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Assuming the contract is more than a month or two long, you will need to figure out a payment mechanism describing when and how you will pay the contractor. Will you pay monthly, bi-monthly, quarterly? How will you compute the amount to pay?

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FAR,

Reading the tea leaves at both a civilian agency I just left and the DoD agency I reported to, Time & Material contracts are on the bad side of the pendulum swing these days. As such, many offices are probably scrambling to find another contracting method to accomodate the performance risks, scope of work uncertainty, and undefined requirements that are common.

T&M contracts accomodate those problems, but if the senior leadership bans or puts significant restrictions on using T&M contracting methods, program and contracting offices will seek an alternative method such as Fixed Price, Level Of Effort contracts. Of course the pendulum keeps on moving, and perhaps T&M will become acceptable again.

But then again, the pendulum may swing even further in its current arc, making the only "correct" choice to be firm fixed price for EVERYTHING. Such a train wreck seems to be unlikely, but given the quality of leadership in DC today, it is not beyond the realm of possibility.

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T&M contracts accomodate those problems, but if the senior leadership bans or puts significant restrictions on using T&M contracting methods, program and contracting offices will seek an alternative method such as Fixed Price, Level Of Effort contracts.

T&M and fixed-price level of effort contracts are so different in nature, that to see one as an alternative to the other strikes me as bizarre.

FP/LOE pays a lump sum for delivery of a number of hours employed in the pursuit of a task, the end of which is not in sight. The LOE is necessary to establish the scope of what might otherwise be a boundless undertaking. It is appropriate when you want a contractor to conduct a study to which it could devote a lifetime if somebody didn't tell it when to stop. The contractor must deliver the entire level of effort in order to get paid. The hours in the level of effort are not separately deliverable and payable. Failure to deliver the entire level of effort would be default. The LOE should be established on the basis of what process can be carried out with that LOE, not what result can be achieved through that process. You get a final report, which says something like: This is what we did, and this is what we learned before the LOE ran out.

T&M pays by the hour to undertake a job the end of which is clearly is sight: a car that wasn't running is running just fine. You pay by the hour, because even though you have a sense of how long it will take (ceiling price), you can't be sure. The contractor won't agree to a firm-fixed-price and you don't want to cover all cost contingencies by using a cost-reimbursement contract. If the contractor finishes sooner than expected, then you pay it only for how long it took to finish the job. If the contractor can't finish within the ceiling, you can raise the limit or take the parts and go home.

These contracts are not alternatives for one another. They are designed to serve fundamentally different purposes. The work in fundamentally different ways.

I sure hope that there aren't many people who think that they should resort to FP/LOE if their agency tells them to stop using T&M.

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I agree with Vern on the purposes of T&M and LOE contracts, but most of the T&M contracts I saw were misused as LOE efforts for projects such as contractor support in the various offices within the agency I worked at. The philosophy was and is wrong, but no efforts of mine were effective at making a change. I cannot say how all offices see these contract vehicles, but that was the philosophy in my last organization. Hopefully the trend is to put projects in the right type of contract rather than simply lumping all into one type or banning a type such as T&M without understanding.

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I am not sure that everyone is using the definition in FAR 16.207 for FP LOE. I think they some may be using the term LOE not so much to define the quantity of hours to be delivered but that the work does not have a specific deliverable based SOW. Would something like a FP of $200,000 for a full time one year onsite Program Manager to perform Program Managament work be considered a FP LOE contract or just a FP contract?

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I am not sure that everyone is using the definition in FAR 16.207 for FP LOE. I think they some may be using the term LOE not so much to define the quantity of hours to be delivered but that the work does not have a specific deliverable based SOW. Would something like a FP of $200,000 for a full time one year onsite Program Manager to perform Program Managament work be considered a FP LOE contract or just a FP contract?

I would consider that a level-of-effort contract. An LOE need not be specified in terms of hours. It may be specified in terms of days or FTEs. However, what you describe is the classic employment, i.e., personal services, contract. Most people probably would not label it as an LOE contract.

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dwgerard,

My question is with the assumption since this is the subcontracts forum (I know, assuming...). I thought the original poster's Prime contract was T&M and wants to issue a subcontract as FP LOE.

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dwgerard,

My question is with the assumption since this is the subcontracts forum (I know, assuming...). I thought the original poster's Prime contract was T&M and wants to issue a subcontract as FP LOE.

How is converting a T&M contract to a FP LOE contract "issuing" a subcontract? "Converting" means changing from one condition to another, not adding to a condition. I cannot see how the original question changes because of what forum that the question is in.

If a prime has a T&M contract with the Government, he can issue any kind of subcontract he wants, provided the contract does not have some sort of restrictions against a particular type of contract.

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How is converting a T&M contract to a FP LOE contract "issuing" a subcontract? "Converting" means changing from one condition to another, not adding to a condition. I cannot see how the original question changes because of what forum that the question is in.

If a prime has a T&M contract with the Government, he can issue any kind of subcontract he wants, provided the contract does not have some sort of restrictions against a particular type of contract.

Red Herring

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Red Herring

Thanks everyone.

We have a bunch of proposals submitted to us on a T&M basis. When our T&M converted to LOE, our LOE is based on FTE's, and so will these potential subs. It would seem to me that the proposal they originally submitted should not be much different in price, just because they will now be perfomring on a FP LOE basis. It seems if a certain part of their SOW is more difficult to price, in other words, not the entire proposal, that could merit an increase in proposed price, but am I wrong to assume this?

What should I expect when i ask for a FP LOE proposal versus these T&M proposals I have?

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I think both you and your subs won't experience anything different than you did previously. If this were a new effort, a FP LOE might be better than a T&M contract because you get paid for the full LOE. A T&M contract could mean you work for less than the ceiling/funded amount. Of course the opposite (adding for funds and increasing the ceiling) is easier with a T&M.

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We use multiple FFP-LOE contracts for running various operations. They are treated much as T&M.

There are several labor categories, each with different rates. There are monthly billings computed at hours used times the established rate.

LOE is effectively defined not based on a raw hours count, but instead on a dollar weighted hours count.

So, effectively, it's T&M.

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