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Term Contracts "Level of Effort"


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FAR 16.306(d)(2) states "The term form describes the scope of work in general terms and obligates the contractor to devote a specified level of effort for a stated period of time...."

I believe it is not necessary to construct a true CPFF-LOE contract in order to implement a term contract. For example, a contract that says ensure the lawn in a given area is maintained at a length not exceeding 2" for a one year period, would be a term contract. I think of a term contract as one where it is clear your obligation ends at the end of the performance period, where a completion contract means you have some sort of deliverable end item wherein the obligation to deliver is not overcome by the end of performance period.

At a very simplistic, top-level view, do I have this right?

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I don't think you have it right.

A CPFF contract that says ensure the lawn in a given area is maintained at a length not exceeding 2" for a one year period, would NOT be a term contract. I see it as a completion contract. See FAR 16.306( d )( 1 ) and ( 2 ).

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The term and completion form of cost reimbursement contracts, as used in the FAR, refer only to what the contractor has to do to earn fee (the FAR uses the terms only in the context of a cost- plus fixed- fee contract, but conceptually they may have broader application). The terms have nothing to do with the reimbursement of allowable costs or the expiration of the contract. In a term contract the fee is earned when the contractor has provided a level of effort for a stated period of time. As long as it does so, fee is earned regardless of the performance outcome.In a completion contract, however, fee is earned only when the end product specified under the contract is delivered.The contractor's must use its best efforts during the period of performance to produce the end product within the contract cost estimate/ceiling. If it does so, the Government's obligation is to pay the fee upon completion. If the contractor exceeds the contract cost limit during the contract period the government may always add more money to the contract and compel additional effort toward completion. If the contract has a defined term or period of performnce(and most do), once the contract term ends the contract is over. If the end prodcut has not been delivered the contractor has not earned its fee (unless of course the non-delivery was because of Government fault). Unlike a fixed-price contract, however, costs are reimbursed pursuant to the standard cost reimbursement Payments clause. Having said this, there is no standard FAR contract clause that I am aware of that actually uses the term/completion terminology. Accordingly, the actual terms of the contract regarding the parties' obligations and the circumstances under which fee is earned are controlling, not the regulatory descriptions of term and completion contracts.

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Guest Vern Edwards

FAR 16.306(d)(2) states "The term form describes the scope of work in general terms and obligates the contractor to devote a specified level of effort for a stated period of time...."

I believe it is not necessary to construct a true CPFF-LOE contract in order to implement a term contract. For example, a contract that says ensure the lawn in a given area is maintained at a length not exceeding 2" for a one year period, would be a term contract. I think of a term contract as one where it is clear your obligation ends at the end of the performance period, where a completion contract means you have some sort of deliverable end item wherein the obligation to deliver is not overcome by the end of performance period.

At a very simplistic, top-level view, do I have this right?

In response to odessa, the word "term" is also used in connection with the FFP LOE contract. See FAR 16.207.

Don't waste a lot of time trying to sort out the FAR descriptions of the various contract pricing arrangements. They are notoriously vague and confusing. The distinctions made between the completion form and term form in FAR 16.306(d) are not sharp. The description of the either the "completion" form or the "term" form could easily be made to fit lawn mowing contract. (It's a term form! No, it's a completion form!) Moreover, the term "level of effort" as used in FAR 16.207 and 16.306(d)(2) is vague. It is not clear exactly what that means.

Instead of worrying about the FAR descriptions, worry about what the language of each contract says.

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Agree. This was my last point. The FAR discussion of term vs completion is somewhat academic since the reg descriptions aren't reflected in a standard FAR clause that describes the parties' rights and obligations in those terms. Thus, "...the actual terms of the contract regarding the parties' obligations and the circumstances under which fee is earned are controlling, not the regulatory descriptions of term and completion contracts".

As far as common usage is concerned, the terms are frequently used in ways not contemplated by FAR 16.306, which only uses the terms for purposes of describing how the scope of work is described and when the (fixed) fee is earned. Like much of what is in Part 16 on contract types, the text isn't all that helpful.

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The FAR discussion of term vs completion is somewhat academic...

