Jump to content
The Wifcon Forums and Blogs

Sign in to follow this  
Troy

How to Quantify the Cost of Administering a Contract?

Recommended Posts

Where the FAR states IAW 16.504©(1)(i) that we "must" give preference to make multiple awards of IDIQ contracts (with must being akin to "shall" as the imperative), one of the six criteria for determining not to use the multiple award approach is "[t]he expected cost of administration of multiple contracts outweighs the expected benefits of making multiple awards" IAW FAR 16.504©(1)(ii)(B )(3).

In order to effectively "weigh" the cost vs the benefit I'm looking for insight regarding how to quantify the cost of administering a contract. I contacted DCMA and they didn't have a protocol to speak of.

Is there anything other than anecdotal guidance on this matter?

Share this post


Link to post
Share on other sites

Don't make it too hard...

Please don't try to develop an arithmetic formula to determine that "[t]he expected cost of administration of multiple contracts outweighs the expected benefits of making multiple awards" -- surely you can do this with a subjective approach?

Share this post


Link to post
Share on other sites

I concur, I would fully intend on it being a straight forward approach. I'm not looking to recreate the wheel, just some ideas or examples of what others might have done. I've always heard $500 thrown around which seems randon at best.

Share this post


Link to post
Share on other sites

I've done it by writing something saying the benefits of multiple awards are fill in the blank, all subjective and all text and the expected costs of multiple awards include fill in the blank, all subjective and all text, and on the whole, the benefits of multiple awards outweigh the expected costs. The expected costs don't have to be dollarized. I think $500 is too low -- that will only pay for a few hours of a CO's or COR's time -- but I would avoid dollarizing altogether.

Share this post


Link to post
Share on other sites

I concur, I would fully intend on it being a straight forward approach. I'm not looking to recreate the wheel, just some ideas or examples of what others might have done. I've always heard $500 thrown around which seems randon at best.

Just curious, Troy. Does your organization develop and use fully burdened labor rates for each employee that include direct hourly labor, fringes, departmental overhead, and organizational overheads, etc.?

Share this post


Link to post
Share on other sites

Troy:

People might throw the $500 figure around due to FAR 52.214-22 and FAR 14.201-8 ( C ). I wouldn't use it as a basis for the determination you mention in your original post.

Share this post


Link to post
Share on other sites
Is there anything other than anecdotal guidance on this matter?

In order to apply FAR 16.504( c)(1)(ii)( B )(3) you must:

First, estimate and sum the expected marginal cost of administering each additional contract.

Second, estimate the expected value of the total expected benefit of making multiple awards, which might be a cost benefit, a quality benefit, or both. It is the expected value of the total expected marginal benefit to be obtained through task order competitions. Do you expect competition to marginally reduce average order cost, marginally improve average order quality, or both? If so, what is the expected value of the sum of the expected marginal reductions and improvements?

Third, compare the expected sum of the marginal costs of administering each additional contract to the expected value of the sum of the expected marginal reductions and improvements.

If the expected sum of the marginal costs of administering each additional contract exceeds the expected value of the sum of the expected marginal reductions and improvements, then, according to FAR 16.504( c)(1)(ii)( B )(3), the CO "must not" use the multiple award approach.

A good CO can make this analysis, but must be savvy, use some imagination, use what he or she supposedly learned in college, cobble some evidence, construct a plausible (if not entirely convincing) argument, and present the argument well in a memo to the powers that be. Use of a little elementary probability theory and statistical notation would spice it up.

The argument might not satisfy doubtful, fearful, easily intimidated, and competition-besotted managers. Still, it might be worth trying -- assuming that you understand what I've just written -- because multiple award IDIQ contracts have needlessly increased the cost of the acquisition system. In any case, the exercise might be stimulating to those seeking an intellectual challenge in their work.

Hint: The oft-asserted marginal expected value obtained from conducting competitions for task orders (as opposed to delivery orders) is largely an illusion. It's often based on nothing more than the perceived quality of a product of the imagination -- a quote or proposal -- as opposed to the expected value of the service that will actually be received, which is usually indeterminate.

An exercise in the "critical thinking" that everyone is talking about. But ji20874 has already said don't do it. See his Post #2.

Share this post


Link to post
Share on other sites

Thanks ji20874 and Vern for the examples, I really appreciate it. To answer Joel's question, we do issue fully burdened labor rates as you have illustrated. Also, thanks to Martin for citing that FAR reference.

Respectfully,

Share this post


Link to post
Share on other sites

Thanks, Troy

Share this post


Link to post
Share on other sites

Just curious, Troy. Does your organization develop and use fully burdened labor rates for each employee that include direct hourly labor, fringes, departmental overhead, and organizational overheads, etc.?

Joel,

Just for information, this has been a long time requirement for all agencies. Agencies have to accurately account for all costs and revenues from a number of means including statues, regulations, OMB policy, etc.

Share this post


Link to post
Share on other sites

Thanks, formerfed.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.
Sign in to follow this  

×