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Situation: trying to contract for commercial services and statute/regulation says that the use of cost-reimbursement contracts is prohibited for the acquisition of commercial items, and that agencies shall use firm-fixed-price contracts or fixed price contracts with economic price adjustment for the acquisition of commercial items.

The majority of the effort is FFP (~92%) and we'd like to utilize a few CR CLINs (remaining 8%) on the otherwise FFP contract.

Question: Since the statute/regulation specifies "contract", does that statute/regulation also apply to "CLINs" on the "contract"?

I may be overthinking this...if I am, please let me know.

Thanks!

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Guest Vern Edwards

I'm not sure that what Don said is right for you. In any case, the fact that "everyone is doing it" does not make anything okay or professionally rewarding.

You said:

The majority of the effort is FFP (~92%) and we'd like to utilize a few CR CLINs (remaining 8%) on the otherwise FFP contract.

What does that mean? What is an "effort"? Is it a project, i.e., a nonseverable service (a single, indivisible undertaking), or is it severable services? Is the entire project or all of the severable services commercial? Do you want to use a fixed-price CLIN to buy part of a commercial service (92 percent) and a cost-reimbursement CLIN to buy the rest (8 percent)? Based on what you know, do you think you can legally do that?

Alternatively, do you want to buy a commercial service and a noncommercial service under a single contract? Is the commercial service 92 percent of the work and the noncommercial service 8 percent of the work? Do you want to use an FFP CLIN for the commercial service and a CR CLIN for the noncommercial service?

What is your question, in professional terms? What are the rules? What are your facts, in professional terms? What is the answer?

Here's the thing: you thought in muddled language ("effort"), which reflects carelessness or muddled thinking, which led to a muddled question, which makes a good answer impossible. But if you think things through and clear things up, we might be able to help you out. It might be okay to have a combination commercial item FFP contract and noncommercial item CR contract.

I'll let you decide what you want to do -- accept the "everyone is doing it" answer and proceed accordingly or do something that is harder, which is to think things through in professional terms and seek what might be a much more rewarding answer.

Your call.

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What does that mean? What is an "effort"? Is it a project, i.e., a nonseverable service (a single, indivisible undertaking), or is it severable services? Is the entire project or all of the severable services commercial? Do you want to use a fixed-price CLIN to buy part of a commercial service (92 percent) and a cost-reimbursement CLIN to buy the rest (8 percent)? Based on what you know, do you think you can legally do that?

Alternatively, do you want to buy a commercial service and a noncommercial service under a single contract? Is the commercial service 92 percent of the work and the noncommercial service 8 percent of the work? Do you want to use an FFP CLIN for the commercial service and a CR CLIN for the noncommercial service?

What is your question, in professional terms? What are the rules? What are your facts, in professional terms? What is the answer?

The effort is a service, Contractor Logistics Support to be exact. Everything is commercial. When you ask if I think I can legally have a CR CLIN - in a nutshell, that was my question to the forum. Statutes/FAR say CR "contracts" are prohibited for acquisition of commercial items. Are "contracts" and "CLINs" considered the same thing? If they are, then I have my answer...it's not legal. If they aren't, then I would deduce that CR CLINs may be allowed on the contract.

I am trying to understand the FAR/statute and determine in the process what the available options are for doing the right thing. I am not in the Acquisition/Contracts field by trade, but am an analyst in a Product Office who has the task of researching solutions/identifying risks and any mitigation strategies for leadership.

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Guest Vern Edwards

The effort is a service, Contractor Logistics Support to be exact. Everything is commercial. When you ask if I think I can legally have a CR CLIN - in a nutshell, that was my question to the forum. Statutes/FAR say CR "contracts" are prohibited for acquisition of commercial items. Are "contracts" and "CLINs" considered the same thing? If they are, then I have my answer...it's not legal. If they aren't, then I would deduce that CR CLINs may be allowed on the contract.

My answer to your question is no, you cannot legally have a cost-reimbursement CLIN for a commercial item. A CLIN is a contract within a contract.

My answer is based on the FAR definition of "contract" and what it says about CLINs.

Here is the FAR 2.101 definition of "contract":

“Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see Part 16.

Note that the definition does not say that a contract is a specific document, but that it is a "relationship" or a "commitment".

Here is what FAR 4.1001 says about CLINS:

Contracts may identify the items or services to be acquired as separately identified line items. Contract line items should provide unit prices or lump sum prices for separately identifiable contract deliverables, and associated delivery schedules or performance periods. Line items may be further subdivided or stratified for administrative purposes (e.g., to provide for traceable accounting classification citations).

Emphasis added. See also DFARS Subpart 204.71. In short, each contract line item could be awarded under a separate contract. In some cases, each sublime item could be awarded separately.

When you look at FAR 4.1001, it should be clear that a CLIN is a "separately identified" relationship or commitment that, depending on the interpretation of the contract, might be "entire" with the other CLINs or "divisible". The definition lists specific kinds of documents, but says that the term is not limited to those specific kinds or to a specific document of any kind.

