for violation of a regulation, that regulation must exist for the benefit of the private contractor. See Cessna, 126 F.3d at 1451; Rough Diamond Co. v. United States, 173 Ct. Cl. 15, 351 F.2d 636, 640–42 (Ct.Cl.1965). If, however, the regulation exists for the benefit of the Government, then the private contractor does not have a cause of action against the Government in the event that a contracting officer fails to comply with the regulation. See Cessna, 126 F.3d at 1451–52; Rough Diamond, 351 F.2d at 642. Furthermore, each regulation must be analyzed independently to determine whether it confers a cause of action upon the private contractor. See Chris Berg, Inc. v. United States, 192 Ct. Cl. 176, 426 F.2d 314, 317 (Ct. Cl. 1970) (explaining that it is not “possible to determine that all of ASPR [predecessor to DAR] was or was not made for the benefit of bidders”).

* * *

On appeal, Freightliner contends that TACOM's failure to comply with FAR § 17.207(f) rendered TACOM's option exercise ineffective. When TACOM issued the P00051 modification, the FAR regulation provided as follows:

Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract.

FAR § 17.207(f) (1989).

The above regulation explains that, before exercising an option, a contracting officer must satisfy the requirements in FAR § 17.207(f) and FAR Part 6; otherwise, the Government must treat the option order as a “sole source” procurement and justify it under an exception to the requirement of obtaining supplies under full and open competition. See FAR § 6.101 (1989). Freightliner asseverates that, because TACOM failed to satisfy the conditions in FAR § 17.207(f) and did not obtain approval for the sole source justification, the P00051 modification was an ineffective option order. TACOM responds that, even if it violated FAR § 17.207(f), that regulation was not enacted for the contractor's protection, and Freightliner therefore cannot avoid its contractual obligations based on an alleged violation of that regulation.

In order for a private contractor to bring suit against the Government for violation of a regulation, that regulation must exist for the benefit of the private contractor. See Cessna, 126 F.3d at 1451; Rough Diamond Co. v. United States, 173 Ct. Cl. 15, 351 F.2d 636, 640–42 (Ct. Cl. 1965). If, however, the regulation exists for the benefit of the Government, then the private contractor does not have a cause of action against the Government in the event that a contracting officer fails to comply with the regulation. See Cessna, 126 F.3d at 1451–52; Rough Diamond, 351 F.2d at 642. Furthermore, each regulation must be analyzed independently to determine whether it confers a cause of action upon the private contractor. See Chris Berg, Inc. v. United States, 192 Ct. Cl. 176, 426 F.2d 314, 317 (Ct. Cl. 1970) (explaining that it is not “possible to determine that all of ASPR [predecessor to DAR] was or was not made for the benefit of bidders”).

Read holistically, FAR § 17.207 is designed to ensure that a contracting officer exercises an option to fulfill existing needs, see FAR § 17.207( c )(2) (“The requirement covered by the option fulfills an existing Government need ....”), and that exercising the option presents the most cost effective manner of fulfilling that need, see FAR § 17.207(d) (“The contracting officer, after considering price and other factors, shall make the determination....”). The regulation does not proscribe the contracting officer from taking a particular action, rather it provides the Government with a mechanism for maintaining orderly business transactions. In particular, FAR § 17.207(f) serves as an internal operating procedure that requires a contracting officer to document the reasons for exercising the option and the procedural steps taken in doing so. FAR § 17.207(f) exists to ensure that the contracting officer acts in the best interest of the government; it therefore does not exist for the benefit of the contractor. Cf. Cessna, 126 F.3d at 1452 (holding that a regulation which prevented a contracting officer from obligating funds before they were appropriated constituted an internal operating procedure existing for the benefit of the government). Accordingly, we hold that, even if TACOM failed to comply with FAR § 17.207(f), it would not render the P00051 modification ineffective.

The part of the first sentence of FAR 17.207(f) that states: “the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option,” serves merely to ensure that the CO complies with the common law rule. But even though FAR 17.202 makes FAR Subpart 17.2 inapplicable to some contracts, such as construction and research and development contracts, the common law rule still applies to them.

Bottom line: Except as provided by the express terms of the contract, e.g., a Changes clause, the Government cannot unilaterally change the terms of an option without the contractor’s assent.

FAR 17.207, "Exercise of options."

After reminding COs that they must exercise options in exact accord with their terms, FAR 17.207(f) goes on to remind COs of other conditions that must be met prior to the exercise of a contract option. You can read them for yourself, but I want to emphasize two:

(1) The exercise of the option must satisfy the requirements of FAR Part 6 with respect to full and open competition.

(2) The option must be exercisable in an amount stipulated in the contract or otherwise determinable from the contract terms.

The first reminds the CO that he or she must have complied with the Competition in Contracting Act (CICA) with respect to the option. The second is necessary for such compliance, because CICA requires that price be an evaluation factor in every CICA competition. A CO’s failure to comply with FAR 17.207 won’t excuse the contractor from performance, because FAR 17.207 was not written for the benefit of contractors. However, a bid protester can use such a failure as grounds to protest the exercise of an option. (Think of it this way: contractors complain about breaches of contracts; protesters complain about violations of regulations and solicitation terms.)

Questions at Wifcon Forum

As I said, the budget turmoil has caused some confusion about the exercise of options. Some of that confusion is reflected in a 14 November 2013 post to Wifcon Forum under the heading “FAR Clause 52.217-8 and -9”:

I was hoping to get some insight on the interpretation regarding the following statement, which was posted in one of the Army Contracting Directorate regarding FAR Clause 52.217-8 and 52.217-9:

In accordance with FAR Clause 52.217-8, Option to Extend Services, the contract may be extended, at the Government’s sole discretion, for a period of up to six (6) months, exercisable in increments of not less than one (1) month. If the contract contains an unexercised option period, the Government may elect to exercise the option pursuant to FAR Clause 52.217-9, Option to Extend the Term of the Contract, during any short-term extension. The short-term extension(s) shall be subtracted from the total duration of the immediately succeeding option period that may follow as a result of the exercise of the option pursuant to FAR Clause 52.217-9 so that the combination of the short-term extension(s) and the option will not exceed 12 months duration. [Emphasis added.] If the Government exercises one or more short term extensions in accordance with FAR Clause 52.217-8 and this instruction or an option period pursuant to FAR Clause 52.217-9, or any combination thereof, the contract as extended shall be deemed to include this extension instruction and FAR Clause 52.217-8; thus, the authority to extend services pursuant to FAR Clause 52.217-8 and this instruction may be exercised at the end of the base period and at the end of each option period.

Question: Can this be done? Excercising [sic] -9 and then cut it short and use -8?

The poster later explained:

[T]he situation is the result of the customer anticipation of not needing the services due to budget issues among other reasons. Anyways, we are at the point when we need to exercise the 2nd option period. Contracting office proposed we exercise -8 for 2-months and once customer confirms they need the service, -9 would be excercised [sic] following its respected [sic] period (PoP on option is idnetifed [sic] in Section F - 12-month periods).

As I interpret the post, the question is whether the Government can exercise the 52.217-8 option for two months and then the 12-month 52.217-9 option for 10 months.

The answer is no, unless the CO first modifies the 52.217-9 option with the contractor’s assent. Any attempt to exercise the 52.217-9 option for less than the stipulated 12 months would violate the common law of contracts and constitute a cardinal change -- a breach of contract -- which would entitle the contractor to refuse to perform or which would be handled as a constructive change entitling the contractor to an equitable adjustment, depending on which version of the Disputes clause, FAR 52.233-1, is in the contract. See FAR 33.213, “Obligation to continue performance.”

The fact that the 52.217-8 option plus a 10-month extension under the 12-month 52.217-9 option would equal 12 months is to no avail, because a 12-month 52.217-9 option stipulates performance for a period of 12 months and must be exercised in exact accord with its terms. The 52.217-8 option and the 52.217-9 option are different terms and presumably are under separate line items for the purposes of pricing and proposal evaluation. (According to the GAO, 52.217-8 options must be priced and the prices must be evaluated in order for exercise to be CICA-compliant. See Major Contracting Services, Inc., GAO Dec. B-401472, 2009 CPD ¶ 170 (Sep. 14, 2009), reconsid. denied, 2009 CPD ¶ 250 (Dec. 7, 2009).) One cannot combine the 52.217-8 option and the 52.217-9 option in order to satisfy the time requirement of the 52.217-9 option.

Perhaps some practitioners think that because paragraph ( c ) of the 52.217-9 option limits “the total duration” of the contract, that the 52.217-8 option cannot be used to extend the contract beyond that total duration. They reason that exercise of the 52.217-8 option prior to exercise of a 52.217-9 option requires that any excess time be deleted from the 52.217-9 option, justifying exercise of the 52.217-9 option for less than its stipulated period. To illustrate: Suppose that the Government has one remaining 52.217-9 option for a 12-month extension. According to paragraph ( c ) of the 52.217-9 clause, the total duration of the contract cannot go beyond the end of the final 52.217-9 option. Thus, if the Government exercises the 52.217-8 option first, for two months, then exercises the 52.217-9 option, it may do so for only 10 months. Not true. See the decision of the Court of Appeals for the Federal Circuit in Arko Executive Services, Inc. v. U.S., 553 F.3d 1375 (2009):

Arko argues first that the government's attempt to require services pursuant to FAR 52.217–8 after the fifth year of the contract exceeded the time limits of the contract. This argument is based on Arko's contention that FAR 52.217–9( c ), which states that “the total duration of this contract, including the exercise of any options under this clause, shall not exceed five years,” is an absolute bar to provision of services more than five years after the beginning of performance. This interpretation, however, ignores the phrase “including the exercise of any options under this clause.” The presence of this phrase suggests that the five-year limit includes the options discussed in the FAR 52.217–9 clause—which are the four one-year renewals discussed in F.4.1 and F.4.2—but does not include options to extend services, such as FAR 52.217–8, that are not under the clause.

More importantly, construing the up to six months of extended services authorized by FAR 52.217–8 as allowable in addition to the five years of performance under FAR 52.217–9( c ) is consistent with the purpose of FAR 52.217–8. According to another provision of the FAR:

Award of contracts for recurring and continuing service requirements are often delayed due to circumstances beyond the control of contracting offices. Examples of circumstances causing such delays are bid protests and alleged mistakes in bid. In order to avoid negotiation of short extensions to existing contracts, the contracting officer may include an option clause (see 17.208(f)) in solicitations and contracts which will enable the Government to require continued performance of any services within the limits and at the rates specified in the contract.

48 CFR § 37.111.

There is more to an option than the option clause, 52.217-8 or 52.217-9. The option clause merely states the terms for exercising the option. The option line item and other option terms of the contract, such as the specification or statement of work and the stipulation of the option performance period, are also part of the option. The option line item and other option terms must be read together with the option clause, and reading the line item and the clause together and applying the common law, a CO cannot exercise a 12-month option for 10 months, even if he or she exercises the 52.217-8 option for two months, because when it comes to exercising either option, they are different terms of the contract. A CO cannot read them together to arrive at a different interpretation of either of them than is clearly spelled out in the contract.

Any attempt to exercise an option based on terms different than those specified in the contract would constitute a counteroffer. The contractor can agree to or reject the counteroffer. However, if the contract agrees to accept the counteroffer, the CO will have conducted a sole source negotiation, which must be justified and approved in accordance with FAR Part 6. See Magnavox Electronic Systems Co., GAO Dec. B-231795, 88-2 CPD ¶ 431 (Nov. 2, 1988):

The FAR also provides that an agency may exercise an option only if the exercise accords with the terms of the option. FAR § 17.208(f). An agency is not permitted to negotiate with the awardee to reduce the option price stated in the contract if price competition for the option quantity is available. Varian Associates, Inc., B–208281, Feb. 16, 1983, 83–1 CPD ¶ 160, aff'd in relevant part sub nom Department of the Army—Reconsideration, B–208281.2, July 12, 1983, 83–2 CPD ¶ 78. [Footnote omitted.]

Presumably, the same would apply to any attempt to negotiate an option period of performance.

The solution to the problem posed in the original Wifcon Forum post would be to exercise the 12-month option and then terminate the contract for convenience if the requiring activity later decides that it does not need 12 months of services.

When Can COs Use The 52.217-8 Option?

A related matter that came up in the thread was whether the exercise of the 52.217-8 clause has to be consistent with the purposes stated in FAR 37.111, which states:

Award of contracts for recurring and continuing service requirements are often delayed due to circumstances beyond the control of contracting offices. Examples of circumstances causing such delays are bid protests and alleged mistakes in bid. In order to avoid negotiation of short extensions to existing contracts, the contracting officer may include an option clause (see 17.208(f)) in solicitations and contracts which will enable the Government to require continued performance of any services within the limits and at the rates specified in the contract. However, these rates may be adjusted only as a result of revisions to prevailing labor rates provided by the Secretary of Labor. The option provision may be exercised more than once, but the total extension of performance thereunder shall not exceed 6 months.

In other words, must the agency be in a tight spot in order to exercise the 52.217-8 option, or can it do so for its convenience? I think that the answer ought to be that an agency can exercise the option only when “circumstances beyond the control of contracting officers” delay award of a contract. But, as pointed out by Don Mansfield in one post in the thread, the Armed Services Board of Contract Appeals has ruled that regulatory purposes do not restrict the use of the 52.217-8 clause, since the clause says nothing about those purposes. See Griffin Services, Inc., ASBCA No. 52280, 02-2 BCA ¶ 31943 (Aug. 2, 2002).

In Griffin, the contract included the 52.217-8 option and some 52.217-9 options. It was badly priced and the contractor did not want the Government to exercise the 52.217-9 option. The CO failed to provide timely notice of intent to exercise, and the contractor refused to waive the deadline without a price adjustment. The CO then used the 52.217-8 clause to extend the contract for several months. The contractor filed a claim, arguing that the exercise of the option was not based on circumstances beyond the CO’s control. The board rejected that argument:

[T]he appellant seems to confuse what may have motivated the Government to provide for a standard clause extending contract services, and the expression of contractual intent which the language conveyed. As the Supreme Court has recently reminded in a unanimous opinion, when the Government enters the marketplace by way of contract and does business with its citizens, its rights and duties are governed generally by the law applicable to contracts between private individuals. Franconia Associates v. United States, 122 S. Ct. 1993, 2001 (U.S. 2002). Thus, we look to contract rules, not regulatory rules, for the interpretation of this clause.

The plain, objective, language of the Option to Extend Services clause is not limited as to the reasons for its use.

Conclusion

When Congress shut down the Government, it put at risk virtually every annual extension option in every Government contract, to the extent that those options could not be exercised in exact accord with their terms. COs punted, and it appears that everyone who did got away with it, at least as far as we know. But no CO should be deluded about the rules. The solution to such funding hiccups is not the wacky one proposed by the Army contracting director, but to write terms that would permit the CO to make unilateral adjustments to option terms in response to future funding delays and shutdowns.

When answering questions about the proper exercise of options, begin with the terms of the contract, which should include (1) the terms of the option itself (i.e., the offer to perform) and (2) the terms of the applicable contract clause, and then remember that COs must adhere to both the common law rules about options as well as the requirements of FAR Subpart 17.2 and FAR supplements.

For a general discussion of the legal issues associated with the exercise of options, see Nibley and Armstrong, The Government’s Exercise of Options, Briefing Papers (July 2013). It’s must-reading.

Vern Edwards

Two of my students, who work for a very large government contractor, told me that the contracting officers (COs) who administer their contracts unilaterally update contract clauses from time to time when they add funds to the contract or when they exercise options. They wondered if that was okay.

It's not okay.

More than a few people believe that the government must update contract clauses when the government changes the Federal Acquisition Regulation (FAR). Some of them think that the government may do so unilaterally. Others believe that contracts are “automatically” updated when the government changes the FAR. Those beliefs are false.

Once the government and a contractor enter into a contract a deal is a deal, and the government and the contractor are bound by the clauses in the awarded contracts until the contracts are completed. Nothing in FAR and no standard FAR clause authorizes a CO to unilaterally update, add, or delete clauses in a contract after award. None of the five Changes clauses, FAR 52.243-1 through -5, empower a CO to do that.

Thus, with a few exceptions, which are discussed below, changes to FAR clauses — revisions, additions, and deletions — must be accomplished through supplemental agreement [(bilateral modification). See FAR 43.103(a)(3). Any such supplemental agreement must be supported by consideration in order to be contractually enforceable.

In this blog entry I will address two questions:

1. What FAR clauses must COs insert in their contracts and purchase orders?

2. What happens after contract award when a Federal Acquisition Circular (FAC) revises, adds, or deletes a clause that is applicable to a contract of the type awarded, or changes a portion of FAR that has been incorporated into the contract by a clause?

FAR contract clauses

The FAR and agency FAR supplements prescribe the use of standard contract clauses to implement the statutes, regulations, and policies that apply to government contracts. FAR clauses implement the statutes, regulations, and policies that are in effect on (1) the date the solicitation for the contract was issued, (2) the date of contract award, or (3) some other date, depending on the terms of the clause. See, e.g., FAR 52.202-1, “Definitions (JAN 2012),” which incorporates into contracts the FAR definitions in effect “at the time the solicitation was issued.” See also FAR 52.216-7, “Allowable Cost and Payment (JUN 2011),” subparagraph (a)(1), which incorporates the text of FAR Subpart 31.2 that is in effect “on the date of this contract.” And see FAR 52.227-11, “Patent Rights—Ownership by the Contractor (DEC 2007), which incorporates the procedures in 37 C.F.R. § 401.6 and agency supplements in effect “on the date of contract award.” The language in those clauses fixes the version of the statute, regulation, or policy for the duration of the contract, unless the contract expressly provides otherwise.

What FAR clauses must COs insert in purchase orders and solicitations?

A purchase order or solicitation states the government’s terms, and quoters or offerors are expected to base their quotes and proposals on those terms. A purchase order or a solicitation for a contract must include the clauses prescribed by the various parts of the FAR. See, generally:

For commercial items, FAR 12.301(a):

12.301 Solicitation provisions and contract clauses for the acquisition of commercial items.

(a) In accordance with Section 8002 of Public Law 103-355 (41 U.S.C. 264, note), contracts for the acquisition of commercial items shall, to the maximum extent practicable, include only those clauses—(1)
Required to implement provisions of law or executive orders
applicable to the acquisition of commercial items

For purchase orders issued pursuant to simplified acquisition procedures, FAR 13.302-5:

13.302-5 Clauses.

(a) Each purchase order (and each purchase order modification (see 13.302-3)) shall incorporate
all clauses prescribed
for the particular acquisition.

For acquisitions conducted using sealed bidding, FAR 14.201-3:

14.201-3 Part II—Contract clauses.

Section I, Contract clauses. The contracting officer shall include in this section
the clauses required by law
or by this regulation and any additional clauses expected to apply to any resulting contract, if these clauses are not required to be included in any other section of the uniform contract format.

For acquisitions conducted by negotiation, FAR 15.204-3:

15.204-3 Part II—Contract Clauses.

Section I, Contract clauses.
The contracting officer shall include in this section
the clauses required by law
or by this regulation and any additional clauses expected to be included in any resulting contract, if these clauses are not required in any other section of the uniform contract format. An index may be inserted if this section’s format is particularly complex.

Emphasis added.

What does all of that mean? It means that a CO must include in a purchase order or solicitation all clauses that FAR prescribes for a prospective contract and that are in effect on the date the solicitation is issued. When an offeror bases its offer on the solicitation, and the government accepts that offer, the contract includes the clauses that were in the solicitation and the parties are bound by those clauses. A CO cannot change (revise, add, or delete) any clauses in a contract document after the offeror has signed it without the agreement of the offeror. Any such agreement would constitute a new offer.

What happens when a Federal Acquisition Circular (FAC) containing a clause change is issued before or after a solicitation is released, but the change does not take effect until after the solicitation has been released?

Suppose that a CO is preparing a solicitation for a firm-fixed-price supply contract that is expected to exceed $10 million and that the CO plans to issue the solicitation on June 1 and award the contract on December 1. Now suppose that on May 15, a Federal Acquisition Circular (FAC) comes out that adds a new clause to FAR that must be inserted in all FFP contracts that will exceed $5 million. The FAC states that the new clause will become applicable on August 15. Now suppose further that the agency office reviewing the solicitation before its release insists that since the prospective contract will be awarded after the clause becomes applicable the CO should include the new clause in the solicitation. According to FAR 1.108(d)(1), the new clause does not apply to the solicitation and need not be included, but according to FAR 1.108(d)(2) the CO may include it in the solicitation as long as the contract will be awarded after the new clause becomes applicable.

Thus, purchase orders and solicitations must include the contract clauses that are applicable on the date the solicitation is issued, and they may include any clauses that become applicable after that date as long as they are expected to be applicable on or after the date of contract award.

What happens when a clause change takes effect after contract award?

Assuming that the CO included all applicable clauses when soliciting offers, after contract award the government and the contractor are bound by the clauses in their contract throughout the period of performance. In the absence of a contract clause that expressly authorizes the CO to revise, add, or delete a clause without the contractor’s consent, any attempt to bind a contractor to a unilateral clause change would be a breach of contract. See General Dynamics Corp. v. U.S., 47 Fed. Cl. 514, 544 - 547 (2000) and United States v. Winstar Corp., 518 U.S. 839 (1996).

However, FAR 1.108(d)(3) permits COs to include FAR changes in existing contracts “with appropriate consideration.” Thus, changes to the contract clauses must be on the basis of supplemental agreement (bilateral modification), not unilateral action by the CO. The consideration would flow from the party seeking inclusion of the clause to the party agreeing to the inclusion. The amount of the consideration is negotiable.*

Automatic Updating Of Clauses?

There are some contract clauses that provide for automatic updating of contract terms following a change in law or regulation. For example, FAR 52.222-43, “Fair Labor Standards Act and Service Contract Act — Price Adjustment (Multiple Year and Option Contracts) (SEP 2009)” and 52.222-44, “Fair Labor Standards Act and Service Contract Act — Price Adjustment (SEP 2009) provide for automatic updating in response to a change in the minimum wage pursuant to the Fair Labor Standards Act of 1938. FAR 52.230-2, “Cost Accounting Standards (May 2012),” 52.230-5, “Cost Accounting Standards—Educational Institution (May 2012),” and 52.230-6, “Administration of Cost Accounting Standards (JUN 2010)” provide for automatic updating following a change to the Cost Accounting Standards. All such changes apply prospectively, not retroactively. See FAR 52.230-2:

(a) Unless the contract is exempt under 48 CFR 9903.201-1 and 9903.201-2, the provisions of 48 CFR Part 9903 are incorporated herein by reference and the Contractor, in connection with this contract, shall…

* * *

(3) Comply with all CAS, including any modifications and interpretations indicated thereto contained in 48 CFR Part 9904, in effect on the date of award of this contract or, if the Contractor has submitted certified cost or pricing data, on the date of final agreement on price as shown on the Contractor’s signed certificate of current cost or pricing data. The Contractor shall also comply with any CAS (or modifications to CAS) which hereafter become applicable to a contract or subcontract of the Contractor. Such compliance shall be required prospectively from the date of applicability to such contract or subcontract.

(4)(i) (Agree to an equitable adjustment as provided in the Changes clause of this contract if the contract cost is affected by a change which, pursuant to paragraph (a)(3) of this clause, the Contractor is required to make to the Contractor’s established cost accounting practices.

(ii) Negotiate with the Contracting Officer to determine the terms and conditions under which a change may be made to a cost accounting practice, other than a change made under other provisions of paragraph (a)(4) of this clause; provided that no agreement may be made under this provision that will increase costs paid by the United States.

(iii) When the parties agree to a change to a cost accounting practice, other than a change under subdivision (a)(4)(i) of this clause, negotiate an equitable adjustment as provided in the Changes clause of this contract.

May COs unilaterally update contract clauses when exercising options?

No. The clauses that apply to option periods are locked in at the time of contract award. FAR does not require that COs update clauses when exercising options. Moreover, the law of contracts does not permit COs to unilaterally change the terms of an option once they have been set. Absent express agreement to the contrary, the government must exercise options in strict accord with their terms. See Chemical Technology, Inc., ASBCA No. 21863, 80-2 BCA ¶ 14728:

The general rule governing the exercise of an option has been clearly stated by this Board in
General Dynamics Corporation
, ASBCA No. 20882, 77–1 BCA ¶ 12,504 at 60,622:

An option is an offer couched in specific terms, the acceptance of which must be unconditional and in exact accord with the terms offered. The general attitude of the courts is to construe strictly this legal requirement
Williston on Contracts
, Third Edition, Secs. 61B; 61D;
United States v. T. W. Corder, Inc.
, 208 F.2d 411, 413 (1953);
International Telephone and Telegraph, ITT Defense Communications Division v. The United States
, [17 CCF ¶81,071], 197 Ct. Cl. 11 (1972).

See also,
McArthur et al. v. Rosenbaum Company of Pittsburg
, 180 F.2d 617, 620 (3rd Cir., 1950). Even substantial compliance with the terms of an option is insufficient. See 17 CJS, Contracts, Section 42, n. 83(2) at 676.

Any attempt by the government to impose new terms on a contractor when exercising an option would be breach of contract and would invalidate the option. See New England Tank Industries of New Hampshire, Inc. v. U.S., 861 F. 2d 685 (Fed. Cir. 1988):

It is well-settled that to properly exercise [an] option, the government’s acceptance of the offer [must] be unconditional and in exact accord with the terms of the contract being renewed.

* * *

The dispositive question is whether the government's exercise of its option to renew the contract was valid or invalid. As above noted, the board recognized that an attempt to alter the contract terms would “render ineffective the purported exercise of an option,” and that insertion of an “availability of funds” clause renders the option exercise “invalid”, see 88–1 BCA at 103,166, and neither party quarrels with those statements of the law.

The rule that exercise of an option must be in accordance with the terms of the option as awarded is reflected in FAR 17.207(e), which requires that before exercising an option the CO must make a written determination that the exercise “is in accordance with the terms of the option….” Thus, unless a contract contains an express term to the contrary, COs have no authority to unilaterally update contract clauses when exercising options.**

What is the effect of changes to parts of the FAR that were incorporated into a contract by reference?

Several FAR contract clauses incorporate parts of the FAR into contracts by reference. See e.g., FAR 52.202-1, which incorporates FAR definitions “in effect at the time the solicitation was issued,” and 52.216-7(a)(1), which incorporates the version of FAR Subpart 31.2 “in effect on the date of this contract.” In those examples, the terms of the FAR are fixed in time and cannot be altered without mutual agreement of the parties and consideration.

But what if the clause does not fix the terms of the FAR? See e.g., FAR 52.211-15, “Defense Priority and Allocation Requirements (APR 2008).” It requires the contractor to comply with “15 C.F.R. 700,” without further qualification. See also the various small business clauses that require the contractor to comply with Title 19 of the C.F.R., and the labor law clauses that require the contractor to comply with Title 29. If those regulations change after contract award the contractor is always bound by the current regulation. In such cases the updating is automatic and does not require a contract modification unless the clause provides for an adjustment of some kind, equitable or otherwise.

As I mentioned above, some clauses, such as the Cost Accounting Standards clause, provide for automatic updating with price adjustment.

Can Congress enact a law that changes existing contracts?

