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Michael11

Agency requesting labor cost buildup for T&M proposal

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I think if the T&M labor categories have named people assigned to them in the offer, such as with key personnel, it is reasonable for the customer to understand the salary of that person as well as the indirect costs and profit associated with that category.

I disagree. I don't think that any of that is any of the customer's bleeping business. The only thing the customer should be concerned about is how the proposed T&M rates compare to what is out there in the marketplace. Sticking its nose into the other stuff is why it takes the government forever to do darned near everything. The government does not need to "understand" the salary of anybody. Do you understand the salary of your auto mechanic? Your plumber? Your doctor? Your lawyer? Your accountant? Do you even know what their salaries are?

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I agree for commercial T&M offers.

I also agree that the potential benefit that a CO may gain from having this information is minimal and outweighed by the potential risk of misunderstanding and misusing it.

I wonder if putting in “NSP – Not Separately Priced” for each of the cost and profit elements of the form would be responsive.

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Is it possible that the CO is concerned about potential unbalanced pricing (see FAR 15.404-1(g))? I note that 15.404-1(g)(2) and (3) say:

(2) All offers with separately priced line items or subline items shall be analyzed to determine if the prices are unbalanced. If cost or price analysis techniques indicate that an offer is unbalanced, the contracting officer shall

(i) Consider the risks to the Government associated with the unbalanced pricing in determining the competitive range and in making the source selection decision; and

(ii) Consider whether award of the contract will result in paying unreasonably high prices for contract performance.

(3) An offer may be rejected if the contracting officer determines that the lack of balance poses an unacceptable risk to the Government.[emphasis added]

Is it possible that the CO isn't sure how else to comply with this mandate than to get some kind of cost buildup information?

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I always supplied a breakdown spreadsheet and required the build up to make future modifications easier and to use the FAR Clause formulas in the case of labor under the Service Contract Act. Without knowing what the base year wages/benefits and other mark ups were, it was a lot harder to negotiate the new billing rates for SCA wage changes. In several years of doing it, I never had a complaint nor did anyone bring up market pricing.

For high skilled professional services I also wanted to know how much was going to wages/benefits and how much to overhead and profit. A vendor may propose low wages and high overheads that lead to high employee turnover. Another vendor has higher wages and low overheads but about the same billing rate. I would rather the worker get the money for reduced turnover and higher morale then pay high indirect costs from the corporation not staying lean and mean.

I know we are taught that we should not care about a contractors turn over as that is his problem but when hiring for complicated professional services the Government is the one hurt by high turnover. So you really want to know what the compensation plan for the employees will be.

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know we are taught that we should not care about a contractors turn over as that is his problem but when hiring for complicated professional services the Government is the one hurt by high turnover. So you really want to know what the compensation plan for the employees will be.

What evaluation factor will you use to assess the compensation plan?

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See FAR 22.1103 for the evaluation of compensation plans for contracts which will require meaningful numbers of professional employees.

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I think that in Post #7 the OP indicated that the acquisition is commercial. I say, "I think," because the post, which was in response to a question of whether the acquisition is commercial, is ambiguous in that regard.

FAR 22.1103 requires the inclusion of a solicitation provision, FAR 52.222-46, "Evaluation of Compensation for Professional Employees," in certain RFPs for services. I stand ready to be corrected, but I do not think that provision is applicable to solicitations for commercial items. See FAR 12.301(d).

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As I remember this thread, there is no mention in Section M of how the labor rate data will be assessed.

What evaluation factor will be used to assess the compensation plan?

Will FAR 22.103 be cited in a section M factor? The last sentence of 22.103 says : "Plans indicating unrealistically low professional employee compensation may be assessed adversely as one of the factors considered in making an award."

The last paragraph of FAR 52.222-46 says: "Failure to comply with these provisions may constitute sufficient cause to justify rejection of a proposal."

I think a section M factor is needed, but the GAO disagrees with me "In the context of a fixed-price labor hour contract...".

