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Yes, PRS is for "Performance Requirements Summary" under a QASP.

I ask this because, I know it is possible to have "disincentives," such as monetary deductions, if PRS standards are not met. For example, for an IT Helpdesk services contract, if it says 99% of calls must be resolved within 24 hours, and the contractor only does 98%, and the PRS says for every 1% below the 99% standard the agency will deduct X amount of dollars from the contract. And all this can occur on a fixed-price contract. However, I thought that providing an "incentive" was NOT allowed on fixed-price contracts, because then it would not be a pure fixed-price contract anymore.

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Guest Vern Edwards

Why do you think the things you do?

I thought that providing an "incentive" was NOT allowed on fixed-price contracts, because then it would not be a pure fixed-price contract anymore.

Where do you get such thoughts, fi that's what they are? What prompts them? Do they come to you in the night? Do they follow you home? And now you want us to tell you "how" reality can vary from your thoughts.

Really? Do you think about what you post before you post it?

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Guest Vern Edwards

The question, had it been thought out, probably should have been: Can you have monetary incentives on a firm-fixed-price contract? FAR 16.403 does not answer that question.

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Thanks, Vern!

Well, I just now looked at FAR 16.403. That talks about fixed-price incentive contracts. The scenario I am talking about is, can a "pure" fixed-price contract have these "incentives" in the PRS chart? I don't think so.

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wvanpup,

Don't confuse damages with incentives/disincentives. The latter affects what the government pays based upon actual performance against standards or acceptable quality level (AQL). See the example cited in post 3 above.

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I am not confusing anything. Post 3 (which is what my previous post was based on) said:

I ask this because, I know it is possible to have "disincentives," such as monetary deductions, if PRS standards are not met. For example, for an IT Helpdesk services contract, if it says 99% of calls must be resolved within 24 hours, and the contractor only does 98%, and the PRS says for every 1% below the 99% standard the agency will deduct X amount of dollars from the contract. And all this can occur on a fixed-price contract. However, I thought that providing an "incentive" was NOT allowed on fixed-price contracts, because then it would not be a pure fixed-price contract anymore.

I do not care if the poster called the price reduction a "disincentive" rather than a form of damages. The contract requirement is to resolve 99% of the calls within 24 hours. If the contractor does not do this, the contractor is not providing the services it is required to provide and for which we are paying. The price reduction should reflect the value of what is received compared to what we paid for, which is damages. If the reduced price is a disincentive rather than damages, could we then take a further price reduction (or assert a claim) for the damages associated with less than complete performance?

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Guest Vern Edwards

Well, you are confusing damages with nonpayment for nonperformance. Get a copy of Black's Law Dictionary and look up damages, esp. compensatory damages.

As originally conceived, deductions under a performance-based contract were neither incentives nor damages. They were non-payment for non-performance. See OFPP Pamphlet No. 4 (1980), para. 2-9 "Deduct Analysis":

Standard clauses in service contracts allow the government to deduct a payment in case of non-performance. In short, if the government doesn't receive the service the contractor does not get paid.

See also para. 5-5, "Deductions for Non-Performance":

Through the Inspection of Services clause, the government can deduct from a contractor’s payment an amount equal to the services not provided.

a. To do this, the contract administrator must know the major cost categories in the contract and the percentage of cost each service output represents. The percentage cost of each service is found in deduct analysis; see chapter 2, paragraph 2-9. An example of how the deduct formula works is shown in figure 5-3.

b. Suppose the bid schedule showed the monthly contract price for vehicle operations, maintenance, and analysis as shown. The percentage cost of the service output is then found by looking at the Performance Requirements Summary Technical Exhibit in the contract statement of work. In the example, the percentage cost of quality of completed work is 10 percent. This is then multiplied by $100,000 to obtain the maximum amount of deduct.

c. If completed work was unsatisfactory during the month (that is, did not meet performance values) and the percent of the sample found bad was 20 percent, $2000 would be deducted from the payment normally due the contractor.

d. This amount for quality of completed work is deducted because the contractor failed to provide reliable, uniform services within the assigned performance values. Although some completed work may have met the standard during the month, the acceptable quality level was not met and at least 20 percent of the observations were defective. Hence, the total quality performance requirement has not been achieved. As a consequence, the service output is unsatisfactory.

If the contractor does not perform it is not entitled to payment. In addition to withholding payment, the government can terminate the contract in whole or in part and make a claim for damages to the extent that it has been injured by the contractor's non-performance.

