Jump to content
The Wifcon Forums and Blogs

Recommended Posts

Situation/Background: For various reasons, the contracting officer believes he must solicit a CPFF task order off a multiple award IDIQ. Discussions took place regarding using other contract types -- bottom line: while other contract types may be more suitable, the decision is: CPFF will be used. Following numbers are changed to make discussion easier and for other reasons. Requirement for 100 contractor employees (i.e. level of effort is 100). History: was originally CPFF, recompeted and is currently FFP. No contractor has ever met the requirement (100) - been as high as about 75 and as low as approximately 35 (currently at approximately 40). The need is unique and there are a limited number of candidates. Also (and most importantly now) - each employee must be vetted and approved by a separate Government agency. The vetting criteria is not disclosable to this agency or the contractors. There is a backlog of candidates to be vetted (approximately 30), but bottom line is: we only get a net increase of 1 to 2 per month due to attrition (employees decide to go elsewhere) and most candidates washing out via the vetting process.

Problem: Waste. Fixed fee is paid based on the estimated cost at the time of award. We know that it is highly unlikely that contractor will ever reach the required 100 -- but we'll be paying fee for requirements never realized/met. Amounts are significant enough to question whether this approach is wasteful. (NOTE: contracting officer will not/cannot change the requirement to a lower number.)

Proposed Solution: Contractor will propose a fixed fee schedule with a total fixed fee. For example: 0-40 employees, fee = 20 (proposed/negotiated); 41-50 = additional fee of X (proposed/negotiated); 51-60 = additional fee of X .... up to the total requirement of 100 (and the amounts of additional fixed fee in the schedule equal the negotiated total fixed fee). Once the contractor reaches a higher level (e.g., 51), they will be paid that additional fee. They can only become eligible to be paid the fee for any given block once (i.e., cannot keep going back and forth between 50 and 51, earning additioal fee each time the contractor gets the 51st employee working).

Issue: Is this a cost plus percentage of cost arrangement (with a ceiling)?

Link to comment
Share on other sites

KME,

Let me get this straight. It's a CPFF level-of-effort where the contractor is required to deliver a level of effort we'll call 100 time units. They deliver a fraction of 100, but the Government pays 100% of the fixed-fee.

If that's right, then I would say that is wasteful. The percentage of fee paid should be linked to the percentage of the level of effort delivered. This principle is evident in FAR 52.249-6(h)(4)(i), which states that if the contract were terminated for convenience, the contractor would be entitled "a percentage of the fee equal to the percentage of completion of work contemplated under the contract." See also FAR 52.232-22(l).

Why not take the fixed fee proposed, divide by 100, and pay that much fee for each time unit delivered?

Link to comment
Share on other sites

KME,

Let me get this straight. The government is perfectly fine entering into a FFP task order based on 100 heads, knowing that no contractor has ever, or is likely to ever in the future, achieve that staffing level? Yet, when contemplating a CPFF type for the exact same effort, you are concerned about the Fixed Fee associated with estimated costs being higher than actual incurred costs? That's where your concern lies?

Do I have that correct?

H2H

Link to comment
Share on other sites

"Amounts are significant enough to question whether this approach is wasteful." I agree with that assessment.

I like Don's suggested approach. However, who determines the number of employees that are actually provided for a task? Is it the government or the contractor?

Link to comment
Share on other sites

Joel,

Based on the original post, the actual number of heads is determined by another government agency, based on criteria that are not disclosed to either the ordering agency or to the contractor. How that number of heads is estimated, and negotiated into a price, would seem to be a ... challenge.

H2H

Link to comment
Share on other sites

KME,

Let me get this straight. It's a CPFF level-of-effort where the contractor is required to deliver a level of effort we'll call 100 time units. They deliver a fraction of 100, but the Government pays 100% of the fixed-fee.

If that's right, then I would say that is wasteful. The percentage of fee paid should be linked to the percentage of the level of effort delivered. This principle is evident in FAR 52.249-6(h)(4)(i), which states that if the contract were terminated for convenience, the contractor would be entitled "a percentage of the fee equal to the percentage of completion of work contemplated under the contract." See also FAR 52.232-22(l).

Why not take the fixed fee proposed, divide by 100, and pay that much fee for each time unit delivered?

Why not create a FFP LOE and use this clause:

Payment

Monthly Payments: The contractor shall be paid based upon level of effort (LOE) expended for all sites, plus travel, training, and surge support costs incurred. The amount of the payment for the monthly LOE expended shall be developed by multiplying the percentage the month's LOE for all sites represents of the total annual LOE for all sites times the firm fixed price.

