FFP Contract - Reduction in Price?

[baierle]

I need some thoughts and advice concerning the following:

FFP service contract. Contractor’s proposal included (and Government accepted as reasonable), a price for coast-to-coast travel for 3 people for 3 days to attend on site meeting at our Government facility.

Meeting concluded last week. Only one attendee from the firm was on location. We confirmed he stayed for two nights, three days. One person from the firm attended the meeting via WebEx.

Q: Do we have any rights to negotiate a reduction for the fact that we did not get the attendance they proposed?

-One argument is that we accepted the firm fixed price proposal. Too bad, so sad…. Be a better negotiator in the future.

-Another is, fixed price or not, we do not pay for what we did not receive.

I need some guidance to continue the fight or suck it up and learn.

EB

[Guest Vern Edwards]

It does not matter what was in the proposal. What matters is what is in the contract. Does it include a description of the meeting that says 3 persons 3 days? If so, then you are probably entitled to a price reduction. But if all you have is that the price was established on a certain basis, but you did not specify that basis in the contract, then I doubt that you have any contractual grounds for a price reduction.

Someone is almost certain to bring up fraud or defective pricing. Possble, I guess, but I doubt it.

[Heretalearn]

Without a certificate of cost and pricing data, and absent intent to decieve, I doubt fraud or defective pricing would come into it, although that doesn't preclude someone bringing it up. If the contractor had under-estimated a cost element a CO would still expect it to perform at the accepted price. Even given that, my company would voluntarily reduce the price by the cost of the undelivered performance if the CO asked us to.

[Cajuncharlie]

RTFC (Read The F-f-f-full Contract) for the points Vern noted; also check for FAR 52.246-4 and -20. Read both clauses together. They are tools that should by in your FFP services toolbox.

The -4 Inspection clause at (e) deals with defects in services that cannot be corrected by reperformance and allows the Government to reduce the contract price to reflect the reduced value of the services performed. The -20 Warranty clause requires notice to contractor that specifies whether to correct or reperform, or the Government does not require correction or reperformance. Also provides for equitable adjustment in contract price when correction or reperformance is not required.

Classic example of nonperformed service that cannot be corrected by reperformance is daily sweeping and mopping. Contractor can't make Government whole by doing it twice the next day. The only logical remedy for nonperformed work is not to pay for it.

Even if you don't have quite the firm foundation that Vern described, you could discuss this with the contractor, summarize what the clauses say, and see if the contractor is receptive to the idea of offering a price reduction. If not, and they want to play hardball, you know where you stand, and you can let the contractor know that two can play hardball.

[Heretalearn]

Whether the proposed travel was an element of performing the statement of work or a deliverable requirement in the contract, or merely an "other direct cost" could potentially enter the hardball equation.

[Voxx]

Just so I better understand, part of the contract dealt with travel for three vendors to a meeting. Was this travel a separate CLIN in the contract? And it just says something like $3000 for three vendors to attend meeting? So they did not have to provide receipts for payment? Like others have said, how was it worded?

Here we typically have a CLIN for travel with an amount of, say, $10,000. When travel was required, the vendor would have to provide receipts for receive payment for travel expenses. And the expenses would have to fall within certain government travel guidelines.

How much is at stake? Did the meeting accomplish what it was supposed to do? If the answers are 'not a lot of money' and 'yes it did' then I might be tempted to say "we did a FFP and the vendor found a better way get it done and so they get the extra money." After all the risk was on them to complete the meeting within the constraints of the funding.

If it was a lot of money and/or the meeting did not accomplish what it was supposed to do, then I would probably talk to the vendor about a price reduction. However since it was a FFP, he may not agree to a reduction. But you can always ask. A lot of vendors I deal with would have no problem in the reduction but I am sure there are others that would fight it.

After rereading your OP, I see that it appears that one vendor did not attend either in person or by web. (I thought it was just about the WebEx vs actual travel) In that case I would ask the vendor to reduce the price. At a minimum, I would probably ask for a reduction of price (of the travel cost) by 1/3 since one person did not attend (they did say 3 but only two attended and one of those was by WebEx). Again as long as it is documented in the contract that it was for travel for 3 people for 3 days.

[baierle]

Thank you to everyone. I understand everything you mentioned.

