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13.5 Competitive Award - Price Increase After Award


CldGrl22

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Scenario - FAR Subpart 13.5 Procurement - True Commercial Item - High Demand - Extensive Market Research Resulted in Very Little Interest mostly due to such high demand in the commerical marketplace placing orders for hundreds of items - Gov't wants (can afford) less than 20 - Competed as full & open - Done as FFP LPTA - Left RFQ open for more than 30 days (about 50) and also specifically called 3 to 5 vendors thought may be interested in work to let them know RFQ was on FedBizOps - Rec'd 2 Offers - Only 1 was technically acceptable - only 1 offered FFP (other gave an "estimate" cost for items) - made award for LPTA offer -- now months after award successful Contractor is stating (basically) there is no way he can deliver at the price on contract as didn't understand fully how much work would be involved in manufacturing the refurbished item the Gov't needs and is prepared to default knowing it will impact his performance/future Gov't contracts - or can offer items at more than double what was originally proposed and is on contract - Gov't customer is in desperate need for items and wants to push forward even though it means significant price increase - knowing there is a lot else to do, i.e., see if fair/reaonsable price can be obtained, receive other than cost or price data, etc. can negotiations even be opened on this order with the contractor? Or, would the Gov't have to cancel/default this order and start again? Of course time is factor as well and current Contractor can begin delivery in Fall 15.

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Step A: Determine if you have a contract: Did the Contractor accept the order through substantial performance or returning a signed copy of your Purchase Order? If not, it may not have accepted the order, and you will have no basis for a termination for cause.

If yes, you have a contract, and consider whether a termination for cause is appropriate and take action. It is crazy to throw money at a company that has already demonstrated it not responsible to perform. Remember, in order to sign a contract, you need to determine the price to be fair and reasonable and that the Contractor is responsible. I think you will be hard pressed to make either determination in this scenario.

Else, if no, cancel the order.

Step B: Determine if your "urgent" need is truly urgent, see FAR 13.106-1(b )(1). If yes, document your sole source justification and consider one of the other Vendors that expressed interest and try to come to some sort of equitable arrangement.

Else, if no, issue a new solicitation.

Step C: If you issue a new solicitation, consider the issues you have experienced thus far. Maybe the issue is not just that you are competing with others to get this commercial supply or service, but that you have poorly described the work. Maybe the work cannot be described in a manner where a FFP makes sense? Could the combination of high performance risk associated with a FFP and the increased demand in the marketplace result in little Vendor interest? You could try to contact some of the Vendors in the marketplace and ask them why they did not submit a quote and ask what the best way is for you to get what you need quickly.

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Guest Vern Edwards

CldGrl22:

I can't help you. I find your writing style to be unreadable. I can take that kind of thing only from James Joyce or Thomas Pynchon. I'm not as young as Don and mettec. I started getting a headache while reading your writing. Do they teach that in business school now?

However, you have inspired me to dig out my DVD of Rodney Dangerfield's "Back to School," just so I can watch and listen to Sally Kellerman read Molly Bloom's soliloquy again. YES! YES!

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Interesting (to me) that this is a "true commercial item" but the government decided to acquire in a quantity less than the marketplace offered. To my limited way of thinking, the government should have established through market research what the "minimum buy" lot size was and then issued a solicitation for that quantity. In that way, the demand would have been aligned to the commercial supply. Because the government chose to buy in a quantity less than the market offered, it was not able to leverage the forces of the commercial marketplace. And now it has a problem.

Makes me think that this item was not a "true commercial item" because the government declined to acquire in a true commercial fashion.

H2H

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Hi Help - thanks for the interesting perspective. I guess you could equate it the government asking for half of a Snickers bar - the Mars does not sell a half of a bar, and have to find someone that buys a whole bar and split it with you, or you enter into a contract with Mars to make a half size.

I inferred that you think the half Snickers bar might not be a commercial item. Could you consider it a modified commercial item because of the difference in size?

Another potential solution I thought of (without knowing what is being purchased) is that another agency may purchase the commercial item. It may be possible to work with them to create an interagency agreement to have them supply the smaller than normal quantity.

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metteec,

I don't know if I've thought long and hard enough about this to give you a solid answer to your question. I'm wandering over to a position that says the item was commercial only if the government accepted the rules of the marketplace. When the government declined to acquire the commercial item in the manner offered by the marketplace, the item no longer qualified for commercial item treatment and should have been acquired by other than Part 12 procedures.

What's my regulatory basis for that tentative, draft, and altogether preliminary position? Why nothing. But I'm circling around a notion that the item required such extensive modification to meet the government's unique demand that it no longer qualified as a commercial item.

