We have an A/E services IDIQ with the DoD that we initially entered in 2011 with a base year and four option years. Each of the option years included rate escalation. The IDIQ was fairly active and the ceiling was raised a couple of times. In 2016 (the last year of the IDIQ) we were awarded a major FFP TO order that is the subject of this question. Performance of this TO has been subject to delay after delay (changed client plans, re-scoping, etc).
Unfortunately, throughout all these delays we've been stuck with rates from 2016 that have not escalated. We are now on Mod 14. With each delay, the 2016 rates become increasingly problematic. The TO was finally slated to be complete this summer, but then COVID hit and the necessary travel to perform the services couldn't happen. There was talk that the entire TO would move to a new IDIQ with fresh rates and much more ceiling. However, we just learned this month that the DoD was going to raise the ceiling on the old IDIQ and also extend the TO POP to 2025. Our company has historically just determined to take extensions like these as "mixed blessings" in the name of client care, and try save money on execution. It looks like that's going to be the same approach to this one...but I have questions:
1. This TO: With each of these 14 mods, we've worked and re-worked the hours to fit the new scope. We are at the point where our actual rates are so different than the contract rates that using our current profit projection tools, it's almost impossible for us to know if we'll make a profit. So the pressure is to either:
a) Use our current rates x hours to figure out what we need to make a reasonable profit, and then reverse engineer the hours with the old rates to figure out what we need to submit for back up and negotiations. The client actually suggested we do this, but wouldn't this raise an issue with certified cost and pricing data if we are just pushing up the hours to make sure we don't go in the hole?
b) Add in lots of contingency, on the basis that we have a performance risk based on low rates. Maybe this is the way to go? Not sure how that would go over with the client)
c) Push much more senior positions onto the job (The client seems receptive to this, but I'm not sure if it's right. How can you argue that a senior engineer is required for literally every task?),
d) Push up profit. Correct me if I'm wrong, but I think the max is 12% under the Structured Approach. Is there a way to go higher?, OR
e) Mod the rates to bring them in line with current. I'm getting mixed signals from our PgM that the client won't to do this for some fiscal law reason. I'm not sure what that would be and I'm not sure he really understands either. He might just be reluctant to engage the client.
Any recommendations on what might be done with this current ancient TO. I've looked in the forums and haven't seen anything directly on point, so I'm probably missing something obvious.
2. Future TOs on new/other IDIQs: Any thoughts on negotiating escalation on multiple year TOs into the IDIQ?
In the past, we've apparently tried to argue that we should be able to use the current option year rates as a TO lingers on. We've been told 1) that the new option year rates can't be used until the option is exercised, and 2) even if the option is exercised, the rates in effect at the award of the TO govern. I agree with both of those statements.
But, our inability to figure out TO escalation seems to encourage a bit of strategy that seems unfair--e.g., in one instance, we had a client who literally awarded a TO in the last week of the option year just to slide under the old rates. Then, the very next week they awarded the exercised the option. I understand why the govt would do that. Certainly makes a contractor want to figure out a way to address that behavior--because now we are performing the entire TO on old rates and there is nothing we can do about it.
Any thoughts or examples of how such a clause might look?