So, riddle me this: What is the purpose of incorporating the contractor's proposal into the contract if not for issues like this? An example would help me understand the difference.

It is true --it's not a separate CLIN and it is rolled into the FFP lump sum. And, it is true the SOW indicated company representation to the site conference and did not specify people. It is also true that a breakout of prices on the proposal that was incorporated into the contract indicates 3 people for 3 days with a price.

So, this issue is small potatoes; I won't beat a dead horse on this contract.

But, I would like to understand the purpose of incorporating contractor's proposal into the contract if it is not to capture all those things they promised to get the contract???

EB

[Guest Vern Edwards]

I don't think you mentioned that you had incorporated the contractor's proposal into the contract. If you did, I missed it.

First, of you incorporated the contractor's proposal into the contract you have a problem of contract interpretation. The text of the proposal must be interpreted in light of the the other contract text, and the order of precedence clause applies. So how did you integrate it? Did you weave the text into the text of the RFP to produce the text of the contract? Is the contract written in the Uniform Contract Format? It makes a difference. if so, into what section did you incorporate the part of the proposal that addresses the meeting? Or did you just incorporate it as an attachment? You cannot take the text of the proposal out of context of the other contract text. Are you sure that you incorporated the proposal into the contract? Or are you just assuming that it was incorporated into the contract without making specific provision for that?

Next, assuming that the proposal was, in fact, incorporated into the contract, just what did it say about the meeting? Did it say that the contractor promised to send 3 for 3 and so was obligated to do so? Or did it merely say that it developed the contract cost estimate based on that assumption without actually promising anything?

As a contract specialist you should be familiar with the canons of contract interpretation. See Cibinic, Nash, and Nagle, Administration of Government Contracts, 4th ed., Ch. 2., Contract Interpretation. Saying that you incorporated the proposal into the contract doesn't mean squat until you develop a textual analysis and interpretation of the contract as a whole.

Heretalearn said his company would agree to a reduction if asked to do so. I think that might be true of many larger companies that regularly do business with an agency. It's not worth getting into a hassle with a CO who doesn't know what the heck he or she is doing, but who might hold a grudge even if he or she is in the wrong.

[baierle]

Thank you, Vern.

The process is to incorporate contractor's proposal into Section J at award. The word "promise" was not there, but the travel breakout and other price info was in the proposal documents, along with all the other technical capability info, as required by RFP.

Although my specific issue is closed, I am still curious about how this "incorporation' practice is used by others in this field. To affect what purpose, outside of Interpretation and Order of precedence issues?

Q: Is it NOT within the Government's right/common business practice to try to enforce something offered in a proposal that is not necessarily addressed in the SOW?

I am not trying to beat a dead horse--Honestly....I just want some depth to the understanding of this issue.

[Guest Vern Edwards]

baierie:

An RFP is a "model contract" and a set of instructions about how to compete. The model contract includes a specification or statement of work and clauses. Generally, RFPs invite offerors to agree to perform in accordance with the terms of the model contract for a stipulated price, hourly labor rates, or estimated cost and fee.

Things get tricky when the government asks for a "technical", and/or "management", and "price" or "cost" proposal. The question is: What is the relationship between the proposal and the terms of the model contract? Does it supplement the terms, replace them, or merely serve as a kind of essay to show that the offeror understands the terms of the model contract? In many if not most cases COs and contract specialists do not think that through. The result is that the parties may not be clear in their own minds and may not share a meeting of the minds about the relationship is between the signed contract and the proposal documents submitted by the contractor when it competed for the job.

Consider the terms of the Order of Precedence clause that goes into negotiated contracts, FAR 52.215-8:

ORDER OF PRECEDENCE - UNIFORM CONTRACT FORMAT(OCT 1997)

Any inconsistency in this solicitation or contract shall be resolved by giving precedence in the following order:

(a) The Schedule (excluding the specifications).

( Representations and other instructions.

( c) Contract clauses.

(d) Other documents, exhibits, and attachments.

(e) The specifications.

Note that attachments to a contract take precedence over the contract specification in the event of a conflict.

