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Whynot

Pricing of a Change umder Commercial Contracts

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Do you think it reasonable, under commercial contracts, for a negotiated change under that commercial contract per FAR 52.212-4(c) -- Contract Terms and Conditions -- Commercial Items (c) Changes, for the Contractor to include in its pricing of the change, pricing for the effort spent in preparing the change proposal? What would the government’s position be to not accept or allow change pricing to include pricing for the effort spent in preparing the change proposal?

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YES     NO     [FAR 31.201-2( a )( 1 ) through ( 5 )]  Is the contractor's cost for the effort spent in preparing the change proposal an allowable cost?

If YES, then yes, the contractor can claim the cost.  Perhaps your real question is whether the cost may be treated as a direct cost or an indirect cost?

If NO, then the contractor cannot claim the cost.

You can avoid the whole matter by using price analysis alone as the basis for your negotiation and price reasonableness determination. After all, this is a commercial item contract.  If the bottom-line price is reasonable, who cares about the elements that add up to the bottom-line price?  See FAR 15.405( a ) and 31.102.

 

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ji - Just wondering.  

Considering FAR 12.209 and FAR 31.000 does FAR part 31 have any bearing on the question posed?   To add would what is customary in commercial practice have more bearing on whether the accept or not accept "pricing to include pricing for the effort spent in preparing the change proposal?"  again in consideration of FAR 12.209?

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Carl,

I think we're in agreement.

I started my answer from the general perspective of allowability and FAR Part 31, but I ended my answer by raising the question that you did -- what really matters is the bottom-line price -- and you're right to add that customary commercial practices should have bearing as the basis for negotiation and the price reasonableness determination.

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Most everything is negotiable. For instance, If you think that you have already paid for the time of the people preparing the proposal, then you can certainly use that as a bargaining point in the negotiation. 

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21 hours ago, Whynot said:

Do you think it reasonable, under commercial contracts, for a negotiated change under that commercial contract per FAR 52.212-4(c) -- Contract Terms and Conditions -- Commercial Items (c) Changes, for the Contractor to include in its pricing of the change, pricing for the effort spent in preparing the change proposal? What would the government’s position be to not accept or allow change pricing to include pricing for the effort spent in preparing the change proposal?

Yes. Perfectly reasonable. It's a matter of bargaining, not regulation. As a CO I would pay that cost if I instigated the change, as long as the cost itself is a reasonable amount.

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Vern has it correct, in my view.

 

Just popping in to add that if the costs of preparing the change proposal were not paid for by the customer, then the contractor basically has a choice between charging those costs to overhead/G&A or else paying for them out of its profit. In the former case you would be asking all the other customers to pay for the costs of your contract change; and in the latter case you would be asking the contractor to treat the costs as being unallowable. Neither of those two options is very appetizing to me.

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1 hour ago, here_2_help said:

Vern has it correct, in my view.

 

Just popping in to add that if the costs of preparing the change proposal were not paid for by the customer, then the contractor basically has a choice between charging those costs to overhead/G&A or else paying for them out of its profit. In the former case you would be asking all the other customers to pay for the costs of your contract change; and in the latter case you would be asking the contractor to treat the costs as being unallowable. Neither of those two options is very appetizing to me.

Concur

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Another thing to consider is how much benefit the contractor will receive because of the change itself.

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jwomack:

Good bargaining point! If the change would yield more sales, as opposed to something akin to an equitable adjustment--i.e., mere cost compensation--then I'd tell the contractor that he should eat the change prep costs.

Vern

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Everybody reading this should keep in mind that if this is a pure Part 12 acquisition, and the government hasn't added any "special" clauses, then it's not a matter of what the contractor is entitled to under the contract and in accordance with the cost principles. It's a matter of what it wants for preparing a change proposal. It's a matter of how much the government is willing to pay, and how little the government negotiator can get the contractor to accept. Pure and simple.

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