Maybe others will chime in and tell me I'm full of hot air. Wouldn't be the first time.

H2H

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Guest Vern Edwards

Here is the meat of the Joycean original post:

made award for LPTA offer -- now months after award successful Contractor is stating (basically) there is no way he can deliver at the price on contract as didn't understand fully how much work would be involved in manufacturing the refurbished item the Gov't needs and is prepared to default knowing it will impact his performance/future Gov't contracts - or can offer items at more than double what was originally proposed and is on contract -

So here it is: The parties entered into a contract. (The contractor is months into performance, so there is no question about its acceptance of a government offer.) As far as we know the award was legal. Now the contractor cannot (or will not) perform at the price to which it agreed and has stated its willingness to be terminated for default rather than suffer a loss. It wants more money or it will walk away. We have not been told why this is the case.

What would the government get in return for a price increase that it is not already entitled to receive under the contract? What authority does the CO have to give the contractor more money? Give! Donate!

Unless the CO can get authorization under FAR Subpart 50.1 to amend the contract without consideration so to provide extraordinary contractual relief or to correct a mutual mistake, the CO has no authority to agree to a price increase, the government's desperation notwithstanding.

So unless there are pertinent facts that have not been stated, the CO should either talk the contractor into completing the job at a loss or terminate for default and start over.

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The parties entered into a contract. (The contractor is months into performance, so there is no question about its acceptance of a government offer.)

Vern,

I don't agree that being months into performance necessarily constitutes acceptance of the Government's offer. FAR 13.004( b ) states that

"the supplier may indicate acceptance by furnishing the supplies or services ordered or by proceeding with the work to the point where substantial performance has occurred."

In Comptech, Inc., ASBCA 55526, the contractor had been performing under a unilateral purchase order for seven months and was granted a two-month extension. However, the board held that they had not accepted the Government's offer.

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Guest Vern Edwards

Don:

You might be right. But we don't know how the contract was formed. We don't know if the government issued a purchase order that created a unilateral contract or if the parties negotiated a bilateral contract. You asked, but have not received an answer. The following from the OP might be significant:

Contractor is stating (basically) there is no way he can deliver at the price on contract as didn't understand fully how much work would be involved in manufacturing the refurbished item the Gov't needs and is prepared to default knowing it will impact his performance/future Gov't contracts

That suggests that the "contractor" thinks there is a contract. It also suggest the possibility that the government misrepresented the condition of the item to be refurbished, which could be grounds for a claim for equitable adjustment.

All in all, the original post was poorly written and lacked information necessary for a thorough response, while providing a lot of information that appears to be irrelevant. And now the OP has gone off somewhere.

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There is acceptance. This PO was executed with bilateral signatures at award in Feb. We were concluding there is no other way than to cancel/default the current order and start again but thought I'd reach out in case missed anything. Especially since my guess is we will receive limited offers again and may only receive one from the same vendor so seems like a lot of work for nothing, so to speak, but understand. Hopefully I'm wrong and we can find more sources but that hasn't been the case thus far (working this procurement for better part of a year). Thanks to all that took time to respond and "help".

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CldGrl22,

Since this is a commercial item acquistion, you will want to start thinking in terms of termination for cause rather than termination for default. FAR Part 49 does not apply; rather, you're covered by FAR 12.403 and para. (m) of the contract clause at FAR 52.212-4. metteec used the right terminology above -- you will want to use the right terminology as well.

If the facts are as you describe, don't hesitate -- do the termination for cause now.

If the second offeror was unacceptable only because it gave an estimate instead of a firm price, and if its price is close to reasonable, you might consider opening negotiations with that one firm. See GAO Bid Protest Decision, B-410445, Maersk Line Ltd, Dec. 29, 2014, and talk to your attorney, and see what he or she thinks--

In this context, our Office has concluded that it is reasonable to award a reprocurement contract to the next-lowest-priced, qualified offeror under the original solicitation at its original price, provided the time span between the original competition and the default is relatively short, and there is a continuing need for the services.

* * * * *

As stated above, our Office previously has concluded that in a reprocurement where there is a relatively short time span between the original competition and the default, such as this one, an agency reasonably can view the offers received under the original solicitation as a measure of what competition would bring. Further, the record here reflects that a significant factor in the contracting officer’s determination to reprocure on the basis of the second-lowest-priced offer was urgency resulting from the defaulted contractor’s failure to perform, and the attendant national security concerns. For these reasons, this ground of protest is denied.

(internal citations omitted)

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CldGrl22, you indicated that the contract was for refurbishment of something. Can you explain your rationale for determining that this qualifies as a commercial item as defined in FAR 2.101? I'm not challenging you, but am curious as to the rationale in these circumstances.

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