In my experience, COs rarely read all parts of a proposal word for word to determine whether they are consistent with the terms of the model contract. Some COs incorporate the entire proposal into the contract without saying where it goes. Some make it an attachment and list it in Section J of the model contract, not realizing that if they do the proposal takes precedence over the terms of the specification or statement of work. Others make it an attachment and say that if there is a conflict between the proposal and the specification or statement of work the specification or statement of work takes precedence, which might cancel the benefits that they saw in the proposal. Rarely in my experience do COs reconcile the language in a proposal with the terms of the model contract in order to ensure that incorporation of the proposal does not create any ambiguities or conflicts.

The late Professor John Cibinic, Professor Nash, and I have written extensively about this problem, and it is very frustrating to me that so many COs are ignorant of it. They ask for technical, management, and cost proposals without ever thinking through how they are to fit with the terms of the model contract. They incorporate proposals into contracts without reconciling the language of the two. They think the word proposal is synonymous with offer, which is synonymous with promise, but in most cases that is not so. They do not look to see if a statement in a proposal is a promise or is merely a prediction or statement of policy.

Here is a quote from a November 2000 article by Professor Cibinic entitled, "Proposals and Promises: Vive La Difference":

The first thing the Government must do is make up its mind as to what it wants. This should be done, of course, before the solicitation is issued. If the Government desires true price-based contracting, it shouldn't ask for technical proposals that require the offerors to detail how they intend to achieve the end result. Where various approaches are possible and their cost and effectiveness are uncertain, offerors can only guess as to which approach will be used. In addition, requiring such technical proposals only encourages offerors to promise the moon. Describing performance in a technical proposal and performing the work in the way described are entirely different matters. The selection of a contractor in a price-based acquisition should be based on the competence of the offeror, not on its ability to draft a technical proposal.

If, on the other hand, the choice for award is to be made on the basis of the best “proposed” technical solution, then by all means that solution should be made a contract requirement. However, it should be recognized that such firm contract requirements coupled with overall performance requirements is the scenario that has caused such unhappiness in the past, resulting in default terminations, claims, and other contractual miseries. But, by all means, as Ralph says, “If elements of a technical proposal are made part of the resulting contract, they should be specifically identified in the final contract document and stated in clear promissory language.” Offerors' entire technical proposals should never be incorporated into contracts!

Bold added. Italics in original.

Here is a quote from a June 1999 article by Professor Nash entitled "Identifying What's In The Contract", about the notorious case of Omni Corp. v. U.S., 41 Fed. Cl. 585 (1998):

In its technical proposal, Omni stated that it would assign an equipment mechanic to each lock and dam. The cost of these mechanics was included in the contract price. In lieu of incorporating the technical proposal in the contract, the agency included the following provision in Section M (“Evalulation Factors for Award”) of the Request for Proposals:

y the submission of an offer pursuant to this solicitation, you, as the offeror, agree that the capability presented in your proposal which is in excess of the minimum capability requirements of this solicitation, as accepted by the Government, and upon award of a contract, thereby becomes an additional contract requirement for equivalent capability. Subsequently, a failure to provide such additional capability which results in deficient contract performance, can place the contract in jeopardy of default.

When the contractor performed the contract without having equipment mechanics on site for a substantial part of the time, the CO deducted the value of the mechanics from the price based on this provision, and the contractor sued to recover the amount withheld.

The U.S. Court of Federal Claims ruled for the contractor, concluding that the term “capability” did not cover staffing but was more logically read to cover levels of service. Furthermore, the court found no “minimum capability requirements” with regard to staffing levels and hence nothing in the proposal that reflected an offer to provide more than such minimums. The court also questioned whether the solicitation provision, as written, permitted a price reduction since its stated remedy was to “place the contract in jeopardy of default” in the event of “deficient contract performance.” Interestingly, the court did not raise the issue of whether a provision in Section M of the RFP was even part of the contract although Federal Acquisition Regulation 15.204-1( states that COs “shall not physically include [section M] in the resulting contract.”

This case is an excellent example of an agency that saw that some parts of the technical proposal might offer additional value above that required by the contract specifications. However, rather than take the time to identify that offer of additional value and explicitly make it part of the contract, the agency attempted to write a broad provision covering the matter. As we have said previously, this is bad practice which can be expected to lead to litigation. Saving a few dollars during the contract formation process is not worth much when it results in spending many dollars in litigation.

