Customer thinks start date of performance controls cost of services

[KA20003]

I am having a problematic customer and would like to draft the most un-arguable email to her, explaining that the cost of a contracted service is not controlled by the start date of the services. (Talking about/citing the BPA itself is not helping the cause.)

As a brief summary, the BPA has a period of performance in July, with the cost of services increasing at each year. Two of the call orders issued against the BPA cross that period of performance. As a result, midway through the call order performance, the cost of services will increase. To avoid having to modify the call order to account for the cost change, I requested a revised proposal from the vendor that accounted for the price change midway through. Once I have the quote, I'll go back to the customer to request additional funding.

However, she believes that the fact that the work begins PRIOR to the date of the price increase means that the the price at the time of intial performance is what controls the performance of the entire call order. (Hopefully that makes sense.) I've tried explaining that the BPA dates control, but she keeps coming back to the start date of the call order.

I'm right, right? Is there anything other than the BPA itself I can cite to her? Or, if I'm wrong, please let me know. I'm thinking that it might just be easier to do the modification later, but I'd like to avoid the hassle if possible.

[MICHIGANKO]

KA -

First, what contract type is your order? Second, What are the ordering terms under your BPA?

[KA20003]

It's a firm-fixed-price for non-severable services. The only mention of ordering terms in the BPA itself is that all task orders are subject to the terms/conditions of GSA Schedule 874 MOBIS category 874-1. When I check the terms and conditions on that schedule, though, it says nothing related to ordering. Both call orders are above $25k but less than SAT.

[MICHIGANKO]

KA -

In issuing a FFP Order for a non-severable service, I would not adjust the FFP later due to an increase in cost. If this is truly FFP, then you should be locking in the total price of the service outcome at time of award of the call order. The Contractor should have already factored their impending rate change into their original proposal against your call order.

If this is not the situation, or if you have additional facts, please post them.

[KA20003]

Ok, thank you. And yeah, I'm not entirely sure how to handle this one. I don't want to adjust the order later, but the contractor says he is unable to separate out the different prices because there is no way to estimate how quickly they will get through the tasks. There was no quote because the pricing is already established in the BPA. The services are for claim reviews, and are priced per claim. So the Requisition I received is for x claims, but the customer priced it at the current rate and did not account for the new rate that starts in July (presumably because it's too hard/uncertain to estimate). Does that make sense? Would you recommend a different contract type?

She is taking issue even with the idea of a later modification to reflect price changes, and seems pretty bent on just making the whole award using the current rates. In her mind, the date of award dictates the applicable cost. I may just need a supervisor to get involved, because I don't think the way this customer wants me to make the award is compliant with the BPA.

[Guest Vern Edwards]

This is a matter of contract/BPA/order interpretation. There is no standard answer to the question that would apply in all cases. One must read and interpret the contract, the BPA, and the order in order to develop an answer.

[MICHIGANKO]

KA -

As Mr. Edwards stated above, this is a matter of BPA/Order interpretation. I will add however, that absent any language regarding ordering procedures / prices, I would have to side with your customer. Your current pricing schedule, as you've described it, includes FFP's for "Claims" split into annual periods. If those prices were subject to adjustment dependent on Period of actual Performance (crossing periods), then the resulting order would not be a straight FFP. Such an adjustment scheme would need to be called out in the BPA/Order, and would most likely have been identified/requested/demanded in the Contractor's original proposed pricing schedule for establishment of the BPA.

Interpreting the proper price to be based on % of work performed x performance period rate, as you are proffering, incentivizes the Contractor to push the majority of the work into the back half of the period of performance, which puts your customer in a bad spot. Look at it from your customer's point of view. They have programmed dollars based upon your pricing schedule, which purports to offer FFP "Claims" by ordering period. They have most likely briefed several groups in their office in order to have dollars committed for this FFP effort. Now you are telling them that they may need more money, but you can't tell them how much until you determine how much of the effort was performed in the first period and the subsequent period. Of course they are upset! They briefed their management that they were ordering a FFP completion effort, and now they have to explain that they need more funds. Their management is asking them why they need more funding for an effort that was FFP, and asking them why they didn't foresee this issue.

While I often have the urge to fire off a scathing E-mail to put a PM in their place, I usually find, as I believe you will here, that ultimately our interests are aligned. Both you and your customer are interested in a clear pricing scheme, in which all parties agree upon a FFP for an identified outcome. Contracting is interested in having set price schedules to issue orders, rather than negotiate each effort, and is also interested in avoiding the administrative burden of price adjustment modifications. The customer is interested in set pricing schedules to plan their program and brief up their chain. Your interests are aligned! Rather than fire off that E-mail, I would recommend that you go see that customer and explore your common ground. Your current instrument is not meeting either of your needs. Re-negotiate it.

[KA20003]

That makes sense; thank you. We are planning a conference call for Monday so we can figure this out. I also had the same concern of incentivizing the contractor to hold off on work in order to receive the higher rate of payment. It worries me a bit that the contractor isn't able to provide some sort of estimate about how much work it can perform in a certain amount of time, but maybe my expectations are too high. Thank you again for your input on this. Very helpful.

[summerlady51]

I'm not sure how this qualifies as a non-severable service. I'm also not sure the appropriation being used by your customer to fund this but that is also pertinent. Since this appears to be a production oriented charge, it (IMHO) can't qualify as non-severable. In which case your customer shouldn't care about price increases since they would have to fund out of current year money for the next iteration of services. Does that make sense? Let's assume that they are using Operations&Maintenance funds, then they are entitled to not more than 12 months of services and I believe it should lock in at the price at the time the contractual vehicle is put in place....but then I'm not an 1102 so take this for what it is worth.