Yes, but they might breach the contract if they do. That was the holding of the Supreme Court in United States v. Winstar Corp., cited above, in which Congress changed a law, and the agency changed its regulations accordingly, after entering into contracts with financial institutions:

When the law as to capital requirements changed in the present instance, the Government was unable to perform its promise and, therefore, became liable for breach. We accept the Federal Circuit's conclusion that the Government breached these contracts when, pursuant to the new regulatory capital requirements imposed by FIRREA [Financial Institutions Reform, Recovery, and Enforcement Act of 1989], 12 U.S.C. § 1464(t), the federal regulatory agencies limited the use of supervisory goodwill and capital credits in calculating respondents' net worth. 64 F.3d, at 1545. In the case of Winstar and Statesman, the Government exacerbated its breach when it seized and liquidated respondents' thrifts for regulatory noncompliance.
Ibid
.

In Winstar, the court quoted its decision in Sinking Fund Cases, 99 U.S. 700 (1879):

The United States are as much bound by their contracts as are individuals. If they repudiate their obligations, it is as much repudiation, with all the wrong and reproach that terms implies, as it would be if the repudiator had been a State or a municipality or a citizen.

Conclusion

Getting back to my two students, absent express language in the contract to the contrary, a CO may not unilaterally change the clauses in a contract when funding the contract or exercising an option. He or she may change clauses only with the assent of the contractor and with consideration for the change.

I asked my two students how they responded when their COs unilaterally updated the clauses in their contracts. They said that they went along with it, because so far none of the changes had much if any effect. That is too bad, because they are teaching the COs in question that what they are doing is okay. It is not okay. And it is not wise for one party to a contract to let the other party violate its rights by unilaterally imposing new terms.

NOTES

*Note that “consideration” is not the same as an “equitable adjustment.” An equitable adjustment is a fair increase or decrease in the contract price or estimated cost and fee and the time required for contract performance, as required by a contract clause, such as a Changes clause or Differing Site Conditions clause. The amount of the equitable adjustment is based on the estimated or actual effect of the change on the cost or time required for performance. When the parties to a contract agree to modify it on the basis of mutual agreement, and not in accordance with a contract clause that provides for equitable adjustment, the parties are making a new bargain and the bargain must be supported by consideration in order to be enforceable in court. Consideration is necessary whether or not there is any effect on cost or time. The amount of the consideration is not determined or limited on the basis of the effect on cost or time, but is determined through bargaining. The consideration would flow from the party that will benefit from inclusion of the clause to the party that agrees to its inclusion.

**However, the parties may change the terms of a future option period pursuant to the terms of contract clauses, such as the Changes clause, or pursuant to a justification for other than full and open competition.

Vern Edwards

In a recent thread in the Wifcon discussion forum, a member asked if a task order issued under an Indefinite-Delivery Indefinite-Quantity (IDIQ) contract can contain an option that permits extension of the order beyond the contract expiration date. Here is the question:

[T]he requiring activity wants to put a task order in place that has a base year and 2, one-year options. The ID/IQ contract expires half way through the first one-year option. What authority allows you to exercise the second option year?

At about the same time as that post, I received a telephone call from a former student asking virtually the same question.

Those questions come after the decision by the Armed Services Board of Contract Appeals? decision in General Dynamics C4 Systems, Inc., ASBCA No. 54988, May 8, 2009, http://docs.law.gwu.edu/asbca/decision/pdf2009/54988.pdf. We work in a time in which people do not read the Federal Acquisition Regulation and the standard clauses in their contracts. The General Dynamics decision shows the latent potency of those clauses. So I thought it might be useful to review the standard terms of IDIQ contracts to see how we can answer the questions.

In this piece, when I write ?task order? I?m including delivery orders.

Key Terms of IDIQ Contracts

FAR 16.504, which describes Indefinite-Delivery contracts, prescribes their content and establishes rules for their use. FAR 16.504(a)(4)(i) provides, without further explanation, that an IDIQ contract must:

Specify the period of the contract, including the number of options and the period for which the Government may extend the contract under each option? .

What is ?the period? of an IDIQ contract? In order to answer that question we must look first to the standard FAR clauses. FAR 16.506 prescribes two such clauses for use in IDIQ contracts: FAR 52.216-18, Ordering (OCT 1995) and FAR 52.216-22, Indefinite Quantity (OCT 1995). The Indefinite Quantity clause provides as follows:

Indefinite Quantity (Oct 1995)

(a) This is an indefinite-quantity contract for the supplies or services specified, and effective for the period stated, in the Schedule. The quantities of supplies and services specified in the Schedule are estimates only and are not purchased by this contract.

(B) Delivery or performance shall be made only as authorized by orders issued in accordance with the Ordering clause. The Contractor shall furnish to the Government, when and if ordered, the supplies or services specified in the Schedule up to and including the quantity designated in the Schedule as the ?maximum.? The Government shall order at least the quantity of supplies or services designated in the Schedule as the ?minimum.?

? Except for any limitations on quantities in the Order Limitations clause or in the Schedule, there is no limit on the number of orders that may be issued. The Government may issue orders requiring delivery to multiple destinations or performance at multiple locations.

(d) Any order issued during the effective period of this contract and not completed within that period shall be completed by the Contractor within the time specified in the order. The contract shall govern the Contractor?s and Government?s rights and obligations with respect to that order to the same extent as if the order were completed during the contract?s effective period; provided, that the Contractor shall not be required to make any deliveries under this contract after _______________ [insert date].

(End of clause)

Note that paragraphs (a) and (d) of the Indefinite Quantity clause refer to a period within which the contract is ?effective,? and which I?ll call the effective period. The clause provides no space in which to insert the start and end dates of the effective period, but indicates that the dates are ?in the Schedule.? When using the Uniform Contract Format described in FAR 14.201-1 and 15.204-1, the Schedule includes contract sections A through H.

Paragraph (d) of the Indefinite Quantity clause provides a space in which the contracting officer is supposed to insert the last date on which the government can require the contractor to perform or deliver, which I?ll call the last date of required performance. (See FAR 52.104(d) and (e) about making insertions in clauses.)

Note three things about paragraph (d): first, it implies that the contracting officer can issue an order requiring performance or delivery after the expiration of the effective period; second, it says that if the order is not to be completed within the effective period the terms of the contract will be extended ?with respect to that order?; and third, it indicates that the last date of required performance can also be later than the expiration of the effective period.

The Ordering clause provides as follows:

Ordering (Oct 1995)

(a) Any supplies and services to be furnished under this contract shall be ordered by issuance of delivery orders or task orders by the individuals or activities designated in the Schedule. Such orders may be issued from __________ through ____________ [insert dates].

(B) All delivery orders or task orders are subject to the terms and conditions of this contract. In the event of conflict between a delivery order or task order and this contract, the contract shall control.

? If mailed, a delivery order or task order is considered ?issued? when the Government deposits the order in the mail. Orders may be issued orally, by facsimile, or by electronic commerce methods only if authorized in the Schedule.

(End of clause)

Note that the Ordering clause provides for the establishment of a period within which the government may issue task orders, which I will call the ordering period. The government may not issue task orders after expiration of the ordering period. The contracting officer is supposed to specify the ordering period by inserting dates in the space provided in paragraph (a). (This clause was central to the ASBCA?s General Dynamics decision.)

The Five Dates In An IDIQ Contract

Let?s review: Based exclusively on the texts of the Indefinite Quantity clause and the Ordering clause, an IDIQ contract is supposed to contain the following five dates:

1. somewhere in the Schedule, the date on which the effective period begins;

2. also in the Schedule, the date on which the effective period ends;

3. in paragraph (d) of the Indefinite Quantity clause, in Section I, the last date of performance;

4. in paragraph (a) of the Ordering clause, in Section I, the date of which the ordering period begins; and

5. also in paragraph (a) of the Ordering clause, the date on which the ordering period ends.

The contracting officer is supposed to insert the dates in the contract, but it is my impression that contracts are often awarded without the insertion of one or more of those sets of dates.

In addition to the five dates listed above, there will be the dates associated with each task order, such as the period of performance of services or the delivery dates for supplies.

If the contract contains the clause at FAR 52.217-9, Option to Extend the Term of the Contract (MAR 2000), then in addition to the above dates there will be the period within which the contracting officer may exercise each such option, the deadline for giving the contractor preliminary notice of the government?s intent to exercise the option, and the dates of the option period(s). The boards of contract appeals and the Court of Federal Claims strictly enforce dates associated with the power to exercise options, and they may treat the issuance of a task order as the exercise of an option in that regard. See the General Dynamics decision:

In Dynamics Corp. of America v. United States, 389 F.2d 424, 430-33 (Ct. Cl. 1968), the Court of Claims established that the government?s issuance of orders under an indefinite quantity contract is like its exercise of options and must be accomplished in strict accordance with the contract?s terms. The court found that the orders in question were not issued within the time period specified in the contract and granted summary judgment to the contractor for the reasonable value of goods it had delivered under protest when the government required it to perform. Indeed, it is settled that, ?[f]or an option order to be effective, the Government must exercise the option in exact accord with the terms of the contract.? Freightliner Corp. v. Caldera, 225 F.3d 1361, 1366 (Fed. Cir. 2000).

Thus, the interplay among all of the dates discussed above might in some cases become problematical.

The Effective Period And The Ordering Period: One And The Same?

It is possible that the author(s) of the Indefinite Quantity clause and the Ordering clause meant for the effective period and the ordering period to be one and the same. But the Indefinite Quantity clause puts the effective period in the Schedule and the FAR clause matrix puts the Ordering clause in Section I of the Uniform Contract Format, which is not part of the Schedule. If we assume that the author(s) of the two clauses knew what they were doing and meant to put the effective period and the ordering period in different sections of the contract, it seems likely that they did not mean for them to be one and the same. Thus, the ordering period might start after the first date of the effective period and end before the expiration date of that period.

The Mysterious ?Effective Period?

What is the contractual significance of the effective period mentioned in the Indefinite Quantity clause? In what sense is an IDIQ contract ?effective?? What is the operative relationship between the effective period and the ordering period, between the effective period and the performance period or delivery date(s) of an order, and between the effective period and option-related dates? The answers to those questions are not immediately apparent to me.

Presumably, the effective period is the time within which the rights and obligations of the parties are in effect. Do those rights and obligations expire with the effective period? For example, does the contractor?s obligation to take affirmative action in the employment of disabled workers end when the effective period expires? What about the contractor?s obligation to pay Service Contract Act wages or to comply with change orders? Are contract prices no longer in effect after expiration of the effective date? Remember that paragraph (d) of the Indefinite Quantity clause says:

Any order issued during the effective period of this contract and not completed within that period shall be completed by the Contractor within the time specified in the order. The contract shall govern the Contractor?s and Government?s rights and obligations with respect to that order to the same extent as if the order were completed during the contract?s effective period? .

Emphasis added. However, the paragraph goes on to say:

provided, that the Contractor shall not be required to make any deliveries under this contract after _______________ [insert date].

Thus, the contract terms and the rights and obligations of the parties with respect to a ?not completed? order do not expire with the effective period, but continue in effect until the order is completed, provided that completion is not later than the last date of performance.

When is an order ?completed?? Does ?completed? refer to the contractor?s work or to something else? Is an order ?completed? when the contractor delivers or finishes the work, i.e., when the contractor?s performance is completed? The phrase ?shall be completed by the contractor? seems to suggest so. Or does ?completed? mean when the government has accepted performance, or when the government has made final payment? Does it mean ?physically completed,? as described in FAR 4.804-4 with reference to the closeout of contract files:

(a) Except as provided in paragraph (B) of this section, a contract is considered to be physically completed when?

(1)(i) The contractor has completed the required deliveries and the Government has inspected and accepted the supplies;

(ii) The contractor has performed all services and the Government has accepted these services; and

(iii) All option provisions, if any, have expired; or

(2) The Government has given the contractor a notice of complete contract termination.

(B) Rental, use, and storage agreements are considered to be physically completed when?

(1) The Government has given the contractor a notice of complete contract termination; or

(2) The contract period has expired.

Absent some express definition of when an order is ?completed,? the meaning will depend on a reading of the contract as a whole, including the order, so that no term is rendered meaningless and without effect, which means that it cannot be defined in any abstract sense.

The Indefinite Quantity clause says that the terms of the contract continue to apply to uncompleted orders after expiration of the effective period, but what about orders completed within the effective period? Suppose that a fixed-price order requires the contractor to deliver supplies on a date prior to the expiration date of the effective period and that the contractor delivers accordingly. Suppose further that the government does not inspect the supplies before the expiration of the effective period. Finally, suppose that after expiration of the effective period the government discovers a patent defect in the delivered supplies. If the order was ?completed? upon the delivery of the supplies and the contract effective date has expired, can the government still invoke the terms of the fixed-price inspection clause, FAR 52.246-2, Inspection of Supplies⎯Fixed-Price (AUG 1996), and demand that the contractor correct the defects at no additional cost?

What if the contractor has completed an order and is still performing under another order when the effective period expires? Does the fact that one order remains uncompleted mean that the terms of the contract continue in effect with respect to ?completed? orders? The Indefinite Quantity clause says that the terms of the contract remain in effect ?with respect to that order,? not all orders.

Of course, these questions are of less concern when a clause expressly provides for the survival of rights and obligations after completion or final payment, such as in the clause at FAR 52.215-2, Audit and Records (JUN 1999), or a warranty clause. Note in that regard that the inspection clause for cost-reimbursement contracts requires the contractor to take corrective action for up to six months ?after acceptance.?

There are likely many other such possibilities as to the contractual significance of the effective period of an IDIQ contract. I have not tried to think them through and I have done no legal research, so I encourage readers of this blog to speculate or inform the rest of us of anything they may know or learn in that regard. In any case, contracting officers should be thoughtful when establishing the myriad dates in an IDIQ contract and be especially thoughtful about the potential effect of the effective date. It might be wise to ensure that timely administrative action is taken with respect to orders completed prior to the expiration of the contract effective period. It might not hurt to write special clauses to state the significance of the effective period and to define order ?completion? for purposes of the Indefinite Quantity clause.

One way to cope with the effective period problem would be to write a clause like the following and put it in Section H:

The effective period of this contract begins on the date of contract award and ends on the date following the date of final payment under this contract.

Options In IDIQ Contracts

The government may put options in IDIQ contracts to extend the effective period, the ordering period, and the last day of required performance. Note, however, that the standard clause at FAR 52.217-9, Option to Extend the Term of the Contract (MAR 2000), makes no express mention of ?effective period,? ?ordering period,? or last date of required performance. Thus, contracting officers should modify the clause when using it in an IDIQ contract to make express mention of those dates. (The preface to the standard option clause permits the use of a clause that is ?substantially the same.? See FAR 52.104 (a) through ? about modifying clauses.) Presumably, when establishing option line items, the contracting officer will want to stipulate the new effective period, new ordering period, and new last date of required performance associated with each option.

If an order is valued at less than $10,000,000 at the time of issuance, but an option in the order would increase the cumulative value of the order to in excess of $10,000,000, would the GAO consider a protest against the award of the order under FAR 16.505(a)(9)(i)(B), which does not say ?including options?? Probably. Keep in mind that FAR 1.108? says that options are to be included when applying dollar thresholds. Again, I know of no case law that directly answers the question.

Options in Task Orders

What about options in task orders? I know of no rule in FAR that prohibits the use of options is task orders. Presumably, the policies in FAR Subpart 17.2 apply to such options. Agencies may have policies of their own, as well. See, e.g., GSA?s policy with respect to Federal Supply Schedule contracts:

Options may be included on orders placed against GSA Multiple Award Schedule (MAS) contracts, provided that the options are clearly stated in the requirement and are evaluated as part of the ordering activity's best value determination. Such options may be exercised on GSA Schedule contract orders, provided that:

? Funds are available;

? The requirement covered by the option fulfills an existing government need;

? Prior to exercising an option, the ordering activity ensures that it is still in the government's best interest; i.e., that the option is the most advantageous method of fulfilling the government's need, price and other factors considered; and

? The options do not extend beyond the period of the Schedule contract, including option year periods.

There are questions about the use of options in task orders:

1. Can you put an option in a task order that is to be exercised
before
the expiration of the effective period and that would extend performance beyond that period?

2. If so, can such an option require performance after the last day of required performance stipulated in paragraph (d) of the Indefinite Quantity clause?

3. Can you put an option in a task order that can be exercised
after
the expiration of the effective period?

4. If so, can the option require performance after the last date of required performance?

The answer to the first question appears to be yes, since the Indefinite Quantity clause makes express provision for orders that require performance after the expiration of the effective period.

The answer to the second question should be yes if the option is written so as to extend the last date of required performance for the purposes of the order in question. Otherwise, there might be an issue. An agency should state its intent to use such options in the solicitation for the contract, and the contract should make express provision for the issuance of orders that include such options, otherwise, the use of such an option might be an expansion of the scope of the contract and subject to protest.

The answer to the third question is problematical. It would be best to extend the contract effective period prior to exercising such an option in a task order, just to avoid any issues about the viability of the option. Since extension of the effective period would expand the scope of the contract, the intention to do so in connection with such task order options should be stated in the solicitation for the contract and provided for in the contract.

The answer to the fourth question is also problematical. There might be an issue, unless the task order option expressly requires the contractor to work after the last date of required performance, thereby effectively extending that date for the task order in question. The contract should make provision for extension of the last date of contract performance in connection with such task order options.

What happens if the contracting officer issues an order containing an option that would permit its extension beyond the effective date or the last date of required performance? Can the contractor object and refuse to accept such an order? I think the contractor would have grounds to object and reject if, at the time of award, the contract did not expressly permit the issuance of such an order, such that the contractor was not or could not have been aware that it could happen. If the contractor did not object when the order was issued, can it later object to the exercise of the option? Again, I think so, if the contract or the order did not expressly permit such an extension, such that the contractor was not and could not have been aware. It seems likely that a court would require the contractor to perform if it knowingly accepts the order without objection.

What if, at the time of award, the contract did not expressly permit the issuance of such an order, but the contractor is willing to accept it? Would that make it okay? Probably not, because the exercise of such an option would enlarge the scope of the contract by effectively extending the effective period and the last date of contract performance, thus opening the way to a protest. Would it be okay to add such an option to a task order after its issuance? Again, doing so would enlarge the scope of the contract and open the way to a protest.

Is exercising an option to extend a task order tantamount to issuing a new order? I don?t know, but I think it is possible that a court, a board of contract appeals, or the Government Accountability Office (GAO) might consider it so. If so, can a contracting officer exercise such an option after the expiration of the ordering period or the last day of required performance? I think it?s possible that a court a board or the GAO would say no. I am aware of no case law that directly answers those questions.

Coordinate Those Dates!

Contracting officers should carefully coordinate all contract dates and task order dates in order to avoid potential conflicts and disputes. If a contracting officer wants to use options in task orders to permit their extension, then he or she should include options in the basic contract to extend the contract effective period and to change the last date of required performance. If such options are not included in the contract at the time of award, later changes in those dates will be outside the scope of the contract and open to protest.

Anyone who thinks that these matters are mere technicalities had better read the ASBCA?s General Dynamics decision, cited above. The board rejected that notion.

I have not attempted to make a detailed or comprehensive, much less exhaustive, analysis of these questions. My objective here is to raise questions that smart people will consider when writing IDIQ contracts and task orders.

Just a little word to the wise.

Vern Edwards

The DAU Director for the Center for Contracting, Mr. Leonardo Manning, posted a short, one-paragraph blog entry on February 10 entitled, “Is your Acquisition a Supply or a Service?”

https://dap.dau.mil/career/cont/blogs/default.aspx

It's interesting, but it doesn't analyze the problem in enough detail. It's more complicated than presented.

FAR 2.101 defines supplies as follows:

Supplies means all property except land or interest in land. It includes (but is not limited to) public works, buildings and facilities; ships, floating equipment, and vessels of every character, type, and description, together with parts and accessories; aircraft and aircraft parts, accessories, and equipment; machine tools; and the alteration and installation of the foregoing.

There is no definition of services or service contract in FAR Part 2, which means that there is no definition of those terms that applies throughout the FAR. See FAR 2.101(a). However, there are several definitions pertaining to services and service contract scattered about in various places.

FAR 2.101 defines personal services contract as follows:

Personal services contract means a contract that, by its express terms or as administered, makes the contractor personnel appear to be, in effect, Government employees (see 37.104).

FAR 37.101 defines nonpersonal services contract as follows:

Nonpersonal services contract means a contract under which the personnel rendering the services are not subject, either by the contract's terms or by the manner of its administration, to the supervision and control usually prevailing in relationships between the Government and its employees.

FAR 37.101 defines service contract as follows:

Service contract means a contract that directly engages the time and effort of a contractor whose primary purpose is to perform an identifiable task rather than to furnish an end item of supply. A service contract may be either a nonpersonal or a personal contract. It can also cover services performed by either professional or nonprofessional personnel whether on an individual or organizational basis. Some of the areas in which service contracts are found include the following:

(1) Maintenance, overhaul, repair, servicing, rehabilitation, salvage, modernization, or modification of supplies, systems, or equipment.

(2) Routine recurring maintenance of real property.

(3) Housekeeping and base services.

(4) Advisory and assistance services.

(5) Operation of Government-owned equipment, real property, and systems.

(6) Communications services.

(7) Architect-Engineering (see Subpart 36.6).

(9) Transportation and related services (see Part 47).

(10) Research and development (see Part 35).

That definition applies only in FAR Part 37. It does not apply in any of the other 52 parts. It does not apply to Part 22. See FAR 2.101(a).

FAR 22.001 defines service contract as follows:

Service contract means any Government contract, or subcontract thereunder, the principal purpose of which is to furnish services in the United States through the use of service employees, except as exempted by the Service Contract Act (41 U.S.C. chapter 67; see 22.1003–3 and 22.1003–4). See 22.1003–5 and 29 CFR 4.130 for a partial list of services covered by the Act.

There are also definitions of advisory and assistance services, architect-engineer services, child care services, and utility service.

The purpose of the FAR definitions is to provide a basis for applying appropriate policies, solicitation provisions, and contract clauses when conducting acquisitions. They are not meant to define supplies and services in and of themselves.

There is no definition of service per se; the FAR does not tell us what a service is. The closest we get is that part of the definition of service contract that refers to performance of an identifiable task rather than to furnish an end item of supply. That’s an odd criterion, and it makes the definition of service contract somewhat problematical. If you buy a product of a company’s own design that the company makes, stocks, and sells, you are clearly buying an item of supply. But what if a CO hires a contractor to make and deliver an item of the government’s design? Is the CO buying an item of supply or the time and effort of performing an identifiable task? Seems to me that making something is an identifiable task and that hiring someone to make something for you is hiring them to perform such a task. However, I think that most of us would agree that such a contract would be a supply contract. Right?

If you award a contract to someone to manufacture something to your specifications, have you bought an item of supply or have you hired the contractor to expend time and effort to perform an identifiable task? Surely, the custom manufacture of something to your design is different than contracting with a firm to sell you a standard item that it makes to its own design and stocks or makes on order for sale. Moreover, doesn’t the maintenance, overhaul, repair, servicing, rehabilitation, etc., of items of supply entails the alteration of those supplies, which, according to the definition of supplies, is supplies?

Which brings us to the Service Contract Act. FAR 22.1003-1 says that FAR Subpart 22.10, “Service Contract Act of 1965, As Amended,” applies to all government contracts awarded for the principle purpose of acquiring services to be provided by service employees. It then says:

The nomenclature, type, or particular form of contract used by contracting agencies is not determinative of SCA coverage.

FAR Subpart 22.10 makes no mention of the definition of service contract in 37.101, but 22.1003-5 contains a list of examples of contracts covered by the SCA that includes many that are similar to the list of examples in that definition.

The Department of Labor regulations at 29 C.F.R. Part 4, Labor Standards for Federal Service Contracts, does not define service or service contract, but provides as follows at § 4.111(a), which says, in part:

This remedial Act is intended to be applied to a wide variety of contracts, and the Act does not define or limit the types of services which may be contracted for under a contract the principal purpose of which is to furnish services. Further, the nomenclature, type, or particular form of contract used by procurement agencies is not determinative of coverage. Whether the principal purpose of a particular contract is the furnishing of services through the use of service employees is largely a question to be determined on the basis of all the facts in each particular case. Even where tangible items of substantial value are important elements of the subject matter of the contract, the facts may show that they are of secondary import to the furnishing of services in the particular case. This principle is illustrated by the examples set forth in §4.131.

As for the examples in § 4.131:

(a)… A procurement that requires tangible items to be supplied to the Government or the contractor as a part of the service furnished is covered by the Act so long as the facts show that the contract is chiefly for services, and that the furnishing of tangible items is of secondary importance

* * *

( c ) [An] example of the application of the above principle is a contract for the recurrent supply to a Government agency of freshly laundered items on a rental basis. It is plain from the legislative history that such a contract is typical of those intended to be covered by the Act. S. Rept. 798, 89th Cong., 1st Sess., p. 2; H. Rept. 948, 89th Cong., 1st Sess., p. 2. Although tangible items owned by the contractor are provided on a rental basis for the use of the Government, the service furnished by the contractor in making them available for such use when and where they are needed, through the use of service employees who launder and deliver them, is the principal purpose of the contract.

Okay, but then the regulation says:

In general, contracts under which the contractor agrees to provide the Government with vehicles or equipment on a rental basis with drivers or operators for the purpose of furnishing services are covered by the Act. Such contracts are not considered contracts for furnishing equipment within the meaning of the Walsh-Healey Public Contracts Act. On the other hand, contracts under which the contractor provides equipment with operators for the purpose of construction of a public building or public work, such as road resurfacing or dike repair, even where the work is performed under the supervision of Government employees, would be within the exemption in section 7(1) of the Act as contracts for construction subject to the Davis–Bacon Act. (See § 4.116.)

I presume that equipment rental for other purposes is covered by the Walsh-Healey Public Contracts Act, which applies to contracts for the "manufacture or furnishing" of materials, supplies, articles, and equipment. See FAR 22.602.

If you Google <car rental service> you’ll get the websites for Hertz, National Car, etc. They rent cars without drivers, and Hertz’s corporate profile says that they have provided “Quality Car Rental Service” for over 90 years. So in the commercial marketplace, car rental is a service, as is equipment rental generally. It’s not immediately clear to me why renting laundry is different from renting vehicles without drivers and other equipment.

Assuming that you want to award a fixed-price contract for the recurrent supply of fresh laundry, would you specify the laundering process, the properties of the fresh laundry to be delivered, or both? Would you insert the clause at FAR 52.243-1, Changes--Fixed Price (AUG 1987) (ALT I) (APR 1984), which is the one for services, or would you insert the basic clause which is for supplies? Or would you insert (ALT II) (APR 1984), which is for services and supplies? Would you insert the clause at FAR 52.246-4, Inspection of Services--Fixed-Price (AUG 1996), or the one at FAR 52.246-2, Inspection of Supplies--Fixed-Price (AUG 1996)? There is no alternate inspection clause for both supplies and services. So would you include both clauses and assign them to separate line items or subline items for services and supplies? Would you separately priced the items?

Would those questions occur to you? Would the answers matter to you? Do you think that all practitioners would answer them the same way?

