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Chase Cooper

Can modification prices be based on the adequate price competition of the contract (15.403-1(b)(1))?

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Situation:  I am modifying a contract to descope some work that is no longer required by the government.  The descoped work is individually priced in the contract and the prices were determined fair and reasonable based on adequate price competition.  The value of the modification is over the TINA threshold. 

Question:  Am I required to obtain certified cost and pricing data?  FAR 15.403-1(b)(1) prohibits obtaining certified cost and pricing data when the CO determines that the the prices are based on adequate price competition.  I would argue that, since the modification prices are based on the contract's competed prices, the modification prices are also based on adequate price competition.  The counterargument is that the prices cannot be based on adequate price competition since the modification is inherently sole source.  Which view is correct?  Is there guidance to support either side?

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I assume that you want to make a price reduction and that the contractor might want to reprice the other line items in order to reallocate fixed costs. 

I assume that the work is not for a commercial item and that prices are not set by law or regulation.

If those assumptions are correct, then I don't think you had price competition of any kind for that kind of pricing. I think you're required to obtain certified cost or pricing data.

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4 minutes ago, C Culham said:

First question - In formulating your question was consideration given to FAR 15.403-4?

Yes, if the exception does not apply, I would be required to obtain certified cost and pricing data unless I requested a waiver. 

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2 minutes ago, Vern Edwards said:

I assume that you want to make a price reduction and that the contractor might want to reprice the other line items in order to reallocate fixed costs. 

I assume that the work is not for a commercial item and that prices are not set by law or regulation.

If those assumptions are correct, then I don't think you had price competition of any kind for that kind of pricing. I think you're required to obtain certified cost or pricing data.

No, only the price of the reduced scope CLIN is being adjusted.  The work being descoped was individually priced in the contract.  (Eg. a FFP contract is competed to re-roof 5 buildings.  The price to re-roof each building is individually specified in the contract.  The contract states that the fixed price to re-roof building #5 is $1M.  The government later decides to descope building #5 from the contract and the contract value is decreased by $1M.)

Correct, the work is not commercial and is not set by law or regulation.

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Maybe you have a partial termination for the Government's convenience, and you can easily negotiate a zero-cost modification?

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Has the contractor submitted a proposal to show the effect of the "descoping" on the price of the contract?  If not, what would prohibit the contractor from repricing other work? Is FAR 52.215-21 in the contract?  Is the "descoping" being accomplished as a change order or a partial termination for convenience or default?

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If certain job costs were allocated across line items, then the elimination of one line item could affect those cost allocations. But that really doesn't go to the question.

I think the answer to Chase's question is that he will have to require the submission of certified cost or pricing data. I don't think that the adequate price competition exception applies in this case. But that is really up to the CO to decide. If the CO thinks the exception applies, well, then....

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1 hour ago, Retreadfed said:

Has the contractor submitted a proposal to show the effect of the "descoping" on the price of the contract?  If not, what would prohibit the contractor from repricing other work? Is FAR 52.215-21 in the contract?  Is the "descoping" being accomplished as a change order or a partial termination for convenience or default?

Yes, the contractor submitted a proposal and the proposal was for the same price specified in the contract.  All the labor was fully burdened. 

 

1 hour ago, Vern Edwards said:

If certain job costs were allocated across line items, then the elimination of one line item could affect those cost allocations. But that really doesn't go to the question.

I think the answer to Chase's question is that he will have to require the submission of certified cost or pricing data. I don't think that the adequate price competition exception applies in this case. But that is really up to the CO to decide. If the CO thinks the exception applies, well, then....

I determined (and legal agreed) that the exception applied but my flight-chief vetoed my decision in his review.  While there is not competition with a modification, I see the prices being based on adequate price competition since we are using the same prices established by the competed contract.  I see the prohibition of 15.403-1(b)(1) applying since it specified "when the contracting officer determines that prices agreed upon are based on adequate price competition."  I am not the only CO in my office to see it this way so I was curious about others' opinions and if anyone had guidance or case law supporting either side.  Thanks for the input.

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3 hours ago, Chase Cooper said:

Situation:  I am modifying a contract to descope some work that is no longer required by the government.  The descoped work is individually priced in the contract and the prices were determined fair and reasonable based on adequate price competition.  The value of the modification is over the TINA threshold. 

Question:  Am I required to obtain certified cost and pricing data?  FAR 15.403-1(b)(1) prohibits obtaining certified cost and pricing data when the CO determines that the the prices are based on adequate price competition.  I would argue that, since the modification prices are based on the contract's competed prices, the modification prices are also based on adequate price competition.  The counterargument is that the prices cannot be based on adequate price competition since the modification is inherently sole source.  Which view is correct?  Is there guidance to support either side?

