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Informal Price Analysis for Options

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My contracting office requires an informal price analysis before the exercise of all option. About 90% of all our actions are BPAs and TOs against FSS, and 99% of all actions are for services (professional services not subject to SCLS). I intend to make an argument that memos documenting the informal analysis is not necessary for a majority of our actions based on the following reasons.

 

1.       These options were competed at the time of award and considered fair and reasonable

2.       Options prices are generally discounted GSA pricing which has been determined to be fair and reasonable

3.       Hourly labor rates for professional services rarely go down based on Employment Cost Index (ECI) table on the BLS site.

O

ur informal price analysis generally involves going on GSA to find hourly rates that are lower than the rates negotiated for the option periods, and using this information to satisfy 17.207. I understand why this would be necessary when buying products, especially commodities that could fluctuate in pricing but I am struggling to see why this is necessary for FSS professional services hourly rates. I have been an 1102 for only one year and I do not want to come-off as an idiot when I make this argument, this is why I am hoping wifconers can pick apart my argument and provide me with some missing points. The best answer I got from my Contracting Officer is that we once had a Group Manager(Branch Head) who came from another agency and required an informal price analysis for all options. I also think GSA CALC may be a better option for an informal price analysis as it provided an average price and standard deviation for a labor category. All comments will be very much appreciated.

ECI.pdf

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I'm guessing that you won't be able to show that exercising options  provide the best pricing, so there must be other reasons why you want continuity of services, which you have to document under 17.207 (d).

I don't think that the reasons you cited above would justify not performing some type of price comparison as part of the justification that the options are most advantageous to the government "considering price and other factors". You aren't simply "considering other factors". 

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FSS BPAs require an annual review in accordance with FAR 8.405-3(e) (usually performed at time an option is exercised).  It requires three things be considered and the results documented in the file.  Two of these items relate to the price paid under the BPA.  The CO has to determine if the BPA still represents the best value (see 8.404(d)) and if additional price reductions can be obtained if the estimated quantities/amounts have been exceeded.  While the BPA may have represented the best value to the government at the time of its initial award, it may or may not as time passes.  One element of determining best value is price.

 

Also, options must be exercised in accordance with the terms of the BPA and the procedures of FAR Subpart 17.2.  FAR 17.207 lists the determinations that must be made before exercising an option.  This includes determining “The exercise of the option is the most advantageous method of fulfilling the Government’s need, price and other factors (see paragraphs (d) and (e) of this section) considered.”  Also, it requires the CO to, “after considering price and other factors, shall make the determination on the basis of one of the following:

(1) A new solicitation fails to produce a better price or a more advantageous offer than that offered by the option. If it is anticipated that the best price available is the option price or that this is the more advantageous offer, the contracting officer should not use this method of testing the market.

(2) An informal analysis of prices or an examination of the market indicates that the option price is better than prices available in the market or that the option is the more advantageous offer.

(3) The time between the award of the contract containing the option and the exercise of the option is so short that it indicates the option price is the lowest price obtainable or the more advantageous offer. The contracting officer shall take into consideration such factors as market stability and comparison of the time since award with the usual duration of contracts for such supplies or services.

 

An informal analysis is one of the three bases for making this determination, and is probably the most often used. 

 

Even though you may not expect pricing to change, the determinations are still required.  For example, a year ago you or another CO may have awarded a BPA which included an hourly rate of $100, but since then another source has been identified or the market has become more competitive and the same service can be obtained at a rate of $85.  While $15 may not seem like much, over say 10,000 hours, that is a savings of $150,000.  Also, do not limit yourself to evaluating other GSA hourly rates for the service.  Your analysis should include other sources, including open market ones.   While the rates negotiated by GSA and included in your BPA may have been considered to be fair and reasonable, that doesn’t necessary mean the pricing will always be the most advantageous.  Also, I wouldn’t use the ECI as a rationale for believing that a service cannot be obtained in a more advantageous or lower cost manner.  Some contractors are more efficient than others,  have a better solution or approach to the service, or are willing to reduce market pricing to obtain more work or keep a labor force employed, etc.

