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Funding Fixed unit price contract line items


airborne94

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A level of production by skilled labor. I am new to FFP/FUP, but have been told that this pricing approach is treated like a cost or T&M clin (which don't require full funding at time of award). In the past I have always fully funded FFP clins, which is requied, but I am not familiar with the FUP element.

Thanks

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I assume you mean incrementally or partially fund the full fixed price amount. If so the answer isn't so clear. The FAR only mentions incremental funding with respect to cost reimbusement contracts. FAR 52.232-22 is used for solicitations and contracts if an incrementally funded cost reimbursement contract is contemplated. However some agency regulations talk about incrementally funded fixed price contracts - NASA only for reserach and developement and DoD DFAR 232.703-1 which states:

"General.

(1) A fixed-price contract may be incrementally funded only if?

(i) The contract is funded with research and development appropriations;

(ii) Congress has otherwise incrementally appropriated program funds; or

(iii) The head of the contracting activity approves the use of incremental funding for either base services contracts or hazardous/toxic waste remediation contracts.

(2) Incrementally funded fixed-price contracts shall be fully funded as soon as practicable after full funding is available."

So what does this mean with fixed price contracts for other things? Many agencies (non-DOD and NASA) still incrementally fund fixed price contracts assuming nothing in the regulations prohibit it. They include an appropriate clause limiting their obligation to the amount of funding provided. Others believe they cannot do it but I don't understand why.

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So the CLINs are Fixed Unit Price (FUP) but not Firm Fixed Price (FFP)? Are the CLINs optional? Do they state a total price or a maximum quantity / maximum dollar threshold?

Before delving into the topic of incrementally funding contracts again (which has popped up many times on wifcon [usually right around the end of the fiscal year]), take a look at a couple of past threads on the topic:

Civilian Agency Incremental Funding of Fixed Price CLINs

http://www.wifcon.com/discus/messages/8520/10308.html

Incremental funding of fixed price O&M service contract

http://www.wifcon.com/discus/messages/8521/8918.html

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I don't know what a "fixed unit price" contract is. It is not one of the contract types permitted by FAR 16. I think sometimes folks use such terminology to describe what is really just a T&M contract. In any case, I believe you already have your answer. If you do not have all of the money that you need right for for the full period of service, have you considered breaking up your requirement into option periods of less than a year each?

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Please see the text below: I found this in the WIFCON archives and this is part of a response provided by Vern Edwards. I don't think you are required to fully fund a FFP/FUP clin, since it is treated like a cost or T&M clin. Not 100% sure, this is why I am asking for help.

Firm-fixed-unit-price contracts are used when it is difficult or impossible to predict the amount of work that the contractor will have to do. They are an alternative to cost-reimbursement contracts and are similar to a labor hour pricing arrangement except that payments are based on units of output (e.g. cubic yards of excavation), rather than units of input (e.g., labor hours). These kinds of contracts are very standard in both government and the private construction sector.

A firm-fixed-unit-price contract does not compensate the contractor on the basis of its "cost experience." The contractor's cost experience is not relevant to the payment determination. It compensates the contractor for its production.

Eric, a firm-fixed-unit-price contract does provide an incentive to control costs. I have seen construction supervisors raise all kinds of hell with equipment operators for inefficient production. (I'll bet Joel has, too.) The company is getting paid per unit of production, not per hour, and heavy equipment rental is expensive. The contractor cannot control how many units he has to produce, but he can and must control how much input he uses to produce those units, or he'll go broke. However, firm-fixed-unit-price contracts are administratively more burdensome than lump sum contracts.

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Now I see what you mean. I initially though the "a level of production by skilled labor" was a certain level of effort (say 1000 hours at $100 per hour). If you meant instead that "a level of production" constitutes a certain output of work and the contract contains a fixed unit price for each output, you shouldn't have to fund the full CLIN or contract amount. You just need to ensure the contract langauge tells the contractor to not exceed the amount of funding

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What is a "level of production by skilled labor"? In general terms, at least explain what is being produced. Is this repair, maintenance, construction or what?

