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MV2009

FAR Interpertation

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Anyone know of an online resource that shows all the changes to the FAR and its preceding regulations? I'm looking to see when and why the following at FAR 16.306(a) was incorporated:

"The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in work to be performed under the contract."

The reason I am looking for this is because I'm having a discussion about including a special clause to a competitive source selection. This special clause works as a negative incentive where if the firm does not comply with the terms and conditions of the contract, this clause would be enforced and the contractor would lose at least a specified portion of the fee per the clause. The intent of this clause is to encourage the contractor to put more focus on its administration of the contract but if they do not, the Government has a way to enforce non-compliance quickly vs. handling this in a sole source post-award environment (where getting consideration is often a time consuming effort). I am being told I can only use the applicable termination clauses to enforce non-compliance because FAR 16.306(a) specifies when the fee can change. While I agree the text states that the fee is fixed at time of award and doesn't change unless changes in the work occur, it is not clear to me whether the writers were considering post award administration issues that may arise and whether they would not agree with this type of clause being added to the contract. To me, the fee is fixed provided the contractor and Government adhere to the contract. If either party changes the contract or does not adhere to it, consideration is required. I don't think this type of clause violates the intent of the CPFF contract type based on that understanding. All this clause does is resolve the consideration issue for a specific issue when non-compliance occurs in a post award environment.

Sometimes understanding the context as to why the language was incorporated can provide better insight and help me know if I am off base or not. Any insight, recommendations, or thoughts are welcome.

Note: This clause does not override the termination clauses, it merely sets a floor as to what the minimum consideration would be for non-compliance.

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You can reduce the fixed fee for matters of post-award administration. For example, the contract clause at FAR 52.246-3, Inspection of Supplies—Cost-Reimbursement, allows the contracting officer to bilaterally or unilaterally reduce the fixed fee "f the Contractor fails to proceed with reasonable promptness to perform required replacement or correction."

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Guest Vern Edwards

Michael700:

The reason I am looking for this is because I'm having a discussion about including a special clause to a competitive source selection. This special clause works as a negative incentive where if the firm does not comply with the terms and conditions of the contract...

What "terms and conditions" are you talking about?

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Thanks for all the responses. Vern, I was talking in general sense when I stated terms and conditions of the contract. For purposes of discussion, let's assume there was a contract attachment that specified what guidelines the contractor must follow and it failed to follow those guidelines during performance. This is costly to the Government and consideration should be provided for this event. I agree that the Inspection clauses for Cost Reimbursement broadly state the intent of this clause and therefore, this special clause does not appear to violate the intent of the CPFF contract type as defined in FAR 16.306(a). The special clause would take the language in the Inspection clauses a step further as it would set a floor as to what the minimum amount the reduction in fee would be. This floor was being done in case there is a severe event that warranted termination (very unlikely).

I was told this couldn't be done because the special clause is not in agreement with the intent of FAR 16.306(a). I do not agree with that as the fee is fixed and does not change as long as both parties adhere to the contract. I appreciate everyone's thoughts so far.

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Guest Vern Edwards

Michael700:

You need legal advice. Under a cost-reimbursement contract, the contractor promises only to make its best effort to perform. If it makes its best effort and fails to perform, you can reduce the fee to reflect the percentage of work complete. That is essentially the idea under the inspection clauses for cost-reimbursement contracts. You pay fee only for work that has been accomplished.

What you seem to be talking about is fee reduction to compensate the Government for contractor breach of contract. You sound like you want to reduce fee as compensation for damages.That would be a problem when it comes to cost-reimbursement contracts, and the way you talk about it suggests to me that you haven't made a close study of the law of cost-reimbursement contracting. Calling it a "negative incentive" doesn't resolve the complexity.

I suggest that you sit down with a Government attorney who has a lot of experience with cost-reimbursement contracts -- a LOT of experience -- and tell him or her what, exactly, you are trying to do and what your theory is, and seek advice about how to do it, if possible.

FAR 16.306(a) simply describes the relationship between fee and the incurrence of cost. That paragraph has no bearing whatsoever on what you're asking about.

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Thanks, that is what they are referencing on why it can not be done. All I am trying to do is ensure the contractor does comply with the contract. If there is another way I am all ears but often times these issues would never rise to the level of termination but something needs to be done to ensure more care is done on this. In terms of studying the subject, do you have any recommendations?

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Guest Vern Edwards

If you want to be sure that a contractor complies with a contract, the first step is to not make the contract cost-reimbursement. As for study, the best and most comprehensive treatment of the topic is Cost-Reimbursement Contracting, 4th ed., by Cibinic, Nash, and Knight, 1,464 pages. Available in hardcover, softcover, and Kindle e-format. The following is the publisher's description:

Cost-Reimbursement Contracting, contains material on the formation of cost-reimbursement contracts as well as their administration from cradle to grave, with special emphasis on the detailed rules governing the allowability of costs. The book is organized in a clear and logical manner, and makes use of a large number of headings and subheadings to distinguish among the numerous detailed issues that arise in this area. The headings and subheadings also appear in a detailed table of contents, which provides a clear roadmap that shows the fundamental logic of each chapter. A comprehensive subject index can also be used to locate specific topics.

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I don't know the answer to the original question, but I wonder if negotiating a suitable contract type with applicable inspection/acceptance clauses and including a standard or non-standard liquidated damages type clause would give the desired results (e.g. 52.211-11, Liquidated Damages -- Supplies, Services, or Research and Development).

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I'm guessing Michael700 would tell me that a negative CPARS rating wouldn't accomplish what he wants to accomplish. I'd like to know why that would be the case. Why does Michael700 want to go above and beyond past performance reporting and obtain for the government monetary "consideration" for contractor breaches that don't rise to the level of warranting a termination?

I mean, if a negative past performance report doesn't work as a "negative incentive" then I think it's time we looked at the past performance system and figure out why it's not working as intended.

H2H

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H2H, CPARS is always a consideration. My main issue with it is there is no overall rating within the system (outside the question of whether you would or would not award to them). This non-compliance would likely be written up in the management or quality section. But if everything else is rated at very good or better, I would argue that this issue gets diminished. CPARS is a reactive tool during the period it is evaluating, the intent was to be proactive and have contractors propose better and put more focus on this so there is no issue in post award. I fully acknowledge that the CPARS should be used in evaluations of future awards and contractors can use the information to improve performance after the rating and thus some would say it can be proactive to preventing future issues.

Why was I recommending financial vs CPARS is because money is the main motivator in for profit firms. I know that if I get fees assessed on my bank account if the balance is too low or if I don't transfer funds into the account, I actively seek to avoid getting those fees assessed and manage my accounts accordingly.

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I recently read an article on award terms, and the power of continuing relationships, that disputes the assertion that profit (money) is the main motivator for company's. Overall the assumption is likely accurate, but on an individual basis it may not be true. Companies adopt various strategies and rationale for competing for awards.

GAO report number GAO-06-66 states "...profit is not the contractor's only motivation. Other considerations, such as securing future contracts with the government, can be stronger motivators than earning additional profit. More recently, research on award fees revealed that while these fees are an intuitively appealing way to improve contractor performance, they do not always operate that way in practice. Contractor respondents in one study stated that award fees motivate performance to some extent; however, the consensus was that they do not in and of themselves increase performance significantly. Research has also pointed to recurring disconnects between the intent and the administration of award-fee contracts...".

Other reports offer more specific arguments. The above report was discussing incentives and fees.

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