I do not think this is a big problem. My point is that contracting regulations are written over the course of time to implement laws and policies that are often developed on an ad hoc basis in response to particular problems as they arise. They tend to be formulaic in the sense of mandating that when X then Y. A formula specified in one part of the FAR may make perfect sense within its policy domain, but no sense at all within another. (That’s one of the reasons for the definitions rule at FAR 2.101.) Thus, it is possible that a contract might appropriately be thought to be for supplies when selecting clauses, but for services when selecting labor laws.

Veteran practitioners tend to take these things for granted, mainly because they were told how to think about them during their early training. This is supplies. That is services. They know that the regulations do not always answer questions definitively and that, sometimes, practitioner experience is all you have to go on. But newcomers to our business can get hung up on some of these logical inconsistencies.

And now: Is painting the walls of a building a service or is it construction? Does the Service Contract Act apply or the Davis Bacon Act? And while we’re at it, what about elevator repair?

Vern Edwards

Sometimes, when I'm teaching a class, and after I've had a couple of days with the students and know them a little, I play a game with myself: I pretend that I've been asked to assemble a small, elite contracting office to do demanding work under pressure. I then look over the students and ask myself which of them I would choose. Here, in no particular order of importance, is an incomplete list of the qualities, skills, and knowledge that my ideal contract specialist candidate would possess.

Personal Qualities. It may be that people are born with these qualities to some extent, but I think that you can develop them in yourself if you work at it.

An energetic and inquiring mind. I want someone who is never content to simply follow instructions, but wants to know the why of everything and won't accept "Because I said so," or "Because that's the best (usual, standard, generally accepted) way to do it." I want someone who is not content to be told, but who wants to figure things out and to understand. I want someone who would not ask me (or a co-worker) what a word means or what the rule is, but who would at least try to look it up first.

Feistiness. The ideal candidate will stand up for what he or she believes, but knows the difference between standing up and arguing for the sake of arguing or out of bullheadedness. I want someone who is willing to fight, but who knows when the fight is over and will shake hands, win or lose. No grudges, please. Please don't apply if, when you lose an argument with the boss, you complain to others about how mean or unreasonable the boss is.

Independence. The ideal candidate does not have to be handheld through every step in a process. I don't want someone who shows up at the boss's door every five minutes to ask what to do next.

Diligence. I want a person who does what needs to be done when it needs to be done, without having to be reminded or prodded, and who persists until its done and done right.

Discretion. Discretion is more than "common sense." Discretion includes tact, good judgment, caution, modesty, and self-restraint. It includes knowing when to act without instructions and when to seek instructions before acting, and knowing when to talk and about what, and when to keep quiet.

Honesty. The ideal candidate knows that it's just as important to be honest with oneself as it is to be honest with others.

Integrity. The ideal candidate sticks to principles, even at personal expense, but isn't a blockhead about it. I want someone who insists on doing the right thing, but not someone who dials the IG hotline when anyone disagrees with his or her notion of what the right thing is. A person with real integrity knows the difference between an objectively ironclad principle (all bribes are wrong) and a subjectively debatable principle (the proper standard for unusual and compelling urgency).

Self-confidence and mental toughness. This is the sine qua non of a contract negotiator. I want someone who not only doesn't get upset when put on the spot, but who actually gets a kick out of it, someone who is not only willing to take the heat, but who even enjoys it. There's no crying in contracting.

Humor. The ideal candidate laughs at herself as easily or more easily than she laughs at others. I want someone who can see the humor in a desperate situation, but not someone who makes a joke out of everything. Sly, dry wit is welcome, if used with restraint, but not ostentatiously dry wit, which is tiresome. Funny and sarcastic are not the same thing.

Acquired Skills. All of the following are things that a person can learn to do. For interns, I have provided some references to books about some of the skills.

The ability to reason logically. We all do that more or less naturally, but the ideal candidate is self-conscious about it and strives to be rational, to develop valid arguments, and to evaluate arguments based on logical principles. See Informal Logic: A Pragmatic Approach, 2d ed., by Douglas Walton (Cambridge, 2008) and Logic and Its Limits, 2d ed., by Patrick Shaw (Oxford University Press, 1997).

The ability to read analytically. Reading, interpreting, and applying the Federal Acquisition Regulation is not as easy as most people seem to think it is, yet a contract specialist must be able to do it and do it well. The level of of FAR reading difficulty falls somewhere between a college political science textbook, which almost everyone can understand, and Hegel's The Phenomenology of Spirit, which hardly anyone can understand (no matter what they claim). My favorite difficult FAR passage: the cost principle at FAR 31.205-6, Compensation for Personal Services. If you can read that and pass a test about what it says and means, then you're good. If you can read it, pass the test, and suggest other interpretations, then you're my kind of contract specialist.

The ability to write well. To test for this skill I'd give a candidate a problem in equitable price adjustment and tell him to determine the proper amount according to the facts and established case law. I'd then give the candidate one hour to type a one-page explanation of the basis for his determination. I'd evaluate the explanation for grammar and punctuation, and for the ability to write a coherent explanation of the answer given. Note: My model for good writing is George Orwell. See his essays Books v. Cigarettes (1946), The Complete Works of George Orwell, and Politics and the English Language (1946), The Complete Works of George Orwell, which are polemical, and The Moon Under Water (1946), Essays and Journalism which is a fine piece of imaginative descriptive literature. A fun piece is Some Thoughts on the Common Toad (1946), The Complete Works of George Orwell. If you can learn to write even half as clearly as Orwell you need never be unemployed. The ability is in very short supply.

The ability to speak extemporaneously. A candidate must be able to stand up in front of strangers and people who are opposed to his or her point of view and speak clearly, coherently, confidently, and persuasively about something that he or she is supposed to know.

The ability to listen actively. See Wikipedia. Listening actively saves a lot of time and may prevent needless disputes and litigation.

The ability to negotiate. The ideal candidate can make a deal with a contractor or with other agency personnel. Anyone who has the qualities and skills listed above can learn to negotiate⎯to bargain, to haggle, to engage in a rational (or intentionally irrational) exchange of views in order to make a deal. Some people are better at it than others. There are hundreds of books about negotiating. Take your pick. They all have something useful to say.

A reasonable facility with mathematics. Some contracting problems entail more than simple arithmetic. You might need simple statistics, but you probably won't need trigonometry or calculus. Wouldn't hurt, though. Library of Math

The ability to design efficient and effective contracting processes. Some would say "the ability to innovate." To me, it's nothing more than the ability figure out how get things done without wasting time and resources. The ideal candidate, when confronted with a tough challenge, says: I'll figure something out.

Knowledge.

A candidate must possess the level of basic knowledge that is necessary to work at the pay grade that he or she wants. I don't believe in paying the salary while the person learns the basics of the job. (But time must be provided to learn the particulars.) A candidate must know the rules that govern the job that he or she has been hired to do. The rules include the FAR and other official "shall," "shall not," "may," "may not," "should," and "should not" statements. When I say "know the rules," I mean know what the rules say and what they mean, which, in some cases, requires familiarity with case law.

The candidate must know other things as well, such as:

How our government is organized and how it works, for example: (a) how laws are enacted and published, (B) how regulations and policies are promulgated and published, and ( c) how public and private controversies are settled or adjudicated.

How funds are appropriated, managed, obligated, and expended. See the GAO's Principles of Federal Appropriations Law (the "Redbook").

How the industries and firms that sell what is to be bought produce, price, and distribute their products and services.

How the markets in which the buying is done are structured, regulated, and behave.

So much for my game. Contract specialists who possess all of those qualities, abilities, and knowledge are hard to come by. In fact, I don't always qualify. If you're a boss and you find such persons, someone will try to take them away from you, so you had better offer interesting and challenging work, interesting coworkers, clerical support, and a decent place to work.

Of course, if you think that contracting is about sitting in a small cubicle, staring at a monitor, and klacking away at a keyboard, just ignore me.

Vern Edwards

A SAD STORY

On February 19, the Armed Services Board of Contact Appeals issued its decision in the matter of Bernard Cap Co., Inc., ASBCA Nos. 56679, 56703, 56705, and 56716, 10-1 BCA ? 34387, in which the board dismissed the contractor?s appeals from the deemed denial of four claims for payment. The contractor had won four indefinite-delivery indefinite-quantity contracts with Defense Supply Center Philadelphia for men?s garrison caps⎯in 1996, 1997, 1999, and 2000. The government issued several delivery orders under each of the four contracts over a span of years from 1996 to 2005. The contractor delivered and submitted DD Forms 250, Material Inspection and Receiving Report, for payment. The contracts contained the clause at FAR 52.232-25, Prompt Payment (MAR 1994). The contracts were administered by the Defense Contract Management Command⎯Orlando. The paying office was the Defense Finance and Accounting Service, presumably also in Orlando.

Under each of the contracts, DFAS paid some of the invoices, but not others. The contractor repeatedly inquired. DFAS would then make late payment of some of the invoices, but not others.

According to the board?s decision, the contractor wrote to the contracting officer about one of the four contracts in December 1999, pleading for help:

QUOTE

We have been trying to collect past due money from DFAS through our ACO and DCMC Orlando for the past year? We are talking about $600,000 of accounts receivable that are PAST DUE⎯some going back years and most past due over 90 days.

The contractor wrote to DCMC Orlando in January 2000:

QUOTE

You will note that the vast majority of these are very, very past due. Promises from DFAS have not been kept and we are not getting enough oxygen to keep breathing.

The contractor met with DFAS in 2001 and 2002, after which meetings many invoices were paid, but not all.

In 2003, the contractor wrote to DFAS:

QUOTE

[We] have been government contactors since the 1930?s and with all the technology that has been added to the accounting area at DFAS we cannot understand why we still have to wait, wait, and wait some more⎯all the time sending repeated evidence of shipment. HELP!!!!

In 2006, the contractor wrote to DFAS to express its ?extreme frustration? at not getting paid.

QUOTE

[P]lease know that from 1996-1999 we are owed $32,630 and from 2000-2005 we have $409,008 that is unpaid.

The contractor asked its congressional representative for help. DFAS then made some payments, but the contractor said it was still owed about $200,000.

This went on for years. Then, in March 2008, DFAS wrote to the contractor:

QUOTE

The old contracts have been reconciled to the best of our ability and the documents to include payment histories are being shipped to you. At this time, we cannot pay anything additional on the old contracts.

Finally, in October and November 2008, the contractor submitted four separate claims, ranging from a low of $13,804.66 to a high of $111,465.57 and totaling $205,078.04. The contracting officer issued no final decisions, and the contractor appealed to the ASBCA based on denial through inaction. The government did not contest any of the claims, but moved for dismissal of each on grounds that the contractor had not submitted the claims within six years of their accrual. The board held that a claim for each unpaid invoice accrued 30 days after submittal of a proper invoice, saying of one of the contracts:

QUOTE

By appellant?s own account ? which the government does not dispute for purposes of the motion to dismiss ? appellant made shipments and tendered proper invoices for accepted goods under this contract on or about 30 December 1996; 24 September 1997; 18 March 1998; 24 September 1998; 3 December 1998; 17 December 1998; 28 January 1999 and 29 December 1999 (SOF ?? 3-10), for which the government failed to pay in full within 30 days as required by the contract (SOF ? 2). Hence, appellant?s claims for these unpaid invoices accrued, respectively, on or about 30 January 1997; 24 October 1997; 18 April 1998; 24 October 1998; 3 January 1999; 17 January 1999; 28 February 1999; and 29 January 2000. At that point, all events fixing liability for these unpaid invoices were or should have been known, FAR 33.201. See also Oceanic Steamship Co. v. United States, 165 Ct. Cl. 217, 225 (1964) (claim against the United States, based upon a contract obligation to pay, accrues on the date when payment becomes due and is wrongfully withheld). Clearly, appellant?s claim letter to the CO for these unpaid amounts, dated 14 November 2008, was submitted more than six years from the date of the accrual of these claims. We believe they are all time barred under the [Contract Disputes Act].

The board rejected the contractor?s arguments for equitable estoppel and equitable tolling:

QUOTE

Appellant suggests that DFAS? general assurances that it would review and/or seek to reconcile the payment records served to equitably toll the running of the limitations period, or equitably estopped the government from relying upon the same. We do not agree. For appellant to prove equitable estoppel against the government, it must adduce facts showing some affirmative government misconduct. Frazer v. United States, 288 F.3d 1347, 1354 (Fed. Cir. 2002); Zacharin v. United States, 213 F.3d 1366, 1371 (Fed. Cir. 2000). Appellant asserts no such facts here.

As for equitable tolling, federal courts have extended such dispensation only sparingly and under limited circumstances. Irwin v. Dep?t of Veterans Affairs, 498 U.S. 89, 96 (1990) (e.g., claimant filed timely defective pleading; claimant induced or tricked by adversary, allowing deadline to pass). Former Employees of Sunoco Products Co. v. Chao, 372 F.3d 1291, 1299 (Fed. Cir. 2004); Frazer, 288 F.3d at 1354 (lateness attributable, in part, to some misleading government action). Appellant presents no such equitable basis to support the tolling of the limitation period of the statute. Rather, the record shows a claimant that failed to exercise due diligence in preserving and protecting its legal rights under the contract. As stated by the Federal Circuit in Esso Standard Oil Co. (PR) v. United States, 559 F.3d 1297, 1305 (Fed. Cir. 2009):

"The Supreme Court has warned that '[o]ne who fails to act diligently cannot invoke equitable principles to excuse that lack of diligence,' Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 151, 104 S.Ct. 1723, 80 L.Ed.2d 196 (1984), and 'the principles of equitable tolling...do not extend to what is at best a garden variety claim of excusable neglect,' Irwin v. Dep?t of Veterans Affairs, 498 U.S. 89, 96, 111 S.Ct. 453, 112 L.Ed.2d 435 (1990)."

We have reviewed the cases cited by appellant but they are factually and legally distinguishable.

The board granted the government?s motions for dismissal.

The contractor should have submitted a claim on each invoice when the government did not pay within 30 days and did not respond promptly and definitely to inquiries. It is likely that each claim would have been less than $100,000, and the contractor thus could have demanded a decision on each within 60 days from the date that the contracting officer received each claim. Why didn?t it do so? Maybe, despite its many years as a government contractor, it did not know the rules. Maybe it was one of those contractors who are reluctant to submit claims because the contracting officer will get mad. Contractors are often intimidated by contracting officers and reluctant to demand their rights. Maybe it didn?t want its claims preparation costs to be unallowable pursuant to FAR 31.205-47, although that seems unlikely.

CLUELESS WOULD-BE CONTRACTORS

Many small to medium sized companies go into government contracting without any idea of what they are getting themselves into. That might be okay with very small sales, but, otherwise, contracting with the U.S. government is the most complex business in the world. It?s right up there with trading derivatives. There are countless rules and contract clauses, many of which are exceedingly hard to understand. Moreover, ?the Government? is not a unified organization. The contractor in this case was supplying a simple item, yet it had to deal with a PCO in Philadelphia, an ACO in a DCMC office in Orlando, and a DFAS office (presumably, also in Orlando). Appeals for help (including the pathetic plea, ?HELP!!!!?) did not resolve the payment problems, and, in the end, the government told the contractor to get lost because it could not find or make sense of its own records.

I do not know who was to blame for the payment problems. In my opinion, the ACO was responsible for sorting things out in a timely fashion, and I don?t know why he/she didn?t. Maybe it was all the contractor?s fault. Maybe it did something wrong, although the government apparently did not reject any deliveries and it does not appear that any deliveries were late. But the contractor, and only the contractor, was to blame for failing to submit claims demanding a final decision as soon as it became apparent that the government wasn?t going to fulfill its payment obligations.

I often see questions at the Wifcon discussions board from People Without A Clue (PWACs) about government contracting. And I am always of two minds about such questions: the good Vern wants to help, but the bad Vern is possessed by the spirit of John Galt (Ayn Rand?s fictional hero in Atlas Shrugged) and wants to say, ?If you can?t play with the big boys you should have stayed off the field. Too bad for you.?

Here are 14 tips for the Truly Clueless Would-Be Government Contractors who think that winning a government contract is the yellow brick road to riches:

1. If you are thinking of competing for a government contract, hire good professional help to negotiate and manage the contract, and listen to them.

2. Your technical and marketing employees are the ones who are going to get you into trouble on a government contract. Keep them on a leash.

3. Buy first-rate training for all of the people who will be involved with government contracts. If you will not invest in training you have no business doing business with the government.

4. Don?t compete for a government contract if you are not sure that you can do the job to the government?s satisfaction. Make sure that you know what it will take to satisfy the government before you submit a bid or proposal.

5. Don?t assume that the government?s representatives know what they?re talking about when they explain rules, specifications, and the contract clauses. In my experience, most of them don?t.

6. READ THE SOLICITATION. THE WHOLE THING.

7. If you win the contract, take a firm, formal, arm?s-length, businesslike approach to all aspects of the deal. Comply strictly with all contract terms and insist that the government do the same. Know all of your contractual deadlines and meet them. Know all of the government?s contractual deadlines and notify them in writing the moment that they are late. The very moment. Neither ask for nor grant exceptions except through formal processes, such as engineering change proposals, formal waivers, and change orders. Know your obligations and fulfill them. Know your rights and insist upon them. When you truly believe that the government owes you something, ask for it in writing. If you don't get favorable action within a reasonable period of time, submit a claim in accordance with the contract Disputes clause and FAR Subpart 33.2. If the contracting officer does not make a decision within the deadlines set by the Disputes clause, hire an attorney and appeal to a board of contract appeals or to the Court of Federal Claims, unless you are willing to let the government keep what you think is yours.

8. Never yield to threats from a contracting officer or a contracting officer's representative. If you do, things will only get worse. When you insist upon your rights and the contracting officer?s representative says: That cuts both ways, just say: Yes, and we can live with that.

9. Don?t rely on personal relationships with government personnel. Good personal relations are important and desirable; but, in the end, it?s a dog-eat-dog world. Never consider a government representative to be your ?friend.? Remember that government personnel are not business persons. They are government officials with limited authority, limited knowledge, a heavy workload, and lots of people looking over their shoulders. They will not (and should not) stick their necks out for you. If they do they are either stupid or dishonest and cannot be trusted. Some will make an extra effort for you, which is okay, but many will not. Assume from day one that you are on your own.

10. Keep good records. Document every telephone call and meeting. EACH AND EVERY ONE. Write down who, what, when, where, why, and how, and make your people do it as well. Check to see that they do. File every email and letter. EACH AND EVERY ONE. He or she who does not document or who skimps on documentation is a fool.

11. Promptly follow up on oral understandings and agreements in writing. Send crucially important communications by certified mail, return receipt requested, including confirmation of emailed and oral understandings and agreements.

12. It's business, not personal. When speaking with and corresponding with government personnel, always be calm and polite, no matter how badly they have behaved or how angry about it you are, but always be determined and firm.

13. Remember the 999/1,000 rule: You can do things wrongly 999 times out of 1,000 and nothing bad will happen. It?s the 1,000th time that will do you in.

14. Make sure that you have the telephone number, email address, and street address of a good government contracts attorney and a good government contracts accountant. If you can't afford that kind of help, stay away from government contracts.

Now, I know that many readers will consider some of the above to be impractical. Business people are risk takers, and many will consider what I suggest to be too formal and stern. In their experience, business doesn?t work well when there is too much formality and insistence upon strict contractual compliance. So be it. I bow and yield to your superior wisdom. I have to admit that as a government contractor I have not always followed all of my own advice. So if you don't follow my advice and things go badly for you, the good Vern will not say I told you so, but the bad Vern will laugh.

Vern Edwards

Here are some quotes dating from 1950 about the role of the contracting officer, snipped from various board and court decisions and law reviews:

From: Penner Installation Corp. v. U.S., 116 Ct.Cl. 550 (1950):

Some contracting officers regard themselves as representatives of the [united States], charged with the duty of protecting its interests and of exacting of the contractor everything that may be in the interest of the Government, even though no reasonable basis therefor can be found in the contract documents; but the Supreme Court has said that in settling disputes this is not his function; his function, on the other hand, is to act impartially, weighing with an even hand the rights of the parties on the one hand and on the other.

* * *

It is a duty not easily to be discharged, we know. They are the Government's representatives, charged with the duty of seeing that the Government gets what it bargained for. Many contractors, on the other hand, bent upon making as much money as they can out of the contract, are constantly seeking ways out of doing this and doing that. Frequently, it is a constant battle-the contracting officer as the Government's representative, on the one hand, and the contractor on the other. To ask the contracting officer to act impartially when he must decide a dispute between the contractor and his employer is, indeed, putting upon him a burden difficult to bear. And yet the contract requires him to do so.

From: Perlak, The Military Extraterritorial Jurisdiction Act of 2000: Implications for Contractor Personnel, Military Law Review (September 2001), 169 MILLR 92:

If contractor employees are destined to support the modern battlefield or contingency environment, then the prerogatives of command and the imperatives of mission accomplishment must find their way into the contracting process. The role of the contracting officer in this environment must include the clear realization of commanders' intent, including crafting contracts with sufficient foresight and flexibility to meet that intent. Failing this, the substitution and use of contract support for traditional soldier functions will become a false economy that ultimately may degrade U.S. ability to prosecute wars and enforce peace.

From: Loeb, The Procurement Work Force? The Final Frontier?, Procurement Lawyer (Spring 1998), 33-SPG Procurement Law 18:

Although creation of the contract specialist position by the old Civil Service Commission in 1959 (and its recognition at about the same time in the private sector) did much to upgrade the image of the stodgy purchasing agent, it was only a small beginning. As early as 1955, the Commission on Organization of the Executive Branch of the Government (the Hoover Commission) was concerned primarily with practices that constrained the contracting officer and recommended strengthening the role of the contracting officer ?in the interest of more expeditious and effective buying.?

From: Ritenberg, Postscript: Mixed Workforce Questions, The Nash & Cibinic Report (November 2006), 20 N&CR ? 54:

At least in theory, there was once a clear line of demarcation between the respective roles of the Contracting Officer and the Program Office. This was expressed in two reports of the General Accounting Office as follows:

During contract performance, program offices are responsible for monitoring the performance of the contractor, providing technical assistance to the contractor that is required for contract performance, and notifying the contracting officer about any contract performance problems. Program offices are not authorized to change contract work, costs, or completion dates or to enforce [c]ontract provisions. Only contracting officers have the authority to do that. This concentration of authority in the contracting officer is an integral part of internal control within the contracting process.
(?Civilian Agency Procurement: Improvements Needed in Contracting and Contract Administration,? GGD-89-109, at 25 (Sept. 1989).)

Unauthorized commitments by program personnel may cause the Government to be bound by terms established by someone without the same concerns or professional standards of contracting officers. Program personnel are primarily responsible for carrying out the missions of the agency, rather than observing Federal laws and regulations concerning the procurement.
(?Unauthorized Commitments: An Abuse of Contracting Authority in the Department of Energy,? EMD-81-12, at 5 (Dec. 1980).)

From: Neal & Co., Inc. v. U.S., 945 F.2d 385 (Fed. Cir., 1991):

In enacting ? 605 of the Contract Disputes Act, Congress described the flexible role of the contracting officer:

While the objective may be to make the contracting officer the focal point for decisions, practicability dictates that the extent to which the contracting officer relies on his own judgment or abides by the advice or determination of others is dependent on a variety of factors, including ... the nature of the particular procurement....
t is impossible to generalize as to what the contracting officer's role should be in all situations....

From: Grumman Aerospace Corp. ex rel. Rohr Corp., ASBCA 50090, 01-1 BCA ? 31316:

The Government has also argued that it ?logically follows? that the conclusions a contracting officer reaches while analyzing the claim prior to writing a final decision are similarly entitled to no weight. We do not agree? We recognize in this regard that a contracting officer's testimony may be based on an independent examination of the events after the fact. This is not an uncommon role for a contracting officer and the evidence is entitled to be heard since it stems from the contracting officer's responsibility to independently evaluate the merits of the contractor's claim. We may, of course, give appropriate weight to the contracting officer's evidence.

From: Thornton, Fine-Tuning Acquisition Reform?s Favorite Procurement Vehicle, the Indefinite Delivery Contract, Public Contracts Law Journal (Spring 2002), 31 PUBCONLJ 383:

A consciousness-raising is needed to better define and appreciate the role of the Contracting Officer on the acquisition team. Only then can program managers, technical experts, and end users learn to accept that only specific work statements can be well managed. This includes an appreciation that bundled, nationwide work statements are impossible to manage effectively. Otherwise, the value a Contracting Officer adds to the process erodes and the whole procurement suffers. It is time to shift focus to identify tools and adopt policies that enable Contracting Officers to contain and remedy those troubles?

The use of task and delivery order contracts to execute interagency orders has been associated with the same kinds of abuses as indefinite delivery contracting. The common denominator is the receding role of the Contracting Officer and his or her ability to enforce rules intended to preserve competition.

From: Goodman, Legal Dilemmas in the Weapon Acquisition Process: The Procurement of the SSN-688 Attack Submarine, Yale Law and Policy Review (1988), 6 YLLPR 393:

A 1987 report of the Public Contract Law Section of the American Bar Association examined their role:

The role of the DoD contracting officer is changing from the traditional to a less well-defined position of diminished significance and shared authority . . . [T]he current acquisition environment blankets the contracting officer with oversight, laws and regulations . . . Such diffusion of authority can only mean a diminished role for the contracting officer which, extended to the ultimate conclusion, will result in no identifiable Government official at the operating level being responsible for efficient contracting practices or accountable for contracting failures.

Ad Hoc Comm. on the Role of the DoD Contracting Officers, The DoD Contracting Officer, 1987 A.B.A. Sec. Pub. L. Rep. 93, cited in Report on Acquisition Policy, supra note 136, at B-15.

From: Kurtis R. Mayer and Pamela Mayer d/b/a Mayer Built Homes, HUDBCA 83-823-C20, 84-2 BCA ? 17494:

In S. Rep. No. 95-118, 95th Cong., 2d Sess. 21-22 (1978), the concern of Congress over the role of the contracting officer was clear:

Section 5 describes explicitly the decisionmaking role of the contracting officer. Equally important is a thorough knowledge by the contractor of the role and authority that the contracting officer plays in the decisionmaking process of the agency he represents . . .. While the objective may be to make the contracting officer the focal point for decisions, practicability dictates that the extent to which the contracting officer relies on his own judgment or abides by the advice or determination of others is dependent on a variety of factors, including the officer's personal knowledge, capability, and executive qualities, as well as the nature of the particular procurement. With so many variables, it is impossible to generalize as to what the contracting officer's role should be in all situations.

From: Morgan, Identifying Protected Government Acts Under The Sovereign Acts Doctrine: A Question of Acts and Actors, Public Contracts Law Journal (Winter 1993), 22 PUBCONLJ 223:

The contracting officer may be omnipotent for purposes of the contract, but his authority is considerably more limited where the implementation of directions from higher authority is involved. To presume that all actions of the contracting officer which affect the contract are somehow acts of the government in its contractual capacity stretches reason beyond recognition.

From: Schultz, Proposed Changes in Government Contract Disputes Settlement: The Legislative Battle Over the Wunderlich Case, Harvard Law Review (December 1953), 67 HVLR 217:

It may well be that the early Government contracts with which the Supreme Court dealt were as freely bargained for as were the private contracts, and the Army engineer as independent as the private engineer, architect, or other expert. But with the phenomenal growth of Government contracting, the exclusive use of the standard form contract, and the changing role of the contracting officer from expert to Government agent, neither of these assumptions holds true.