In effect, a CLIN is a contract within a contract. It's relationship to other CLINs in a contract may be "entire" or "divisible", which means that a material breach with respect to a specific CLIN may constitute a breach of the entire contract or breach of only the CLIN in question, depending on the relationships among the items and the way the contract is written. See the discussion of contract divisibility in Calamari and Perillo on Contracts 6th (2009) by Joseph Perillo at § 11.23.

My answer to you is based on that reasoning.

So let's say that a contract includes two CLINs, one FFP and the other CR, and that the CLINs are "entire". In that case you might say that you have a combination FFP/CR contract, which is neither entirely FFP nor CR. Statute and FAR say that you must use only FFP, FFP with EPA, or T&M or L-H to buy commercial items. So the use of a CR CLIN would be improper under statute and FAR.

If the contract includes two CLINs, one FFP and the other CR, and if the CLINs are "divisible", then the CR CLIN is a CR contract (which must have its own clause set) and its use to buy a commercial item would be improper under statute and FAR.

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"Everything is commercial"

Really? I wonder if Contractor Logistics Support is covered by the ( 5 ) or the ( 6 ) paragraph in the definition of commercial item? My purpose here is to say that just because it looks like "commercial" services, it isn't commercial services for purposes of the FAR unless it fits under the definition of commercial item in FAR 2.101. I tend to think we often call acquisitions "commercial" services and use the FAR Part 12 clauses and so forth without really meeting the definition in the FAR. This is another example where "everyone is doing it and nobody is getting in trouble" -- this is an observation, not a recommended course of action.

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I have a follow-up question about subcontracts for DoD prime contracts based on the below statement.

So let's say that a contract includes two CLINs, one FFP and the other CR, and that the CLINs are "entire". In that case you might say that you have a combination FFP/CR contract, which is neither entirely FFP nor CR. Statute and FAR say that you must use only FFP, FFP with EPA, or T&M or L-H to buy commercial items. So the use of a CR CLIN would be improper under statute and FAR.

Do you know of any statutory prohibition against a prime contractor awarding a subcontract similar to the above scenario? The prime contractor would propose a similar CLIN structure (FFP/CR) at the prime level, but not claim anything as commercial after product integration at the prime. If the DoD customer asked for cost or pricing data on the subcontract, the prime contractor would simply provide the price negotiation memorandum documenting its price analysis. I think that CPSR reviewers might take issue based on DFARS 252.244-7001( c )(13), but would there be any public law violation?

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  • 8 months later...

On a Cost Plus Fixed Fee contract with multiple CLINs I believe that the fact that there are CLINs does not, in and of itself, require that incurred costs be segregated by CLIN. Along with that, Limitation of Funds or Limitation of Cost, applies at the contract level, not at the CLIN level.

I have seen instances where contract provisions require cost accounting by CLIN, but am just trying to verify my understanding that, absent terms requiring it, having multiple CLINs does not require collection and reporting of costs by CLIN.

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Aren't materials under T&M contracts often contracted and paid for through a cost reimbursement arrangement? If T&M is allowed under commercial item contracting and CR is not allowed must materials be reimbursed by the government at price under commercial T&M?

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Cost reimbursement is allowed under commercial T&M.

I wouldn't express it like that. I would just say that T&M is allowed for commercial services. Yes, the materials may be reimbursed at cost, but that does not make the contract cost reimbursement.

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Whynot, if you look at Alt I to 52.212-4, you will see that materials are reimbursed at cost, but the cost principles in FAR Part 31 do not apply in determining what the contractor is paid. Further, the government does not have the audit rights under a T&M contract for commercial items (services)that it is granted under 52.215-2 in regard to cost reimbursement contracts and T&M contracts for non-commercial items. Finally, under a T&M contract for commercial items (services), the contractor does not have to adjust applicable indirect cost rates allocable to the contract because of material costs as contractors under cost reimbursement and T&M contracts for non-commercial items are required to do. Instead, under a T&M contract for commercial items (services), the contractor is paid a flat amount (not rate) of indirect costs. Thus, there is a substantial difference between what and how a contractor is paid for materials under a T&M contract for commercial items (services) and what and how a contractor is paid under a cost reimbursement contract and for materials under a T&M contract for non-commercial items.

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Yup.

A separate CLIN is often used for the Materials in T&M contracting. This CLIN is sometimes CR. Since this post discusses CLINs and Contracts, I was wondering if under commercial T&M contracting if this Material CLIN should be on a price basis to comply with statute. I was hoping that this CLIN must be at price basis if at all possible and only on cost basis as a last resort - not because a government CO prefers it to be at cost.

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Whynot,

If it is a T&M CLIN, then it is neither fixed-price nor cost-reimbursement.

Until you accept this, you cannot proceed. You err in insisting on calling the M part of T&M cost-reimbursement. There's a difference between cost-reimbursement as understood in FAR 16.3 and reimbursed at cost as understood in FAR 16.6.

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Whynot, the use of T&M contracts to acquire certain commercial services is authorized by statute. Therefore, what statute did you have in mind when you said "I was wondering if under commercial T&M contracting if this Material CLIN should be on a price basis to comply with statute" in your post 22?

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I wonder if whynot is buying services for which some incidental materials will be needed, or if he is she wants to buy supply items on a cost-reimbursement basis under the masquerade of T&M? Everything I posted above is based on buying services, not supplies.

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