Ceiling for T&M

[AllyM]

Our acquisition strategy is a T&M contract for services. D&F is signed! I know I want to set a ceiling for the life of the contract....my question is....do you set that in the solicitation, or after proposals are received? I have an independent government estimate; however, based on historical pricing I feel it may be high. If ceiling is set based on the government estimate, and set in the solicitation, this may skew proposals from the experts to not adequately price, but lean toward the government estimate. Thoughts? 

[C Culham]

My quick thought is the following quote by Vern Edwards in a previous Forum thread.  It is fresh on my mind as it seems that T&M is all of a sudden a hot button topic in Forum.  The follow-up thought is consider searching Forum on the subject of "Time and Materials" and what you find may help you answer your own questions.

"A T&M or L-H contract does not require the contractor to deliver a level of effort, i.e., a specified number of hours or some other unit of labor. It requires a contractor to perform a job. The ceiling price is not a level of effort that the contractor must deliver, but a limit on the government's obligation, which is necessary in order to avoid a violation of the Anti-deficiency Act. An increase in the ceiling price is ordinarily akin to funding an overrun on a cost-reimbursement contract. However, if the parties are increasing the ceiling price to cover the addition of work that is beyond scope, then they must comply with certain requirements, such as a sole-source justification and a D&F. The FAR case requires COs to perform an analysis when they increase the ceiling price in order to determine if the increase is the result of a change in scope. The FAR case makes perfect sense."

And then I have to say quite bluntly if you are really doing a time and materials contract your questions give me the sense that you are really not ready to commit to the  extensive effort of tracking the billable hours and materials that the contractor will be experiencing in completing the work.

[Vern Edwards]

On 6/4/2022 at 5:57 AM, AllyM said:

I know I want to set a ceiling for the life of the contract....my question is....do you set that in the solicitation, or after proposals are received? I have an independent government estimate; however, based on historical pricing I feel it may be high. If ceiling is set based on the government estimate, and set in the solicitation, this may skew proposals from the experts to not adequately price, but lean toward the government estimate. Thoughts? 

The ceiling price should reflect the contracting parties' agreement on a reasonable estimate of what it will cost the contractor to complete the job, plus a fair profit. See the first sentence of FAR 52.232-7, paragraph (d), Total cost.

[ji20874]

Ally,

Are you awarding a T&M contract for a job of some sort?  Or are you awarding a T&M contract as a bank of hours for jobs that will be determined later?

[AllyM]

T&M for professional services, with a SOW. 

[AllyM]

To Culham, I did look at the T&M forum, FAR, DFARS, DPC and others. I have not been able to find in any forum where it states when the Government is to set the ceiling. Is it prior to solicitation, or prior to award? Does it matter? The Government's ability to track the labor and materials, as it relates to this requirement, is not of concern. My concern is simply that the Government has initially set the estimate quite high--which will skew proposed pricing high. While the req owners are still working the numbers, I thought I would ask the question: Does the T&M ceiling HAVE TO BE articulated in the Solicitation? 

[Vern Edwards]

14 minutes ago, AllyM said:

T&M for professional services, with a SOW. 

Is the contract for the performance of one specific task, or is it for staff augmentation (a body shop) for some period of time, such as a year with options?

[Vern Edwards]

1 hour ago, AllyM said:

Does the T&M ceiling HAVE TO BE articulated in the Solicitation? 

No. In fact, it should not be. But I suspect that the contract is for staff augmentation, not for the performance of a specific job. In which case it should not be T&M.

[Guardian]

On 6/4/2022 at 8:57 AM, AllyM said:

Our acquisition strategy is a T&M contract for services.

Has the Government determined the services to be commercial or non-commercial?

[C Culham]

20 hours ago, AllyM said:

To Culham

 

20 hours ago, AllyM said:

prior to solicitation, or prior to award?

Vern Edwards has provided an answer that I agree with.  By example what sets the extent of government obligation in a FFP contract at award?   The price.  So applying the same concept to a T&M, once you have contractor rates and costs on the time and materials you would set a ceiling price.   I have handled this in my experiences by placing wording in the solicitation that a not exceed ceiling will be placed on the work at time of award based on rates for labor and anticipated actual costs of materials at award.

20 hours ago, AllyM said:

Does it matter?