From: Wall, Surviving Commercial Pricing Rules, Public Contracts Law Journal (Summer 1994), 23 PUBCONLJ 553:

Arguably, since the passage of the Truth in Negotiations Act in 1962, the law which has had the most impact on pricing U.S. Government contracts was the Inspector General Act of 1978. The principal reason is that this Act fundamentally changed the relationships between the contracting officer, contract auditor, and contractor.

To some, the Act's implementation has confused the role of the contracting officer, who is supposed to be the U.S. Government's independent decision maker, and the role of the contract auditor, who is supposed to be the contracting officer's financial advisor. For instance, prior to the Inspector General Act, the contracting officer was unencumbered (perhaps too unencumbered) in deciding upon the disposition of an auditor's finding. Now the contracting officer must adhere to special policies and procedures? .

?

Note the high expectations of some of the writers, and the idealist image of the contracting officer. Are they matched by reality?

Vern Edwards

Barney Klehman

Barney Klehman, my friend of more than 30 years, died at his home sometime during the weekend. His office called to tell me. I was working outside when the call came. I knew something was wrong when I saw the look on my wife’s face as she came out to get me. She said Barney’s office had called with news. I was apprehensive when I went to the phone, because I was always worried about Barney’s health. I felt two ways when I was told: like a ton of bricks had fallen on me and suddenly empty inside. I kept thinking: You mean, I won’t see him again? Not ever again? Barney?

We’d had dinner in Arlington, Virginia with two other old friends the week before, and the week before that he and I had dined in Huntsville, Alabama. It didn’t seem possible. It didn’t compute. But I knew it was true. I had worried about the possibility of just this.

Barney had a close circle of intimate friends who had all worked together for the Air Force in El Segundo, California, at the Space & Missile Systems Organization (SAMSO), since the 1970s. I met him one summer when we both played on the contracting office softball team. He played softball the same way that he worked: passionately, with knowledge and skill, and with an it ain’t over ‘till it’s over commitment to success.

That commitment took him a long way. He started out working for the old Defense Contract Administration Service in Pasadena, California. Then went to SAMSO in the Air Force Systems Command. When he died he was an SES, Director of Acquisition for the Missile Defense Agency. In the course of his long career he worked on many programs and trained and mentored a lot of young contracting folks. You were very lucky if you got to work for Barney Klehman, because he cared about you and was devoted to your education and development. In return, you had to show that you cared, because Barney didn’t have much use for people who do not care and will not strive.

Even though we were both very opinionated and passionate about our work, I don’t recall us ever being angry at each other, although we sometimes did disagree. Many a disagreement ended with one of us saying, Hmm, I hadn't thought of that, or Yeah, okay, that’s right. You’re right. But we didn’t talk just work. We also talked sports (he knew a lot more than I) and life.

Barney had one fault that bothered all of his friends: He took better care of other people and of his work than he did of himself, which is why I worried about him. He did not take care of his health. Everybody complained to him about it and he always agreed, but he didn’t follow through. When I called one old friend to give him the news, he was shocked, I can’t believe this! and then furious, Blank-blank it! He didn’t take care of himself! We told him he had to take better care of himself!

Telephone calls throughout the day. Emails late into the night. Expressions of shock and grief. One friend sent us an email with photos of Barney through the years. I was glad to get those photos. They break my heart, but I can't stop looking at them.

The notice sent out by Vice Admiral Syring, Director of the Missile Defense Agency, said:

“Barney was a true professional with more than four decades of extensive contracting and acquisition leadership experience across the Air Force and Joint DoD Community. Beginning his federal service career in 1972 as a contract price analyst with what is now the Defense Contract Management Agency, he served in leadership positions in multiple program offices before joining the Missile Defense Agency in 2004. Barney dedicated his life to helping others grow professionally, and he was a passionate mentor and friend to many people throughout the Agency and DoD.”

Yes, that’s true. But what will stick with me is this one, that came in an email yesterday from a woman who had worked for him: “Barney was one of the kindest men I’ve ever known.”

There it is. One of the truest and best epitaphs I’ve ever read. That was Barney.

He was what the Irish call a darlin’ man.

Amicus vitae solatium. Amicus animae dimidium.

Vern Edwards

What follows is a draft that I have written for general descriptive and explanatory purposes on the topics: "What is a contract?" and "What is contract management?" It is intended to be brief and introductory in nature. The intended audience is contract managers, prospective contract managers, and personnel managers in both the public and private sectors and in Government and private sector contracting.

I invite you to submit comments on the substance of it. What do you like, agree with, if anything. What do you dislike, disagree with? (This is a first draft, so don't address typos, format, etc.) You can comment publicly, here at the blog, or you comment privately via the Wifcon member channel.

Thanks in advance for your time.

What is a Contract?

What is Contract Management?

What Is A Contract?

The concept of contract is extraordinarily complex. One can define the word broadly and in general terms, or narrowly, in legal terms, depending on your purpose.

Common Dictionary Definitions

According to current edition of The Oxford English Dictionary (OED Online March 2014), the ultimate source of the English noun is the Latin verb contrahere, which means to draw together, collect, unite. The word came into English via Old French, and its first recorded use in English was by Geoffrey Chaucer, who used it in The Canterbury Tales in the year 1386 (and spelled it “contractes”).

According to the OED, contract (noun) means:

A mutual agreement between two or more parties that something shall be done or forborne by one or both; a compact, covenant, bargain; esp. such as has legal effects….

Similar definitions appear in the American Heritage Dictionary of the English Language, 5th and in Webster’s Third New International Dictionary (Unabridged).

Legal Definitions

Restatement of the Law of Contracts 2d, § 1, defines contract as follows:

A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

Black’s Law Dictionary 9th (2009) devotes 11 pages to the definition of contract, defining the basic word and many variations, such as adhesion contract, bilateral contract, blanket contract, consensual contract, cost-plus contract, fixed-price contract, gratuitous contract, informal contract, parol contract, requirements contract, service contract, subcontract, unilateral contract, and void contract.

The basic definition in Black’s is:

An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law…. 2. The writing that sets forth such an agreement….

(Note the distinction made between the actual agreement between the parties and the document that memorializes it.)

Definitions in Statute and Regulation

The word contract is used (but not defined) in the U.S. Constitution in Article I, Section 10, and in Article VI, and both used and defined in many ways for different purposes in hundreds of places throughout the United States Code (U.S.C.) and the Code of Federal Regulations (C.F.R.). See, for example, the regulations of the Office of Management and Budget at 5 C.F.R. § 1315.2:

Contract means any enforceable agreement, including rental and lease agreements, purchase orders, delivery orders (including obligations under Federal Supply Schedule contracts), requirements-type (open-ended) service contracts, and blanket purchases agreements between an agency and a vendor for the acquisition of goods or services and agreements entered into under the Agricultural Act of 1949 (7 U.S.C. 1421 et seq.). Contracts must meet the requirements of § 1315.9(a).

A much more common definition, which appears in several places in the C.F.R., is given in Department of Agriculture regulations, at 7 C.F.R. § 3016.3:

Contract means (except as used in the definitions for grant and subgrant in this section and except where qualified by Federal) a procurement contract under a grant or subgrant, and means a procurement subcontract under a contract.

See Department of Energy regulation, 10 C.F.R. 784.12:

Contract means any contract, grant, agreement, understanding, or other arrangement, which includes research, development, or demonstration work, and includes any assignment or substitution of parties.

The Federal Acquisition Regulation (FAR), 48 C.F.R. Chapter 1, § 2.101, defines contract as follows:

“Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see Part 16.

(That definition refers to what is sometimes called a “procurement contract” for the purchase of property or services. See 31 U.S.C. § 6303.)

Perhaps the most sensible answer ever given to the question, “What is a contract?” was written by John D. Calamari and Joseph M. Petrillo and appears in their legal textbook (hornbook), Calamari and Petrillo on Contracts 6th (2009) on page 1:

No entirely satisfactory definition of the term “contract” has ever been devised. The difficulty of definition arises from the diversity of the expressions of assent which may properly be denominated “contracts” and from the various perspectives from which their formation and consequences may be viewed.

The Core Concept

The core concept is that of agreement between two or more parties about promises they have made. Such an agreement might be referred to as a bargain, deal, meeting of the minds or, more formally, mutual assent. A contract can be for an undertaking as simple as an immediate purchase-sale transaction between individuals, in which nothing is written and little if anything is said, or as complex as a years-long relationship between a team of corporations and a government agency that attracts national or even international attention and in which thousands of managers and workers are employed, millions of pages of documents are prepared, and hundreds of meetings are conducted.

Some persons categorize contracts as either discrete or transactional on one hand and relational on the other. See, for example, Macneil, "The Many Futures of Contracts," Southern California Law Review, (1973 - 1974), 47 S. Cal. L. Rev. 691, 693-4:

The purity and simplicity of the traditional tenet arises from its presupposition that a contract is a discrete transaction. A transaction is an event sensibly viewable separately from events preceding and following it, indeed from other events accompanying it temporally one engaging only small segments of the total personal beings of the participants. Only this separability permits such a clean and clear definition of contract as that of the Restatement, and with it the singular future of contract based only on promise-with-law.

But is the world of contract a world of discrete transactions so defined? Or is it a world of relation, an ongoing dynamic state, no segment of which--past, present or future--can sensibly be viewed independently from other segments? Is it a world entirely of segmental personal engagements, or is it one tending to engage many aspects of the total personal beings of the participants?

[Footnotes omitted.]

Contracts are created through an often complex and lengthy process that is sometimes referred to as contract formation or as offer and acceptance. The process might take place more or less as follows: One party, an offeror, makes an offer, which is a promise, to another party, an offeree, seeking to get something in exchange, usually a return promise. The promise might be to do something or to refrain from doing something. If the offeree agrees to the offeror’s terms for the exchange of promises, then he or she is said to have accepted the offer, thereby making a promise in return. The offeree’s return promise is deemed consideration for the offer — something that the offeror bargained for and that “seals the deal” between the parties. Assuming that both parties are legally competent to engage in such an exchange, and assuming that the promises exchanged are lawful, the parties’ agreement is mutual assent to the terms of the exchange and forms a contract. The parties are now bound to one another, and the courts will enforce the contract. (For a more complete discussion of the process, see Joseph M. Perillo, Calamari and Perillo on Contracts 6th (2009) Ch. 2.)

The specialized role of professional contract manager developed when contracts became complex, the rules governing them became voluminous and difficult to understand, and the work of making and maintaining them became specialized. Contract managers view contracts as business relationships that require great care and attention to detail in planning, creation, maintenance, and in closing out when completed. That process is called contract management.

What is Contract Management?

Contract management is the professional art of negotiating mutually beneficial business agreements and of forging and maintaining mutually rewarding business relationships. Contracts involving anything more than simple and immediate purchase and sale transactions are relationships. While contract management entails compliance with laws, regulations, policies, court decisions, etc., it is not primarily a legal process. Contract management is, first and foremost, a relationship management process. Contract managers enable and assist people and organizations to unite and cooperate to their mutual benefit.

Business is regulated in most countries, so contract managers must know and ensure compliance with many statutes, regulations, policies, and judicial and administrative decisions (collectively, “the rules”) that govern the contracting process, and they must be able to advise others in their organizations concerning the proper interpretation and application of the rules. This is especially true of Government contracting. The rules are complex and often written in arcane language using officially defined words and specialized terms of art. (The FAR alone contains more than 800 officially defined words and terms.) In order to be able to interpret and apply the rules properly and advise others how to do so, contract managers must be prodigious readers, so they can stay abreast of the latest developments in the law, in the industries and markets in which they do business, and in their profession.

The contract management process plays out in four phases: (1) research and planning, (2) contract formation, (3) contract execution, and (4) contract closeout.

The Research and Planning Phase

During the research and planning phase, the buyer determines its acquisition objectives — what it lacks and what its specific requirements are, decides how to proceed through the contract formation and contract execution phases, and establishes a budget and a schedule for the accomplishment of its objectives.

As generalists, contract managers should have, or be able to obtain through market research, information about the products or services to be acquired under contract. Generally, this will be the knowledge of an educated layperson, rather than a technical expert. They should be sufficiently familiar with the industries that produce or provide those products or services and the markets in which they are sold to be able to review specifications or statements of work for clarity, suitability, and general adequacy, to negotiate product or service specific contract terms, and to negotiate prices, estimated costs and fees, or hourly labor rates. They should have a general understanding of the methods of production or performance and of quality control and quality assurance used by the industry.

Contract managers who support projects or programs should understand the fundamentals of project management and some of the tools used by project managers, such as Work Breakdown Structures, Earned Value Management Systems, the Program Evaluation and Review Technique, and the Critical Path Method. (See A Guide to the Project Management Body of Knowledge (PMBOK Guide) 2000 Edition), ANSI/PMI 99-001-2000.) They should understand project funding and contract financing arrangements. And they should understand the fundamentals of intellectual property law, policy, and practice regarding patents, rights in technical data, and copyrights.

Contract managers must be effective relationship designers and builders. In order to unite people and organizations, contract managers must investigate and understand their respective points of view, objectives, needs, requirements, concerns, perceptions of risk, and differences. They must analyze the business strategies of their own organizations and of prospective business partners, determine how they mesh and conflict, if at all, and then must estimate, predict, and plan accordingly. They must choose and employ ethical and appropriate tactics to achieve the parties’ respective objectives in mutually acceptable ways. They must know how to use the arts of explanation and persuasion to acknowledge and resolve differences, and know how to draft agreements that impose reasonable obligations and fairly allocate business risks.

The Contract Formation Phase

The crucial phase in contract management is contract formation, the process of offer and acceptance. The objective is mutual assent — a meeting of the minds. The judgments, decisions, plans, proposals, and agreements made during contract formation will set the stage for all that follows. A well-managed and conducted contract formation process greatly increases the likelihood of successful contract execution and reduces the risk of disappointment or failure. For that reason, seasoned contract managers should play the lead role in contract formation. If someone else is chosen to play that role — perhaps a program or project manager — the contract manager should be that person’s key advisor.

In Government contracting, the contract formation process is managed under extensive and complex rules — statutes, regulations, policies, and protest case law — and contract managers engaged in Government contract formation must be thoroughly familiar with them. The Government’s contracting officer is the process manager, responsible for ensuring that it is conducted in strict accordance with the rules and that all offerors are treated fairly. See FAR 1.602-1( b ):

No contract shall be entered into unless the contracting officer ensures that all requirements of law, executive orders, regulations, and all other applicable procedures, including clearances and approvals, have been met.

Moreover, contract managers must have a thorough understanding not only of the contracting rules, but also of the fundamentals of sound business decision-making that underlie the proposal evaluation and source selection process used by most federal agencies. And since they must analyze business proposals and negotiate contract terms, including prices, they should understand the industry that produces the goods or services being acquired, the practices used to set their prices, and the market in which they are sold and purchased.

In Government contracting, more regulation is devoted to contract pricing than to any other single topic, and contract managers involved in proposal analysis and contract negotiations should have an expert understanding of the pricing rules, which include rules about the submission and certification of cost or pricing data, cost allowability, cost accounting standards, cost and price analysis, and subcontract pricing. In order to engage in proposal analysis and contract pricing, contract managers must be knowledgeable of the fundamentals of cost estimating and of product and service pricing, and of pricing laws, regulations, and policies. They must be competent in the use of basic arithmetic and at least basic business mathematics. Such competence is essential to an understanding of the fundamentals of cost estimating, cost uncertainty analysis, cost risk, and contract pricing.

The Contract Execution Phase

During contract execution, contract managers must ensure that the parties fulfill their obligations to each other and respect each other's rights. This requires that they be thoroughly familiar with the contract terms and understand the basics of contract interpretation.

Reality does not always match expectations, and contract managers must know how to adapt when plans do not work out and when the worst case turns out to be the real case. Contract managers must be problem solvers par excellence. They must know how to ease tensions and avoid conflicts or resolve them when they occur. When problems arise, as they almost inevitably will from time to time, contract managers must come to the conference table with coherent and rational analyses, persuasive, evidence-based answers and explanations, and a menu of appropriate solution alternatives. In complex undertakings, unexpected events and change are inevitable, and contract managers must manage the change process so as to facilitate smooth transitions from old to new plans and contract terms, control costs and maintain schedules, if possible, and prevent misunderstandings and disputes.

While there will often be some tension between buyers and sellers, especially under fixed-price contracts, the parties should try to meet on common ground, and to create common ground when necessary, in order to make their relationship as productive as possible and to prevent it from becoming a zero-sum game. The contract execution phase should not be a period in which the parties race to see who comes out best. The goal should be to reach the finish line at the same time through honesty, mutual respect, cooperation, good faith, and fair dealing.

If disputes do arise, contract managers must prevent them from becoming disruptive to the point of putting the entire relationship at risk. In government contracting, the disputes process is governed by statute (41 U.S.C. §§ 7107 et seq.) and regulation (FAR Subpart 33.3). In settling disputes, the contracting officer must play the crucial role of impartial judge and make a decision based on his or her own independent judgement, an especially demanding task, but one that the courts and boards of contract appeals have found the contracting officer to be contractually bound to perform. See Atkins North American, Inc. v. United States, 106 Fed. Cl. 491 (2012).

The Contract Closeout Phase

Once a contract has been fully performed (“executed”), the parties may have some final administrative actions to take in order to complete their records and “close out” the business file. In Government contracting, FAR § 4.804 specifies a number of closeout tasks to be performed. Statute or regulation may require that the parties retain and store certain of their records for specified periods of time. See, for example, FAR Subpart 4.7. This work might be done by a contract manager or by administrative or clerical staff. Whoever does it, it must be done promptly and attentively.

The Requisite Skills of the Contract Manager

In order to do their work, contract managers must be skilled in oral and written communication.

Contract managers must be confident and persuasive presenters, able to describe and explain complex ideas to others, either with preparation or extemporaneously, to both informed colleagues and to those with little understanding of the issues, to both supporters and to skeptics or even opponents. They must be wise and skilled fact-finders and negotiators.

Contract managers often must write letters, emails, plans, and various memoranda that describe, explain, and justify their judgments, recommendations, decisions, and actions in order to establish compliance with statutes, regulations, policies, and contracts. So they must be competent writers of descriptive and advocatory business prose, because governments at all levels demand that businesses create and maintain often extensive records of their transactions and business relationships. Assessments of the quality of their work and of their professional and personal integrity will rest in no small measure on the contemporaneous documentation they create. Their documentation must be truthful, accurate, complete, and demonstrative.

Summation

In conclusion, the contract management process entails forging and maintaining mutually beneficial relationships. It requires thorough research and planning, sound contract formation, cooperative contract execution, and prompt and attentive contract closeout. In order for contract managers to do that work effectively, they must know laws, regulations, and policies, industries and markets, business principles, procedures, and techniques, and be effective communicators.

Vern Edwards

A Minor League Kerfluffle

Steve Kelman and I have been involved in a minor league kerfluffle over a comment I made in response to a blog post he wrote entitled, “A new way to use past performance in contracting.” He proposed a new contracting incentive. Here is how he described it:

Here’s my proposal: if a contractor, at the end of the contract where performance has met requirements, returns 3 percent of the fee on a fixed-price contract to the government customer (maybe make it 5 percent for a contract under $500,000), the contractor will automatically be given the highest-possible rating on the cost control element of the past performance evaluation, with an explanation in the evaluation of why the rating was received. With the increased attention these days to cost control, this may be a valuable incentive for contractors to return money (to which, it should be remembered, they are entitled to by the contract) to the government.

I commented, “I cannot tell you how awful I think the ‘fee’ return idea is. Truly awful.” I let it go at that. But feeling guilty about not explaining myself, I posted a detailed explanation in a later comment. You can read the whole thing here: http://fcw.com/Blogs...re-results.aspx.

Steve responded with a later blog post entitled, “A response to my critics,” later retitled, “How to think about new policy proposals -- feedback on my feedback.” He cited a “fascinating” paper by a Harvard Business School professor to insinuate that what he sees as my negativism is a way for me to feel better about myself. I responded by telling him that he seems to think that acquisition problems can be solved by new policies and procedural gimmicks, but that that the only way to fix deep seated problems in acquisition is to improve the workforce, and I tried to enlist him in that struggle. You can read that here: http://fcw.com/Blogs...m.aspx#Comments.

The Policy-Making Imperative

Here is the problem in acquisition today as I see it:

When someone is unhappy with something, for instance, if they think the government pays too much for goods and services, some official launches an “initiative” and issues a policy memorandum with a snappy title directing that acquisition personnel do things a certain way:

  • From now on, write performance work statements.
  • Negotiate fixed-price incentive contracts with a 50/50 share line and a 120 percent ceiling.
  • Set negotiation objectives for service contracts at 2010 price levels.
  • Definitize undefinitized contractual actions within 180 days.

They then usually provide for waivers under certain circumstances.

In short, the standard approach to problem solving is to issue policy and procedure directives. Sometimes the policy is called a policy innovation, or an innovative policy. (Innovate is second only to dream as America’s favorite magic word. If alien archeologists visit this planet after we’re gone and examine our surviving records, they will dub us the Dreaming Innovators. They will say that our civilization might have survived if we had spent less time dreaming and innovating and more time seeing reality and using our heads.)

Reactions To Policy

So what happens after a new policy is issued? First, the people in the field (or in the trenches, as some like to say, but really in the cubicles) roll their eyes and sigh. Then they start asking questions:

  • What do you mean, exactly?
  • Do you mean this or do you mean that?
  • Does the new policy apply to this or to that circumstance?
  • Does the dollar threshold include options?
  • What is the waiver procedure?
  • Who can approve waivers?
  • How long will it take to get a waiver?
  • Are you going to delegate waiver authority?
  • And, finally, the ultimate question: How do I do that?

The policy makers go on the conference circuit and hold virtual chautuaquas. Their staffs prepare PowerPoint presentations. They issue additional guidance about the policy and write manuals (which prompt more questions). The trade press write stories and trade associations issue cautionary white papers.

Some in the field, glad to see something new, anything new, get on board and design the innovative implementations of the policy maker’s dreams in the hope of recognition and maybe a silver hammer. Those are the Positivists. The Negativists write skeptical critiques or scathing condemnations, or simply foam at the mouth. Consultants set up shop and write slight “how to” pieces in trade and professional publications, hoping for new business. Some are dubbed “gurus” of the new policy and conduct pricey seminars devoid of details. The most ambitious write a book, or arrange for someone else to write it and then take author credit.

The Implementation

The policy makers set up a reporting scheme. Reporting is late and inaccurate. Ultimately, it is found that surveillance has been poor and implementation has been spotty. Congress holds hearings, complains about the spotty implementation, and enacts the new policy into law, apparently in the belief that everyone respects and fears them and will thus comply. Congress demands reports. Reports are late and inaccurate. The GAO finds that implementation of the law is spotty and ineffective or not as effective as it could be if everyone followed GAO’s recommendations.

Time passes. The policy maker moves on. The no-longer-new policy dims and may fade away entirely. It is ignored by the original policy maker’s successor, who wants her own initiative. It is mentioned no more at conferences. Seminars are offered no longer. Reporting continues, but no one really cares anymore. In time, some future official will launch an initiative that dotty old timers will say seems familiar. And then some crotchety paper hoarder will come in waving a copy of the original memo from a decade or two earlier, proving once again that there is no new thing under the sun.

The Great Game

Policy making is the great game in acquisition. We are being overwhelmed by laws, regulations, case law, policy memos, manuals, and handbooks. Policy making is the only power of the otherwise impotent. Senior officials, especially political (excuse me, I meant presidential) appointees, are touted as successes because they issued a couple of policy memos and attended a lot of meetings before moving on to better jobs on the strength of their newly padded resumes. They then write articles and make speeches about their policy memos and meetings and speak of things still to be done, even though they did not stay on to do them. The mere issuance of a policy memo is deemed a success, regardless of whether it is proven to be effective. If the policy maker is really bold, he or she will simply claim or imply success for the policy even in the absence of verifiable data. If they are modest at all they will claim limited success, which validates their theory, and say that it would have been more effective if implemented properly at the working level.

This has been going on for decades. The real way to improve acquisition is to improve the acquisition workforce -- really, seriously, improve it. But that would be hard and take time, and would be expensive. When most officials talk about improving the acquisition workforce they mean hiring more people. Oh, they will talk about improving the quality of the workforce, but they think that means ensuring that more people get to the official PowerPoint sessions ("training courses"). They have no idea what to do and how to do it. They don’t even have dreams. Innovation is putting the PowerPoint sessions online.

Reality Check

Acquisition works reasonably well if what you care about is that paper gets processed and stuff gets bought. Stuff does get bought. Whether we pay good prices and get good quality within a reasonable period of time is another matter. We often do and we often don’t. The vast majority of buys are for commodities and commodified services, and those go reasonably well, although there will always be something for the GAO and the IGs to complain about -- poor implementation or regulatory violations that, if fixed, might produce better results. As for the big stuff -- major defense systems and large information technology programs -- things are generally a mess, but they have been a mess pretty much throughout history. We know what the problems are, we just can’t fix them. We never will. We work in a cloud of mediocrity.

The Way To Real Improvement

In a complex system like acquisition, any attempt to fix deep seated system faults through policy will fail. The only way to get at the deep seated problems in acquisition is through workforce improvement, and I don’t mean numbers. We need well-educated, superbly trained people for the big stuff, and we do not have enough of them. Mismanagement and poor leadership will prompt many of the best of the new recruits to leave. The problems are beyond the reach of management in the organizational structure we have now for the simple reason that no one is in charge. Only someone with the power and the ruthlessness of a Stalin could fix the system. A few purges might be just the thing.

Here’s how to have a good career in contracting: First, study. Read a lot, read widely, and think about what you read. Next, find a contracting office to work for that does demanding work, like the Air Force Space and Missile Systems Center in El Segundo, California, which is doing really interesting work, is staffed by people of very high quality, and is very well led. Work, learn, and grow. If that is not enough, write articles and books. That will keep you busy. Ignore the rest, because you cannot do anything about it. Roll with the punches. Practice a wry smile.

I’ve heard that some call me the prophet of doom (or maybe it was gloom, I’m not sure). I’m not, really. I just do not rest my hopes on the system. I rest them on people, individuals. The only hope for our system is that committed individuals will never stop trying to be the best that they can be and to bring out the best in their colleagues. If enough individuals will do that, good things will happen. Try it. You’re going to like the way you feel.

Vern Edwards

The George Washington University has announced a program for a Master of Science in Government Contracting. http://business.gwu.edu/msgc/program/. I knew this program was in the works, and it is a good thing, but the curriculum is a disappointment. Here it is:

Core Business Curriculum (18 credit hours)

  • MBAd 6261 Organizations and Leadership (1.5 cr.)
  • DNSC 6202 Mathematics and Statistics for Management (3.0 cr.)
  • MBAd 6211 Financial Accounting (3.0 cr.)
  • MBAd 6233 Financial Markets 1 (1.5 cr.)
  • MBAd 6234 Financial Management 1 (1.5 cr.)
  • MBAd 6242 Microeconomics for the World Economy (1.5 cr.)
  • DNSC 6261 Introduction to Project and Program Management (3.0 cr.)
  • Marketing Strategies for Federal Acquisition (3.0 cr.)

