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FFP contracts required to bill as T&M type


pat

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There is another one also.  It has the CLIN.  It is labeled FFP.  Description is program management.  It has no units or quantities and no language about actual hours.  We were  told to bill only actual hours worked verbally.

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Pat - I'll take a crack at providing some thoughts based on the information you've given. You said:

On 1/20/2018 at 6:58 PM, pat said:

Assembly and shipment of site kits

On 1/22/2018 at 9:50 AM, pat said:

CLIN FFP, CLIN description, unit=lots, labor cost will be reimbursed based on actual hours worked.

First, if these are part of the same CLIN, this does not make logical sense to me. The deliverable is timely site kits. Why on earth would the Government care about how many hours you've spent working on them? 

Second, structuring a CLIN in this way seems like a clear misuse of the FFP contract type. There are legitimate situations in which the Government can have a firm-fixed-unit-price (FFUP) contract and allow for billing only up to the number of units actually provided by the contractor (i.e., not necessarily for the entire CLIN amount), but this does not appear to be the case here based on the information given.

Third, I don't understand this:

23 hours ago, pat said:

There is another one also.  It has the CLIN.  It is labeled FFP.  Description is program management.  It has no units or quantities and no language about actual hours.  We were  told to bill only actual hours worked verbally.

Are you saying that the Government does not track the hours worked and your company does not submit invoices?

Based on the information provided, I agree there is likely cause for concern. Then again, your company was aware of these terms at the time the contract was signed. 

Edited by FrankJon
Re-worded second point.
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Pat -

I am in the corner of like it or leave it as to whether you want to seek the contract anticipated under the solicitation(s).

My conclusion is based on the following thoughts and the limited information you have provided.–

First, I have this feeling that the CLINS as you have described are not that much of departure of how one might structure them and provide for what needs to be verified to make payment.   Using an example from the DFARS take a look at DFARS 204.71 and the PGI that support it.

Noting the DFARS raises the question for me as to how many CLINS are there in the solicitations you are talking about?  Many of the kit type solicitations I have seen carry both CLINS that have an actual quantity that are FFP and cost type CLINS.    It is okay to have a mix in what would be viewed in total as FFP contract and my guess is that for some reason someone or some dang contract writing system has just put the terminology of FFP on the CLINS in question.

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I'm sorry it's taken me a while to respond.  I agree that the CLIN structure is different.  Yes, Vern that is what is on the CLIN, not my interpretation.  It is not a DOD contract so the CLIN structure is not as clear as my other DOD contracts.  It is with another government agency and as I'm sure you know they can be messy.  We have several contracts with mixed CLIN types.  The one that had the program management labor is FFP and is clearly written that way.  They still insist that the program management labor must have actual time sheets and they will only pay actual hours and not the FFP.  At this point, I believe I will just try to bill the remainder of the FFP at the end of the POP and file a claim if they won't pay it.  If I win the claim then I should receive a decision and language that will help me negotiate with more authority once I have the written decision in my hand.  Thanks for the input.

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8 minutes ago, pat said:

The one that had the program management labor is FFP and is clearly written that way.  They still insist that the program management labor must have actual time sheets and they will only pay actual hours and not the FFP. 

It should be possible to structure a CLIN in this way (see for example ji20874's post on the previous page), with each hour as a "unit." But here, it does not sound like the Government provided sufficient detail to do this.

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Guest Vern Edwards
On 1/22/2018 at 6:50 AM, pat said:

CLIN FFP, CLIN description, unit=lots, labor cost will be reimbursed based on actual hours worked.

I don't know what type of pricing arrangement that's supposed to be, but it seems clear that the contractor will be "reimbursed" for labor on the basis of actual hours worked. 

