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ContractingPeoplesHatred

Firm Fixed Price versus Firm Fixed Unit Price - For Services Contracts

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Hello, 

I am having trouble grasping this concept and was hoping for someone to give me an answer or at least a nudge in the right direction. At my organization that I just started at there are a lot of contracts that say "this order is issued on a firm fixed price basis" but the contracts are set up that they have a fixed unit price that the contractor submits based on the actual quantity incurred. Be it 130 hours for the month at $X.XX per hour or maintenance and repairs that we provided an estimated quantity but they invoice based on actual maintenance and repairs. The CLINs have a total amount on them but it is not stated it is a ceiling. These contracts just don't seem like Firm Fixed Price Contracts to me as they have variability in the total price. I think of a Firm Fixed Price Contract as an agreed to, at award, total amount that the contractor gets if they perform the work. If they only incur 10 hours they get loads of profit or if they incur 10,000,000 hours they lose money. 

What do you believe is the best practice when you have an unknown quantity but have a fixed unit price and you do not want to do an IDIQ?

Can you explain where the line is drawn between FFP, T&M/LH, and a Firm Fixed Unit Price?

From my limited explanation do you think these contracts should be issued as T&M/LH? Over a non-FAR contract type?

If you have a variable quantity but a Fixed Unit Price is it considered a Firm Fixed Price Contract?

If a contractor submitted an REA at the end of the contract saying that we owe them the full amount because we said "this order is issued on a firm fixed price basis" do you think they would win? 

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Vern wrote a good article on the subject for the Nash & Cibinic report. See "FIRM-FIXED-UNIT-PRICE vs. TIME-AND-MATERIALS: A Good Alternative For Services Acquisition" in the April 2015 issue (29 No. 4 Nash & Cibinic Rep. NL ¶ 18). 

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On ‎12‎/‎1‎/‎2016 at 5:30 PM, ContractingPeoplesHatred said:

Mr. Mansfield, 

I did read that string of postings. I was still unclear. Mainly where is the line drawn between FFUP and T&M/LH and is a FFUP a FFP contract?

-Thank you

 

I think you need to go back and re-read that thread, especially the comments from metteec and Vern.

For you first question, I believe that answer is nicely spelled out between Vern and metteec. In this scenario, Vern brings up a flight hour. A flight hour contains not only the labor costs of the pilot, but also the cost to operate the aircraft. FAR 16.601(a) defines what a T&M is, which if you are only hiring a pilot to fly a Government aircraft would work. However, if you are hiring a company to fly their own plane, they not only need to account for the cost of their pilot, but also the cost to operate the aircraft. As stated by metteec, "In response to your questions, the difference between a T&M contract and FFUP relates to the cost risk to perform a specific service. Under a T&M contract, the extent and duration of labor and material costs is unknown until the completion of work (My own comment: A key here for using a T&M is knowing the end point but not how long it will take to get there. If you don't know how long it will take or even where the end point is, a FFP Level of Effort Term contract would be a better option to go). However, under a FFUP contract, both the Contractor and the Government know the cost to perform the work at the onset; the duration of work required is known, just not the extent."

Per the link Don posted metteec commented that, "In terms of pros and cons, a FFUP contract is coded as a FFP contract in FPDS."

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