At award absolutely as again it sets the government obligation.  It is a "depends".  Why?   I have seen it done both ways but again I subscribe to the approach Vern Edwards has suggested (at award).  You are questioning, as evidenced by your comments, due to a concern regarding that at solicitation it will lead the the contractor to offering higher than expected labor rates.   Competition, actual experience in the labor force, cost or price analysis all will be used to determine whether the labor rates offered are acceptable (fair and reasonable) so from my view, and my initial comments that expressed wonderment of sorts, I believe your concern is misplaced.  If you actually have a specific objective to be accomplished with the T&M contract then state it if you want the contractors to consider the possible scope of the work in offering rates and costs.  Examples I have used in the past - Intent of this contract is to remove this land slide on this road to have it open by X, intent of this contract is evaluate the extent of the environmental damage caused by the oil spill, etc.

 

20 hours ago, AllyM said:

My concern is simply that the Government has initially set the estimate quite high--which will skew proposed pricing high.

How does estimating the labor rate and anticipated materials skew the pricing to be high?  You are not releasing the estimate, right?   Your very question goes to a comment like that posed by Vern Edwards.   You have chosen T&M, which by its very nature requires that for you, and dare I say your program people, it is only to used as a contract type "when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence."   The conflict?  You can estimate a labor rate based on market research and guess at need materials but for T&M extent, duration and what is really needed in material can not be with confidence, right?  Yet, the basis for your concerns is that it seems you have confidence in the extent, duration and anticipate costs (labor rates) so quite directly if so then why T&M?

20 hours ago, AllyM said:

Does the T&M ceiling HAVE TO BE articulated in the Solicitation? 

I hope the entire thread has helped you answer this question and give you pause to consider type of contract and more importantly if T&M is what it will be you have a better understanding of use from solicitation, award, to administration to accomplish the objective of the contract.

[formerfed]

On 6/6/2022 at 6:34 PM, ji20874 said:

Ally,

Are you awarding a T&M contract for a job of some sort?  Or are you awarding a T&M contract as a bank of hours for jobs that will be determined later?

 

21 hours ago, AllyM said:

T&M for professional services, with a SOW. 

 

21 hours ago, AllyM said:

To Culham, I did look at the T&M forum, FAR, DFARS, DPC and others. I have not been able to find in any forum where it states when the Government is to set the ceiling. Is it prior to solicitation, or prior to award? Does it matter? The Government's ability to track the labor and materials, as it relates to this requirement, is not of concern. My concern is simply that the Government has initially set the estimate quite high--which will skew proposed pricing high. While the req owners are still working the numbers, I thought I would ask the question: Does the T&M ceiling HAVE TO BE articulated in the Solicitation? 

Ally,

Based on these responses what I would do is include a government estimate of the level of effort (labor categories and some estimate of hours) in the solicitation along with the SOW.  Advise offerors they may propose using the governments model or some other estimate they feel appropriate.  Require them to justify their proposed amounts.  Then establish the ceiling at time of award using the approach C Culham described.

[Vern Edwards]

What I think she's doing is preparing a solicitation for what should be considered a single-award IDIQ contract for staff augmentation. They are calling it T&M because the prices are just hourly billing rates. But I can't be sure from the information that she's provided, and her response to ji20874 did not answer his question.

[ji20874]

39 minutes ago, Vern Edwards said:

...her response to ji20874 did not answer his question...

I also felt the response did not answer the question.

[Guardian]

I can offer my best conjecture as an practitioner.  The overwhelming bulk of these IT professional services with accompanying requirements statements being done on a labor-hour (or time-and-material) basis are for staff augmentation ("butts [bodies] in seats").  The SOWs or PWSs (take your pick--they qualify as neither strictly speaking) are intentionally loosely-worded dribble, meant to give the requiring offices as much latitude as possible for future scope determinations, to allow for regular supplemental agreements W.S.  They are often structured as an amalgam of individual tasks, e.g., task 001, task 002, task 003, that may or may not have some broad interrelation.  The tasks do not have definable outcomes, such as build the 27-story building to local code.

Because agencies are structuring these labor-hour and T&M efforts as orders (off larger contracts and agreements) that are twelve month base periods with let's say four one-year options exercisable per the authority of the -9 clause (for what have been rightly determined severable services), they tend to establish individual ceilings for the base and each option.  Add further complication in that separate components tend to "pool" their individual buckets of money for each task; sometimes you might even have three or more funding accounting strings for a single task, e.g., task 001, "consulting services for ISS."  How then do you set ceilings even for individual years in spite of the FAR's requirement that a ceiling need only be set for the total contract, when the money is coming from an array of treasure chests within a given year or worse yet, a given CLIN/task?  Before everyone starts clamoring how wrong this is and how this should be done as an FFP contract type or not at all, understand that this is ubiquitous.  I know, your minds are overflowing with questions. But, please read my descriptive narrative a second time and substitute whatever facts suit your fancy.  Everything you need to know has been provided.  I am but the messenger here.  Having been at several major agencies as a CO with unlimited warrants, I can tell you that this is the "new new."  If I did not have thick skin, I would not have selected a career, in which I spend all day telling mature children why they can't do what they want and grading/marking up their work.  Related careers where the skills of a seasoned CO might come in handy include auditor, underwriter, code compliance and enforcement, and university lecturer and professor.  