Quote

As discussed above, FAR clause 52.222-46 states that the agency will evaluate an offeror’s proposed compensation plan "to assure that it reflects a sound management approach and understanding of the contract requirements," and further states that the evaluation "will include an assessment of the offeror’s ability to provide uninterrupted high-quality work." FAR § 52.222-46(a). As relevant here, the clause also states that the compensation plan "will be considered in terms of its impact upon recruiting and retention, its realism, and its consistency with a total plan for compensation." Id. In the context of a fixed-price labor hour contract, our Office has held that this FAR clause anticipates an evaluation of whether an awardee understands the contract requirements, and has proposed a compensation plan appropriate for those requirements--in effect, a price realism evaluation regarding an offeror’s proposed compensation. See Apptis Inc., B-403249, B-403249.3, Sept. 30, 2010, 2010 CPD ¶ 237 at 9. The depth of an agency’s price realism analysis is a matter within the sound exercise of the agency’s discretion. Navistar Defense, LLC; BAE Sys., Tactical Vehicles Sys. LP, B-401865 et al., Dec. 14, 2009, 2009 CPD ¶ 258 at 17.

Unquote

Portfolio Management Solutions, LLC; Competitive Choice, Inc., B-408846; B-408846.4, December 12, 2013.

Live and learn!

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But.. supposing the solicitation is for commercial services, what should the government have to say about how much the contractor pays its employees? What do government personnel know about labor markets, compensation, and retention in the commercial world? Next to nothing!

When buying commercial services the government should act like a market buyer and focus on the services to be provided, the reputation of the seller (past performance), and the prices/rates to be paid in light of competitive market information.

I find it aggravating to think of government personnel who may know next to nothing about an industry, market, and business trying to judge salaries and benefits or determine whether compensation is adequate or costs are reasonable. It negates all the purposes of commercial items contracting. That makes sense in a non-market business like weapons acquisition, where there are few sellers and only one customer. It makes no sense (to me) at all in the context of competitive market capitalism.

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napolik,

Why do you think the GAO disagrees with you? In Portfolio, the Air Force stated that price was an evaluation factor. Price was to be evaluated as follows:

As relevant here, the solicitation stated that the agency would evaluate an offeror’s proposed total price and fully-burdened labor rates to determine whether the prices were “fair, reasonable and balanced.” Id. at 70. The RFP advised offerors that “nrealistically low or high proposed costs or prices, initially or subsequently, may be grounds for eliminating a proposal from competition either on the basis that the offeror does not understand the requirement or has submitted an unrealistic proposal.” Id. The RFP also included Federal Acquisition Regulation (FAR) clause 52.222-46, which states that the agency will evaluate an offeror’s proposed compensation plan “to assure that it reflects a sound management approach and understanding of the contract requirements,” and further states that the evaluation “will include an assessment of the offeror’s ability to provide uninterrupted highquality work.” FAR § 52.222-46(a); RFP at 9.

I think that the evaluation described in FAR 52.222-46 was included in the evaluation of price.

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Don,

The GAO considers 5 things when reviewing protests involving price realism:

1. If the solicitation doesn't provide for an eval of realism, the agency is not required to do so.

2. If the solicitation doesn't provide for the eval of realism, the agency must not evaluate realism.

3) If the solicitation provides for the evaluation of the realism of proposed prices, the agency must perform the analysis. Even if the solicitation doesn't use the term "price realism", an analysis is required if (1) the agency will consider if the proposed price is adequate/too low for the proposed tech approach and (2) the solicitation reserves the right to reject proposals or assess risk if the price is too low.

4. If FAR 52.222-46 requires agencies to assess the realism of professional compensation plans, it must do so.

5. If the solicitation provides for the evaluation of price realism, the agency has the discretion as to the manner and depth of the realism eval.

See the Ralph White slides on realism here: https://www.acc.com/chapters/ncr/upload/Slides-BidProtest2015.pdf.

I would require that the realism evaluation be stated explicitly in Section M, or its non-UCF equivalent. And, the section M factors must correspond to Section L submission requirements.

I do not like solicitations that diffuse factors throughout the solicitation, particularly when they are buried in a clause incorporated by reference..

I wonder how many small businesses would read FAR clauses incorporated by reference and discover an eval factor in 52.222-46?