Government Contracts Curriculum - Required (8 credit hours)

  • Law 6502 Formation of Government Contracts (3.0 cr.)
  • Law 6503 Performance of Government Contracts (3.0 cr.)
  • Law 6506 Government Contracts Cost and Pricing (2.0 cr.)

Government Contracts Curriculum - Selectives (6 credit hours)

  • Law 6508 Comparative Public Procurement (3.0 cr.)
  • Law 6512 Government Procurement of Intellectual Property Seminar (2.0 cr.)
  • Law 6509-21 Government Contracts Seminar: Anti-Corruption in Procurement (3.0 cr.)
  • Law 6509-10 Government Contracts Seminar: Public Values & Foreign Affairs Outsourcing (2.0 cr.)

Capstone (4 credit hours)

  • Government Contracts Capstone: Research and Writing Project (4.0 cr.)

There is a link on the webpage to the course descriptions.

Basically, what they have done is slapped together some of their standard MBA courses with some of their standard law school courses and added a research and writing project. The problem is not what's there, but what's missing. (Although some of what's there is odd for a master of science in contracting.)

Where are the courses on professional practice? Look closely at the core curriculum. Except for a class in "marketing strategies," the management courses do not focus on government contracting. The focus comes in the law school courses.

Do you see any classes about requirements analysis and specification development (a topic heavily emphasized by the Services Acquisition Reform Panel)? No, probably because this master of science program is a joint venture of the management and law schools and they have no expertise in that topic. How about decision analysis for acquisition planning and source selection, contract strategy and structure, cost estimating methods, appropriations law, contingency contracting, international contracting and foreign military sales?

Why only two credit hours for government contract costs and pricing, one of the most important courses of all, when you probably need six credit hours (three for cost-based pricing and three for market based pricing)? Read the course description. The course is about the legal aspects of pricing, not the practical aspects. You're not going to learn how commercial firms price their products or services, or how costs are analyzed and established for major systems.

Defense spending dominates government contracting and defense programs are the government's largest and most controversial. Where is the class about major systems acquisition? Where is the class about the structure and performance of the defense industry? Where is the class about contracting in a monopsony market? Why only two credit hours for intellectual property (patents and data rights), an important and complex topic, especially in defense contracting. Information technology programs are the second most controversial in government contracting. Where is the class about that?

Why a course about financial accounting, but not about cost accounting (aka management accounting), which is of greater interest and concern to contracting practitioners?

Why no class about themes and fads in the history of government contracting? Why no class about the role of Congress in contracting policy development and management? What about contracting policy development process? What about the government program planning, budgeting, appropriation, and funds management processes? What about systems analysis and engineering? What about risk management? What about about competition theory and practice and negotiation theory and practice? What about contracting process design? What about about the politics and economics of socio-economics programs? What about the politics and economics of major systems acquisition? What about statutory and regulatory interpretation? How about a class in business writing for the contracting practitioner? And why not any focus on service contracting, which has been a dominant concern in government contracting for the past decade?

While I am all for advanced education, I'm not for degree bagging, even if the degree is from GWU, especially when the degree is expensive and based on a curriculum that does not reflect the needs of today's contracting practitioners. People considering the program ought to do some market research and find out what they would be paying for if they were admitted and ask themselves whether attendance would worth the price and a best value. Ask yourself: Will this degree get me promoted? Will it enable me to get enough additional salary to make the gain worth the cost?

Knowing how much we Americans love and respect credentials, I have no doubt that GWU will receive many applications, and that many tuitions will be paid by students and employers, including the government, especially DOD. (Military officers in the D.C. area who need at least one graduate degree to get promoted will line up.) I guess it's a start, but this isn't the program that we need, and I don't recommend it as it is. I want better education for contracting professionals, but not just any education. If learning is what interests you, you'd be better off just buying some books and reading them.

Vern Edwards

I have long argued that the structure of the contracting workforce is out of balance. Most contracting work is simple and repetitive, and includes a large amount of administrative and clerical work, yet most of the 29,000+ people in the contracting workforce (excluding 1101s) are 1102 contract specialists, with 1105 purchasing agents being a very small minority and 1106 procurement technicians/clerks being virtually nonexistent. I have proposed that the government reduce the number of 1102s and hire more 1105s and procurement technicians/clerks (1106s).

It looks like I have won over one very important person. See Steve Kelman's blog at Federal Computer Week, the entry entitled, "A practical way to spice things up for new contracting employees," http://fcw.com/Blogs/Lectern/2010/03/A-pra...sting-work.aspx.

I wrote at some length about this topic in the August 12, 2009 issue of The Government Contractor, in an article entitled, ?Throwing People At The Problem⎯Massive Hiring Will Not Revitalize The Acquisition Workforce.? In that piece I focused on workforce structure, job design, and training, and said the following about workforce structure:

Much of the contracting work that is now being done by contract specialists is really purchasing agent work. Take a look at OPM?s position classification standard for GS-1105 purchasing agents, available at www.opm.gov/fedclass/gs1105.pdf. Take note of the section entitled ?Distinguishing Between Purchasing and Contracting Work,? which appears on page 3. Now look at the most recent (2007) Federal Procurement Data System Federal Procurement Report, pages 12?16, available at www.fpdsng.com/fpr_reports_fy_07.html It shows the distribution of individually reported contract actions by dollar value and type of action. Only 7 percent of reported actions were worth over $100,000, the simplified acquisition threshold, and only 18 percent of those were for new contracts. The majority of everything else was for orders against and modifications to existing contracts. Granted, many orders and modifications are complex and for large dollars (although dollar value is not necessarily an indication of complexity), but it is clear that most contracting work is relatively simple transactions, most of which are the work of purchasing agents, not contract specialists.

Because they do simpler work, purchasing agents need not have college degrees and receive lower pay than contract specialists, and they do not need as much training. Yet the Federal Acquisition Institute (FAI) reported that in 2008 the Government employed 29,707 GS-1102 contract specialists, and only 3,186 purchasing agents. See ?FY 2008 Annual Report on the Federal Acquisition Workforce,? available at www.fai.gov/pdfs/FAI%20FY08%20Annual%20Report%20_Final%2029%20jul%2009.pdf. The Government could hire and train more purchasing agents than contract specialists for the same money. Instead, the Government is hiring people with college degrees, many with advanced degrees, to do work that requires only a high school education or perhaps two years of college at most. It is then spending more money than necessary to provide them with training that most of them will never need or use for the simple work they mainly do. It is assigning degreed people to do work that in a few years will bore the best of them to death.

Hand in hand with the workforce structure problem is the problem of contract specialist job design. Over the last two decades, Government acquisition managers have turned contract specialists, supposedly professionals, into clerks. Walk into a contracting office today and you will see little cubicles dominated by computer workstations. Contract specialists spend a large portion of their workday, if not most of it, entering data into information systems for the use of others?what a colleague has described as ?chasing electrons.? Systems like Procurement Desktop Defense, known as PD2, a component of the Standard Procurement System, and myriad other such ?automated? contract writing systems, have come to dominate the consciousness of the contracting workforce. Contracting cubicles are flooded by a seemingly never-ending rain of bulletins about this or that system change or ?fix,? or this or that data entry error to be avoided.

Look at OPM?s position classification standard for GS-1106 procurement clerks and technicians, available at www.opm.gov/fedclass/gs1106.pdf. Read the job description on pages 3?6. That work is being done by contract specialists today, who have little if any clerical support. It is not too much to say that those duties often constitute the majority of their work. Thus, the Government is hiring and paying college graduates, many with advanced degrees, to be clerks. Occupied by clerical duties, they do not have the time to do the kind of strategizing, planning, process development and contract administration that should be their primary concern. By hiring fewer contract specialists and more procurement clerks and technicians, the Government could reduce its labor and training costs, free contract specialists to do more substantive and complex work, improve contract specialist morale and improve retention.

The most populous pay grade in the 1102 workforce is GS-12, followed by GS-13 and GS-11, in that order. The average 1102 pay grade is 11.75. The average grade among 1105s is 7.11. Among 1106s the average grade is 6.14. Our threadbare government is paying relatively high salaries for the performance of relatively simple work. In more than one agency, GS-14s are dong simplified acquisitions.

1102s should be doing complex contracting work, such as strategizing, writing or editing statements of work, analyzing risk, writing plans and special contract clauses, writing proposal preparation instructions and developing evaluation factors for award, advising evaluation teams and reviewing evaluation documentation, performing tradeoff analyses, developing pre-negotiation objectives, negotiating prices and equitable adjustments, resolving claims and disputes, writing final decisions under the Disputes clause, determining cost allowability, negotiating data rights, and developing solutions to contracting problems. They should not have to write synopses and do routine solicitation tasks, like identifying prescribed contract clauses. They definitely should not have to spend significant amounts of time entering data into fields on a computer screen. When 1102s have to spend time doing administrative and clerical tasks instead of being active participants in contract formation and contract administration decision-making and giving contracting advice to others in acquisition, the career field loses prestige and influence.

Some object to the idea of bringing ?low-skilled? 1105s and 1106s back into contracting offices. (One commenter at Steve's blog accused Steve and me of reading "dusty" books and living in the past.) They worry about a return of the old ?caste system? which divided office members into those with college degrees and those without. No one should think of 1105s and 1106s as "low-skilled." That may have been true in the past, but in the future they will have to be very well trained. Consider the military, which uses noncommissioned officers to do purchasing agent work. OJT programs for military personnel are quite good. No one who has known and worked with those personnel, as I have, would consider them ?low-skilled.? They are among the most highly skilled and motivated people I know. For good people without college degrees, the return of 1105 and 1106 positions would open many career opportunities. And those jobs would be a good place to learn some contracting while working on a degree part time. Upon graduation, qualified 1105s and 1106s should be welcomed to compete for entry level 1102 positions.

A different idea is that the government should hire more 1105s and 1106s, but keep 1102 numbers at the current levels of about 29,000+. The government must assign the right people to the right work. Large acquisitions do account for most of the contracting dollars, but they account for very few of the contract actions above the micropurchase threshold. If we assign the simpler work to purchasing agents and the administrative and clerical work to procurement technicians/clerks, we will not need nearly so many 1102s, which means that we could hire proportionately more 1105s and 1106s. Even for large acquisitions, much of the paperwork could be done by procurement clerks. Many actions which show up as large dollar acquisitions are relatively simple, such as exercises of options and funding mods. Procurement clerks could do most of the paperwork associated with such actions, subject to 1102 contracting officer review and signature. Procurement clerks could prepare synopses and do all of the reporting. No, we need to replace 1102s with 1105s and 1106s. This will free 1102s to do the more challenging work and increase their prestige. Retention of all 29,000+ 1102s would neither be necessary nor cost effective. The workload data do not support it.

In a private communication with Steve Kelman, I wrote:

I think that restructuring of the contracting workforce is the single most important and useful acquisition reform that agencies could make. It would greatly reduce not only salary costs, but the challenges of recruitment and retention and the challenges and costs of training. It would result in better retention of the top-notch young 1102s, who, and you must believe me, are terribly disappointed with the quality of the work that is being assigned to them. Many of them bitterly complain to me that they were recruited with promises that they would be "business advisors" to program managers, only to find themselves doing simplified acquisitions and placing simple orders against task and delivery order contracts while sitting in front of a computer terminal in a 6' x 6' cubicle. They are missing the adventure of contracting that they were promised.

Workforce restructuring would be painful and slow. There is no central workforce management organization in the Executive Branch. Each agency is a kingdom and each contracting office is a fiefdom within. There are many reasons not to restructure. Many managers will not like to admit that their office does mainly simple work. They will prefer to say that they conduct ?complex? acquisitions. Managing a staff of 1105s is not as prestigious as managing a staff of 1102s, and management grades are lower. Moreover, managers simply don't like giving up what they already have. It will take top-level leadership to prompt agencies and contracting offices to assign the right people to the right work, and leadership in contracting is in short supply these days. If you oppose restructuring, don't worry. Nothing is going to happen any time soon. 1102s and the work that they are supposed to do will continue to suffer.

It is hard for today's young 1102s to imagine a world in which 1102s do mainly professional and complex work, assisted by others who do the routine administrative and clerical work and in which 1105s do the relatively simple buys. The world in which they work today is all that they know and it does not seem strange to them. But I and others like me have watched the career field lose the prestige and organizational influence that it once had, and we are troubled and saddened. If I were looking for a career today, I would not choose contracting. I would be bored to death. If a bright young person whom I know and care for were to ask me about an 1102 job, I would advise against it. Except for the challenge of having to do too much with too little, most of the work simply is not very interesting. I know that this is not true in every office, but it is true in far too many offices.

If you are an 1102 with a long time to serve until retirement, you cannot be neutral about this. This is your career I'm talking about.

Vern Edwards

When and why should a contracting officer go to a lawyer? The way that a contracting person answers that question will tell you what they think about the role and the responsibility of the contracting officer.

I often ask contracting personnel in my classes how they would determine what the rule is about this or that. Very often, too often, the answer is: Ask a lawyer. That answer sends old-timers like me up the wall. Most of us think it is disgraceful to go to a lawyer with such a basic question. In our view the proper answer is: You should know the rule if you?re doing something to which the rule applies. If you don't know, then you should look it up. The answer, "Ask a lawyer," is entirely unacceptable. So, when and why should a CO go to a lawyer?

I teach a class in which the students are given the following scenario:

During a source selection, the evaluators tell the CO that one offeror?s technical proposal is ambiguous on a certain point. The statement of work requires that the contractor provide a device having a capacity of X. The proposal is unclear whether the device has X capacity or one-half that amount. The evaluators need to know what the offeror is actually proposing so that they can determine whether the proposal is acceptable or not. They want the CO to call the offeror and get an answer. The call should take no more than a few moments, and the answer would permit the evaluators to wrap up their work.

The RFP had notified offerors that the government intended to award the contract without discussions. Thus, the issue: If the CO makes the inquiry, would it constitute clarification or discussion? If clarification, then the agency can ask and still award without discussions, but if discussion, then the agency must conduct discussions with all offerors within a competitive range and permit those offerors to revise their proposals before it can make an award. The extra steps would take at least another month and expose the agency to the risk of a protest about its competitive range determination. It would also expose the agency to the risk of a protest about its conduct of discussions. Since the agency put offerors on notice that it intended to award without discussions it is not obligated to inquire, but if it doesn?t inquire the offeror?s proposal must be considered unacceptable, which would make the offeror ineligible for award. That would be too bad, since the offeror is considered to be an exceptionally good contractor, its technical proposal is considered to be otherwise excellent, and it has offered a very good price. Yet, good contractors with very good proposals would remain in the competition. What should the contracting officer do?

The rules about clarification and discussion are in FAR 15.306. Any CO who conducts source selections for a living should know those rules word for word. Unfortunately, you can memorize those words and you still won?t have any idea about the distinction between clarification or discussion. You might think that you do. After all, the language in FAR 15.306(a) and 15.306(d) make the distinction seem quite clear. But the distinction between clarification and discussion has been developed mainly in GAO case law. The FAR simply does not reflect that case law.

So how do you learn about the case law? There are several sources that discuss the clarification/discussion issue in depth, e.g., Feldman, Government Contract Awards: Negotiation and Sealed Bids, and Nash, et al., Source Selection: The Competitive Negotiation Process, 2d ed. I wrote an in-depth analysis of the distinction for the September 2007 issue of The Nash & Cibinic Report, entitled, ?Postscript V: Clarifications vs. Discussions,? cited by Westlaw as: 21 N&CR ? 45. A CO who conducts source selections should be familiar with those publications, or others like them, and should read GAO and Court of Federal Claims protest decisions.

A CO who is familiar with the FAR and the GAO case law should be able to decide the issue in the scenario. The GAO would consider the inquiry to be discussion, not clarification, because resolution of the ambiguity is necessary in order to determine whether or not the proposal is acceptable. See, e.g., Nu-Way, Inc., Comp. Gen. Dec. B-296435.5, 2005 CPD ? 195:

When an offeror is given the opportunity to remove an ambiguity from its proposal, especially where the information to be provided is essential for determining the proposal's acceptability, such an exchange constitutes discussions.

In light of the GAO case law, the contracting officer?s legitimate choices are: (1) refuse to make the inquiry, reject the offer as unacceptable, and award without discussions, or (2) establish a competitive range, conduct discussions, and solicit and evaluate final proposal revisions. Should the CO consult the agency lawyer? If so, for what? What can the lawyer say that the CO does not already know?

The lawyer in the agency legal office functions as in-house counsel. He or she is not the CO's lawyer, but the agency's lawyer, and represents the agency, looking out for its organizational interests. In working with a CO, the lawyer is not seeking to support the CO in any personal sense, is not seeking to fulfill the CO's wishes or to get the CO what he wants. The lawyer is seeking to ensure that decisions and courses of action are good for the agency as a whole.

A CO should not assume that a lawyer will know the answer offhand. Government contract law is a specialized field. Government lawyers work in a lot of specialized fields and a particular lawyer might not have much experience practicing government contract law. Even a lawyer who practices government contract law might not have done much source selection work and might not be familiar with the case law or literature about clarification and discussion. But a lawyer is formally trained to think, especially about legal issues. Law school is a school about how to think about problems in a certain way and in an orderly manner. Lawyers understand legal principles, rules, and procedures. They know how to frame and research an issue, how to determine the current status of the case law, how to spot distinguishing facts in a particular case, and how to argue a case--skills that contracting officers are not expected to possess and ordinarily do not have. A good in-house lawyer is a counselor in the best sense of that word: a person trained to give professional guidance to a client, a source of knowledgeable, dispassionate, considered advice.

Contracting decisions are the CO?s to make, not the lawyer?s, at least in theory. Yet many COs complain that their lawyers ?won?t let me? do this or that. What has probably happened is a clash of views. The CO wants to do X. The lawyer thinks that X is unwise or illegal and not in the best interests of the agency. The CO can't proceed without the lawyer's "legally sufficient" stamp of approval. Someone at a higher level than both must ultimately decide, and the CO and the lawyer must make their cases. The CO is at an understandable disadvantage. The boss probably doesn't fully understand the issue, but her lawyer is telling her that it would be unwise to go along with the CO. Weighing the arguments of both sides and not fully understanding the issue, the boss is likely to think that deciding in favor of the lawyer is the safest course of action. This can lead some lawyers to run roughshod over COs, especially if they do not think the COs are competent. Yet the CO is responsible for any decision or contract bearing his or her signature, and when a regulation calls for a CO decision the CO cannot be directed to decide in a specified way.

Many COs are mainly administrative technicians. They process paperwork and do data entry, but are not competent to make sound decisions. Too many do not know the regulations as they should and do not read cases, books, and articles. They do not have the professional knowledge or skills they need, or the personality and personal skills, to enable them to take charge, innovate, and decide. Their leaders don?t trust them and thus tie their hands with policies and reviews and rely on the lawyers to make contracting decisions. Indeed, many government lawyers that I know are exasperated by the lack of knowledge and capability among the COs they support.

Many if not most agencies require COs to submit their files for legal review in order to establish "legal sufficiency." Such reviews have become a kind of contracting quality assurance, and some lawyers use them, perhaps unconsciously, to manage the contracting process based on their personal views about the best way to do things. (Don't use that evaluation factor. Don't use that scoring method. Don't use that procedure. Use this language in the proposal preparation instruction instead of the language you wrote.) In an ideal world, this wouldn?t happen. In that world the practice of sending every contract valued in excess of a certain dollar amount to the legal office for review would be considered unnecessary and wasteful, and COs would send files to the legal office only for input about issues such as the propriety and adequacy of a special contract clause, or a dispute settlement with far-reaching implications. But in an ideal world COs would be genuine experts and far more knowledgeable about contracting than agency lawyers.

So when and why should a CO go to a lawyer? When it's a matter of choice, a CO should never go to a lawyer for basic information or to ensure that a file reflects compliance with well-established rules. A CO should not need a lawyer for that. But when an issue is complex and the legal implications are significant, something a competent CO should be able to recognize, then a CO should go to a lawyer for professional insight and advice. A CO should make a tentative decision about what to do based on the issue, her understanding of the applicable rule, and the pertinent facts, and then visit the lawyer to discuss it and the pros and cons of one course of action versus another. The conversation might go something like this: "Hi, Jack. I?ve got a situation. This is the scenario, this is my assessment, and this is what I?m thinking of doing. I?d like your professional opinion and advice. What do you think?" And a CO shouldn't get frustrated if the lawyer says, "Well, you could do this or you could do that, and it might turn out this way or it might turn out that way." After all, the CO was seeking advice, not direction. Right?

Vern Edwards

Show of hands: How many of you think that the government can reduce costs under cost-reimbursement service contracts by tripling the number of government personnel involved in contract administration?

Steven Kelman, Harvard professor and former OFPP administrator (and the best one we?ve ever had), has proposed an ?experiment? to do just that in the February 14, 2011 print edition of Federal Computer Week, page 15. Read it here: http://fcw.com/articles/2011/02/14/comment...management.aspx. (If the link doesn't work, copy it and paste it into your browser.)

Prof. Kelman begins his commentary by pointing out that the government spends a lot on services every year and that service contract cost savings would contribute a great deal to deficit reduction. Agreed. He then says: ?We all know anecdotally about unnecessary work performed under service contracts and insufficient cost controls? .? Well, yes, I have heard that, and I believe it?s true to some extent, although I cannot say to what extent. He then makes an analogy between cutting service costs and house-to-house fighting in war. (An unfortunate analogy, but I?ll let that go.) He then says:

To help us make progress on that house-to-house fighting, I propose that we provide more resources to the people doing the fighting ⎯ the contracting officers and program officials who manage the contracts.

So he wants a surge. He then says:

Many contracting professionals believe that providing more contract management employees can pay for itself ⎯ perhaps many times over ⎯ in cost savings and, ideally, performance improvement. I am inclined to agree, but nobody knows whether than assumption is correct.

He then proposes an experiment: (a) choose 20 cost-reimbursement contracts for ongoing services worth $5 to $10 million each, (B) double or triple (or maybe quadruple) the number of contract management personnel current assigned to each of them, ( c) track them for two years and then (d) compare the costs with 20 similar contracts that do not receive additional personnel.

If costs go down and/or performance goes up on the contracts receiving additional resources, we should use that approach more broadly in the future.

Steve acknowledges that the details of the experiment would have to be worked out.

I have strong ideas about services and service contracting. I have explained them in a number of articles published since the late 1990s, many of them are available only to subscribers to Westlaw. But Ralph Nash and I wrote an article for the September 2007 issue of Defense Acquisition Review Journal in which my ideas are briefly described. That article is accessible here: http://www.dau.mil/pubscats/PubsCats/ARJ45_Edwards.pdf. Three of my thoughts are summarized in the following three passages from that article:

This article proposes that there are two categories of services, and that PBSA as it is known at the beginning of 2007 works for one, but not the other. The first category includes many common, routine, and relatively simple services that can be acquired through PBSA as it is currently defined, including many housekeeping services, simple equipment maintenance and repair services, and the like. The second category includes services that are too long-term and complex to permit complete specification of results and competitive pricing at the outset of contracting. These include many long-term information technology services, services to operate government-owned facilities, and long-term and multifunction or multitask professional, administrative, and management support services. These are the services for which the government spends the most money.
* * *
In real life, parties to long-term and complex service contracts do not specify all requirements at the time of contract award in clear, specific, objective, and measurable terms. Instead, they engage in ad hoc decision making in response to emerging and changing requirements, shifting priorities, and unexpected circumstances. They make it up as they go along, developing and adjusting expectations and agreements accordingly. Reality is never the same as expectations and projections, and plans and agreements go awry. No matter how long and hard future needs are considered, contracts will include things that will not be needed and leave out things that will be. Specifications and expectations must be adjusted over the course of time.
* * *
Unlike most supply purchases, long-term service contracts entail close human relationships that enable the parties to deal with dynamic complexity and respond to emerging and changing needs and circumstances. Relationships are crucial, and it is well established in service marketing literature that subjective customer satisfaction is as important, and sometimes more important, than technical success. [Footnotes omitted.]

Now, with those passages in mind, here is what I think about Steve?s idea: While I love experiments, I would distrust results produced by any such as he describes. Why?

First, because it would be virtually impossible to establish a valid control group of 20 ?mirror? services, due to (a) differences in the conduct of competitions for contract award, (B) differences in the events and the circumstances of performance, and ( c) differences in the management styles of the government personnel involved. Every contract for long-term complex services is somewhat unique and not entirely comparable to others. Even a contract for a given service at a given location might not mirror its predecessor contract.

Second, without a valid control group to serve as bases for comparisons, it would be impossible to reliably measure savings and quality differences. Moreover, applying the experiment to cost-reimbursement contracts is problematical, because the use of a cost-reimbursement contract suggests that there is significant uncertainty with respect to cost outcomes. A cost underrun (which is unlikely in any event) could be due to savings or to estimating error. On the other hand, an overrun might reflect savings from what the costs more accurately otherwise would have been. Failure to underrun, or an overrun, might reflect a decision by the agency to use all of the funds available to it for the contract in the fiscal year.

Third, such experiments in acquisition are almost always political events, more akin to gimmicks than exercises in the scientific method. In my experience, the people who conduct them often are not trying to test a hypothesis, but trying to prove that their hypothesis is right. Thus, the tendency is to conduct the ?experiment? and then declare it a ?success? in the sense that it confirms an idea that supports a preferred course of action. Then all sorts of gurus and consultants jump on the bandwagon touting the rightness of the idea.

Performance-based contracting is a classic illustration. Something like Steve?s new idea was tried in the mid-1990s with performance-based contracting. See 59 FR 26679-01, May 23, 1994:

To stimulate the government's conversion to performance-based service contracting, OFPP has developed a government-wide pilot project which relies on voluntary pledges by individual agencies to convert specified contracts for services to performance-based contracting methods. Agencies will be encouraged to limit their pledged contracts to recurring requirements to facilitate before and after measurement and assessment of results. Agencies will also be asked to consider breaking up large level-of-effort umbrella contracts in order to increase competition and convert to completion-type contracts where possible, thereby generating more innovation and cost effective proposals.

Agency pledges are also expected to include:

Endorsement of the project by the agency head; establishment of a high-level agency task force to oversee the effort; agreement to share lessons learned and best practices with other agencies; and measurement of the results of the project using predetermined project measurement criteria. The proposed project measurement criteria are: contract price; level of competition; number of contract audits; customer (project officer) satisfaction; length of procurement cycle; and small business participation.

In May 1998, OFPP published a report of the results of the project, available here: https://www.acquisition.gov/sevensteps/libr...on-the-perf.pdf. The results are summarized nicely in the October 1998, ?final edition? of OFPP?s Guide to Best Practices for Performance-Based Services Contracting:

As a result of the pledge, 15 agencies converted 26 contracts with an estimated value of $585 million to performance-based methods. The agencies reported an average 15 percent reduction in contract price in nominal dollars, and an 18 percent improvement in satisfaction with the contractors? work. Moreover, reduced prices and increased customer satisfaction occurred at all price ranges, for both nontechnical and professional and technical services, and whether the contract remained fixed-price or was converted from cost reimbursement to fixed-price.

The Guide is available at http://georgewbush-whitehouse.archives.gov...c.html#chapter1.