Are you describing the complete deletion of a severable item? If so, then the price of the item is the proper measure of the adjustment. See Administration of Government Contracts, Chapter 8:

 

Quote

 

If severable work is entirely deleted, its entire price, not what it would have cost, is the proper measure of the adjustment. In Gregory & Reilly Assocs., Inc., FAACAP 65-30, 65-2 BCA ¶ 4918, the contracting officer canceled one of the four phases of work on the contract by change order and reduced the contract price by the amount shown for that phase. In upholding the contracting officer, the board stated at 23,253:

We would agree with the Contractor that, where there is a change order reducing work under a lump sum contract, an appropriate equitable adjustment is the cost of performing that deleted work. In such a case, since no firm fixed prices have been agreed upon for separate items of work, it would be appropriate to consider what it would have cost the Contractor to accomplish the deleted work in arriving at an equitable adjustment for a deductive change. However, that is not the case here. The original Invitation for Bids is clear that the basis for bidding was on a firm fixed price for each phase of the work and in no way can be construed as proposing a lump sum contract. Contrary to the Contractor's understanding, Article II, Standard Form 22 of the Invitation for Bids expressly reserved to the Government right to make awards to different low bidders on the various phases of work or on a total aggregate price basis.

***

Nor does the fact that Contractor claims it submitted an unbalanced bid alter the above proposition. We recognize that the practice of submitting unbalanced bids in the construction industry is not uncommon. Where such bids do not involve collusion or fraudulent conduct by the bidder or some substantial irregularity affecting fair and competitive bidding, they are not objectionable.

In this case, the contractor had considerably overpriced the phase that had been deleted and had underpriced another phase of the work.

 

 

This is an exception to the "Would Have Cost" rule, where you would price the deletion of work based on current estimates of what it would have cost and, if necessary, obtain certified cost or pricing data.  

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Don, this was a severable item and we did use the firm fixed price specified in the contract as opposed to current costs.  I am a little confused though; are you saying that I should or should not require certified cost and pricing data in this situation?

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Chase,

Are you sure this isn't a partial termination for convenience, for which your contractor is willing to agree to a no-cost settlement?  FAR 15.403( a )( 1 )( iii )( A ) and ( B ) address certified cost or pricing data in termination situations.  You already said the contractor agrees to the deletion at the established CLIN price -- that's a no-cost settlement.  This, along with Don's input above, might be your path to no certified cost or pricing data.  However, if your attorney cannot convince your contracting officer, we may not be able to help you much.

If your contracting officer insists on certified cost or pricing data, he or she might cause the contractor to withdraw its no-cost proposal and submit a more expensive proposal instead.  If you call it a partial termination for convenience, you have solved your problem (and you're being intellectually honest versus calling it a descoping).

Just to be sure -- are you re-pricing any of the CLINs?  Or simply de-scoping/terminating work at the price already established in the contract, with the remaining work not being re-priced?

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5 minutes ago, Chase Cooper said:

Don, this was a severable item and we did use the firm fixed price specified in the contract as opposed to current costs.  I am a little confused though; are you saying that I should or should not require certified cost and pricing data in this situation?

I'm saying that, if it's the complete deletion of a severable item, you should not require certified cost or pricing data. I don't see the purpose for even requesting a proposal from the contractor. 

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I agree with Don that if all you're doing is deleting the item at the item price, then there is no need for certified cost or pricing data, not because there's no purpose, but because the pricing would be based on the adequate price competition otained prior to award .

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ji20874:

Are you saying that a deductive change to a separately priced item at it's firm fixed price is a no-cost settlement?

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No.  All I'm saying is that a partial T4C with a mutually-agreeable no-cost settlement might be more honest and easier than pretending like this is a deductive change.

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21 hours ago, ji20874 said:

"Are you sure this isn't a partial termination for convenience, for which your contractor is willing to agree to a no-cost settlement?"

"You already said the contractor agrees to the deletion at the established CLIN price -- that's a no-cost settlement."

Thanks. I agree, this appears to be a no cost settlement - partial termination. How is the partial T4C easier? Price adjustments (recovery) are handled under different clauses, but the contractor has already agreed to the deductive change/partial T4C at the contract price.

Just wondering what I'm missing in savings by choosing the termination versus changes clause.

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Vern:

Not sure - I suppose procedurally or otherwise. I process a lot of deductive changes with equitable adjustments, but rarely a clean no-cost T4C. In fact, I can only recall processing one.

Measuring the proper adjustment is different, but the rest appears similar.

 

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A no-cost T4C and a deductive change to remove an entire line item before performance has commenced are the same in effect and not much different if at all in terms of work effort. If anything, the no-cost T4C might be more work. I don't understand what ji20874 meant when he said that T4C is "more honest," but I don't want an explanation.

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