XXXXXXXXXXXXXXXXXXXXX

PS:

Apparently, small businesses are not the only organizations susceptible to overlooking clauses incorporated by reference. It seems the Army did too, in at least one instance.

Look at the first complete paragraph on page 26 of this COFC decision:

http://www.uscfc.uscourts.gov/sites/default/files/opinions/ALLEGRA.CRASSOCIATES011812.pdf.

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Vern,

Thanks for raising the quesion of commercial. In my comment, I wasn't considering commercial or not. However, while FAR 12.301( d ) doesn't make use of the provision mandatory, 12.301( e ) seems to allow for its use on a discretionary basis. But if it is a commercial service, then there should be "established catalog or market prices for specific tasks performed or specific outcomes to be achieved." Thus, I agree with you in principle that we shouldn't need the provision in a real commercial services acquisition.

Unfortunately, it seems we like to buy services and call them commercial even when we don't have "established catalog or market prices for specific tasks performed or specific outcomes to be achieved." Or, in other words, we call an acquisition for services commercial even though it doesn't fit the definition in para. ( 6 ) of the Commercial Item definition in FAR 2.101. When we do that, we migh find that the provision is helpful, for reasons discussed above by others.

How many contracting officers even know that para. ( 6 ) of the Commercial Item definition in FAR 2.101 defines a commercial service? How many contracting officers validate that their commercial service acquisitions fit the definition?

Note: Above, I'm talking about services under para. ( 6 ) of the Commercial Item definition because we're talking about professional services. I'm not talking about services under para. ( 5 ) which are incidental to the purchase of a commercial supply item.

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ji20874:

Question: Under paragraph (6)(ii), can the existence of a market price for a service be established through the conduct of a competition for the work to be done, or must the market price have been established prior to and independently of the competition?

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Well, if it really is a commercial service, already bought and sold in substantial quantities in the commercial marketplace, one might suppose that market prices already exist.

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Well, if it really is a commercial service, already bought and sold in substantial quantities in the commercial marketplace, one might suppose that market prices already exist.

And right there is the fallacy at the heart of commercial item services.

There are several -- many -- providers of SAP implementation services. They range from the mega-huge (Accenture) to the smallest boutique consultancy. There can be no doubt that these entities routinely provide their services to non-governmental entities in the commercial marketplace. It's a large and well-documented market.

But the problem is: THERE ARE NO MARKET PRICES. None that can be documented.

It's not like Accenture has a catalog. Nope. The price is determined by the scope of the effort and perhaps competitive pressures. You want Accenture, you call and they come and you discuss scope and they discuss pricing. The scope and pricing is negotiated and then documented in a contract. If you're not the Federal government, you get Accenture's contract with very little flexibility on the Ts and Cs.

The problem with commercial item services is that the Government is trying to buy commercial services but is unwilling to accept the acquisition methods commonly used in marketplace.

At least, that's how I see it.

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H2H,

I appreciate your point. I think the FAR Part 12 drafters wanted to make a meaningful move to commercial practices, and they set reasonable bounds (such as in para. ( 6 )). I would suggest there are market prices for SAP implementation services, and that experienced practitioners in that marketplace come to understand what is reasonable in that marketplace. So I think para. ( 6 ) covers SAP implementation services; provided, the agency makes some attempt to buy the services in a manner customary in the commercial marketplace. An agency without experienced practitioners can obtain experienced practitioners, short- or long-term, by consulting contract. It is scary for a life-long federal employee who certainly is not an experienced practitioner in that marketplace to write a detailed statement of work for SAP implementation services, and then to pretend like it is a commercial acquisition. In such a case, the agency might be better served by more honestly approaching its acquisition as a non-commercial acquisition.

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j20874:

If you really appreciate H2H's point, then you should acknowledge that the definition in paragraph (6) is stupid.

From FAR 2.101, definition of "commercial item":

(6) Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions. For purposes of these services—

(i) Catalog price means a price included in a catalog, price list, schedule, or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers, and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and

(ii) Market prices means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors.

I think the requirement for "substantial quantities" and “established catalog or market prices for specific tasks” reflects the tendency of policymakers to treat services as if they were supplies, for which there are standard units and price lists. Those exist for simple services, but not for all services.

