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FFP LOE - Mis-used, but now what?


Worker-B

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I have an interesting situation for which I am technically an uninvolved 3rd party, but have just enough knowledge to be dangerous - and pose the situation and ask some questions. I am glad to not have to deal with this mess, but am very curious to learn for my own edification - from the learned folks who wander by here. I just read through a very interesting forum from back in mid-September 2012 that will help me frame the question and provided plenty of cogent insight to help with some of my former misconceptions - although I will mention at least one.

The situation:

An agency has defined a series of year-long successive FFP LOE task orders for services that, in truth, are severable (error 1 - there may be too many to count before I get done so I won't try).

They have chosen the FFP LOE, I think in truth, as a means of dodging the politically incorrect T&M contract type that is probably appropos for the situaion. The periods of performance dovetail one after another.

The first TO was completed - I guess more or less normally.

A second TO is now in performance and the follow-on has already been awarded with an effective date of the day after the scheduled end of the #2.

The next error, of course, is that there is no defined deliverable - except in terms of the efforts needed (SW maintenance) and, supposedly, the LOE is also defined - as X FTEs.

For convenience, I suppose, and due to the mindset of the whole situation being a T&M substitute, I understand that billings and payments have been made monthly on the basis of hours incurred (no clue about the rate(s) used to monetize - they may be stated in the pseudo T&M award).

OK - The current task order is nearing completion of its term without the LOE being' provided' nor will it be even feasibly be incurred before the PoP ends. In the meantime, so far as I can tell, the efforts expended during the PoP have met the need, in terms of 'output' - the SW has been adequately maintained for its users, despite not 'using up' the contracted LOE wrt hours.

Despite the obvious anomalies/directly conflicting terms that exist, I would say that the existing arrangement best fits what it SHOULD have been by interpreting that the service required - output - will have been satisfactory for the PoP, so the contractor has delivered what was contracted for as defined in work scope (SOW) and is entitled to the FFP, despite not having had to expend the anticipated hours. (Equivalent to the report being completed for less than the LOE).

I have always recalled the title @ FAR 16.207, i.e., Fixed Price, Level of Effort Term and considered that the PoP was the primary consideration for when the effort is complete and that, in essence, the LOE was effectively a ceiling. If the contractor gets hiseffort completed/report done, then he gets the FFP. And if the effort exceeds the LOE, then he manages so that he gets a partial report done and stops when the LOE hours are expended. I think those impressions match my readings from September. This also matches a government procurement attorney's opinion that I once read, i.e., that completion of the scope of effort per the SOW within the term 'trumps' the amount of effort, so 'pay the man.' However, some of the September forum really emphasized the need for the LOE to be expended, given that the final report wasn't completed, meaning that remedies would be in order (that probably would need to be negotiated - can't imagine any contractual provisions intelligently put in there in anticipation).

Following the reasoning of failure to provide the LOE means you aren't done, the agency is debating whether to extend the PoP for Order #2 for a non-trivial 3 month timeframe by which time they expect to have received the full LOE worth of hours expended. In the meantime TO #3 will begin its POP and there is no need or intention to double the effort level for a would-be overlapping 3 months timeframe. I don't believe that the contractor's view has yet been asked for, but I would project some potentially coerced agreement to accommodate the customer.

I don't know this, but I would project that the severable services which 'underran' for this past year will continue to underrun and TO #3 will in a year, have an even greater magnitude issue at the end of its currently stated PoP.

Any way, with this mis-used contract type, is the contractor 'done' at the end of the POP and entitled to the FFP?

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Guest Vern Edwards

Under a "true" firm-fixed-price level-of-effort contract, the contractor is hired to conduct research (see FAR 16.207-2) in accordance with a statement of work up to a specified level of effort and then deliver a report of its findings by a specified completion date. The contractor is not entitled to payment until it has (a) performed the level of effort and (B) delivered the report not later than the completion date. In short, the work is not done until the level of effort and report have been delivered. If the contractor fails to do those two things by the end of the performance period, it is in default. The statement of work should not specify a completion objective other than delivery of the level of effort and the report. (The parties should make it clear whether report preparation is or is not included in the level of effort.)

The FFP-LOE contract was designed for the kind of research that has no clearly defined completion state. They are "pursue a line of inquiry and tell us what you found out" contracts. An agency should not use an LOE contract if it intents to specify a completion state. If you can specify a completion state, why the heck would you use a level of effort contract? If you have significant doubts about how much it will cost to reach the completion state, then use a CPFF completion type contract.

So, if an LOE contract was written such that the SOW specified a completion state, and the completion state was achieved before delivery of the level of effort, then the wrong contract type was used, and the parties have to decide how to settle up. I know of no reason to believe that the government should simply "pay the man." That might be a solution that the government is willing to go with, but I don't see that the contractor is necessarily entitled to that solution. It depends on exactly what the contract says and how it is properly interpreted in accordance with legal practice.

I don't know what kind of contract the people you are talking about wrote, and it appears that they don't, either.

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