Assuming the total firm fixed price is $5,000,000, the total annual LOE for all sites is 56,640 hours, and the monthly LOE expended for all sites is 4,700 hours, the monthly payment would be $414,901 plus any travel and training costs and surge support.

Monthly payment = [(monthly LOE for all sites/ annual LOE for all sites) X firm fixed price] + travel costs+ training costs+ surge support.

Monthly payment = [(4,700/56,640) X $5,000,000] + travel costs + training costs+ surge support Monthly payment = (.0083 X $5,000,000) + travel costs + training costs+ surge support Monthly payment = $414,901 + travel costs + training costs+ surge support

Total Payments: The contractor shall be paid the entire firm fixed price only if the contractor expends the entire LOE for all sites. If the entire LOE for all sites is not expended, the total of monthly payments to the contractor shall be a percentage of the FFP equal to the total LOE expended for all sites divided by the total LOE for all sites set out in Section B.

Assuming the contractor expends 56,000 hours, the total payments to the contractor would be $4,943,502.50 plus any travel and training costs and surge support.

Total Payments = [(total LOE expended / total Section B LOE) X firm fixed price] + travel costs + training costs+ surge support Total payments = [(56,000 / 56,640) X $5,000,000] + travel costs + training costs+ surge support Total payments = (.9887 X $5,000,000) + travel costs + training costs+ surge support Total payments = $4,943,502.50 + travel costs + training costs+ surge support

Link to comment
Share on other sites

KME,

Let me get this straight. It's a CPFF level-of-effort where the contractor is required to deliver a level of effort we'll call 100 time units. They deliver a fraction of 100, but the Government pays 100% of the fixed-fee.

If that's right, then I would say that is wasteful. The percentage of fee paid should be linked to the percentage of the level of effort delivered. This principle is evident in FAR 52.249-6(h)(4)(i), which states that if the contract were terminated for convenience, the contractor would be entitled "a percentage of the fee equal to the percentage of completion of work contemplated under the contract." See also FAR 52.232-22(l).

Why not take the fixed fee proposed, divide by 100, and pay that much fee for each time unit delivered?

We agree, it is likely wasteful, which is the reason for the schedule with a graduated fixed fee. Re: dividing by 100 -- that is the idea of the schedule, but instead of a fee for each incremental unit increased, the fee is increased for batches of increased units (remeber, this is a service contract).

Link to comment
Share on other sites

KME,

Let me get this straight. The government is perfectly fine entering into a FFP task order based on 100 heads, knowing that no contractor has ever, or is likely to ever in the future, achieve that staffing level? Yet, when contemplating a CPFF type for the exact same effort, you are concerned about the Fixed Fee associated with estimated costs being higher than actual incurred costs? That's where your concern lies?

Do I have that correct?

H2H

Well, when u put it that way ... :wacko: . Seriously, I've provided input to the contracting officer re: the requirement must be realistic. There is a lot more to all of this. In terms of the FFP-LOE contract. The contracting officer set up a system akin to what he'd like to do with this CPFF. He set up traunches and assigned a fixed price to each traunch. I have some issues with that -- but it's water under the bridge. Focus now is the CPFF set up with a schedule. (Again, recommended other contract type, or accept risk associated w/ CPFF (at current level) and changes up to 100).

Link to comment
Share on other sites

Joel,

Based on the original post, the actual number of heads is determined by another government agency, based on criteria that are not disclosed to either the ordering agency or to the contractor. How that number of heads is estimated, and negotiated into a price, would seem to be a ... challenge.

H2H

Yes it is. The agency vetting the employees is not (at least not directly) determining the number of heads required. That number is set by one or more Combatant Commands -- approved at Army level. Requirement sent to this contracting activity to fill -- this is part of reason KO is unwilling to move requirement from 100 to (something lower).

Link to comment
Share on other sites

Why not create a FFP LOE and use this clause:

Payment

Monthly Payments: The contractor shall be paid based upon level of effort (LOE) expended for all sites, plus travel, training, and surge support costs incurred. The amount of the payment for the monthly LOE expended shall be developed by multiplying the percentage the month's LOE for all sites represents of the total annual LOE for all sites times the firm fixed price.

Assuming the total firm fixed price is $5,000,000, the total annual LOE for all sites is 56,640 hours, and the monthly LOE expended for all sites is 4,700 hours, the monthly payment would be $414,901 plus any travel and training costs and surge support.

Monthly payment = [(monthly LOE for all sites/ annual LOE for all sites) X firm fixed price] + travel costs+ training costs+ surge support.