Many services sold in the commercial marketplace are custom projects or programs, each of which has a unique specification and price. Specific tasks are agreed upon, but defined uniquely in each sale. There are classifications and categories of work, but no discrete and standard units of performance or output for which quantities can be tallied in order to find out if "substantial quantities" have been sold. There are no catalogs. There are market prices, but they are for custom work between private parties and difficult to determine. You can know that such a category of service has been sold, but you cannot identify a unit, unless you look to... labor rates. But not all services are priced on the basis of labor rates, unless the service is priced by the hour, which many are not. They are priced by the job, and each job is custom. And many labor rates are costs, not prices in any meaningful sense.

If what I just said is right, then it might explain why people don't pay attention to the FAR definition.

In acquisition, policy is made on the basis of limited experience and dogma, not on research, and that is folly. The acquisition policy makers can't even define "services."

Anyway, I don't see how classifying a service that is regularly sold in the commercial marketplace as noncommercial makes its acquisition any easier. You still have to write a statement of work. You still have to manage it. And if you don't know what you're doing, well, you don't know what you're doing.

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What does a contracting officer when the FAR definition is "stupid"? Does he or she ignore the definition, and substitute another definition instead? Or does he or she try to make it work, using whatever flexibility his or her agency allows?

I tend to prefer the latter approach. For that reason, if a program office in my agency came looking to buy SAP implementation services, I would probably conclude that the services are commercial under the definition in para. ( 6 ). I would probably conclude:

. YES Services of a type offered and sold competitively in substantial quantities in the commercial marketplace;

. YES Based on market prices for specific outcomes to be achieved; and

. YES Under standard commercial terms and conditions (at least, I hope so).

If I took the approach that you and H2H appear to be taking, then I would declare that market pricing does not exist. in that case, my conclusion would have to be that the service cannot be bought as a commercial service:

. YES Services of a type offered and sold competitively in substantial quantities in the commercial marketplace;

. NO Based on market prices for specific outcomes to be achieved; and

. YES Under standard commercial terms and conditions (at least, I hope so).

However, I would not adopt a "no market prices exist" approach for SAP implementation services.

There are market prices for SAP implementation services. Experienced practicioners can get a feel for price expectations. The FAR definition does not require that the market prices be easily documentable or that they be based on units; rather, it only requires that they exist.

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First, I haven't said what approach I would take. Where did you get that idea? And I do think market prices exist. The question is: How does a CO determine and document that they exist? In your last post you said: "There are market prices for SAP implementation services." Okay, how would you prove it? What are those prices?

That is an issue that you raised indirectly in your Post #37. In response, I asked you a question, which you did not answer on point:

Under paragraph (6)(ii), can the existence of a market price for a service be established through the conduct of a competition for the work to be done, or must the market price have been established prior to and independently of the competition?

Well?

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is scary for a life-long federal employee who certainly is not an experienced practitioner in that marketplace to write a detailed statement of work for SAP implementation services, and then to pretend like it is a commercial acquisition.

And yet, many upon many private sector employees buy such services routinely, even though they are not themselves experienced practitioners in that marketplace. When my employer(s) want to do a major ERP implementation, they do not write a detailed SOW. Instead, they partner with the service provider and go -- together -- on a journey that (hopefully) ends with a successful implementation. They hire smart and qualified experts based on a statement of qualifications and past performance and referrals and interviews. They negotiate a price, whether per hour or for the job and -- if they're smart -- they put a huge award or incentive or bonus at the end to motivate performance. Then they let the experts drive the project.

I realize there are constraints on what can be done at the Federal level, but that's how it's done in the marketplace. If the government wants to enter the marketplace as a contracting party instead of as the sovereign, it needs to do so in the way the other contracting parties operate.

Just my two cents. But this is important, in my view, because if Kendall wants his innovation and commercial agility (as he says he does) then this is one of the things that needs to be changed.

H2H

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Vern,

I got the idea because of your expansive text on how market prices for something like SAP implementation services are "difficult to determine" and the inferred implication applying the definition in para. ( 6 ) is therefore problematic.

It seems we agree that market prices exist for SAP implementation services. Can we stop here and celebrate? But you asked further, "How does a CO determine and document that they exist?" and "How would you prove it?"