In your earlier post you said:

Quote

I wanted to come back to this  we are pushing back on  FFP contracts where the CO is requiring us to submit time sheets and actual hours worked  I have checked them thoroughly and they are neither LOE or EPA contracts  recently we bid a FFP and saw that the billing requirements included the requirement to bill actual hours only, once again  we got on a call with the CO and were told to bill it in that manner or they will award to someone else  These are services type contracts, not construction  The scope on a FFP LOE is fairly limited and wouldn't apply  so would we push back and say change it to a FFP with EPA?   Not sure what to do at this point except turn own contracts  We have dozens like this  Thanks

What you said suggests that you are thinking in terms of standard FAR contract types--FFP, LOE, EPA--but that is not how things always work these days. In a recent article in which I criticized a decision of the Civilian Board of Contract Appeals I said:

Quote

Over the course of the last 20 years, Government agencies and their contractors have developed contractual instruments that do not fit neatly into the standard, traditional categories described in the FAR. In Dream Management, the parties to the task order were lulled by traditional terminology and thought patterns, complacency, ignorance, and unimaginativeness, and so failed to think through and discuss the terms of the agreement that they actually developed. Ignorance of fundamentals also played a part, leading to the absurd positions that (a) the order was T&M just because it said so and because it contained the boilerplate T&M payment clause and that (b) since the order was T&M it could not be IDIQ.

As for the board, it fell into the same trap of ignorance, complacency, and unimaginativeness, and it ignored pertinent facts. Instead of interpreting DMI’s task order on the basis of traditional labels, categories, declarations, and a standard clause read in isolation, it should have looked at the actual terms of the order in context.

When looking at an RFP or RFQ these days you cannot allow yourself to think only in terms of the standard FAR contract "types." Agencies these days are coming up with all kinds of weird pricing schemes.

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There may well be a need to update the FAR with regard to contract types to give latitude to request contracts that fit the requirement in a more efficient manner.  In the interim, however, isn't there a requirement to follow FAR 16 on selection of contract type?

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10 minutes ago, Vern Edwards said:

When looking at an RFP or RFQ these days you cannot allow yourself to think only in terms of the standard FAR contract "types." Agencies these days are coming up with all kinds of weird pricing schemes.

Vern - Are you suggesting that this situation is analogous to Dream Management? In your article, you state: "We are not saying that [the contract type] was improper." In pat's case, what the Government did does appear to be improper based on the information available to us. 

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Here is another perfect example where we are not paid on anything but actual hours.   It is not LOE.  It's just providing positions. 

ITEM NO SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT

0001 7,680 Hours $181.90 $1,396,992.00

Hospitalists (4 FTE)

FFP

Base year: Personal service of four (4) Hospitalist Physicians for the Department of

Medicine, San Antonio Medical Center (SAMMC) (with the option to add one (1)

additional FTE) in accordance with the terms and conditions of the Performance

Work Statement. Period if performance: 1 October 2017 - 30 September 2018.

FOB: Destination

PURCHASE REQUEST NUMBER: 0011018728-0003

 

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Guest Vern Edwards

Stop thinking in terms of standard FAR Part 16 categories.

A firm-fixed-price contract does not have to be LOE in order to specify payment by the hour based on actual hours!!!!!

It can be a firm-fixed unit-price contract with total price based on an estimated number of hours. You appear not to have heard of that.

Some people erroneously think such a thing is illegal or a FAR deviation except for construction. It is not.

Ignorant people think that any contract under which the contractor is paid by the hour is a time-and-materials or labor-hour contract. That is not true.

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Guest Vern Edwards
1 hour ago, FrankJon said:

In pat's case, what the Government did does appear to be improper based on the information available to us.

Improper how?

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I don't think what Pat is describing above is al that uncommon.  Some people will debate whether this requirement should have been filled via T&M but there is nothing inherently wrong about going down this path. For instance, I had a requirement to staff a reception area and our requirement included having 3 people sit there, even if no one was coming in the door.  But, in busy times, we would be properly staffed.   With an emphasis on ridding offices of T&M, this is a path I see many take. 

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Guest Vern Edwards

T&M and L-H are appropriate when you want a job completed but don't know how long the job will take. So you and the contractor agree:

  • on an estimate that will serve as a cap on each party's obligations;
  • that the contractor will go to work and do the best it can to finish the job within the estimate;
  • that you will compensate the contractor for its work on the basis of the number of hours that it takes to finish;
  • and that if the contractor cannot finish the job within the estimate you will have the right to decide whether to pay the contractor to keep working or amicably part ways.