[Vern Edwards]

@Guardian

I for one know what they've been doing by way of staff augmentation for years, since back to the late 1960s and '70s. Staff augmentation contracts have come up in Congressional hearings many times since then. You're right, it's not new. And, fundamentally, there is nothing wrong with it from a contracting point of view. (From an agency management point of view it's a different matter.) You can easily write an IDIQ contract for such services. I did that for a program office back in the '70s (and caught some minor league flak for it).

But we've been responding to a particular opening post. And calling a staff augmentation contract T&M just because it contains burdened hourly labor rates and lets the agency use people as it sees fit is simply not correct. You don't need a ceiling price and T&M clauses for such a contract. Thinking that you do indicates that you don't know how a T&M contract works.

[Guardian]

@Vern Edwards We have been imploring our business units to set up IDIQ contracts for these types of services.  LH and T&M contracts are addressed in part 12, 16 and 32 (the latter for non-commercial application ).  Beyond what may be found there, I have read a world of literature about contract types.  The information needed to do this job is not overly complicated.  The tough part is the people and the detective piece.  If there is something you feel I am missing, then by all means suggest some reading, but I highly doubt you will recommend anything that is going to be all that eye opening to me at this point.  I have been on this forum reading your posts, articles and explanations of T&M and LH contract types for over a decade.  I have read your books and those which you have co-authored with colleagues.  What is it you think I don't understand?  I admitted to you above that it was not the correct way to do a staff augmentation contract or many other actions for that matter.  The simple fact is that quite a few HCAs and those in management push ways of doing things and for those of us who are incessantly "curious" and read outside of work, we long ago stopped being aghast at how ignorant they are concerning matters of contract procedure.  Some of the best baseball managers either never played or failed to get out of triple-A.  Perhaps they are great managing teams and spreadsheets, knowing who to put in and when to accomplish winning seasons.  But they get out of their players' way and let them perform.

[Vern Edwards]

23 minutes ago, Guardian said:

What is it you think I don't understand?

I think you misread my last post. I don't think you misunderstand and are wrong about anything. I think that people who use T&M and L-H contracts for annual staff augmentation requirements are the ones who are wrong. I think you and I are in agreement.

T&M and L-H contracts are the worst of all contracts available to government agencies, and they should be used only in extremely  limited circumstances.

[C Culham]

5 hours ago, Guardian said:

how ignorant they are concerning matters of contract procedure. 

I think your case was made in the OP's first post...

On 6/4/2022 at 5:57 AM, AllyM said:

D&F is signed!

 

[formerfed]

16 hours ago, Vern Edwards said:

I think you misread my last post. I don't think you misunderstand and are wrong about anything. I think that people who use T&M and L-H contracts for annual staff augmentation requirements are the ones who are wrong. I think you and I are in agreement.

T&M and L-H contracts are the worst of all contracts available to government agencies, and they should be used only in extremely  limited circumstances.

 

17 hours ago, Guardian said:

Because agencies are structuring these labor-hour and T&M efforts as orders (off larger contracts and agreements) that are twelve month base periods with let's say four one-year options exercisable per the authority of the -9 clause (for what have been rightly determined severable services), they tend to establish individual ceilings for the base and each option.  

Guardian’s point highlights the disconnect I think in this thread.  Just a guess but Ally may be pacing orders under GWACS, GSA Schedule, or some other IDIQ contract.  Most of those say orders must be FFP, LH, or T&M

[Vern Edwards]

35 minutes ago, formerfed said:

Guardian’s point highlights the disconnect I think in this thread.  Just a guess but Ally may be pacing orders under GWACS, GSA Schedule, or some other IDIQ contract.  Most of those say orders must be FFP, LH, or T&M

Who knows what AllyM is doing?

On 6/4/2022 at 5:57 AM, AllyM said:

Our acquisition strategy is a T&M contract for services. D&F is signed! I know I want to set a ceiling for the life of the contract....my question is....do you set that in the solicitation, or after proposals are received? I have an independent government estimate; however, based on historical pricing I feel it may be high. If ceiling is set based on the government estimate, and set in the solicitation, this may skew proposals from the experts to not adequately price, but lean toward the government estimate. Thoughts? 

That was written by someone who simply doesn't understand T&M contracts. Five of us have responded. As far as I can tell, we haven't accomplished a thing. At this point, I say we write AllyM off and move on.