 

Also, as a bit of advice, I would always ask someone to cite their basis for what they are telling you.  In your post you said that your CO said that a branch chief who came from another agency required the analysis you mentioned.  Hopefully, the basis for this assertion was also provided.  Folks should not only be doing something (right or wrong), just because someone else said it must be done, but why it must be done and what regulation, policy, etc. requires it.

 

“May the Schwartz be with you!”

- Yogurt

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Some contractors are more efficient than others,  have a better solution or approach to the service, or are willing to reduce market pricing to obtain more work or keep a labor force employed, etc.

Todd Davis,

Thank for your response,

Based on the highlighted response, do some Contracting Officers require their technical personnel to re-evaluate the technical proposal to see if the solution is still cost effective? i.e. do we have an Engineer IV preforming a task that could be performed by an Engineer II.

Another question that comes to mind, how can the CO/KO determine if other identified source can perform the work without getting some detailed information about their capabilities especially when price was not the most important evaluation factor during award. This sounds like determination (1), which I know I need to avoid if possible.

My idea was to use the ECI to support determination (2).

I think I may be over analyzing as usual, options must be exercised in accordance with the terms of the BPA and the procedures of FAR Subpart 17.2, I must make a determination based in (1) (2) or (3) and (2) & (3) seem to be the more logical options.

Thanks for the input.

 

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54 minutes ago, joel hoffman said:

I'm guessing that you won't be able to show that exercising options  provide the best pricing, so there must be other reasons why you want continuity of services, which you have to document under 17.207 (d).

I don't think that the reasons you cited above would justify not performing some type of price comparison as part of the justification that the options are most advantageous to the government "considering price and other factors". You aren't simply "considering other factors". 

Joel,

My problem is I can always find prices higher and lower than the option pricing for the labor categories, which is why I think the GSA CALC may be an option showing the option price is within 1 SD of the average pricing of the labor category.  I always use the higher prices in my memo to justify the option pricing is the most advantageous offer but I can't help but think this memo is BS.

Let me also add that price is almost never the most important evaluation factor.

Thanks for your input.

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Guest Vern Edwards

What's the distinction between "informal" and formal analysis?

Are you required to analyze rates or simply compare them to other (more current) rates? Analysis and comparison are different processes.

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3 minutes ago, Vern Edwards said:

What's the distinction between "informal" and formal analysis?

Vern,

My first thought was that a formal analysis requires following the requirement in 15.404-1(b) while an informal is more of a simple price check, less detailed. After reading through that section of the FAR, I believe the difference is simply the level of detail and the techniques describe can 15.404-1(b)(2) can be used with varying detail.

Looking forward to your input.

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35 minutes ago, MAY-D-FAR-B-WIT-U said:

Based on the highlighted response, do some Contracting Officers require their technical personnel to re-evaluate the technical proposal to see if the solution is still cost effective? i.e. do we have an Engineer IV preforming a task that could be performed by an Engineer II.

 

I wasn’t suggesting that.  I don’t know what other COs do, but I wouldn’t do that (re-evaluate the technical proposal).

The point I’m making is that prior to exercising an option on a FSS BPA, a CO must determine the BPA still represents the best value to the government and that exercising the option is the most advantageous method of fulfilling the Government’s need, price and other factors considered. 

In some situations all that is needed is to conduct an informal analysis of pricing or an examination of the market to determine if the option price is better than prices available in the market or that the option is the more advantageous offer.  This includes conducting market research to gather other types of information from the marketplace, not just pricing.

In situations where there is doubt that the option represents the best price or the most advantageous to the Government, then a new solicitation may be issued to determine what the market has to offer.  The FAR states this method should not be used to test the market if it is anticipated the option represents the best price or most advantageous.

