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firm fixed price vs labor hour


Spring2242

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For both positions, there is the possibility that at some point during the performance of the work, there may be a gap in contractual coverage.  This may be due to the onboarding of new contractor personnel, which routinely occurs at the beginning of the task order.  It may also occur when one contractor leaves the task order and is replaced by a new candidate.  This process may result in a gap in coverage of 1-3 months.  Under a fixed-price task order, the Government is required to pay the contractor company the full task order value, even when the estimated hours are not actually worked by the contractor personnel.  A labor hour task order will alleviate this issue.  The Government will only be required to pay for actual hours worked.  The following language shall be added to the Statement of Work:  “The Government will only pay for actual hours worked.

This is the justification that is being used to state why the government should use LH vs FFP. The FTE hours have been estimated and the only issue is that the contractor is able to bill for full estimated hours even if it is not a FTE working. 

Please explain the rational for this or offer another way to elevate this issue.

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Forget about contractor staffing and government onboarding.  Instead, look at the nature of the work.  Do you want the contractor to actually accomplish something (deliver a product or complete a service) for a fixed-price?  Or do you want the contractor to try to do something within a ceiling price?  Do you want to pay for a completed job, or for billable hours?  Do you want a result, or an employee?

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13 hours ago, Spring2242 said:

For both positions, there is the possibility that at some point during the performance of the work, there may be a gap in contractual coverage.  This may be due to the onboarding of new contractor personnel, which routinely occurs at the beginning of the task order.  It may also occur when one contractor leaves the task order and is replaced by a new candidate.  This process may result in a gap in coverage of 1-3 months.  Under a fixed-price task order, the Government is required to pay the contractor company the full task order value, even when the estimated hours are not actually worked by the contractor personnel.  A labor hour task order will alleviate this issue.  The Government will only be required to pay for actual hours worked.  The following language shall be added to the Statement of Work:  “The Government will only pay for actual hours worked.

This is the justification that is being used to state why the government should use LH vs FFP. The FTE hours have been estimated and the only issue is that the contractor is able to bill for full estimated hours even if it is not a FTE working. 

Please explain the rational for this or offer another way to elevate this issue.

😱 What a way to open an online inquiry! Talk about starting in the middle of things…

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  • 4 weeks later...
On 10/5/2022 at 6:35 PM, Spring2242 said:

This process may result in a gap in coverage of 1-3 months.

Is the SOW for severable or non-severable services? Maybe the government should terminate the contract for default, or de-scope the work and deobligate unused funds. Or extend the period of performance at no additional cost to the government to make up for those months and adjust the invoice schedule as a result also.

On 10/5/2022 at 6:35 PM, Spring2242 said:

This may be due to the onboarding of new contractor personnel, which routinely occurs at the beginning of the task order.

Award the task order on November 01, 2022 but make the period of performance start on December 01, 2022, if it would take 1 month to get employees on board, background checks, badging, network access, etc. Or you can make the transition-in period its own labor hour CLIN if things are really uncertain, and then have the actual work be firm fixed price.

On 10/5/2022 at 6:35 PM, Spring2242 said:

the Government is required

No it's not.

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On 10/5/2022 at 6:35 PM, Spring2242 said:

Under a fixed-price task order, the Government is required to pay the contractor company the full task order value, even when the estimated hours are not actually worked by the contractor personnel.  A labor hour task order will alleviate this issue.  The Government will only be required to pay for actual hours worked. 

This argument is basically for personal services.

If the FFP contractor is providing the required services who cares if it's 1 or 100 FTEs doing it?  Maybe they've got Commander Data on staff who can work 24/7 at 100 times the speed of a normal human.

The Labor Hour "argument" is lazy, allows the COR to do nothing but count heads and approve invoices based on butts in seats, and requires much more pre- and post- award audit support.  It also does not encourage efficiency and innovation.

Anyone who makes that "argument" for LH should be banned from Federal contracting forever.

