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Unusual FFP pricing structure - can anyone understand?

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Government is buying audits. There will be five, all to be completed in one year. The RFP states the award will be FFP.

The RFP has no instructions to bidders as to what they should be provided as support for the fixed price. The RFP does say that price will be evaluated for fairness and reasonableness. It is under FAR Part 12.

The format for pricing consists of a table with three CLINs

CLIN 1 - Direct labor for audits. Quantity - 1. Unit - YR

CLIN 2 - Overhead for audits. Quantity - 1. Unit - YR

CLIN 2 - Travel. NTE. Quantity Unit - LT

When the government was asked why direct labor and overhead are separate, the government responded:

Overhead costs are expected to be approximately 30% of direct labor costs. Profit/fee will not be broken out. This will be a Firm Fixed Price Contract, so any profit is built into the price. Other direct costs, such as software licenses could be listed under the direct labor CLIN as a direct cost.

Will the awarded contract have a separate fixed price CLIN for overhead? What is the purpose of this? Is the "rate" of overhead an evaluation factor? How can that be, without more detail as to what the "overhead rate" represents?

Again, this is NOT a T&M contract, it is FFP.

No more questions will be answered by government. Any ideas gratefully received.

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Does the model contract contain any local clauses that cast any light? If not, it seems the CLIN structure is irrational. How does the effort associated with CLIN 1 represent a separate effort from CLIN 2? For instance, how would the government inspect “performance” under CLIN 2 distinct from performance under CLIN 1?

You write, “No more questions will be answered by government.” I understand that, as a potential offeror, you probably don’t want to make a lot of waves, but you should seriously consider an agency-level protest if the PCO won’t explain. If the agency is part of DoD, the allegation could be based on failing to comply with DFARS 204.7103-1. If the agency is not DoD, the allegation could be that the solicitation contains a patent ambiguity as to whether the contract is (in fact) FFP. Alternatively, you could protest that the CLIN structure conflicts with Part 31 and the proper treatment of indirect costs.

Where are you supposed to include ODCs, G&A, FCCOM, etc.? is there contract financing? If not, and there will be five audits, does the contract envision payments for partial deliveries? How is the government’s proposed CLIN structure consistent with FAR 32.906©(1)?

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Having worked at several audit firms for several years, I'm amused at the notion that an audit firm would be able to identify direct labor costs and overhead costs. At one Big 4 firm I worked for, the direct labor costs were "standard" costs charged to the job based on seniority and the labor costs varied by type of audit performed. In other words, the same person working on a financial statement audit and a GAGAS audit would have two distinct and vastly different direct labor rates. Why? Because it was a partnership and the partners could do their job cost accounting any dang way they pleased.

If the agency was really looking to buy audit services under Part 12 procedures, it would have the bidders submit staffing profiles to assure quality and then a FFP per audit. Period. That's pretty much how the commercial marketplace buys audit services. You can play with cost-reimbursable travel if you want, or you can FP that CLIN as well, based on location.

Finally, the notion of buying "ONE YEAR" of Direct labor and "ONE YEAR" of Overhead is crazy on its face. The customer is buying audits, not overhead. Does the customer want to buy one year's worth of the overhead of the entire audit firm? Of course not.

Amazing ....

H2H

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I've never seen anything like this before either. My best thought is it's a confusion with the requirement to bid indirect costs on materials as a fixed price on time and materials commercial (52.212-4 Alt 1 (I)(ii)(D)(2).

Very good idea on the protest, but you are so right about the waves. And yes to the point about separating the overhead out of the direct labor. What is even more odd, which I forgot to mention, is that this is a GSA schedule bid, (using part 12), so that presumably the overhead is already part of the market based rates.

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The Government in this situation could have definitely provided a clearer pricing structure; it would have been simpler if they had just two items (one for the audits and another for reimbursement of travel). However, based solely upon the provided information, I think that there are no grounds for a protest. I cannot see how the pricing structure disadvantages any Vendor, and they clarified your question about profit.

If I were in the situation, and absent any specific instructions in the RFP, I would provide a price for Line Item 1 along with a breakdown for the level of effort (labor category, number of hours, your GSA FSS labor rate, and your discounted price to the agency) and ODCs estimated. Then I would price Line Item 2 as 30-percent of Line Item 1, and state that you estimated your overhead as 30-percent of your direct costs, which is in-line with the Government's estimate.

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Overhead costs are expected to be approximately 30% of direct labor costs. Profit/fee will not be broken out. This will be a Firm Fixed Price Contract, so any profit is built into the price. Other direct costs, such as software licenses could be listed under the direct labor CLIN as a direct cost.

Whoever is responsible for that arrangement is an idiot. What is the RFP number? I want to make sure that the world knows about this outfit.

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However, based solely upon the provided information, I think that there are no grounds for a protest. I cannot see how the pricing structure disadvantages any Vendor, and they clarified your question about profit.

Metteec, I’m not following. I gave a few protest allegations, and H2H pointed out probably the best of the potential allegations so far, namely, that the Government’s proposed pricing arrangement is contrary to customary commercial practices for audit services. Why are “there no grounds for a protest”?

Your reference to ‘disadvantage’ suggests you may be thinking about standing, rather than whether there are valid protest grounds. I hope you aren’t suggesting that no one qualifies as an interested party to protest that a solicitation for commercial items contains terms contrary to customary commercial practice.

Assume that “interested party” means the same thing in an agency-level protest as it does in a pre-award protest at COFC, and that the proper test for determining whether the protester is an interested party is the ‘non-trivial competitive injury’ test. The protester in CGI Federal, Inc. v. U.S., No. 14-355C, http://www.wifcon.com/cofc/14-355.pdf, who was protesting that the Government’s proposed pricing arrangement was contrary to customary commercial practice, got past the standing hurdle. (That offeror was not LITERALLY prevented from bidding, it was simply unwilling to bid given the allegedly improper terms of the solicitation.)

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Thanks for all the advice. Boat very tippy, cannot provide specific information, very sorry. I appreciate everyone's chipping in, I thought perhaps this structure was the result of some new reg of which I was unaware. I will let all know what happens now the proposal has been submitted!

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