Use the method appropriate for your circumstance.  The goal should not be to avoid one a particular method, but rather to do what will ensure the Government obtains the best value and the most advantageous method of fulfilling its need.

Sometimes, the best course of action is to not pursue exercising the option at all, in which case no written determination is required.  For example, it may already be known, or there may be reason to believe, there is a better solution in the market place or new sources that were not previously known that represent a better value or more advantageous method of fulfilling the Government’s needs. 

I suspect that too often COs perform little to no analysis or avoid the latter two alternatives above, because they may require greater effort (it’s just easier and quicker to exercise the option).  The facts of a particular circumstance and what is in the best interest of the Government, not the COs interest, should guide a CO.

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Guest Vern Edwards
3 hours ago, MAY-D-FAR-B-WIT-U said:

Our informal price analysis generally involves going on GSA to find hourly rates that are lower than the rates negotiated for the option periods, and using this information to satisfy 17.207.

What kind of hourly rates do you have? Direct labor rates (employee payment), which don't include indirect costs and profits, or burdened rates, which do include indirects costs and profits? If burdented rates, what do they include beside direct labor rates?

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@ Todd Davis, thanks for the knowledge. I talked to another CO who just told me the story of a CO who exercised the option on salt without a price analysis only to find out the price of salt had dropped significantly.

 

@ Vern,

What kind of hourly rates do you have? Direct labor rates (employee payment), which don't include indirect costs and profits, or burdened rates, which do include indirects costs and profits? If burdented rates, what do they include beside direct labor rates?

Vern,

These are fully burdened rates (discounted GSA prices) and are FFP contracts. We negotiate how many hours will be needed for the requirement and generally use the changes clause to add more hours if needed.

 

 

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This contracting officer paid a price, literally, for failing to do a market price analysis:  http://www.gao.gov/assets/330/325996.pdf.

Quote

The basis for assessing the debt against Mr. Martino was the lack of evidence that he conducted or relied upon any kind of market survey in signing the contract extension as required by regulation. PCC's Inspector General found substantial evidence to support the conclusion that the extension was made with the knowledge that it was not supported by fact and was contrary to law or regulation. In particular, the contract extension was for $355/ton of liquid chlorine at a time when the producer price index was around $200/ton at the point of origin and the contractor was paying $165/ton to its supplier. The PCC concluded that since prices were considerably lower than the PCC was paying, Mr. Martino could not have conducted the required investigation of market prices prior to extending the contract. The PCC found that Mr. Martino's deliberate disregard of the FAR which required a market analysis made him responsible for the losses sustained by PCC as a result of his actions. Given the wide disparity in prices between what the PCC paid and what it might have paid for the commodity in question, we conclude that the PCC had a rational basis for the finding it reached.

Unquote

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7 hours ago, MAY-D-FAR-B-WIT-U said:

Joel,

My problem is I can always find prices higher and lower than the option pricing for the labor categories, which is why I think the GSA CALC may be an option showing the option price is within 1 SD of the average pricing of the labor category.  I always use the higher prices in my memo to justify the option pricing is the most advantageous offer but I can't help but think this memo is BS.

Let me also add that price is almost never the most important evaluation factor.

Thanks for your input.

MAY-D-FAR, it would seem to me that there would have to be some significant non-price reason(s) to justify multiple option years on FSS contracts. You have indicated that there are lower prices available.  However, you are not revealing that in your documentation, which you characterize as "BS".  

The most advantageous offer should be truthfully justified, based upon the combination of price and the other important considerations per 17.207 (d).  If you can't justify paying higher prices for some important advantage, then perhaps you shouldn't be using options. 

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Guest Vern Edwards
20 hours ago, MAY-D-FAR-B-WIT-U said:

My contracting office requires an informal price analysis before the exercise of all option. About 90% of all our actions are BPAs and TOs against FSS, and 99% of all actions are for services (professional services not subject to SCLS). I intend to make an argument that memos documenting the informal analysis is not necessary for a majority of our actions based on the following reasons.