Monthly payment = [(4,700/56,640) X $5,000,000] + travel costs + training costs+ surge support Monthly payment = (.0083 X $5,000,000) + travel costs + training costs+ surge support Monthly payment = $414,901 + travel costs + training costs+ surge support

Total Payments: The contractor shall be paid the entire firm fixed price only if the contractor expends the entire LOE for all sites. If the entire LOE for all sites is not expended, the total of monthly payments to the contractor shall be a percentage of the FFP equal to the total LOE expended for all sites divided by the total LOE for all sites set out in Section B.

Assuming the contractor expends 56,000 hours, the total payments to the contractor would be $4,943,502.50 plus any travel and training costs and surge support.

Total Payments = [(total LOE expended / total Section B LOE) X firm fixed price] + travel costs + training costs+ surge support Total payments = [(56,000 / 56,640) X $5,000,000] + travel costs + training costs+ surge support Total payments = (.9887 X $5,000,000) + travel costs + training costs+ surge support Total payments = $4,943,502.50 + travel costs + training costs+ surge support

Answer: because senior leadership is fixed on CPFF. Yes, we've noted that contract type is up to discretion of KO -- maybe approved by others (PARC, HCA, etc). Regardless -- decision is made -- it will be CPFF. Question is: how best to mitigate and is the schedule legal. That's the question of the original post -- is the schedule arrangement legal? Leadership believes cost plus contract will result in higher numbers of contractor employees in the que, waiting for vetting. They also believe FFP resulted in lower fill because the contract type drove rates down, which impacted (negatively) the fill rate. There are problems with that logic. But in the end -- that's the decision. Only by switching to cost plus, and specifically CPFF is leadership willing to go to the CofS of the Army re: vetting process.

Again, thoughts on the schedule approach? Can we do that? Or must the FIXED fee be calculated on the basis of the estimated cost for the TOTAL requirement (100) at the time of award. If we can say that the fee is fixed at the time of award for each grouping in the schedule -- we're OK. Problem is: must fee be based on total, so that we must pay the total fixed fee, and not the total fixed fee for a lower level. (Which is why some are concerned that this is a cost plus percentage of cost arrangement, but with a cap - the cap being the fixed fee for 100).

Link to comment
Share on other sites

KME,

The total amount of fixed fee should be based on the total requirement. However, that does not necessarily mean that the amount of fixed fee paid will be the total amount of fixed fee stated in the contract. I would state the total amount of fixed fee in the contract and include a separate fee payment schedule that was based on the portion of the level of effort delivered. As far as the fee payment schedule that you proposed, I've never heard of a level of effort expressed as an employee without some associated measure of time. What if one employee works 200 hours and another 2000? Did the contractor deliver 2 employees or 1.2? Or something else?

Link to comment
Share on other sites

Guest Vern Edwards

The original question was:

Proposed Solution: Contractor will propose a fixed fee schedule with a total fixed fee. For example: 0-40 employees, fee = 20 (proposed/negotiated); 41-50 = additional fee of X (proposed/negotiated); 51-60 = additional fee of X .... up to the total requirement of 100 (and the amounts of additional fixed fee in the schedule equal the negotiated total fixed fee). Once the contractor reaches a higher level (e.g., 51), they will be paid that additional fee. They can only become eligible to be paid the fee for any given block once (i.e., cannot keep going back and forth between 50 and 51, earning additioal fee each time the contractor gets the 51st employee working).

Issue: Is this a cost plus percentage of cost arrangement (with a ceiling)?

Answer: No. In a letter to the Assistant General Counsel for Finance and Litigation, Office of the General Counsel, Department of Commerce, GAO Dec. B- 252378, September 21, 1993, the GAO described the elements of a prohibited cost-plus-a-percentage-of-cost contract to be as follows:


Our Office uses the following criteria to determine whether a method of payment represents a prohibited cost-plus-apercentage-of-cost arrangement:

(1) Payment is at a pre-determined rate,
(2) the pre-determined rate is applied to actual performance costs,
(3) the contractor's entitlement is uncertain at the time of contracting, and
(4) the contractor's entitlement increases commensurately with increased performance costs.
In the scheme described by the original poster, two of the CPPC elements are missing. (1) The payment is not stated as a rate, but as a dollar amount dependent upon the number of employees provided. (2) No rate is applied to actual performance costs.

This does not mean that the proposed approach is a good idea, only that it is not a prohibited CPPC pricing arrangement.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
 Share

×
×
  • Create New...