OFPP Pamphlet No. 4 was an adaptation of Air Force Regulation 400-28, "Base Level Services Contracts", which was published by the Air Force in 1979. You can download OFPP Pamphlet No. 4 at https://acc.dau.mil/CommunityBrowser.aspx?id=30609〈=en-US.

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How can a fixed-price contract contain "incentives" on its PRS?

Here is a quote from FAR 16.202-1.

The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives. [emphasis added]

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Here is a quote from FAR 16.202-1.

InNeedofWisdom:

Thanks, I did not notice that in FAR 16.202-1 before. If an agency has a contract that is FFP and also has a Performance Requirements Summary (PRS) that contains a column with Incentives and Disincentives, and the incentives are NOT based on cost, say they are based on the contractor performing the contract to a certain standard, or exceeding a certain standard, such as resolving 99% of helpdesk calls within 24 hours, can the "incentive" be a monetary incentive, like X dollars given to the contractor, or X amount of percentage of the contract price given to the contractor? If it can be monetary, then how is the contract still FFP?

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...can the "incentive" be a monetary incentive, like X dollars given to the contractor, or X amount of percentage of the contract price given to the contractor? If it can be monetary, then how is the contract still FFP?

I see your point that the price is not 'purely' fixed if the contractor can earn additional monetary incentives based on factors other than cost. Others may know why the FAR council wrote FAR 16.202-1 to allow for a FFP contract to include these kinds of incentives.

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I would argue that that you can still have a firm-fixed price contract for acquisitions subject to performance incentives/disincentives. A firm-fixed price contract does not mean the price can never change.

FAR Subsection 16.202-1:
"A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractors cost experience in performing the contract... The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives."

The adjustment here is the result of the Government paying for better/worse performance, not because of a change in the Contractor's cost basis.

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Thanks, metteec!

Yes, a FFP contract with monetary performance incentives is still FFP! (edited)

FAR Subsection 16.202-1:
"A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractors cost experience in performing the contract... The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives." (my emphasis)

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Guest Vern Edwards

This entire thread sprung from confusion about fundamentals, and has been continued on the same basis.

The original poster (OP) asked:

How can a fixed-price contract contain "incentives" on its PRS [Performance Requirements Summary]?

A PRS is a device in a performance work statement that summarizes service performance requirements. I don't know if the OP saw the word incentive on the PRS or not. It would not matter if he had. Some agencies develop "deduct schedules" as I described in Post #17, which establish an advance agreement on amounts to be deducted from payments because work was not performed on unacceptable. The deductions are simply withholds for work that the government did not receive. They are not incentives, disincentives, or negative incentives, and they are not damages.

In a subsequent post, the OP wrote:

I ask this because, I know it is possible to have "disincentives," such as monetary deductions, if PRS standards are not met. For example, for an IT Helpdesk services contract, if it says 99% of calls must be resolved within 24 hours, and the contractor only does 98%, and the PRS says for every 1% below the 99% standard the agency will deduct X amount of dollars from the contract. And all this can occur on a fixed-price contract. However, I thought that providing an "incentive" was NOT allowed on fixed-price contracts, because then it would not be a pure fixed-price contract anymore.

That appears to confirm that what the OP saw in the PRS was a deduct schedule, not an incentive or disincentive. This discussion was launched from the OP's misunderstanding, and has wandered into a silly discussion of "pure" contract types and whether a firm-fixed-price contract can include monetary incentives. As Don has pointed out, FAR 16.202-2 expressly permits the use of a particular monetary incentive in conjunction with a firm-fixed-price contract.

See FAR 16.401 and 16.404 to understand how FFP Award Fee works. The award fee incentive does not alter the firm-fixed-price. The award fee is a bonus paid on top of the price for performance that is better than acceptable. When the contractor wins the award fee, the firm-fixed-price does not change. The contract is modified only to show that that the contractor has earned fee and to obligate the funds to cover it. The prices of the other fixed-price incentive contracts, FPI(F) and FPI(S), are fixed only at the ceiling. Below that, the price for acceptable performance is variable, which is not the case with FFP Award Fee. If you use an incentive that provides for a variable price, then you don't have a FFP contract with an incentive.

The real distinction between fixed-price contracts and the other types -- cost-reimbursement, T&M, and labor-hour -- is not that the fixed-prices do not change, but that a contractor working under a fixed-price arrangement must perform successfully in order to be entitled to payment, while a contractor working under the other types need only make its best effort.

What happened here is that someone saw something he or she didn't understand, misconstrued it, and went right to the internet to ask a poorly written question at Wifcon Forum instead of doing some research, reading, and thinking. Wifconers are so eager to help that they jumped right in. I'm for more studying and less posting. That question did not deserve an answer.

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