 

 

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31 minutes ago, REA'n Maker said:

This argument is basically for personal services.

If the FFP contractor is providing the required services who cares if it's 1 or 100 FTEs doing it?  Maybe they've got Commander Data on staff who can work 24/7 at 100 times the speed of a normal human.

The Labor Hour "argument" is lazy, allows the COR to do nothing but count heads and approve invoices based on butts in seats... 

@REA'n MakerAs general propositions, every one of those three statements is the product of either poor thinking or poor expression.

1. The argument was not for personal services.

2. The CO should care.

3. A L-H contract does not allow a COR to do any such thing.

In any case, such a poorly written OP did not deserve a response.

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3 hours ago, REA'n Maker said:

Anyone who makes that "argument" for LH should be banned from Federal contracting forever.

This is absolutely my favourite comment. Also, as a CO I have been given this exact argument from PMOs countless times... 

 

I then do my best to educate them on contract types and actual FAR requirements for using LH. I'm sure you can imagine how that goes.

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On 10/5/2022 at 3:35 PM, Spring2242 said:

Under a fixed-price task order, the Government is required to pay the contractor company the full task order value, even when the estimated hours are not actually worked by the contractor personnel.  A labor hour task order will alleviate this issue.  The Government will only be required to pay for actual hours worked. 

 

5 hours ago, REA'n Maker said:

Anyone who makes that "argument" for LH should be banned from Federal contracting forever.

 

1 hour ago, Contracting_in_Wonderland said:

This is absolutely my favourite comment. Also, as a CO I have been given this exact argument from PMOs countless times... 

I then do my best to educate them on contract types and actual FAR requirements for using LH. I'm sure you can imagine how that goes.

Emphasis added.

@Contracting_in_WonderlandI don't understand. If "full task order value" means task order [firm-fixed] price, isn't the above statement true? Under an FFP contract, isn't the contractor paid the full task order price even if it completes the work at a lower cost than had been estimated? And under an L-H contract, isn't it paid for only the hours actually worked?

Please explain your comment. I'm interested in your thinking. Why do you like the comment that anyone who makes the OP's assertion should be banned from contracting forever? Are you reading more into that statement than is actually there? I'm not talking about the notion that L-H is better than FFP. That depends on the circumstances of the acquisition. I'm just asking about the assertion that under L-H the government pays only for hours actually worked, while under FFP the government pays full price even if the contractor finishes the job for fewer hours than estimated.

Or do I misunderstand why you like REAn' Maker's statement?

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As usual, Vern is technically correct regarding my earlier comments and his points are valid.  This is why I don't come to WifCon for personal validation. 🤣

My attempts at brevity were unfortunately more obtuse than I intended, AKA, "poorly worded".

  1. The argument is similar to or resembles the one for personal services, as it describes a scenario whereby due to a thinly-written PWS/SOW the actual intent is "we'll tell them what to do when they get here".
  2. Of course the CO should care. Commander Data is not real. No one can work 24/7 at 100x normal human speed. Yet. My point is that the government's job is not to focus on FTE gaps in an FFP environment (other than security & qualification-level stuff).
  3. No LH contract allows what I described.  However, in practice LH contracts perversely incentivize CORs to place too much attention on counting heads because looking at timecards is much easier than reviewing deliverables, and it happens more often than not.
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On 11/4/2022 at 6:33 PM, Vern Edwards said:

Or do I misunderstand why you like REAn' Maker's statement?

Ah, yes, my apologies. I was merely appreciating the snark of the statement as this is an issue I've run into countless times wherein the PMO gets really wound up about the amount of actual effort expended by the contractor in an FFP environment. "But we're paying 10 FTEs and Sally only worked 10 hours last week!" When I ask if the contractor is meeting delivery and quality metrics, the answer is almost always yes, so I have to try to redirect that we are paying for XYZ work at $ABC and not "for 10 FTEs". Tis all. 

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