Maybe so, but the original poster needs to know that if he (?) awards the lawn mowing contract on a CPFF term basis, he will very possibly will be dissatisfied with the outcome. The grass might never be at or lower than 2 inches, but could be sometimes well over six inches with dandelions, and he will pay the contractor the complete fee as long as the contractor tried. The original poster needs to ask himself -- does he want the contractor to try, or does he want the contractor to cut the $%@^! grass? If the former, call it term. If the latter, call it completion.

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Guest Vern Edwards

ji20874:

You wrote:

The grass might never be at or lower than 2 inches, but could be sometimes well over six inches with dandelions, and he will pay the contractor the complete fee as long as the contractor tried. The original poster needs to ask himself -- does he want the contractor to try, or does he want the contractor to cut the $%@^! grass? If the former, call it term. If the latter, call it completion.

What you said is wrong. Pay attention to what odessa just wrote. It doesn't matter what the parties call the contract. In either case, the contractor promises only to try, not to succeed.

"Completion" and "term" are, at best, vaguely descriptive. They are not stipulative. If the contract is CPFF, then there is only one clause for fixed fee for supply and service contracts, FAR 52.216-8, and it's effect is the same whether the contract is completion or term. The same can be said of the the termination clause for CPFF contracts, FAR 52.249-6.

The parties must stipulate in the contract schedule the basis on which the fee will be paid. That is what dictates fee payment, not whether you call the contract completion or term.

Besides, you can easily write a CPFF LOE Term contract that requires the contractor to expend "the level of effort necessary to maintain the grass at no higher than 2 inches at all times during a term of one year." If at any time during the year the grass is longer than 2 inches you have prima facie evidence that the contractor did not expend the necessary level of effort. How much fee would the contractor get? It would depend on what the parties said in the schedule.

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Vern's advice really hit home. We can sometimes get wrapped around the axle on terms when we should be focusing on what we are really trying to achieve contractually. Now, just to shift gears a bit, I am reacting to odessa's comment about a completion contract: "In a completion contract, however, fee is earned only when the end product specified under the contract is delivered.The contractor's must use its best efforts during the period of performance to produce the end product within the contract cost estimate/ceiling. If it does so, the Government's obligation is to pay the fee upon completion. If the contractor exceeds the contract cost limit during the contract period the government may always add more money to the contract and compel additional effort toward completion. If the contract has a defined term or period of performnce(and most do), once the contract term ends the contract is over. If the end prodcut has not been delivered the contractor has not earned its fee (unless of course the non-delivery was because of Government fault)."

I have always believed that on a cost reimbursement type contract, the contractor's obligation to use its best efforts to produce the end product is not restricted by the period of performance. If work is not complete, and funding is adequate, is the contractor not obligated to continue to perform?

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Guest Vern Edwards
I have always believed that on a cost reimbursement type contract, the contractor's obligation to use its best efforts to produce the end product is not restricted by the period of performance. If work is not complete, and funding is adequate, is the contractor not obligated to continue to perform?

Why have you always believed that?

Do you think that periods of performance don't matter? Do you know of a cost-reimbursement contract clause that requires a contractor to work beyond the period of performance? Do you think that there is such a thing as business slavery in this country and that the government can require a contractor to work forever if it will cover the contractor's costs?

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Limitation of Funds and Limitation of Cost clauses go to significant detail about what happens if the Government doesn't provide additional funding required to complete the work. What happens if the contractor has plenty of funding but has not completed the work at the end of the period of performance. Vern says the contractor isn't required to continue performance. How is fee (if any) determined if the Contracting Officer fails to extend the contract and the contractor, because performance period of over, stops working on the contract?

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Guest Vern Edwards

The answer depends on what the parties agreed to. The cost-reimbursement termination clause says that if the parties can't agree on a termination settlement, the contractor gets a percentage of fee equal to the percentage of work completed.

As a practical matter, most contractors probably keep working past the end of the performance period because the government pays their costs, which makes a contribution to their fixed indirect costs. Why not keep working? But the government can't make them do it past the end of the performance period.

Steveatus, do two things. First, take time to read and reread the clauses for cost-reimbursement contracts. Then get yourself a copy of Cost-Reimbursement Contracting by Cibinic and Nash and study it.

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