Emphasis added.

I think that what you meant to say is that you intend to argue that an informal analysis is not necessary for a majority of your actions, because the option prices were the product of competition, are based on discounted FSS prices, and hourly labor rates rarely go down. I do not think you plan to argue just about the need for memos. Am I correct?

If I am right, then I don't think your argument is sound. I think FAR requires that you determine whether the option prices you agreed to for the option periods are still fair and reasonable just prior to exercise of an option. How you do that is up to you, as long as you can make the case that your conclusion is based on some kind of evidence and sound reasoning.

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15 hours ago, napolik said:

This contracting officer paid a price, literally, for failing to do a market price analysis:  http://www.gao.gov/assets/330/325996.pdf.

napolik: That is an extraordinary and interesting GAO case, and quite the spooky story! Absent the following regulation, do you think that GAO case has any relevance for contracting officers who work for agencies that do not have such a regulation?

"PCC also relied on its acquisition regulations, set out in 48 C.F.R. Part 35, which state that personal liability may be assessed against the individual who has made an unauthorized commitment of government funds. Panama Canal Commission Acquisition Rules (PAR) § 3501.602-3(b)(1)."

Are you aware of any other GAO cases where the (non-Panama Canal Commission) contracting officer is held personally liable for failing to conduct market research, or a similar fact pattern? 

Are you aware of any other FAR supplements that explicitly create personal liability like those of the Panama Canal Commission?

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2 hours ago, PepeTheFrog said:

napolik: That is an extraordinary and interesting GAO case, and quite the spooky story! Absent the following regulation, do you think that GAO case has any relevance for contracting officers who work for agencies that do not have such a regulation?

"PCC also relied on its acquisition regulations, set out in 48 C.F.R. Part 35, which state that personal liability may be assessed against the individual who has made an unauthorized commitment of government funds. Panama Canal Commission Acquisition Rules (PAR) § 3501.602-3(b)(1)."

Are you aware of any other GAO cases where the (non-Panama Canal Commission) contracting officer is held personally liable for failing to conduct market research, or a similar fact pattern? 

Are you aware of any other FAR supplements that explicitly create personal liability like those of the Panama Canal Commission?

I had the opportunity to interact with the PCC during the mid 1990's before the Canal was transferred to Panama. The PCC was structured similar to a US Army Corps of Engineers District. It was a very professional and impressive organization. I remember that situation. It didn't surprise me that they held the CO accountable, because it was managed as a business, even though it was operationally run by US Government employees to my recollection. It was a mix of Ami's and Panamanians, many of whom grew up in the (then former) Canal Zone. 

EDIT: if you realize how important the Panama Canal has been to worldwide commerce, to the security of the America's and to the local economy since 1914, it is easy to understand how it is essential to properly operate and maintain it, including accountability for employees. And- its employees were appropriately compensated for their important responsibilities. 

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4 hours ago, MAY-D-FAR-B-WIT-U said:

Thanks to everyone for your input.

I think Joel highlighted what I was missing, I was fixated on the price part that I wasn't really using non-price factors in my reasoning and justification. 

👍 good! Glad we could be of help. I think it is a matter of focusing on why your organization decided to utilize options, then decide whether or not continuing with the same contract vehicle makes proper sense. I think that the contracting and program management officials should proactively analyze the next year's approach in time to be able to look at the best alternatives rather than simply reactively document the file why they are going to award the next option(s).

if you wait until 60 days out, it is too late to do anything other than make the story to justify awarding the option. 

I think the former course is the intention of 17.207, not the latter. 

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2 hours ago, PepeTheFrog said:

napolik: That is an extraordinary and interesting GAO case, and quite the spooky story! Absent the following regulation, do you think that GAO case has any relevance for contracting officers who work for agencies that do not have such a regulation?