As stated above, unit-priced construction contracts are common in commercial, local and state government construction projects. Typical projects are utilities and transportation. It is also common on horizontal Civil Works construction and dredging contracts. Also used for painting and other type maintenance or repair contracts. Generally, the scope is known but not all quantities might be accurately known before execution, so unit-priced items with estimated quantities are mixed with lump sum items. These type contracts are considered FFP when the overall scope is "fixed" at award.

I think NASA also uses unit-priced items, such as launch support services, mission operations, mission recovery, etc.on a per mission basis.

Is this a DOD or NASA contract? I may have missed it above...

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Guest carl r culham

airborne94 - While comments received may help in answering your question I wanted to pass along that you should also have the same discussion with your fiscal folks to ensure they are on board with any approach as they have a vested interest. Also you may want to visit Vol II Chapter 7 of the GAO Principles of Federal Appropriation Law (Red Book), the discussion in the Book may also help.

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Guest Vern Edwards
Are you required to fully fund at time of award, FFP/Fixed unit price contract line items?

When awarding an FFP unit-priced construction contract, you must fully fund the contract up to the value of the specified or estimated quantities at the time of award. Why? Because you've hired the company to build something, and you have either specified or estimated the quantities of work that the contractor must do, and you have told them that you will pay them to do that much work. Thus, you have obligated yourself to that extent and must record that obligation and have enough funds to make good on your promise.

If pricing is based on estimated quantities, then you must make sure to establish the limit of the government's obligation, so you don't violate the Anti-deficiency Act. You can do that by including a clause telling the contractor to notify you in advance if the actual quantity of any work that is necessary to finish the job will exceed the estimated quantity and telling them not to exceed the estimate without written CO approval. I know of no standard clause for that purpose. You can look for one in agency supplements or write one. See Bauunternehmung GmbH & Co. KG, ASBCA No. 50693, 99-2 BCA ? 30547, in which the CO did it with two sentences:

In reference to the above unit- priced line items, the Government's obligation will be for work required and performed up to the line item ceiling. Unless the Contracting Officer executes a written modification, the contractor shall not exceed the line item ceiling.

See also, Peter Bauwens Bauunternehmung GmbH & Co. KG, ASBCA No. 44679, 98-1 BCA ? 29551, in which the CO did it with one sentence:

The unit price items in the specifications and drawings shall be performed and paid for on a unit price basis for the number of units actually performed and accepted, at the firm fixed unit prices set forth in the bidding schedule or specifications, provided that the contractor shall not perform work exceeding the ceiling price for the unit price item(s) without prior written approval from the Contracting Officer.

You could, alternatively, establish a total contract ceiling or a total ceiling for all unit-priced items, which could result in less paperwork than having a ceiling for each unit-priced item.

When limiting the government's obligation to estimated quantities or ceiling dollars, keep in mind that unreasonable delays in providing additional funding could be the basis for a government delay of work claim.

See, generally, FAR 36.207(a) about FFP unit-priced construction contracts. As Joel said, unit-pricing is often used in FFP construction contracts when quantities are uncertain, and is generally used in conjunction with the variation in estimated quantity clause, FAR 52.211-18. See FAR 11.702.

See the GAO Red Book, Vol. II, Ch. 7, pp. 7-19 thru 7-23 for a discussion of obligating funds to cover variable quanitities. The discussion in the Red Book is not very good when it comes to unit-priced construction contracts, but the general principles are clear.

I don't know what you meant when you said: "I don't think you are required to fully fund a FFP/FUP clin, since it is treated like a cost or T&M clin." That doesn't make sense to me. An FFP unit-priced construction contract requires completion (up to the limit of the government's obligation) in order for the contractor to be entitled to payment. Unit-pricing is a price calculation scheme. Such a contract is not a best efforts contract, like T&M or L-H.

In any case, you have the answer to your question.

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