Suppose on the other hand that you want someone to serve as a receptionist and provide certain services to guests at an event. You know that the event will last no more than eight hours, but you also know it might last only four. You and a contractor can agree:

  • that the contractor will staff the event for a maximum of eight hours at a stipulated hourly rate;
  • that you will pay the contractor for only the number of hours that the event actually continues;
  • that the event may last as few as four hours;
  • and that if, by chance, the event lasts fewer than four hours you will agree to upwardly adjust the payment rate in order to ensure that the contractor earns a stipulated minimum compensation.

What's the difference? Well, aside from the difference in payment terms, in the first scenario you use the T&M and L-H inspection clause, FAR 52.212-4, Alt. I(a); in the second you use the FFP inspection clause, FAR 52.212-4(a). Compare and contrast. Alternatively compare and contrast FAR 52.246-6 and 52.246-4. Moreover, in the first the contractor controls how many hours are spent, while in the second the customer controls.

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29 minutes ago, Vern Edwards said:
2 hours ago, FrankJon said:

In pat's case, what the Government did does appear to be improper based on the information available to us.

Improper how?

Vern - I was basing this statement on pat's earlier examples. I don't have a problem with this one:

1 hour ago, pat said:

ITEM NO SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT

0001 7,680 Hours $181.90 $1,396,992.00

Hospitalists (4 FTE)

FFP

Base year: Personal service of four (4) Hospitalist Physicians for the Department of

Medicine, San Antonio Medical Center (SAMMC) (with the option to add one (1)

additional FTE) in accordance with the terms and conditions of the Performance

Work Statement. Period if performance: 1 October 2017 - 30 September 2018.

FOB: Destination

PURCHASE REQUEST NUMBER: 0011018728-0003

I have a problem with the following sentences in conjunction, assuming they are part of the same CLIN, as pat implied: 

On 1/20/2018 at 6:58 PM, pat said:

Assembly and shipment of site kits

On 1/22/2018 at 9:50 AM, pat said:

CLIN FFP, CLIN description, unit=lots, labor cost will be reimbursed based on actual hours worked.

This is improper because we would be buying kits at variable costs, depending on the amount of effort that went into them. Moreover, there is no incentive for the contractor to control labor costs. The amount of hours that go into a kit determines per-kit profit margin. These aspects run contrary to the meaning and intent of FFP.

Even if the comments are not linked, I take issue with the content of the CLIN description on its own. Apparently, the Government defines "Lot" in this case as a "lump of money" which it can draw down on a reimbursable basis. Maybe there is additional information in the CLIN detail section that we don't have here, such as as rate and a maximum quantity. If not, that's crucial information that's missing. If so, well then it might not be improper, but it's ugly.

I also think this is improper:

On 1/22/2018 at 10:17 AM, pat said:

There is another one also.  It has the CLIN.  It is labeled FFP.  Description is program management.  It has no units or quantities and no language about actual hours. 

So what information does that leave us in the CLIN other than a title? Ostensibly a unit price and/or extended price. How much "program management" is the Government expecting in exchange for this money? We don't know that from the CLIN because the number of hours expected - a crucial specification - is missing. We also don't know if payment is based on hours, days, months, or years, or whether the contractor is entitled to the full CLIN amount or an amount based on work performed. Essentially, the thing the Government is pricing has no parameters that are evident from the CLIN. 

In reviewing 16.202-1 to respond here, I am reminded that there is actually very little required in a FFP contract, other than "a price that is not subject to any adjustment on the basis of the contractor's cost experience." And I agree that this can apply on a unit or extended price level, as appropriate. Also, the information presented to us is incomplete. So allow me to rephrase my "improper" statement. At best, I think this is sloppy Government work that shows a disregard for the spirit of the FAR, and would violate FAR 4.1005-1 if it were October 1, 2019 or later. At worst, depending on what actually is/is not in these contracts, they are inappropriate applications of FFP contract type because the prices are not firm and the amount of work needed is not defined.

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Guest Vern Edwards

FrankJon:

Understand.

pat's earlier posts are why I asked him to quote from the contract.

I had to laugh at your complaint about government misuse of "lot" as a unit of delivery. You see that all the time. I think half of all 1102s couldn't define "lot" without recourse to a dictionary. Some of them probably think its the name of some guy whose wife turned to salt for some reason.