"PCC also relied on its acquisition regulations, set out in 48 C.F.R. Part 35, which state that personal liability may be assessed against the individual who has made an unauthorized commitment of government funds. Panama Canal Commission Acquisition Rules (PAR) § 3501.602-3(b)(1)."

Are you aware of any other GAO cases where the (non-Panama Canal Commission) contracting officer is held personally liable for failing to conduct market research, or a similar fact pattern? 

Are you aware of any other FAR supplements that explicitly create personal liability like those of the Panama Canal Commission?

No, I have not found a regulation imposing personal liability for an unauthorized commitments, but I have found the following Extract from the Department of Defense COR Handbook, Chapter 7 - Contract Administration Ratification of Unauthorized Commitments.

See here: https://acc.dau.mil/CommunityBrowser.aspx?id=526643

Quote

The COR should report any perceived unauthorized commitments immediately to the Contracting Officer.  At the same time, CORs themselves must take great care not to instruct a contractor to perform a task that may be outside the scope of the contract. CORs are reminded that they, or any unwarranted Government official, may be financially obligated for any costs or damages incurred as a result of their directing contractor performance beyond the scope of their authority.

Unquote

 

 

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6 hours ago, PepeTheFrog said:

Are you aware of any other FAR supplements that explicitly create personal liability like those of the Panama Canal Commission?

I have long wondered the true answer to this question.

FAR 1.602-1, Authority, states:

(a) … Contracting officers may bind the Government only to the extent of the authority delegated to them.

(b) No contract shall be entered into unless the contracting officer ensures that all requirements of law, executive orders, regulations, and all other applicable procedures, including clearances and approvals, have been met.

FAR 1.602-3, Ratification of Unauthorized Commitments states:

(a) “Unauthorized commitment,” as used in this subsection, means an agreement that is not binding solely because the Government representative who made it lacked the authority to enter into that agreement on behalf of the Government.

(d) Nonratifiable commitments. Cases that are not ratifiable under this subsection may be subject to resolution as recommended by the Government Accountability Office under its claim procedure (GAO Policy and Procedures Manual for Guidance of Federal Agencies, Title 4, Chapter 2), or as authorized by FAR Subpart 50.1.

I have not read through the GAO procedure, but I feel that a contracting officer could be held personally liable when operating outside of their authority. After all, FAR 1.602.2 requires CORs be put on notice that the COR may be personally liable for unauthorized acts.

Maybe its common law that makes a contracting officer acting outside of their authority personally liable? Perhaps the legal liability is based on custom rather than statute (contracts, tort, etc.).

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It appears that contracting officers can have pecuniary liability.

See this discussion from Ask a Professor: https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=3&cgiQuestionID=18532

Quote

Up until a few years ago, Contracting Officers were not considered "Accountable Officials." In the second edition of the Government Accountability Office (GAO) "Principles of Federal Appropriations Law" (commonly known as the GAO Redbook) Volume II Chapter Nine the following definition of an "accountable officer is provided.

An accountable officer is any government officer or employee who by reason of his or her employment is responsible for or has custody of government funds. 62 Comp. Gen.476, 479 (1983); 59 Comp. Gen. 113, 114 (1979); B-188894, September 29, 1977. Accountable officers encompass such officials as certifying officers, civilian and military disbursing officers, collecting officers, and other employees who by virtue of their employment have custody of government funds. With rare exceptions, other officials who may have a role in authorizing expenditures (contracting officers, for example) are not accountable officers for purposes of the laws discussed in this chapter, although they may be made accountable in varying degrees by agency regulation. See B-241856.2, September 23, 1992.

 

However, this was recently changed. The current same section of the GAO redbook reads as follows:

An accountable officer is any government officer or employee who by reason of his or her employment is responsible for or has custody of government funds. B-288163, June 4, 2002; 62 Comp. Gen. 476, 479 (1983); 59 Comp. Gen. 113, 114 (1979); B-257068, Oct. 22, 1994; B-188894, Sept. 29, 1977.