The report itself concluded:

The results of the project strongly support the hypothesis that PBSC, when fully and properly applied, enables agencies simultaneously to obtain improved performance and reduced prices. PBSC is appropriate for professional and technical services as well as non-technical services, and for large, complex contracts as well as small contracts. Moreover, PBSC?s benefits are amplified when awarded using fixed price contracts.

It would be an understatement to say that the "report" did not back up its claims with hard data about specific contracts or offer to provide such hard data upon request. Thus, it was impossible to independently verify the claims. As far as I?m concerned, unverifiable claims for the results of pilot projects, or experiments, are just that. To put it nicely, they are hooey. The confirmation of OFPP?s ?hypothesis? was a foregone conclusion and about as scientifically valid as professional wrestling and roller derby, which are at least fun to watch.

?Pilot project,? ?experiment,? it?s all the same.

That is not to say that increasing contract management staffing would not produce good results. Let?s consider: What would be the likely effect on cost and quality of putting more government personnel to work managing cost-reimbursement service contracts.

On the one hand, greater monitoring might detect more instances of subpar performance, which might lead to prompt corrective action and better outcomes. It might facilitate better communication between the government and its contractor. With more eyes on the contractor, the government may be better able to spot inefficient practices and performance shortfalls in progress. If we assume that to be true, then adding people would be beneficial.

But, on the other hand, adding government personnel might increase costs if the they try to squeeze more work out of the contractor or slip in unplanned requirements. It might increase costs without much to show for it if they are persnickety and demand reperformance or other corrective action in each and every instance of customer dissatisfaction, however minor or inconsequential the quality shortfall. Such a management approach will likely reduce customer satisfaction in the long run and make the government-contractor relationship more tense and disfunctional. No compromise, no savings, and a bigger bill without much real improvement.

Yet, on the other hand, if the management approach is to be helpful and cooperative, rather than merely corrective and demanding, good things could happen: cost inefficiencies might be detected and efficiencies might be found, and customer satisfaction might be improved.

Here?s a hypothesis of my own: While the government needs enough people to properly monitor performance, the quality of the government personnel, not the number, is the most important factor in the government?s contribution to performance. In other words, one wise and effective contracting officer's technical representative is better than two or three nitpicking nuisances. How can we test that hypothesis? I don?t know. Like I said, experiments in government contracting are dubious affairs.

But why test it? Why not just accept several decades of management thinking and assume that (a) the government needs the right number of people for the job, which depends on consideration of several factors ⎯ number of functions and tasks, number of performance locations, number of contractor personnel, etc. ⎯ and should not be determined by gross doubling or tripling of the current number; (B) they have to be the right kind of people ⎯ wise, competent, good communicators and capable negotiators; and ( c) they have to have the right kind of contractor to work with ⎯ honest. cooperative, capable, and seeking to please.

But some government managers like demonstrations of ?success,? and so somebody is likely going to want to conduct Steve?s ?experiment.? And why not, if it can lead to getting more personnel? After all, the time honored government management approach, when you don?t know what else to do, is to throw people at the problem and hang on to them until the next round of budget cuts. And whatever else you do, declare success.

I frankly cannot see the point in this kind of thing, which strikes me as gimmicky, as is so much of acquisition management, with its experiments, pilots, and initiatives. We have done those kinds of things many times and I don't see that they have gotten us to where we need to be. What we need to do instead is the hard work of determining, on a case by case basis, the number and kind of people that we need for each contract, how we're going to get them, and from where. It is likely that we will never have enough people, which makes it all the more important that we have the right kind of people. Where do we find them? How do we prepare them for the task?

Vern Edwards

Reading some of the Wifcon posts of last week, it occurred to me that a lot of people are busily doing things that they don?t know much about. That has occurred to me many times over the years, but this past week has been an especially ignorance-rich environment.

Some of us at Wifcon Forum talk by phone among ourselves about posts, and we are often astonished that people who are asking really basic (not dumb) questions are apparently in the very middle of doing something and don?t realize that their question shows that they know even less than they think they do. It is not the fact that they are asking a question that troubles me⎯everybody has to ask questions, myself included⎯it is the nature of the question asked.

I am not surprised that people do not know the rules, meaning FAR and its progeny: the supplements, handbooks, manuals, and policy statements, which is not to say that it is okay that they don?t. But much of the ignorance is of fundamental concepts. It is one thing when people do not know the rules about cost-reimbursement contracts, such as the rules of cost allowability, but it is another thing entirely when they do not understand the concept of the cost-reimbursement contract.

One poster asked if there is a rule against awarding a ?CPFF? contract with ?FFP? labor rates. The answer is no, there is no rule against it, but why would you do it? The inclusion of ceiling rates, in which the contractor is reimbursed either the ceiling rate or the actual amount paid, whichever is less, might make sense, but not ?firm-fixed-price? rates. Why not? A full understanding of the concepts of the cost-reimbursement contract and of firm-fixed-price contract should make it apparent that firm-fixed-price labor rates in a cost-plus-fixed-fee contract would be a bad business deal for the buyer, in much the same way as a time-and-materials contract is a bad business deal, but worse.

Last week someone asked me (not at Wifcon) why, in a source selection, a CO would include an unacceptable proposal in the competitive range. The question revealed ignorance of the concepts of acceptability, competitive range, and discussions in source selection. The problem was that the person who asked the question was not aware of their ignorance of those concepts, and it was the person?s very unawareness of their ignorance that caused the matter to seem paradoxical.

Conceptual ignorance is undoubtedly due in part to (1) poor quality training and (2) a shortage of knowledgeable people in the office. But it is also due to lack of study and thought.

If a person worked for me conducting source selections, I would expect them to know FAR Part 15, except Subpart 15.6, like the back of their hand, as well as the agency supplement, handbooks, manuals, and policy issuances, and to be able to quote them chapter and verse. I would also expect them to have read, at the very least, Chapter 6, Basic Negotiation Procedures, of Formation of Government Contracts, 3d ed., and any other relevant explanatory material they can get their hands on. But none of that knowledge would be any good without complete understanding of fundamental concepts: evaluation, evaluation factor, scales and scaling, score/rating, acceptability, tradeoff, rank ordering, competitive range, clarification, and discussion.

A conceptual understanding of the term evaluation factor is knowledge of what an evaluation factor is -- the essential nature of such a factor. A person who understands that concept can tell you what all evaluation factors have in common. If asked, What is an evaluation factor?, she would not just give examples, like soundness of approach, past performance, price, qualifications of key personnel. Instead, he would say something like:

An evaluation factor is an attribute of an offeror or of an offeror's promises--a feature, quality, or characteristic that contributes in some way to the value of the offeror or offer to the buyer and thus can serve as a basis for the comparison of competing offerors and their offers. Evaluation factors can be positive or negative. A positive factor is an attribute that is desired, such that the more of it there is the greater the value. In some procurements, the durability of an offered product is a positive factor. The greater the durability of an infantry rifle the greater the value. A negative factor is an undesirable attribute, such that the more of it there is the lesser the value. The weight of a rifle would be a negative factor. The greater the weight of a rifle the lesser its value. Evaluation factors can be assessed and rated or scored on a variable scale or on a pass/fail scale.

A person who has that conceptual understanding of evaluation factor is ready to learn the rules about evaluation factors and to select evaluation factors for an acquisition.

People often refer to contracting folk at the GS-11 through GS-13 level as journeymen. Webster?s Third New International Dictionary defines journeyman as follows:

1 a : a worker who has learned a handicraft or trade and is qualified to work at it usually for another by the day -- distinguished from apprentice and master b : an experienced usually competent or reliable workman in any field usually as distinguished from one that is brilliant or colorful? competent but without much distinction? .

I do not expect every journeyman involved in a source selection to be a master at it. I expect that from contracting officers. But I expect journeymen to know what they are doing and what they are talking about.

As for trainees (apprentices)--well, they must be trained. Training entails more than telling them to prepare some documents and giving them old ones from which to cut and paste. Training does not have to include classroom instruction, but it should include having a knowledgeable person direct the trainee's reading and explain things to them in some depth. Of course, there must be someone in the office who is capable of that, which I suspect is often not the case.

Ignorance happens, and it?s not necessarily a crime, but it is a bad thing and always the fault of the ignorant, as in the song ?Father and Son,? by Cat Stevens (now called Yusuf Islam):

You're still young, that's your fault,

There's so much you have to know.

When I first heard that line, many years ago, I didn?t get it. How could youth and youthful ignorance be the youth?s fault? But now I understand that each of us is responsible for knowing what we need to know. It?s true that others ought to teach us, but in the end we are the ones who have to know, which means we have to get out there and learn, whether anyone teaches us or not.

I?m not young, but there is still so much I have to know about the contracting business, and I?m mad at myself whenever I realize that I don?t know it, which happens almost every day. I feel embarrassed and a little sick, and I mope. Then I go find out. What else can we do?

Vern Edwards

I am launching a contest. I will give a copy of The Government Contracts Reference Book, 4th ed., by Nash, O’Brien-DeBakey, and Schooner, published by Wolters Kluwer Law & Business and The George Washington University Law School, to the Wifcon member who writes the best set of definitions of the 20 terms (words and phrases) listed below. The Reference Book retails for $80.

The following words and phrases are commonly used by contracting practitioners and frequently used in regulations, guidebooks, handbooks, and contracts. A parenthetical entry beside the word or phrase gives usage context.

1. audit (as in proposal audit)

2. competition (as in competition improves quality and reduces prices)

3. complex (as in she’s working on a large, complex acquisition)

4. condition (as in terms and conditions)

5. contract term (as in they won’t accept that contract term)

6. cost (as in cost estimate)

7. dispute (as in a dispute must be handled under FAR 33.2)

8. equitable adjustment (as in they want an equitable adjustment)

9. evaluation factor (as in source selection evaluation factor)

10. fairly (as in COs must treat contractors fairly)

11. incentive (as in contractual incentive)

12. need (as in an acquisition should fulfill the Government’s needs)

13. profit (as in we offered them a fair profit)

14. purchase request package (as in the purchase request package was inadequate)

15. rating (as in evaluators will assign a proposal rating)

16. relative importance (as in evaluation factor relative importance)

17. requirement (as in the program office specified its requirements)

18. risk (as in contract performance risk)

19. tradeoff (as in source selection tradeoff analysis)

20. uncertainty (as in uncertainty about performance outcomes)

None of those words and phrases is defined in FAR.

I will not accept dictionary or otherwise published definitions. The definitions must explain in your own words what you mean when you use those terms.

The qualities I am looking for in the definitions are:

(1) contextual appropriateness,

(2) clarity,

(3) definiteness (neither vague nor ambiguous),

(4) simplicity, and

(5) brevity.

Write enough to be clear, but don’t write dissertations. Write something that would make clear to a non-contracting person what you, as a contracting practitioner, mean when you use the selected words and phrases. Don’t substitute one vague word or phrase for another. Don’t define by giving examples. State attributes common to all instances of use.

For some background about definitions go to:

http://en.wikipedia.org/wiki/Definition http://en.wikipedia.org/wiki/Stipulative_definition

http://www.philosophypages.com/lg/e05.htm

http://www2.warwick.ac.uk/fac/soc/philosophy/people/faculty/longworth/definitions.pdf

Here are my rules for the contest:

1. Participation is open to all Wifcon members.

2. You must define all 20 of the listed words and phrases.

3. You must post your definitions here, as a comment on this blog entry, for all to see. Do not submit your comments directly to me via email.

4. The deadline for submission is June 18 at midnight. The date and time of your submission are the date and time on the posted comment. Minor post-deadline edits are permitted, but not wholesale rewrites. I'll be the sole judge of whether a post-deadline edit is actually a rewrite.

5. Begin each definition as follows: [Word or phrase] means…

6. Each definition must be in your own words. You may collaborate with others in your office, but you cannot quote or reword a definition found in a published source, including government publications and board, court or GAO decisions. I’ll use the internet to check for quotes and close paraphrases.

7. In evaluating the submissions I will seek input from Don Mansfield and Emptor Cautus, two other Wifcon bloggers. However, I reserve the right to pick the winner based on my own opinion and to pick no winner if I think that none of the submissions is good enough.

8. By participating you agree that participation gives you no legal right to anything.

What would you say if someone were to ask you what you mean when you use any of those words or phrases? Could you answer immediately, or would you have to think about it for a while and maybe do some research?

Take a shot. What have you got to lose? It might be worth the effort just to develop your own thinking. Most of you post anonymously, so don't worry. Have fun with it and maybe you'll win an expensive book.

Vern Edwards

In his February 10 blog entry, Don Acquisition reviewed the history of the so-called "neutral" rule for evaluation of past performance during source selection. I want to continue the examination of that "rule" in terms of the relationship between experience and past performance as evaluation factors.

First, the true expression of the "neutral" rule, as stated at FAR 15.305(a)(2)(iv) is as follows:

In the case of an offeror without a record of relevant past performance or for whom information on past performance is not available, the offeror may not be evaluated favorably or unfavorably on past performance.

The rule simply says that you cannot say anything good or bad about something that does not exist.

The evaluation of past performance rests on the belief that the historical quality of a firm's performance has predictive value when it comes to assessing the risk of doing business with the firm. The belief is that a firm that has performed poorly in the past might do so again and is, therefore, a higher risk than a firm that has performed well. The "neutral" rule rests on the common sense logic that you cannot predict the quality of a firm's future performance based on its past performance if there was no past performance.

This rule has confused people who conflate past performance and experience. Assessments of experience and past performance are based on much the same data, but they are fundamentally different. Evaluation of experience is based on the belief that experience gives firms a chance to learn important lessons, knowledge that they can use in the future. We believe that a firm that has done certain work in the past is more likely to be able to avoid or respond effectively to problems in the future, because it may have already learned what can go wrong and how to prevent or fix it. On the other hand, a firm that has not done the work before will have to learn on the job, which may have a negative effect on performance. The logic that you cannot say anything good or bad about something that has not happened does not apply when the whole point is whether that something has happened. To say that you cannot consider the lack of experience to be either good or bad is to effectively prohibit the evaluation of experience.

As usual, however, most people do not have a clear idea about what they are talking about and do not think things through. During the 1990s, and still today to some extent, many people conflate past performance and experience, and often use evaluation factors such as "past performance/experience" and "experience and past performance," instead of (1) experience and (2) past performance. See, e.g., Jack Young Assocs., Inc., Comp. Gen. Dec. B-243633, 91-1 CPD ? 585, in which the GAO quoted from the RFP as follows:

Under the amended RFP, offerors were to submit "technical (past performance) and pricing proposals." Technical proposals, under the evaluation factor "Past Performance," were required to include:

"[a] description of the offeror's experience and quality history that demonstrates the ability to manufacture the item under this solicitation in accordance with the Government specification and delivery requirements. This description should include the offeror's record of adherence to contract schedules, contract quality requirements, and overall commitment to customer satisfaction and will be evaluated in accordance with the provisions set forth in Section M of this amendment."

Section M, "Evaluation Criteria and Basis for Award," stated that for this solicitation, "past performance is more important than cost or price." It further provided that "[a]s proposals become more equal in their past performance ratings, the evaluated cost or price becomes more important."

The RFP in that case made no clear distinction between experience and past performance, seemingly indicating that the two were to be evaluated as one. See too, Eagle Systems, Comp. Gen. Dec. B-243395, 91-2 CPD ? 96:

The RFP stated that cost would be considered and analyzed to assess realism and probable cost to the government and that past performance would be reviewed "to assure that offerors have relevant and successful experience." Finally, the solicitation provided that "Of the three factors: (1) technical, (2) cost, and (3) past performance, technical and cost are considered the most important and are considered of equal importance. Past performance is of less importance than technical or cost."

Perhaps most revealing of the confusion in some minds is this, from Chemical Demilitarization Assocs., Comp. Gen. Dec. B-277700, 98-1 CPD ? 171:

Past performance had no stated subordinate elements or factors (although the RFP stated in narrative what would be considered under this area). A performance risk assessment group (PRAG) was to evaluate the quality of an offeror's past performance and assign a risk rating of low, moderate, high, or unknown (i.e., no relevant experience).

Emphasis added. Note that the "neutral" assessment ("unknown") was to be for "no relevant experience," instead of for no record of past performance.

Compare those cases with Oceaneering International, Inc., Comp. Gen. Dec. B-287325, 2001 CPD ? 95:

The RFP stated:

Past performance is a measure of the degree to which an offeror satisfied its customers in the past and complied with Federal, state, and local laws and regulations? In the case of an offeror without a record of relevant past performance or for whom information on past performance is not available, the offeror will not be evaluated favorably or unfavorably on past performance.

RFP ? M.2.5. With regard to the experience factor, the RFP stated:

Experience is the opportunity to learn by doing. The Government will evaluate each offeror's organizational experience on the basis of its breadth, its depth, and its relevance to the work that will be required under the prospective contract, based on the information provided in the past performance/reference information sheets submitted in [the proposal]. The Government will also consider the organizational experience of the offeror's proposed subcontractors.

RFP ? M.2.4, amend. 5 at 2. The agency has the discretion to structure the evaluation scheme in this manner, and we will not object to an agency's reasonable evaluation of past performance and experience under such a scheme. Sigmatech, Inc., B-271821, B-271821.2, Aug. 22, 1996, 96-2 CPD ? 101 at 9 n.14; see Contrack Int'l, Inc., B-270102, B-270102.2, Feb. 8, 1996, 96-1 CPD ? 53 at 3-5.

It should come as no surprise that the GAO will not object to such a scheme, especially to those who have read the paper by Michael Golden, ESQ., Assistant General Counsel, GAO, entitled, Past Performance/Experience, in which he says:

The FAR identifies prior experience and past performance as separate concepts, and these concepts should not be confused in an evaluation. Although sometimes the agency's [sic] evaluate past performance and experience together, GAO decisions recognize there is a distinction between the two evaluation factors.

Mr. Golden's paper may be downloaded in pdf format at:

www.tricare.mil/contracting/acquisitionpolicy/ppa/paDocs/03-11_Attach_Past-Performance.pdf

So an offeror without a record of past performance may not be evaluated unfavorably on that basis, but may be evaluated unfavorably due to a lack of experience. However, that is true if and only if the distinction between experience and past performance is clearly stated in the language of the RFP and reflected in the evaluation documentation. If the distinction is not clear, or if the agency conflates experience with past performance, then the GAO might sustain a protest because the agency evaluated a firm unfavorably due to lack of experience.

A word of warning: You must read GAO decisions very carefully in order to sort out the experience/past performance distinction and its relationship to the "neutral" rule. Agencies and the GAO often use the terms experience and past performance interchangeably. So you will find protest decisions in which GAO said that an agency cannot evaluate an offeror unfavorably due to a lack of "experience." Those decisions are context specific and often turn on the way the agency used the terms in its solicitation or evaluation documentation. In order to fully understand the case law one must read the decisions with a discerning eye. The rule is clear, as you can see from Mr. Golden's article, but it is clear only to those who have studied the decisions carefully.

Finally, if the idea behind the neutral rule was to avoid "penalizing" new firms, why prohibit agencies from evaluating firms unfavorably due to the lack of a record of past performance, but permit them to evaluate firms unfavorably due to the lack of experience? Good question. Suffice it to say that one should not expect too much in the way of clear thinking from politicians and policy makers.

Vern Edwards

On October 14, the FAR councils published an interim rule about incentive contracts. (FAC 2005-37, 74 FR 52858.) FAR 16.401(d) now requires a determination and findings signed by the head of the contracting activity (HCA) before using any incentive contract. Given the bureaucratic hassle of processing such a formal document, I think we might reasonably expect to see a decline in the use of incentives. Given the emphasis on incentives up until a few years ago, this is an interesting policy development.

Incentives have been around for a long time. In a 1980 article in National Contract Management Quarterly Journal entitled, "Incentive Contracting in the Aerospace Industy, Part I," Arthur J. Nolan wrote:

They called it the "bonus for savings" provision in World War I, and the "target price" contract in World War II; but contrary to popular belief, there is every evidence that what we now know as the incentive contract has had not isolated--but abundant--use in government procurement throughout the last half century. Neither is the multiple incentive contract, the more complex incentive arrangement, to be regarded as an innovation; its use dated back at least to World War II.

There are two main categories of incentives. First, there are the predetermined formula type incentives, which include (1) the fixed-price incentive (firm targets), (2) the fixed-price incentive (successive targets), and (3) the cost-plus-incentive-fee. (FAR 16.402.) Second, there are the subjective, after-the-fact incentives, which include the cost-plus-award-fee and the fixed-price with award fee. (FAR 16.401(e), 16.404, and 16.405-2.) The fixed-price incentive (firm targets), which is the most complex incentive, is said to have been invented by the Navy during World War II, but abandoned because of a shortage of auditors. The cost-plus-incentive-fee arrangement, which is the simplest incentive, has been in use since at least the early 1950s. The cost-plus-award-fee incentive was invented in the early 1960s, either by the Navy or NASA or both, and has since become the most popular of the incentives.

The modern era of incentives began in the 1960s when President Kennedy's Secretary of Defense, Robert S. McNamara, urged their use in lieu of cost-plus-fixed-fee contracts, claiming that they would save money. Doubters emerged right away. Influential members of Congress complained that contractors inflated their cost estimates in order to negotiate artificially high targets and then underran so as to increase their profit or fee. That concern lead to the passage of the Truth in Negotiations Act, Public Law 87-652, in 1962. (Now implemented in FAR 15.403.) The Act originally would have applied only to incentive contracts, but DOD and NASA complained that such application would make it hard to persuade contractors to accept incentives, so Congress applied it to all negotiated contracts expected to be valued in excess of $100,000. (The threshold has since been increased to $650,000.) Economists, most notably Harvard professor Frederick Scherer and Rand analyst Irving Fisher questioned the underlying assumptions of the advocates of incentives. Most serious studies concluded that there was little verifiable evidence that monetary incentives had motivated contractors to do what's necessary to reduce contract costs or that costs had in fact been reduced. In a typical report, "Incentive Versus Cost-Plus Contracts in Defense Procurement," Journal of Industrial Economics (March 1978), researchers John Hiller and Robert Tollison wrote:

In this paper, a theoretical analysis, based upon wide-ranging empirical studies (see footnote 2), is made of the following question: Given the out-comes of thousands of contracts over the I950s, I960s, and I970s, has there indeed been a 10% cost saving associated with the introduction of incentive contracts? Indeed, has there been any saving?

* * *

Two conclusions emerge. First, in even the most conservative cases, the McNamera claim of a minimum 10% cost saving is much exaggerated. Although in some cases it may be true, given the high variance of outcomes, it hardly serves as a reasonable evaluation of incentive contracting experience. Second, in the cases where one does not assume a reduction in wastes, but one does assume some inflation of target values, the costs under the incentive contract actually rise above the costs of the cost-plus contracts. Whether the costs are, in fact, higher is difficult to say, being subject to high variance in the parameters. However, it is quite clear that the savings due to incentive contracting are not as obvious as has been typically thought.

By the end of the 1960s there appears to have been widespread agreement that multiple incentives⎯i.e., predetermined formula-type incentives applied to cost and to delivery or technical performance⎯were so complex as to be generally impractical, and they all but disappeared. Most formula-type incentives today are cost-only. Multiple incentives were replaced by the subjective, after-the-fact incentive⎯award-fee. Unfortunately, agencies did not think things through and never developed a clear set of principles for the use and management of award-fee incentives, resulting in misapplication and misuse.

Nevertheless, incentives are intuitively appealing. They appeal to common sense, and the use of incentive arrangements can convey the impression that an agency is being demanding and tough with its contractors, holding their feet to the fire by linking profit to results instead of awarding cost-reimbursement contracts. The intuitive appeal and agency "success stories" have been enough to persuade policymakers and Congress to push agencies to use incentives, even going so far at one point as to require their use in association with performance-based service contracting. FAC 97-1, 62 FR 44813 added coverage about service contracts that effectively mandated the use of incentives. Until 2005, FAR 37.602-4 said:

Contract types most likely to motivate contractors to perform at optimal levels shall be chosen (see subpart 16.1 and, for research and development contracts, see 35.006). 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. Fixed-price contracts are generally appropriate for services that can be defined objectively and for which the risk of performance is manageable (see subpart 16.1).

That rule, pressure from on high, and touting by various "experts" pushed a lot of agencies into using incentives despite a lack of know-how. Inspectors general began to report poor practices. The comments of the Department of Energy Inspector General in its report, Use Of Performance-Based Incentives At Selected Departmental Sites, DOE/IG-0510, July 2001, are typical:

The Department did not utilize performance-based incentives in a manner that would consistently result in improved contractor performance. Twelve of nineteen performance-based incentives selected for review at the Savannah River Site and the Kansas City and Oak Ridge Y-12 Plants were not clearly designed to facilitate such improvement. Some performance incentive fees were increased without a corresponding increase in performance expectations. In other cases, the "challenge" to the contractor in the form of the performance standard was lowered while the monetary incentive remained unchanged. In all cases, these actions were taken without satisfactory explanation. Further, some incentives were established after the expected outcome had been achieved.

See also NASA IG report IG-00-043, Consolidated Space Operations Contract -- Cost-Benefit Analysis and Award Fee Structure, September 2000:

[W]e found that NASA did not properly structure the award fee for the CSOC [Consolidated Space Operations Contract] to evaluate performance of the Integrated Operations Architecture (IOA). The CSOC Award Fee Plan lacks defined criteria for measuring performance, appropriate evaluation periods, and proper emphasis on cost performance. Without these provisions, NASA cannot measure contractor performance to assess the appropriate amount of award fee and provide an effective incentive for the contractor.

We can trace the origins of the new policy in FAC 2005-37 directly to the GAO's December 2005 report, DOD Has Paid Billions in Award and Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66, which severely criticized DOD's use of award-fee and formula-type incentive contracts. Most readers focused on GAO's criticism of DOD's use of award-fee incentives, but the report addressed all incentives and included this rather startling assessment:

DOD's use of monetary incentives is based on the assumption that such incentives can improve contractor performance and acquisition outcomes; however, past studies have challenged the validity of this assumption. Research on incentive fees going back to the 1960s has concluded these incentive fees are not effective in controlling cost. Studies conducted by GAO, Harvard University, and the RAND Corporation, among others, have concluded that these incentives do not motivate cost efficiency, in part because profit is not the contractor's only motivation. Other considerations, such as securing future contracts with the government, can be stronger motivators than earning additional profit. More recently, research on award fees revealed that while these fees are an intuitively appealing way to improve contractor performance, they do not always operate that way in practice. Contractor respondents in one study stated that award fees motivate performance to some extent; however, the consensus was that they do not in and of themselves increase performance significantly.

That assessment didn't come as a surprise to anyone familiar with the serious literature on incentive contracts, but most contracting practitioners do not know that literature. What they know is what I call the popular literature, especially articles that have appeared in Contract Management magazine by any of the amateur experts that have sprung up from time to time to tout incentives on the basis of who-knows-what evidence. They passed on "success stories" published by various people who had awarded an incentive contract and who were determined to declare their effort a success even before the data were in.