What you had in Omni was a CO who, like most, had little if any knowledge of contract law and the canons of contract interpretation and who lacked the know-how to ensure that the language of the contract clearly stated the rights and duties of the parties by reconciling the language of the proposal with the terms of the model contract. (If the contract was reviewed by a government contracts attorney the attorney was incompetent.)

This forum is not the place for me to try to provide a tutorial on this matter. I have posted too much already, but enough to give you the flavor of the complexity of these matters. Contracting is an exceedingly complex business. It takes many years of hard study to know it well and you will ever know it perfectly well. The government's problem today is a shortage of professionally competent COs who have a firm grasp of fundamental concepts of contract law and know how to write decent proposal preparation instructions and contracts. The training available to the COs we have is inadequate and the CO are generally not inclined to teach themselves through extensive reading on their own time. So it goes.

I don't know if any of what I have written is of any use to you, but I've done my best without writing a treatise. Ralph, John, and I together have produced a considerable literature about contracts and proposals, but the best short treatise about this was written by Prof. Nash in 1993, entitled, "The Status of Technical, Management, and Cost Proposals: Are They Part of the Contract?" If you have access to The Nash & Cibnic Report the citation is 7 N&CR para. 37. If you don't have access and want to read it, write to me through this website and I'll send it to you.

[Retreadfed]

Thank you, Vern.

The process is to incorporate contractor's proposal into Section J at award. The word "promise" was not there, but the travel breakout and other price info was in the proposal documents, along with all the other technical capability info, as required by RFP.

Although my specific issue is closed, I am still curious about how this "incorporation' practice is used by others in this field. To affect what purpose, outside of Interpretation and Order of precedence issues?

Q: Is it NOT within the Government's right/common business practice to try to enforce something offered in a proposal that is not necessarily addressed in the SOW?

I am not trying to beat a dead horse--Honestly....I just want some depth to the understanding of this issue.

This used to be a problem caused by the language of block 18 the SF 26, which incorporated the contractor's proposal into the contract. However, note that the May 2011 revision to the SF-26 now only incorporates a contractor's bid if sealed bidding is used. Now, if an agency wants to incorporate a proposal into a negotiated contract, it will have to be done as a conscious act on the part of the CO. Hopefully, they will hear of this thread and take to heart what Vern has written.

[baierle]

Vern--

thank you for this. This is very valuable information for me; you have given me a foundation to learn more. I agree--many of my colleagues also do not understand this completely.

Elizabeth

[Guest Vern Edwards]

For a hilarious example of what can happen to an unwitting CO who incorporates a contractor's proposal into a contract without first reconciling the language of the proposal with the language of the model contract, see F & F Laboratories, Inc., ASBCA No. 33007, 89-1 BCA para. 21,207. A key quote:

Here, appellant's attachment No. 1 was included in the contract and the Government did not inquire as to what it meant nor did it tell appellant that portions of it were unacceptable. Because it did not do what it should have done, the Government cannot now claim that attachment No. 1 is ambiguous or that it does not mean what appellant says it means.

Emphasis added.

Oh... did I mention that the government was buying candy bars... more than a million of them?

[Retreadfed]

For a hilarious example of what can happen to an unwitting CO who incorporates a contractor's proposal into a contract without first reconciling the language of the proposal with the language of the model contract, see F & F Laboratories, Inc., ASBCA No. 33007, 89-1 BCA para. 21,207. A key quote:

Emphasis added.

Oh... did I mention that the government was buying candy bars... more than a million of them?

With or without nuts?

While not hilarious, I had a situation where the gvenrment made an award using the 2002 version of SF- 26. On the version of the form sent to the contractor, the language incorporating the contractor's proposal was omitted. However, it was left in on the government's version. You can imagine the confusion that resulted. When this was discovered and pointed out to the government, the chief of contracting said "That doesn't matter. Our version is what counts and that is what you must comply with." This was after the contractor, a small business, had spent a couple million dollars working to its version on an FFP contract.

[Guest Vern Edwards]

Do you remember Chuckles candy? (Do they still make it?) Well, the candy bars were a custom-build Chuckles bar, made by the same company that made the real thing. They were to be used in Navy Abandon Ship Rations.