 

Accountable officers encompass such officials as certifying officers, disbursing officers, collecting officers, and other employees who by virtue of their employment have custody of government funds. Clearly, the relevant statutory provisions are the first place one looks for the source of authority conferring the status of "accountable officer" and establishing the responsibilities and liabilities that go with it. Does this leave any room for agencies to create "accountable officers" by administrative action? Until recently, GAO decisions indicated that agencies could impose accountable officer status and liability so long as they did so by specific regulation. See B-247563.3, Apr. 5, 1996; B-260369, June 15, 1995; 72 Comp. Gen. 49, 52 (1992); B-241856, Sept. 23, 1992, and decisions cited. These decisions reasoned that such liability, duly imposed by regulation, could be regarded as part of the employee's "employment contract." However, in B-280764, May 4, 2000, GAO reconsidered its position and held that accountable officer status and liability can only be created by statute. The 2000 decision overruled prior inconsistent decisions.

 

The change between these two Redbook editions resulted from Congress passing the 2003 National Defense Authorization Act (codified at 10 U.S.C. § 2773a), which provided a statutory authority defining individuals who are responsible in the performance of their duties for providing to a certifying officer information, data, or services that the certifying officer directly relies upon in the certification of vouchers for payment as "accountable officials." While the statute does not further define this, the DoD Financial Management Regulation (FMR) DoD 7000.14-R (http://www.dod.mil/comptroller/fmr/) does specifically include both the Contracting Officer and the Administrative Contracting Officer in their list of "accountable officials" since, in the course of their duties, they provide accounting information to certifying officials. Thus Contracting Officers are possibly pecuniarily liable for erroneous payments resulting from their negligent actions in accordance with 10 U.S.C. § 2773a.

Unquote

See 10 U.S. Code § 2773a - Departmental accountable officials here: https://www.law.cornell.edu/uscode/text/10/2773a.

Also, I found a power point presentation entitled “Certifying Officer Legislation Training” here:  

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwips9KjhdHQAhUBhiYKHcAwAc8QFggbMAA&url=http%3A%2F%2Fsill-www.army.mil%2FUSAG%2FDOC%2Fppt%2FCOL%2520TRAINING.PPTX&usg=AFQjCNG6wWsRutS_3MFQpraKsyha-9svQA&bvm=bv.139782543,d.eWE.

I found this on slide 12 of the power point presentation

Quote

Departmental Accountable officials are responsible for providing to a Certifying Officer information, data, or services that are directly relied upon by the Certifying Officer in the certification of vouchers for payment.  Two examples of individuals who could be appointed as Departmental Accountable Officials are: Receiving Officials and Contracting Officers.

Unquote

Next, I found this on page 33-9 of the DoD 7000.14-R Financial Management Regulation VOLUME 5, CHAPTER 33: “CERTIFYING OFFICERS, DEPARTMENTAL ACCOUNTABLE OFFICIALS, AND REVIEW OFFICIALS”

Quote

*330305. Departmental Accountable Officials (DAOs)

A. DAOs are responsible in the performance of their duties to provide certifying officers with information, data, or services to support the payment certification process. They have unique mission area responsibilities that require supervisors and appointing officials to not only decide if DAO appointments are required, but also define clearly each DAO’s functions. Appointment of DAOs in not mandatory; examples of persons whose duties could be considered as appropriate to support their being appointed as DAOs include, but are not limited to, receiving officials, contracting officers, personnel who make payment eligibility determinations, time and attendance personnel, and travel approving officials.

Unquote

Finally, DoD 7000.14-R Financial Management Regulation Volume 10, Chapter 23 seems to focus only on contracting officers involved with purchase cards: http://comptroller.defense.gov/Portals/45/documents/fmr/Volume_10.pdf.

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