I am unaware of any requirement for a written determination or other standard for documentation to "prove it" to anyone. Not being aware of any such requirement, I choose not to answer the question.

A contracting officer comes to realize that market prices exist and can be substantiated through competition by his or her understanding of the marketplace for that type of service, including market research. I think a contracting officer who is an experienced practicioner in the SAP implementation services marketplace can simply assert that market prices exist and proceed under the para. ( 6 ) definition -- after all, some things are self-evident. Any burden to prove anything lies with those who object to defining SAP implementation services as a commercial service.

But I do think market prices exist. I also think experienced practicioners can have some idea of what an organization's approach should cost, based on those market prices. With absolute precision? No, but the FAR doesn't require absolute precision. The subsequent competition can substantiate the prices.

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ji20874:

I am unaware of any requirement for a written determination or other standard for documentation to "prove it" to anyone. Not being aware of any such requirement, I choose not to answer the question.'

That is ridiculous. See FAR 4.801, 10.001(a)(3)(ii) and 10.002(e), and 12.101.

On the record: You have dodged the question. I did not expect that from you, and I cannot understand why you won't answer. But, so be it.

I think that paragraph (6)(ii) provides for establishment of market prices by conducting a competition. I don't think a CO needs to establish the existence of market prices before a commercial item competition can be conducted.

Furthermore, establishing that there have been sales in "substantial quantities' need not entail tallying of numbers of individual sales. Sales volume can be established on the basis of general market information about periodic sales dollars, which is widely available.

I'll go so far as to say that all software development is commercial, no matter what the purpose of the software or the language used, and that the truth of that statement is so self-evident based on market literature as to require little additional documentation. I'll go further and say that any doubts in that regard are absurd.

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Vern,

None of your citations requires a written determination proving that market prices exist and what they are when classifying an acquisition as a commercial service under para. ( 6 ).

You wrote,

Many services sold in the commercial marketplace are custom projects or programs, each of which has a unique specification and price. Specific tasks are agreed upon, but defined uniquely in each sale. There are classifications and categories of work, but no discrete and standard units of performance or output for which quantities can be tallied in order to find out if "substantial quantities" have been sold. There are no catalogs. There are market prices, but they are for custom work between private parties and difficult to determine. You can know that such a category of service has been sold, but you cannot identify a unit, unless you look to... labor rates. But not all services are priced on the basis of labor rates, unless the service is priced by the hour, which many are not. They are priced by the job, and each job is custom. And many labor rates are costs, not prices in any meaningful sense.

I agree with what you wrote. Everyone already knows all of this. But you also wrote,

How does a CO determine and document that they exist? In your last post you said: "There are market prices for SAP implementation services." Okay, how would you prove it? What are those prices?

I replied that some things are self-evident, and that I don't have to prove it. You disagreed. But then, you wrote,

I'll go so far as to say that all software development is commercial, no matter what the purpose of the software or the language used, and that the truth of that statement is so self-evident based on market literature as to require no further documentation. I'll go further and say that any doubts in that regard are absurd.

Why do you say self-evident and "no further documentation" for your assertion of commerciality for all software development but deny it to me for my assertion for SAP implementation services? Maybe we can agree -- I don't have to "prove it" for SAP implementation services and you don't have to "prove it" for all software development? After all, any doubts in this regard are absurd.

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I did write "no further documentation," I admit it, but I changed "no further documentation" to "little additional documentation" before you wrote your last post. I was hasty. It's my fault. I take responsibility. I was wrong.

But documentation was not the issue. The issue was whether a CO can determine the existence of market prices based on the instant competition. It was an interesting question. It was not complex or difficult to answer. It's been discussed before. Professor Cibinic wrote about it years ago. What your answer would have been is not self-evident, and this is a discussion forum, right? You used documentation to evade answering. I think that your evasion is strange, but there it is. Anyway, you know my answer to my question.

Look, ji20874, just tell me if you don't want to discuss things, or if you don't want to discuss them with me, and I won't try to start a discussion with you again. I won't be offended (not that you should care). I'll just say what I have to say about what you say and let it go at that.

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