Quantity Price Break

[lawboydave]

I’m embarrassed to be such a fundamental question, and I’m sure I could find the answer if I could phrase my query in the right terms, but I’m getting frustrated.

I’m a contractor who has been awarded a FFP FMS replenishment contract and I don’t understand whether the government or I get the benefit of my buying in quantity. For instance: the government orders one widget. I get three quotes for that single widget and the best is $5 each. I then go out and get a quote for 10 widgets, and the price drops to $2 each. I still can only sell one to the government under this order, so I’m going out on risk with the other nine. May I charge the government based upon the $5 price or must my basis be no more than $2? The question arises because, as this is a replenishment contract, the government may well come back and order the other nine of these widgets from me at a later date, and at that point I’ll have sold the government 10 widgets for $50, but for which I paid only $20. My procurement department believes that the government should get the benefit of the price break. Given that we’ve gone out on most of that $20 at our risk, I’m not feeling the love.

[woops85]

You have a FFP contract. You bid the contract based on pricing available to you at time of proposal. Did your proposal or the resulting contract say anything about economic price adjustments (up or down)? In your example above, you may wind up selling the other widgets to another customer for the price you negotiate with that customer or oyu may be stuck with 9 widgets for a long long time.

As a Govt employee (and former private sector person), I'd (1) expect you to find the best price available; (2) love to get the price break; and (3) recognize that I may not have a right to expect you to give it to me.

[lawboydave]

Nothing regarding Economic Price Adjustments. So, I'd be expected to get three quotes (when appropriate) for quantity one, then be able to issue a PO to my supplier for quantity 10, and use the savings to mitigate my risk? What about when the government increases the quantity to two a month later? New quotes for quantity two, sell the second one to the government at the same price as the first one, or give the government the benefit of the break? Note that this is a requriements contract. The estimated total quantity under this example would be one, then increased to two on an order a month later with that second one coming out of the stock we purchased in quantity 10. Sorry I wasn't clear.

[joel hoffman]

Nothing regarding Economic Price Adjustments. So, I'd be expected to get three quotes (when appropriate) for quantity one, then be able to issue a PO to my supplier for quantity 10, and use the savings to mitigate my risk? What about when the government increases the quantity to two a month later? New quotes for quantity two, sell the second one to the government at the same price as the first one, or give the government the benefit of the break? Note that this is a requriements contract. The estimated total quantity under this example would be one, then increased to two on an order a month later with that second one coming out of the stock we purchased in quantity 10. Sorry I wasn't clear.

I'm not sure that you still aren't clear. You first said you have been awarde an "FFP FMS replenishment contract". Then you say you are "expected to get three quotes" for quantity one. Then you note that "this is a requirements contract". Can you please explain more clearly what type of a contract this is and what 'FMS' stands for?

It appears to be an indefinite-quantity contract. Okay, so maybe it has fixed-price line items. But then you say that you must go out and obtain quotes. I'm confused. But that isn't rare, either.

[Navy_Contracting_4]

Nothing regarding Economic Price Adjustments. So, I'd be expected to get three quotes (when appropriate) for quantity one, then be able to issue a PO to my supplier for quantity 10, and use the savings to mitigate my risk? What about when the government increases the quantity to two a month later? New quotes for quantity two, sell the second one to the government at the same price as the first one, or give the government the benefit of the break? Note that this is a requriements contract. The estimated total quantity under this example would be one, then increased to two on an order a month later with that second one coming out of the stock we purchased in quantity 10. Sorry I wasn't clear.

I think when Joel and I read you have a FFP contract (and, we assume, indefinite quantity), we expect that it contains fixed prices for the items that may be ordered, and so wonder initially why you need to get quotes. I'm now getting the sense that your contract is so broad that the parties can't identify every item that might be needed, and so plan to negotiate firm fixed prices for each order. I also conclude that the government is going to do a cost analysis, and thus expects you to provide some form of cost or pricing data, i.e., vendor quotes, etc. What does the contract say about pricing orders?

I believe that you're on safe ground getting quotes for quantity one, issuing a PO for quantity ten at your own risk, and using the savings to mitigate your risk. If the same item is ordered again, though, you will have to tell the government the price you actually paid for the quantity ten PO. Pricing the second order using quotes for quantity two, or using the same price from the first order when you actually will be providing an item from stock would be a misrepresentation.