(The classic "success story," told dozens of times, is about the Army's use of performance incentives in the 1908 contract with the Wright Brothers for the first military aircraft. But that contract was an incentive in form only, not in fact. As is typical of the tellers of "success stories," the people who told this one didn't check their facts. The Wrights were not motivated by the money and the incentive had no effect on their design. According to one of the Army officers who participated in the flight acceptance tests, Lt. (later Brigadier General) Frank Lahm, USA, the Wrights declined the opportunity to maximize their profit under the incentive. See Chandler and Lahm, How Our Army Grew Wings (ARNO Press 1979), p 159, and my 2002 article, The True Story of the Wright Brothers Contract: It's Not What You Think, which is available on the Wifcon Reading page.

Regardless of whether they are motivationally effective, formula incentives on cost can have practical utility if designed and managed properly. They provide alternatives to the extremes of firm-fixed-price and cost-plus-fixed-fee by establishing a sliding payment scale based on cost. Instead of fixing a price or a single fee for performance, the parties agree in advance on what the government will pay the contractor at any given cost outcome within a range. Such a scheme can be equitable if the parties share a common understanding of the costs of performance and negotiate a fair and reasonable pricing formula. But in order for a cost incentive to be effective in that way the parties must engage in detailed discussions, share information, and then establish a pricing formula that reflects the nature and sources of cost uncertainty. This simply is not possible in competitive procurements under FAR Part 15 given the way that agencies usually conduct them. Moreover, such discussions require a lot of knowledge and skill. Whether such an arrangement will motivate the contractor to reduce costs is another matter. Contractors are motivated by many things.

I think that award-fee incentives, if properly designed and managed, can improve communications between the government and its contractors, which might improve the chances of success when requirements cannot be fully defined at the time of contract award or when they are defined but it is not clear whether they can be produced. But the use of award-fee incentive is as much an art as anything, despite the current calls to make them less subjective. The key to success is a sophisticated fee determining official with intimate knowledge of the work under contract, the facts of performance, and the contractor, and with excellent judgment and first rate communication skills. I don't think those qualities are easy to come by.

So what now? Do we abandon incentives? Before we do that, we should think things through.

First, incentive arrangements are much more complex than most practitioners realize. The easiest way to confirm this is to read the 1969 DOD/NASA Incentive Contracting Guide. Although out of print, it has never been surpassed as a textbook on the use of the predetermined, formula-type incentive arrangements. The current coverage in the DOD Contract Pricing Reference Guides, Volume 4, Chapter 1, is superficial by comparison. Anyone who reads the DOD/NASA guide will be impressed by the complexity of incentives. Incentives are so complex that they should be used only by the most knowledgeable and skilled practitioners.

Second, there has never been a fully worked out theory or set of principles for award-fee incentives, and agency-published guidance focuses on organizational and procedural questions. No one has ever bothered to think things through. Indeed, there has been very little up-to-date thinking about award-fee incentives. The DOD/NASA guide discusses award-fee only briefly and the discussion is half-baked. Consider, too, that the sample award-fee criteria in the DOD Procedures, Guidance, and Instruction (PGI) at 216.405-2 (DFARS Table 16-1) have not been substantively changed for more than 30 years. That table reflects the ongoing confusion over the subjective versus objective and process versus results theories of award-fee.

Third, use of incentives makes contract management much more complex, especially when a contract is subject to changes during performance that will require equitable or other adjustments to price or cost and fee. A contracting officer must have considerable knowledge and skill in order to preserve incentive effectiveness in the face of significant or numerous pricing adjustments. It is not work for amateurs or even ordinary journeymen.

Fourth, official training about incentives is superficial, at best.

Fifth, even if incentives can "work" to motivate contractors, poor design and unskillful management makes it unlikely that they will.

In an article I wrote for The Nash & Cibinic Report in 2005, "Award Fee Incentives: Do They Work? Do Agencies Know How To Use Them?," 20 N&CR ? 26, I recommended that the FAR councils require HCA approval for the use of an award-fee incentive. The councils have gone me one better⎯they require HCA approval for the use of any incentive. It remains to be seen whether that limitation will be retained in the final rule. I hope so. We have been entirely too enamored of incentives, and reduced use will greatly simplify contract formation and management. HCAs should approve the use of incentives only after they have satisfied themselves that the people who want to use them know what they are doing. If they do, we'll see fewer incentives.

The FAR Council (the Administrator of Federal Procurement Policy, Secretary of Defense, Administrator of GSA, and Administrator of NASA) should now ask themselves a couple of questions. Do incentives work? Are they worth the trouble? If the answer to either of those questions is no, then perhaps the coverage in FAR 16.4 should be removed or drastically abridged. If both answers are yes or maybe, and the FAR Council doesn't want to eliminate the coverage on incentives, then the FAR Council should take the opportunity to (1) think through the concept of the award-fee incentive and (2) provide the incoming generation of contracting personnel first-rate training in the use of all types of incentives. The latter can be done by developing a rigorous DAU course devoted entirely to the topic. In developing such a course, DAU should look to the DOD/NASA Incentive Contracting Guide as a knowledge baseline and a foundation for a new textbook. On-the-job training in incentive contracting is no good, because the generation that is now headed for retirement does not understand incentives well-enough to train anyone in their design or use.

Have we seen the end of incentives? No. A better question is whether we have seen the beginning of a new era in the use of incentives.

Vern Edwards

On April 24, the Under Secretary of Defense for Acquisition, Technology and Logistics issued a memorandum about implementation of the “Better Buying Power” initiative, phase 2.0. You can find it at:

http://bbp.dau.mil/

Sigh, another acquisition improvement memo.

But, reading the thing, I came upon this interesting paragraph:

Think. The first responsibility of the acquisition workforce is to think. We need to be true professionals who apply our education, training, and experience through analysis and creative, informed thought to address our daily decisions. Our workforce should be encouraged by leaders to think and not to automatically default to a perceived school solution just because it is expected to be approved more easily. BBP 2.0, like BBP 1.0, is not rigid dogma ¾ it is guidance subject to professional judgment.

“Think”! Now that’s something you don’t often see in an official memo. You’re much more likely to see something like, Just do it. Why did the Under Secretary write that? Does he believe that people haven’t been thinking, or was “Think” just a rhetorical exhortation? Let’s give him the benefit of the doubt and assume that he really isn’t happy with the present state of acquisition thinking. He shouldn’t be.

What Is Thinking?

What does “Think” mean? Let’s think about this. “Think.” What is thinking, exactly? It’s a mental activity, we all know that. Is it something that must be accomplished, or is it a method of accomplishing something? Is it a function — a set of tasks directed towards a general purpose, like maintenance, or is it a specific task? Is it a method? If so, is it a specific method or is there more than one way to think? If there is more than one method, how many more, and in what ways do they differ? Is thinking the same as reasoning? Can one think without reasoning, or reason without thinking? Is there unreasoning thinking, or unthinking reasoning?

As I pondered thinking I recalled a book that might help and rummaged around in my library until I found it: What Is Called Thinking? (English trans., 1968) by Martin Heidegger. I shuddered as I recalled the college course (oh, so long ago) in which it was assigned reading. I frankly don’t remember much about the book, and my old underlining didn’t help. But the very first two paragraphs were a bad omen:

We come to know what it means to think when we ourselves try to think. If the attempt is to be successful, we must be ready to learn thinking.

As soon as we allow ourselves to become involved in such learning, we have admitted that we are not yet capable of thinking.

That book is sitting on my nightstand now, like the raven on Poe's bust of Athena. It’s time to pull out a dictionary.

One of the definitions for think in the American Heritage Dictionary of the English Language, 5th ed., is as follows:

To reason about or reflect on; ponder… To decide by reasoning, reflection, or pondering….

A Dictionary of Philosophy, Rev. 2d ed. (1979), by Anthony Flew, provides something a little more expansive on pp. 352 - 353:

The mental activity of (a) theoretical [i.e., explanatory, speculative] contemplation directed toward some object with a view to reaching a propositional conclusion; or ( b ) practical deliberation directed toward some objet with a view to reaching a decision to act.

I found a longer entry about thinking in Volume 8 of The Encyclopedia of Philosophy, Reprint Edition (1972), pp. 100 – 103, which contains the following:

Thinking is an essentially human activity occurring in two basic forms. We may think in order to attain knowledge of what is, must, or may be the case; we may also think with a view to making up our mind about what we will or will not do. Following Aristotle, these two forms of thought may be called, respectively, contemplation and deliberation. Both forms may be carried on well or badly, successfully or unsuccessfully, intelligently or stupidly.

Despite their obvious shortcomings, I like those last two explanations, because I can relate them to things that contracting personnel do at work. For instance thinking about what evaluation factors to use in a source selection is deliberation. Thinking about what kind of thing an evaluation factor is and what kinds of evaluation factors there are is contemplation. Deliberation is practical. Contemplation is theoretical. You deliberate in order to decide what to do. You contemplate in order to understand and develop ideas.

So, what is thinking? (The definitions that I quoted are from lexicographers and philosophers. A psychologist might answer differently. See Thinking, Fast and Slow (2011), by Daniel Kahneman.) I believe thinking is a debate with yourself — a purposeful process of asking yourself questions about something and then trying to answer them. You ask, you answer, you challenge, you respond, and you decide, just you and yourself, in foro interno. For example: What is an evaluation factor? Answering entails definition, induction, analysis, classification, deduction, and argument. Each of those operations should be performed according to exacting standards of rigorous thought. You will get a different answer from other people. It is something to think about. But right now I like the contemplation/deliberation distinction and will run with it.

Contemplation and Deliberation

It seems to me that in order to deliberate well, you must contemplate first. You cannot deliberate well about what contract type to use until you first contemplate the concept of contract types until you understand what they are and how they are supposed to work. In order to do that you must read more than the summary descriptions in FAR Part 16 or in a set of PowerPoint slides. You must read the standard contract clauses peculiar to each type and think about how the clauses work together and with what results. You must then figure out how each contract type differs from the others. You must also contemplate contract type theory, which holds that the right distribution of cost risk “will provide the contractor the greatest incentive for efficient and economical performance.” Is that true? In order to contemplate contract type theory, you have to contemplate risk: What is it? What causes it? Can you measure it? If so, how? And on, and on. It’s never done.

In order to deliberate well a professional must have a head full of well developed professional ideas gained through contemplation, as many as possible. You will need them in your deliberations. Much deliberating is done in cooperation with others, and you can better communicate and be understood when your ideas are well-developed and deep, so that you can explain them clearly and answer questions.

Where do you get such ideas? You get them by going to school, reading, talking things over with colleagues, and, especially important, by going into a quiet corner and asking yourself questions and developing answers about the things that you have been taught, that you have read, that you have heard, and that you have worked out for yourself. It takes quite a lot of effort, and it takes a long time, a professional lifetime. It’s never done.

Understand Simple Things Deeply

According to The 5 Elements of Effective Thinking (2012) by Edward B. Burger and Michael Starbird, the first key to effective thinking is to master the fundamentals by understanding simple things deeply. “The most fundamental ideas in any subject can be understood with ever-increasing depth.” If asked to explain cost, as used in cost estimate, cost analysis, and should cost, what would you say? If asked to define cost on the spot, could you do it? A cost estimate is an estimate of what, exactly? How much and how good of an explanation could you give to someone who doesn’t know anything about it? How deeply could you go into that concept? Could you anticipate the inevitable questions? Could you answer them?

If you are a contract specialist, how much do you know about the concept of contract? Can you go beyond “an agreement that the courts will enforce” or offer, acceptance, mutual assent, consideration, competent parties, legal purpose, etc., or the definition in FAR 2.101? How long can you talk about What is a contract? Five minutes? Fifteen minutes? An hour? Longer? How much do you know about, and how deeply do you understand, the thing in which you specialize?

In his memo, the Under Secretary alludes to the importance of contemplation:

People. Thinking does not do much good if we do not have the professional preparation to think well. Policies and processes are of little use without acquisition professionals who are experienced, trained and empowered to apply them effectively. At the end of the day, qualified people are essential to successful outcomes and professionalism, particularly in acquisition leaders, drives results more than any policy change.

Contemplation is professional preparation for deliberation. Deliberation is the practical application of professional ideas to professional problems. You cannot deliberate well if you have not first contemplated well, and in order to contemplate well you have to put in a lot of work. And it’s never done.

The Perils of Deliberation without Prior Contemplation

What happens when you deliberate before you contemplate? Consider: The Department of Defense IG recently issued a report that is critical of the way DOD contracting personnel awarded and administered performance based payments (PBP). See DOD Inspector General Report No. DODIG-2013-063, Award and Administration of Performance Based Payments in DOD Contracts, April 8, 2013, and FAR Subpart 32.10, Performance Based Payments.

According to the DODIG:

DoD contracting personnel did not properly evaluate and negotiate PBP schedules. Specifically, for the 60 PBP schedules reviewed, they did not:

· establish appropriate events for 1,807 out of 2,356 events on 57 approved PBP schedules.
This occurred because DoD guidance was inadequate and DoD contracting personnel needed specific PBP training.
Therefore, DoD contracting personnel either misunderstood or were not aware of the FAR requirements for defining the performance events that allowed payment to the contractor. In the absence of thorough DoD policy and adequate training, contracting personnel did not scrutinize the contracts but accepted contractor-provided PBP schedules.

Italics added.

In order to award performance based payments (instead of progress payments based on costs), contracting officers must identify and select performance events (aka, milestones) and then pay contractors based on the predetermined value of the occurrence of the event. See FAR 32.1004(a)(1). FAR doesn’t explain the concept of an event, but says that contracting officers may not use as events such occurrences as (1) the signing of contracts or modifications, (2) the exercise of options, and (3) the mere passage of time.

Maybe what the DODIG found happened because the contracting personnel deliberated about what events to use before they had contemplated the concept of an event. Perhaps they did not ask and answer some basic questions:

· What is an
event
?

· What is a performance event in the context of performance-based payments?

· Are there different kinds of events and, if so, how many kinds are there, and what are the differences?

· Of the various kinds of events, which are appropriate to use as bases for performance based payments?

Perhaps they should have contemplated those matters and identified the attributes common to (1) the signing of contracts or modifications, (2) the exercise of options, and (3) the passage of time that make those events unsuitable. Then, when deliberating about what events to use, they could have made sure not to choose any that had those attributes.

Now consider this: Suppose that a source selection team must decide what evaluation factors to use. See FAR 15.304. The team sets to thinking about their choices, and decides to look at old RFPs for examples. They then choose certain ones and cut and paste. They don’t stop to ask themselves:

· What is evaluation?

· What is an evaluation factor?

· Are there different kinds of evaluation factors?

· If so, how do they differ from one another, and what is the significance of each of those differences to the tasks of proposal preparation and proposal evaluation?

If the agency’s acquisition personnel don’t devote some time to contemplating those things, if they cut and paste from old RFPs, they may end up making bad choices and being unsuccessful or less efficient and economical than they could have been in identifying the firm that offers best value. See Vernon J. Edwards, “Streamlining Source Selection by Improving the Quality of Evaluation Factors,” The Nash and Cibinic Report, October 1994.

Is Anyone Thinking?

How good are acquisition personnel at thinking? Do they contemplate before they deliberate, and do they contemplate and deliberate well? Are they professionally prepared to do those things, as the Under Secretary says that they must be in order for their thinking to be of any use and to have a good outcome?

Based on extensive personal experience in the classroom, I believe that acquisition personnel could do much better at professional level thinking. They are not alone in that. It is often asserted that today’s undergraduate education does not prepare students to think well. The private sector has long recognized this problem. See “Executives to new grads: Shape up!” by Anne Fisher, accessible on line at CNNMoney:

http://management.fo...grads-shape-up/

In all, a 65% majority of business leaders say young people applying for jobs at their companies right out of college are only "somewhat" prepared for success in business, with 40% of C-suite executives saying they are "not prepared at all." Not only that, but even those who get hired anyway may not rise very far. Almost half (47%) of C-suite executives believe that fewer than one-quarter (21%) of new grads have the skills they'll need to advance past entry-level jobs.

And what skills might those be? The most sought-after are problem-solving (49% ranked it No. 1), collaboration (43%), and critical thinking (36%). Also in demand is the ability to communicate clearly and persuasively in writing (31%). Technology and social media skills came in at rock bottom on the list, valued highly by only a tiny 5% minority of senior managers. The kicker: According to the poll, new grads fall far short of the mark in every one of these areas -- except tech savvy, the least desired.

See also “What are most students learning in college? Not enough, study says,” by Sara Rimer in The Hechinger Report, January 18, 2011:

http://hechingerrepo...udy-says_4979/.

Many public and private universities and some institutions of professional military education offer courses about thinking. Harvard even has a course called “Thinking about Thinking.” The National Defense University, in conjunction with the Defense Acquisition University, offers a two part, two semester course entitled, Critical Thinking and Decision Making in Defense Acquisition, ICAF 6152-1 and 6153-1, but it is available only to those who already have a Level III certification and who are enrolled in the Senior Acquisition Course. If thinking is so important in acquisition, why isn’t there a course more widely available for those in earlier phases of their professional development? Why wait until someone is a decision maker to offer them such training? Many mature students have complained to me that they didn’t get the right kinds of training early enough in their careers. Why is that so?

Assuming that acquisition personnel know what thinking is and are able to do it well, do they have enough time to think, given their professional workload and their reporting, data entry, and other clerical duties? Do they have enough administrative and clerical support?

The workload has been crushing over the last decade, and the rules keep getting more and more complex. In October 1995, the rule in FAR 16.505( b ) governing the multiple award task order contract “fair opportunity” process was 565 words long. By May 2012 the rule had grown to 2,203 words. There was a similar development in the rule in FAR Subpart 8.4 governing the placement of orders against GSA Federal Supply Schedule contracts. That kind of development means more work to process a contract action. Also, the issuance of new reporting requirements has become practically routine. Administrative and clerical support is virtually nonexistent, yet, every year, Congress and senior officials in the Executive Branch pile more reporting and data entry tasks onto the shoulders of contracting personnel. I believe that I know what a random sample of GS-1102s would say if asked whether they have enough time to think deeply about anything at work.

Think! Really?

Thinking, however, can produce troublesome thoughts, and I wonder if the Under Secretary realizes what he has asked for and, if so, whether he means it. What if people begin to think and their thinking leads them to question fundamental tenets of acquisition dogma? For example, what if contemplation leads them to question the efficacy of proposal-based competition for development contracts? What if they argue that such competitions encourage the submission of inflated promises and foster unrealistic expectations? What if they begin to question the utility of contract incentives and to argue that they cost more to plan and administer than they yield in terms of reductions in cost and improvements in performance?

Will such thinkers be welcomed and their thoughts given serious consideration? Or will they face professional “excommunication” and see their thoughts rejected out of hand? How open will the higher ups be to their ideas? Will they encourage and support such thoughts?

Consider the DOD Source Selection Procedures issued under the previous Under Secretary on March 4, 2011:

http://www.acq.osd.m...183-10-DPAP.pdf

These procedures are effective July 1, 2011, and are mandatory for all competitive acquisitions using FAR Part 15 procedures. All requests for proposals (RFPs) issued after July 1. 2011, are subject to these procedures.

Italics added. “All” -- no exceptions. Waivers require the “express permission” of the Director of Defense Procurement. In short: Don’t think. We’ve already done the thinking. Just do what we say. Use the standardized rating tables, whether they make sense in your case or not, whether or not you think there is a better scheme. That’s ironic in light the Under Secretary’s memo: “Our workforce should be encouraged by leaders to think and not to automatically default to a perceived school solution just because it is expected to be approved more easily.”

Yet, we need thinkers in acquisition, and good ones. I recently read the following in “Education for Critical Thinking,” by Col. Thomas M. Williams, in Military Review, January-February 2013, pp. 49- 54:

[W]ar is about identifying and solving ill-defined problems where experts can and do disagree on the range of solutions. In this operational environment, leaders have to prepare themselves to do more than apply doctrine and follow rules. Army doctrine — Mission Command — welcomes this possibility and gives us license to be unorthodox if the situation warrants. Army Doctrinal Reference Publication (ADRP) 6-0 states that it is “a guide for action rather than a set of fixed rules,” adding that effective leaders know when the doctrine or training experience and experience no longer apply, when they must adapt. This is not a legal indemnification; it is a call for honest critical thinking.

Substitute acquisition for “war” and “operational,” and I think his statement applies equally well to the work of acquisition professionals.

Acquisition is a squishy field. While there are acquisition laws, regulations, and dogma, to be sure, most of the big problems involve fuzzy logic, and experts can and do disagree about solutions. Critical thinking is an essential skill. So it makes sense that the Under Secretary demands that DOD acquisition professionals think, but it is ironic that his office has issued directives like the source selection memo.

I wonder whether the Under Secretary is serious about wanting acquisition personnel to think. If he is serious, I wonder what he is going to do about it. A memo isn’t an accomplishment. Is it? Well, is it?

Vern Edwards

What follows is the text of a speech I gave on January 13, 2011, at the Conference for Journeymen held by the Air Force Space Command, Space and Missile Systems Center, the organization with which I started my career in 1974, when it was the Space and Missile Systems Organization (SAMSO) of the Air Force Systems Command. Several people have suggested that I publish it, so I am posting it here.

Is Contracting An Intellectual Pursuit? Are Contracting Officers Intellectuals?

Thank you for inviting me to speak to a distinguished audience of my peers, the journeymen of the Space and Missile Systems Center. I consider it a great honor.

My topic today was inspired by a sentence in a memo written by a very senior government acquisition official. The memo encourages contracting officers to use fixed-price incentive contracts, and the sentence reads as follows:

?A 50/50 share line should represent a point where the estimate is deemed equally likely to be too low or too high.?

That sentence is very bad. It is a very serious error. It stunned me to read that sentence in a memo from such a high-ranking acquisition official. We have known since Euclid in 300 B.C. that a line is not a point. The slope of a share line says nothing about probabilities, only about the agreement to distribute cost risk. The offending sentence reflects either extreme carelessness or ignorance not only of geometry, but also of fixed-price incentive contracts. It would have made sense to say that the target cost should be set at the point at which the cost estimate is deemed equally likely to be too low or too high. That would have made sense, but it would have been a very silly thing to say. And I think now that that single sentence is a symbol of much of what is wrong with acquisition management.

I have entitled my talk ?Is Contracting An Intellectual Pursuit? Are Contracting Officers Intellectuals?? In retrospect, this seems pretentious, which I do not want to be in front of this audience. But I am serious about those two questions.

Before I go any further, I had better say what I mean by ?intellectual.? I define an intellectual as someone who not only thinks, but who thinks about what they think about, how they think about it, and why they think what they do. For example, when thinking about the acquisition of service, an intellectual will ask questions about what he or she is thinking about⎯questions like:

?What is a service??

?What are the differences between supplies and services??

?How does the nature of services affect how we buy them??

Such questions are not about any particular service acquisition, but about service acquisitions generally. They stand apart from, and rise above, daily concerns. I consider those kinds of questions to be intellectual questions. I consider the asking and answering of those kinds of questions to be an intellectual pursuit. And I call people intellectuals who regularly ask themselves such questions and try to answer them.

My answers to the two questions of the title of my talk are as follows: Is contracting an intellectual pursuit? It should be. Are contracting officers intellectuals? Some, yes. But all should be. I believe that as professionals, we should think about what we think, how we think about it, and why we think what we do.

Let me give an example that may make clearer what I am trying to say. When I came to work here in 1974, one of the things I was taught about was incentive contracts. I was told about the various kinds of incentives⎯cost, schedule, and performance, and about the various types⎯fixed-price with firm target, fixed-price with successive targets, cost-plus-incentive-fee, and cost-plus-award-fee. And I was told that we use incentives to motivate contractors to produce better contract outcomes and that they work. I accepted what I was told. Why wouldn?t I? After all, I knew nothing, and the information was coming from senior people whom I respected. I call this kind of information ?received truth?⎯something we accept without question.

But after a while, prompted by my experience that incentives make everything more complicated and difficult, I began to ask myself some questions. The most important ones were: How do we know that those things work? Why do we think they are worth the trouble? And I started to dig around in libraries, looking for answers. My research led to more questions, and in trying to answer them I found that reputable researchers at Harvard University, Rand Corporation, Logistics Management Institute, and the GAO, looking at actual contract data, could not confirm that incentives work. All they found were assertions and anecdotal reports. When they collected hard data and looked for correlations, they found none. Upon close inspection, I found that the assertions and anecdotal reports were not based on verifiable information, but on feelings, unjustified assumptions, invalid arguments, and unsupported beliefs. My thinking now is that as a contracting officer I would not use a formula type incentive unless directed to do so by higher powers, as you are being directed today.

As my career progressed, I continued to think about what we thought and found that many ideas were widely accepted despite not being fully explained or demonstrated to be true. Our business is replete with received truths ⎯ about the positive effects of competition on quality and price, about the general superiority of fixed-price contracts, about the net benefits of the Truth in Negotiations Act, and about performance-based services acquisition, to name but a few. These ?truths? go largely unquestioned. What do we mean by competition? What form or forms does it take? If there is more than one form of competition, what kind do we have in weapons development? How does it work⎯cause to effect? Is our method of obtaining competition designed to produce the kinds of results that we are looking for? If competition ?works,? how do you explain the A-12, the F-22, and the Marine Corps landing craft programs, all of which ended in failure although carried out under competitively awarded contracts? If competition ?works,? why is almost everyone unhappy with the conduct of competitively awarded major system programs?

Why are we continually reforming acquisition without apparent success? The latest DOD reform "initiative," and the one with which you will be occupied for the next couple of years, is but another in a very long line of such initiatives. A friend of mine recently suggested that retirement age should not be calculated in years of service, but in cycles of reform, that instead of being able to retire after 20 or 30 years, a person should be able to retire after three reform cycles. I think I?m on my fifth or sixth, I have lost count.

At a conference in Washington DC in early December, I was on a panel that discussed DOD?s new reform initiative, and I expressed the view that we cannot fix the things that people don?t like about acquisition through such initiatives. I mentioned some of the past attempts, like the famous Carlucci Initiatives of the early 1980s that perhaps few of you will remember. I said that we try the same old remedies that have not worked in the past either because we are insincere about reform or because we simply have not thought things through. I think there is a little of both at work. But I believe that the main problem is that instead of asking ourselves the kinds of questions that would lead to better thinking about our problems, and, perhaps, better solutions, we act on the basis of received truths, like the one that says incentives work. We never get to the heart of any matter.

Contracting is an important and a fascinating field, well worth intellectual effort. The very concept of contract is one worth study and contemplation. Most of us here can recite the elements of contract: offer, acceptance, consideration, legal purpose, and competent parties. But have we thought whether the dominant concept of contract in our acquisition world ⎯ sometimes referred to as ?sharp in by clear agreement, sharp out by clear performance? ⎯ is the only one possible and, if not the only one, whether our concept is best for the kinds of acquisitions we conduct today? Should we rethink contract and the way we form and administer contracts?

Yesterday you heard about one facet of the newest reform initiative ⎯ Should Cost studies. Should Cost has been around for a very long time. It is hard to do and requires know-how, lots of people, and a lot of time. Are they worth it? Can anyone identify a major program for which a Should Cost study was done that yielded a better outcome as a result? If you think you can, ask yourself how you know that what you believe is true and how you would prove it to me. (Some of you here know what that would be like.) I am not saying that Should Cost studies do not "work"; I am just asking how we know that they do. I want evidence before investing a lot of time and effort. If the person who advocates greater use of Should Cost knows what he is talking about, why, on November 3 of last year, did he call for the development of Should Cost estimates for all ACAT II and III programs by January 1 of this year, when everyone who knows anything knew that that could not be done. Did anyone say to him before he signed that memo ⎯ ?Boss, that order will make you look silly?? I would have said it, and some of you would have said it. A man or woman whose staff is afraid to tell them that they are about to make a foolish mistake is going to be a fool in short order. One who would resent such advice is already a fool.