As for the language in FAR 16.202-1 that an FFP contract price "is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract," it is one of the most misconstrued sentences in FAR. I can't tell you how many students have told me that it means that a contractor is not entitled to an equitable adjustment under an FFP contract, even after they have read the Changes clause. Ask Don Mansfield about that.

Finally, you said:

19 hours ago, FrankJon said:

At worst, depending on what actually is/is not in these contracts, they are inappropriate applications of FFP contract type because the prices are not firm and the amount of work needed is not defined.

Where in FAR does it say that the price of an FFP contract must be firm or even fixed? Those are just adjectives in a name. Besides, what does firm mean? FAR uses the phrases "firm target cost" and "firm target profit." Nor does FAR Part 16 say that the amount of work need be "defined."

FAR says that the price is not to be changed on the basis of the contractor's cost experience. it does not say that the price cannot be changed for any other reason.

19 hours ago, FrankJon said:

I think this is sloppy Government work that shows a disregard for the spirit of the FAR....

What on earth is the "spirit" of the FAR? FrankJon, please.

All firm-fixed-price means is that the parties agreed at the time of award that the government will pay a stipulated amount for performance of some kind, which is not to be changed except as otherwise provided.

FAR is not holy writ.We're supposed to be business people, not high priests.

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14 hours ago, Vern Edwards said:

FAR is not holy writ.We're supposed to be business people, not high priests.

The more I read this thread, the more depressed I get. We've had post after post, discussing the meaning of "firm, fixed-price" and whether the FAR means what it says, or if (instead) the FAR means whatever the contract drafter interprets it to mean.

1102's can't get it right. ASBCA Judges can't get it right. What hope does the average business person have?

Words have to have meaning, and the meaning has to be comprehensible using plain language and non-legal dictionary definitions, under rules of interpretation adopted by the Federal Circuit. The parties entering into a contract need to have a common understanding and, historically, that understanding has been provided by definitions found in the FAR.

This is part of the problem with the acquisition system. This is one of the reasons why companies will not sell to the DoD if they have other options.

We cannot fix things and train people until and unless there is a common understanding of what terms mean. This thread beautifully illustrates just how hard a task that is.

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Guest Vern Edwards

H2H: I don't know what you're talking about, but I do know this: Firm-fixed-price is the name of a category of pricing arrangements, like "trout" is the name of a genus of fish, except that trout is scientifically defined. Just as there are different species of trout, there can be different species of firm-fixed-price. The real purpose of establishing different contract "types" is to establish a way to determine when to use various boilerplate contract clauses that support mass production contracting.

The language of FAR Part 16 is very old. It predates the FAR by decades. It is not scientific language. It was written in another time in view of older market arrangements. Business people invent new business arrangements all the time to meet changing market needs. FAR itself is not consistent in its use of the terms firm-fixed-price and fixed-price. It was not written by scientifically-minded people or by particularly good writers. If we are not flexible and willing to think things through and try things out, we are not serving the needs of the organizations we support or the public at large.

In short, I don't think that every word, term, phrase, clause. and sentence in FAR is holy writ, and I'm willing to take reasonable liberties when it makes sense to do so. What's more, I don't care what I thought in the past. I care only what I think now. If you think that's wrong, then we just disagree. There ain't no good guys. There ain't no bad guys.

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2 hours ago, Vern Edwards said:

If we are not flexible and willing to think things through and try things out, we are not serving the needs of the organizations we support or the public at large.

2 hours ago, Vern Edwards said:

I'm willing to take reasonable liberties when it makes sense to do so.

19 hours ago, Vern Edwards said:

FAR is not holy writ.We're supposed to be business people, not high priests.

 

Vern - Here, here. I am all for flexibility and sound business judgment following critical analysis of applicable regulation and policy. But let's remember the context here. This ain't Sevatec. You don't believe that what the Government did in Dream Management and in pat's original examples are products of intelligent design...do you? That is highly unlikely. Much more likely is that the COs were unwilling or unable to take a more conventional approach that would have resulted in better arrangements for all parties. If these contract types do not violate the FAR, that still does not mean that they are, or were based upon, good practices; to the contrary, they are almost certainly products of careless contracting that may have dodged the proverbial bullet by chance alone.

Your advice is good for those who have a reasonable grip on the FAR; it probably does not reflect what actually happened in the instances we've been discussing.

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