I have read and thought and written a great deal about contracts and contracting over the course my career, and my current thinking about contracts is informed and inspired by a 1976 article that I literally stumbled upon ⎯ ?The Many Futures of Contract? by Ian R. Macneil, who died early last year. It is one of the most influential journal articles of the second half of the 20th Century and it has had a profound effect on my thinking about service contracting. I did not learn about it in any contracting class or magazine, but by rambling in law journals looking for something to help me understand the mania for performance-based contracting. I found it by thinking about services, about how we think about them, and about why we think what we think.

In my career as a working 1102 and as a teacher and writer, I have had two sources of professional satisfaction. First, the work of negotiating contracts. Second, the intellectual work of thinking about ideas that are important to our field.

The first source of satisfaction was the negotiating table. I loved negotiating ⎯ the excitement of the receipt of the proposal, the analysis, the thinking, the planning, bargaining to agreement, and documenting the file. I thought that each opportunity to write a price negotiation memorandum was my chance to show off. I loved the camaraderie of the negotiation team, and steak and eggs at Denny?s after a handshake. I tell you truly that I lived for it. Everything else in my work was waiting for the next negotiation, life suspended.

I found the second source of satisfaction in the Aerospace Corporation Library. That source could be pursued after work and early on weekends sitting alone in a quiet corner with a book or an article, a notepad, and my thoughts: What is an evaluation factor and what characteristics do all evaluation factors have in common? How do you define and describe them? How do you use them to evaluate proposals? What is a proposal? Are they the same as offers, as FAR says, or is there more to them? What are rating and scoring, and how do you do them?

Thinking led me to question, and questioning led me to challenge. Sometimes the challenges have been successful in changing minds. More often, they have not. But if more minds would think and challenge, we just might be able to be more effective in challenging received truths and solving some of the professional problems we have faced for so long. We might come up with new ideas that could make our professional lives and results better.

I have been in this business nigh on 40 years. Most of my friends who started out with me have long since retired. I stay because I love it and I still have hope that we can make it better. To do that, we must read and think and learn to ask questions of our leaders. We must challenge them and point out when their ideas make no sense. Most of the time, we will not win our challenges. But, eventually, we may get policymakers from the questioning generation, who will not be offended when a journeyman says ⎯ Prove it. And maybe then we will start making real progress. Contracting is a game that, when played at its highest level, is an intellectual pursuit. Contracting officers, playing at the top of their game, are intellectuals.

Thank you again for the honor of speaking to you.

Vern Edwards

Enough, already!

I’m going to show some self-restraint here and not say that I hate Congress.

This morning’s Government Executive email reported that some representative from Florida on the House Transportation and Infrastructure Committee "spoke out" about GSA bonuses and conference spending -- “GSA hammered on outrageous bonuses, conference spending.” His complaints were based on reports by some TV station.

Enough. It is true that the agency was mismanaged in some ways for many years and wasted money. We have every right to be mad about that. We’ve gotten the news and the point. However, GSA does important work for the government and does it reasonably well given the amount of work that it does (which is not to say that it cannot do better). It makes no sense to destroy the agency through continued relentless attacks. The government needs GSA. Continued grandstanding about bonuses and conferences serves no good purpose and is not in the government’s best interests.

A new GSA Administrator has been appointed and seems to be working hard to fix things. He should be allowed to do his work without having the agency plowed under by grandstanding politicians who are obviously enjoying their brief days in the sun. There are thousands of decent, hardworking people at GSA who did their jobs and had nothing to do with creating bonus programs and setting up conferences, and there is no reason to utterly destroy whatever morale they may have left by piling on. Many of them are just starting out in their careers and might be forever turned off. Surely, given the state of transportation and infrastructure in this country, the House Committee on Transportation and Infrastructure has more important things to do.

GSA is not the only agency that has mismanaged the public’s money. Nextgov reported today that the Defense Department “quietly” shut down the Joint Tactical Radio System Program Office in San Diego, which reportedly spent $15 billion over 15 years without producing a workable product. The program has been transferred to the Army. If that report is correct, DOD "wasted" an average of one billion dollars per year for 15 years before someone decided that enough was enough. Who has been fired for that fiasco?

I have never before written this kind of blogpost. I don’t see myself as a white knight defender of government agencies and employees and have often been severely critical of them myself. But this thing about GSA has gotten to be just too much.

Presidents should be more careful about the political appointments they make. Investigations should continue until all of the mismanagement has been brought to light. Mismanagement culprits should be identified and fired if they aren't already gone. Criminals should be prosecuted. Right. But stop trashing GSA. Believe me, they are sorry about what happened.

Sorry for the outburst. (Not really.) OK, I've burned the soapbox.

Vern Edwards

Here is an in-house training exercise for new acquisition personnel. The objectives are to: (a) give the participants a good overview of the acquisition process and (B) introduce them to the FAR and to the language of acquisition. These objectives are achieved by requiring the participants to actively engage with acquisition language and concepts.

OVERVIEW

The exercise entails directing the trainees to (1) read FAR Subpart 7.1, Acquisition Plans, (2) look up officially defined words and terms in FAR Part 2 and in an official glossary of acquisition terms, and (3) develop a list of questions for discussion. It then entails conducting a discussion/Q&A session.

The teacher must be a competent professional with a thorough understanding of the acquisition process and better than average knowledge of the FAR. He or she must conduct two meetings one week apart. These will take a total of five hours. The trainees' work will require between six and ten hours of private study time, the actual length depending on the abilities and diligence of the individual trainee.

Unlike the passive lecture-cum-PowerPoint-slides approach to training, this exercise requires the trainees to work and struggle at learning. Making them work and struggle will deepen their knowledge and improve their retention of the knowledge gained. There are few things more pointless and less enjoyable to bright people than a turn-off-your-brain-sit-in-your-chair-read-the-slides briefing-style "lecture," and nothing less likely to yield pleasure, learning, and retention.

Why FAR Subpart 7.1? Why not Subpart 8.4, Part 13, or Part 15? Wouldn't a reading of any of those parts be more practical? Not in light of the objectives, which are introductory in nature and not "how-to." Making newcomers plunge into parts of the FAR which are associated with so much controversy and disagreement would be to send them into the heart of darkness. FAR 7.1 is a better starting place. It covers the entire acquisition process, is not too long, and doesn't require an understanding of complex acquisition concepts.

The exercise can serve as a launching pad for further training exercises.

STEP 1. PRE-MEETING PREPARATION BY THE TEACHER

a. The teacher should download the Defense Acquisition University Glossary of Acquisition Acronyms and Terms, 12 ed. (July 2005) and print one for each trainee. (Use the DAU glossary even if you work for a civilian agency, because the Federal Acquisition Institute version apparently has not been updated since 1998, which makes it too old to be used today.)

b. The teacher should download the pdf version of the current FAR from www.acquisition.gov and print out FAR Part 2, Definitions of Words and Terms; FAR Subpart 7.1, Acquisition Plans; and the contract clause at FAR 52.202-1, Definitions (July 2004). Print a copy of each for each trainee.

c. The teacher should be (or become) thoroughly familiar with the reading materials and do the work the trainees will have to do before the first meeting with them.

STEP 2. THE FIRST MEETING

The teacher meets with the trainees on a Monday morning for two hours. There need be no limit to the number of trainees at this meeting. The trainees will need a highlighter, a ballpoint pen, and a notebook.

The teacher must:

a. Explain the exercise and its objectives.

b. Distribute the copies of FAR Part 2 and 52.202-1 and then lead the trainees through FAR Section 2.000 and the introductory paragraphs of 2.101. Then lead them through FAR 52.202-1 and explain its importance during contract formation and contract performance. Point out that definitions appear throughout the FAR, but that the only ones they must look up for the exercise are the ones in FAR Part 2 and the DAU glossary.

Emphasize the importance of knowing the language of acquisition, using some examples of words and terms defined in FAR Part 2, such as contract, cost or pricing data, day, executive agency, and United States to show them how even familiar words and terms can take on special meanings in the context of acquisition.

c. Instruct the trainees to go through FAR Part 2 and highlight every word or term that is defined (not the complete definitions), telling them not to take time to read the definitions and giving them 20 minutes to complete the task.

d. Distribute the copies of FAR Subpart 7.1 and instruct the trainees to read FAR sections 7.101 through 7.106⎯3,925 words, about five and one-half pages. Tell them not to bother with sections 7.107 and 7.108. Tell them to read briskly to get an overall sense of the contents, but not for understanding--more than a scan, but less than a careful read. Tell them that they have one hour.

e. After they have read FAR Subpart 7.1 through the first time, instruct them to go through it again and place a forward slash (/) at the end of every sentence. Do not tell them to do this until after they have read the material through the first time. Tell them that they have 30 minutes to complete that task.

Why make them do that? The participants must learn that they cannot read regulations, the FAR in particular, the way that they read newspapers, magazines, and novels. They must read in a state of heightened attention. Making them place a forward slash at the end of every sentence will force them to be consciously analytical and reveal to them that sentences in the FAR are sometimes quite long and complex. The act of placing the slashes will reveal the structure of the text, the slashes being more striking than the periods. The syntactic effect of periods is sometimes diminished in text that uses a lot of abstract words and terms. The slash helps them to focus on sentences as units of meaning, each with its own subject and predicate.

f. After they have read the material through the second time and placed slashes at the end of every sentence, tell them that they have a week to read the material through a third time for complete understanding. Tell them not to bother reading the parts of FAR that are referenced in Subpart 7.1. (Some of those references can be the basis for future exercises.)

g. Instruct them to (1) look up the definitions of abbreviations, acronyms, words, and terms in FAR Part 2 and the DAU glossary, (2) type a list of all words and terms that they looked up, and (3) type a list of any questions they have about what they read. Tell them that they must turn in their two lists on the following Monday morning. Instruct them to write their questions in complete sentences, properly punctuated. Tell them that you will evaluate them on the basis of the clarity of their questions.

STEP 3. ORGANIZE THE DISCUSSION GROUPS

If there are more than 10 trainees, then organize them into discussion groups of 10 or less. As a general rule, no discussion group should include more than 10 people. Notify the trainees of their group assignments.

STEP 4. RECEIVE, REVIEW, SORT, AND CONSOLIDATE THE LISTS

The trainees are to turn in their lists on the Monday morning after the first meeting. The teacher then must review, sort, and consolidate the lists of words and terms and the lists of questions into single lists for each discussion group. If there are too many questions for a three-hour meeting, select a reasonable number (about 10) of the best. Eliminate any incoherent questions. Make a copy of each of the two discussion group lists for each group member.

Don't reward people who write incoherent questions by spending time trying to figure their questions out. Don't baby trainees that way. Reject poor work. The trainees are presumably college-educated persons who ought to be able to read the material, do the research on definitions, think about what they have read, figure out what they understand and what they don't, and write intelligent and coherent questions. Don't accept any excuses based on "the material unfamiliar to me" or "I'm new." Of course it's unfamiliar to them. Of course they're new. The purpose of the exercise is for new people to begin to familiarize themselves with acquisition and the FAR. They must familiarize themselves, and that's not easy, but they are being paid to learn. Make them earn their paychecks by thinking hard and writing clearly. Do not molly-coddle trainees. Acquisition is a business for tough-minded people who spend other people's money. Demand first-rate work from day one. This is an important part of the training and of workforce conditioning and development.

You can learn a lot about the attentiveness, intellectual curiosity, diligence, reading and writing ability, and relative need for hand-holding of each of the trainees from their two lists and their participation at the second meeting. This is a chance to separate the thoughtfully clueless from the clueless-without-a-thought.

STEP 5. THE SECOND MEETING

On the Wednesday after the submissions of the lists, meet with the trainees in groups of 10 or less for three hours (no more than that) to discuss the definitions and questions. (Don't wait too long after the submissions to hold the second meeting. You want the trainees to have the materials freshly in mind.) Hand out the copies of the two consolidated lists for the group and use the list of questions as an agenda.

The purpose of this meeting is not for the teacher to answer the questions, but to get the trainees to think about and discuss them. Think of the meeting as more of an "exploration" session than a Q&A session. Also, remember that you are not teaching about acquisition plans or acquisition planning, per se, but using the FAR coverage of those topics to teach about the acquisition process and acquisition language in general. Don't turn the meeting into an acquisition planning how-to session.

Handle this meeting like a graduate school seminar meeting. The teacher should prepare thoroughly and not try to wing it. Have a discussion plan for each question; don't just ask for "thoughts," comments, or additional questions. The teacher should bring his or her own list of words or terms in FAR Subpart 7.1 that are defined in FAR Part 2 or in the DAU glossary, and also a list of words or terms that are defined elsewhere in the FAR, e.g., multi-year contracting.

The teacher should not act as though every question has a definitive answer. There are lots of "unsolved" mysteries in acquisition, such as the definition of subcontract and of subcontractor as used in FAR 52.215-12, which are problematical. The trainees must learn of the existence of such problems and learn to be prepared to cope with them.

Bring additional materials for further reading after the meeting. For example, the teacher could prepare a set of one-page elaborations or "fact-sheets," and bibliographies for selected topics, such as FAR 7.105(a)(1), statement of need; 7.105(a)(4), capability or performance; 7.105(a)(7), risks; 7.105(B)(2) competition; and 7.105(B)(5), budgeting and funding. Subpart 7.1 is an especially rich source of training topics.

It is crucially important when going over the questions to point out any officially defined words and terms that the students missed. Emphasize again that learning the language of acquisition is an important part of their early career development. Point out the numerous references throughout Subpart 7.1 to other parts of FAR and emphasize the scope and complexity of the acquisition process. Point out how much there is for them to learn and the importance of developing and maintaining their own personal learning plan.

It would be extremely beneficial for each trainee to bring a copy of the FAR to the meeting, so that the teacher can refer to it when discussing the questions. If the three-ring binder version is too unwieldy, then the small CCH or West editions will do, but since they are always out of date by the time they are published the teacher should use a three-ring binder version and alert the students to changes.

This exercise should not be too demanding for college graduates and will serve as a good kickoff to an acquisition education.

Vern Edwards

In a hearing held on November 14, 1973, before the Subcommittee on Priorities and Economy in Government of the Joint Economic Committee of Congress, the late, great Elmer Staats, Comptroller General of the United States and member of the special Commission on Government Procurement, told the late, great Senator William Proxmire of Wisconsin of his high hopes for the proposed Office of Federal Procurement Policy (OFPP) as a source of leadership in the formulation and execution of procurement policy:

We think that there is a literal nightmare of conflicting and confusing contracting regulations or statutes as to procedures, which can do nothing more than cost the Federal Government a great deal of money by virtue of not having a stronger point of leadership in the executive branch to deal with these problems… There is no disagreement anywhere on the need for stronger leadership… [W]ithout legislation the executive branch is not going to face up to this problem in a realistic way.

* * *

As you know, a three year effort was recently completed for the Commission [on Government Procurement], created by Congress, of which I was a member, devoted entirely to a study of Government Procurement. Through this effort, we found a widespread consensus at both the grass-roots and highest levels in Government and industry of the need for a focal point in the executive branch to exercise leadership in (1) formulating and coordinating basic procurement policies and (2) overseeing their implementation in a procurement process which now involves the expenditure of $50 billion annually. It was found also that a central point of leadership was needed to work with the Congress in modernizing and consolidating the present fragmented statutory base and to develop a more uniform regulatory system among the many Federal agencies with extensive procurement activities.

Well, the system now spends about $500 billion annually, and we have our titular leadership focal point, the Administrator for Federal Procurement Policy in the Office of Management and Budget in the Executive Office of the President. Unfortunately, with only few exceptions, that leadership position has been occupied by a series of resume-padding bench warmers with few if any qualifications for the job (other than, maybe, a law degree -- which is not the same as professional knowledge of procurement) or with little if any leadership vision or ambition. The latest of them has announced his departure and plans to go to work for a reverse auction contractor. He will not be missed. Few will even notice he is gone.

According to the December 2 issue of Time magazine:

The President has never surrounded himself with people who have deep experience in managing government.

OFPP is a case in point.

​The duties and authority of the Administrator for Federal Procurement Policy are set forth in 41 U.S.C. 1121 and 1122. According to 41 U.S.C. 1121(a) and ( b ):

(a) Overall Direction and Leadership. The Administrator shall provide overall direction of procurement policy and leadership in the development of procurement systems of the executive agencies.

( b ) Federal Acquisition Regulation. -- To the extent that the Administrator considers appropriate in carrying out the policies and functions set forth in this division, and with due regard for applicable laws and the program activities of the executive agencies, the Administrator may prescribe Government-wide procurement policies. The policies shall be implemented in a single Government-wide procurement regulation called the Federal Acquisition Regulation.

According to 41 U.S.C. 1122, the functions of the Administrator are as follows:

(a) In General.— The functions of the Administrator include—

(1) providing leadership and ensuring action by the executive agencies in establishing, developing, and maintaining the single system of simplified Government-wide procurement regulations and resolving differences among the executive agencies in developing simplified Government-wide procurement regulations, procedures, and forms;

(2) coordinating the development of Government-wide procurement system standards that executive agencies shall implement in their procurement systems;

(3) providing leadership and coordination in formulating the executive branch position on legislation relating to procurement;

(4)(A) providing for and directing the activities of the computer-based Federal Procurement Data System (including recommending to the Administrator of General Services a sufficient budget for those activities), which shall be located in the General Services Administration, in order to adequately collect, develop, and disseminate procurement data; and

( B ) ensuring executive agency compliance with the record requirements of section 1712 of this title;

(5) providing for and directing the activities of the Federal Acquisition Institute established under section 1201 of this title, including recommending to the Administrator of General Services a sufficient budget for such activities.

(6) administering section 1703 (a) to (i) of this title [management of the acquisition workforce];

(7) establishing criteria and procedures to ensure the effective and timely solicitation of the viewpoints of interested parties in the development of procurement policies, regulations, procedures, and forms;

(8) developing standard contract forms and contract language in order to reduce the Federal Government’s cost of procuring property and services and the private sector’s cost of doing business with the Federal Government;

(9) providing for a Government-wide award to recognize and promote vendor excellence;

(10) providing for a Government-wide award to recognize and promote excellence in officers and employees of the Federal Government serving in procurement-related positions;

(11) developing policies, in consultation with the Administrator of the Small Business Administration, that ensure that small businesses, qualified HUBZone small business concerns (as defined in section 3(p) of the Small Business Act (15 U.S.C. 632 (p))), small businesses owned and controlled by socially and economically disadvantaged individuals, and small businesses owned and controlled by women are provided with the maximum practicable opportunities to participate in procurements that are conducted for amounts below the simplified acquisition threshold;

(12) developing policies that will promote achievement of goals for participation by small businesses, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns (as defined in section 3(p) of the Small Business Act (15 U.S.C. 632 (p))), small businesses owned and controlled by socially and economically disadvantaged individuals, and small businesses owned and controlled by women; and

(13) completing action, as appropriate, on the recommendations of the Commission on Government Procurement.

We still need leadership, now more than ever, but we are not going to get it -- not from this president or the next one. No one seems to take OFPP seriously, and with good reason based on its history. Only one administrator in recent memory has shown any leadership, Steve Kelman, and he left during President Clinton’s second term. No one since him has made much of an impression. (How many of them can you name?) No administrator has used his or her authority under 41 U.S.C. 1201 and 1703 to improve the quality of training provided to acquisition personnel by the Federal Acquisition Institute and the Defense Acquisition University. The leadership we have gotten has consisted mainly in showing up at this or that function, saying a few things about how important procurement is and how great the workforce is, putting out a not very memorable memo or two that most people don't read, and then taking off for greener pastures after a decent interval. The standard decent interval is about two years. We didn’t even get a decent interval from this last guy.

Our statutes and regulations are a mess. Our processes are cumbersome and inefficient, and needlessly costly and time-consuming. The members of our workforce, though smart enough, have little knowledge of the complex rule system (read the posts in Wifcon Forum), lack top-notch practitioner skills, and are not as competent as they should and could be. Yet, despite a lot of talk, we do not have an even adequate regime of professional education and training, much less an excellent or "World Class" one. In short, acquisition is a mess. Witness the health care website fiasco.

We need an administrative powerhouse, a heroine or a hero, not just a good guy or a nice gal, but heroines and heroes are not easy to find. Even if we found one, I doubt that she or he would want the job. A capable person might consider the nomination an insult. It is unlikely that anyone but another helpless and useless resume padder would want it. There will be another resume padder. I guarantee it.

Somebody in the Senate, anybody, of either party, should think about next year’s $500 billion, and the billions to come in the years after that, and block the nomination.

Vern Edwards

I teach a class in which the students are given a scenario: They are told that the Government has awarded a firm-fixed-price contract for supplies and that the contracting officer changed the specification immediately after award. They are told about the contractor's original price proposal, the negotiated price, the change, and new price quotes. They are then asked to calculate the equitable adjustment, if any, that the contracting officer should make. Depending on a student's interpretation of the facts and understanding of the proper measure of an equitable adjustment, he or she might decide either that the Government is entitled to a price reduction or the contractor is entitled to a price increase. However, on many occasions students have said that there should be no equitable adjustment either way. This answer cannot be supported by any interpretation of the facts given or any understanding of the proper measure of an equitable adjustment. So, where does it come from?

Some students who answer $0.00 acknowledge that the cost of performance was affected by the change, but they cite the first sentence of FAR 16.202-1, the description of firm-fixed-price contracts, which reads as follows:

A firm-fixed-price contract provides for a price that is not subject to adjustment on the basis of the contractor's cost experience in performing the contract.

That sentence is terribly misleading. Several clauses in firm-fixed-price contracts provide for a price adjustment based on the contractor's cost experience upon the occurrence of a specified contingent event, such as the issuance of a change order. In every case, something must change in order for there to be entitlement to a price adjustment. In addition to the changes clauses, some of the clauses that provide for adjustments to firm-fixed prices based on the contractor's cost experience are:

FAR 52.211-18, Variation in Estimated Quantity (APR 1984);

FAR 52.227-21, Technical Data Declaration, Revision, and Withholding of Payment⎯Major Systems (DEC 2007);

FAR 52.233-3, Protest After Award (AUG 1996);

FAR 52.236-2, Differing Site Conditions (APR 1984);

FAR 52.236-11, Use and Possession Prior to Completion (APR 1984);

FAR 52.242-14, Suspension of Work (APR 1984);

FAR 52.242-17, Government Delay of Work (APR 1984); and

FAR 52.245-1, Government Property (JUN 2007).

There would be no problem if FAR 16.202-1 were to say: A firm-fixed-price contract provides for a price that is not subject to adjustment on the basis of the contractor's cost experience in performing the contract, except as otherwise provided by a contract clause. However, it does not say that, and newcomers to contracting (and some veterans) are misled by the FAR language.

The first time a student cited FAR 16.202-1 as the basis for a $0.00 answer, I was thrown off. It took me a few moments to understand where the student was coming from. Every time a student cites that FAR passage I cringe. It takes more than a few moments to explain things to literal-minded students, and I am sure that my explanations have left some unconvinced.

But it's not just students who get confused. Recently, while going through some old papers, I came across a copy of the September 2008 edition of Government Contract Costs, Pricing & Accounting Report, published by Thomson-West. Scanning it, I saw an article entitled, "Popular Concerns Regarding T&M and LH Contracts Are Overstated," by Darrell J. Oyer and Christyne K. Brennan. Reading the article, I came to this short paragraph:

Despite these current restrictions on T&M/LH contracts, procurement professionals, Congress and others contend that the use of T&M/LH contracts should be further restricted. These concerns, however, are misplaced. After all, a fixed unit price contract gives the Government the preferred contract type, i.e., a fixed-price, and a cost-reimbursable arrangement with no fee is equally favorable to the Government. Indeed, some contracts have contract line item numbers at fixed unit prices and other CLINs for cost reimbursable items. This is apparently acceptable to T&M/LH critics because the contract is not called a T&M/LH contract although the payment and reimbursement results are identical.

Emphasis added. I don't know how I missed that article a year ago, but I almost came unglued when I read it, because the payment and reimbursement results are absolutely not identical. It was then that I realized that some people do not understand that the main difference between fixed-price contracts and other types is not that the price of the one is fixed and the prices of the others are not. The price of a firm-fixed-price contract is neither firm nor fixed. The main difference between the fixed-price contracts and any of the others is that under a fixed-price contract the contractor must perform successfully in order to be entitled to payment or to keep any progress payments received, but successful performance is not a condition of payment under the cost-reimbursement and T&M/LH contracts. Thus, to equate a T&M or LH contract to a fixed unit price contract is to reveal a fundamental lack of understanding of the two types of contracts.

A few paragraphs later, I read this:

The publication of the final rule on commercial T&M/LH contracts emphasized Government concerns that T&M/LH contracts "pose the highest contract type risk to the Government." Apparently, the Government views T&M/LH contracts as more risky than cost-reimbursement contracts!

I presume that the exclamation point at the end of the second sentence signals the authors' astonishment at the government's ignorance. But a T&M/LH contract is riskier to the Government than a cost-reimbursement contract, because each hourly rate includes profit, so that the more hours delivered the more profit the contractor can make, while not being obligated to finish the work in order to get paid. That is a motive to be inefficient. A cost-reimbursement contract, on the other hand, while not providing a profit motive to be efficient, also provides no profit motive to be inefficient.

T&M/LH contracts have their uses, but to equate them with fixed unit price contracts and to think them no riskier than cost-reimbursement contracts is to reveal an astonishing level of misunderstanding.

It was my realization that so many do not understand the contract types that led me to write a two-part Briefing Paper on contract types: "Contract Pricing Arrangements⎯A Primer," published in October 2009 (cited 09-11 Briefing Papers 1) and November 2009 (cited 09-12 Briefing Papers 1). The first part describes the fixed-price, cost-reimbursement, time-and-materials, and labor-hour arrangements. The second part describes the incentive arrangements. The Briefing Papers are published by Thomson Reuters.

The publications are designed to be introductory in nature. They warn against relying on general descriptions in the FAR and elsewhere and emphasize the need to study the contract clauses applicable to each particular type in order to develop a true understanding of it and of the differences between it and any of the other types.

Writing those Briefing Papers confirmed in me the belief that contracting is a much deeper subject than most practitioners realize. The path to competence in contracting passes through a working life of never-ending study, observation, and reflection. Yet, how does one learn? There is a dearth of first-rate textbooks. Almost every topic is given only superficial treatment in this or that official handbook, guidebook, and magazine article. Deeper studies are published in law journals, but they are aimed primarily at legal practitioners. On-the-job training is awful and generally perpetuates many misperceptions, misconceptions, half-baked ideas, errors, and poor practices. Most classroom training falls far short of rigorous.

This is too bad, but there are two ways of looking at it: the first is from the point of view of those who need to have their hands held, who see it as a cause of frustration; the second is from the point of view of the curious, self-motivated, investigative, studious, reflective, and ambitious, who see it as an opportunity to gain a competitive edge over their "peers" and to be valued as knowledgeable pros.

Which way do you see it?