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jc04sti

Re-Pricing Indefinite Quantity, Fixed-Price CLINs because of Changed Quantities?

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Consider a competitively-awarded, Requirements Contract (FAR 16.503) for a Contractor to provide indefinite quantities of Service A and Service B to the Government.  It allows Government end-users to choose between Services A or B (each with its own fixed price) depending on their particular needs. 

Midway through the contract, the Government issues a change order requiring Government end-users to use Service B, instead of Service A, in certain circumstances.  In theory, the total volume of Services A and B doesn’t change as a result of the change order but the mod effectively decreases orders of Service A and increases orders of Service B.  There was some implementation effort to help communicate this change to Government end-users and ensure the right service was being used but the actual services provided are unchanged. 

Recognizing the mod changed the quantities of services to be ordered (and not some other normal reasonably expected qty fluctuation), can and should the Government require the Contractor to provide cost or pricing data in order to assess whether the unit prices of Services A and B should be adjusted (i.e., re-priced)?  Theoretically, the price of Service B goes down because of increased qty and vice versa for Service A.  If the answer is yes, must the Contractor provide all cost or pricing data to “prove” the buildup of the new Service A and B prices?  Or is that prohibited by 15.403-1 Prohibition on obtaining certified cost or pricing data?

Thanks for reading!

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If the contract gives the government unrestricted choice to use, I don't think the government's reason for picking one over the other matters.  While the government may have provided estimated quantities of what would be ordered for each, that is normally not binding.  The clause does not restrict the governments choice of what quantities of which line items to order, so any restriction would have to be one that was added by some other term or condition.  FAR 16.503(a)(1) states:

"For the information of offerors and contractors, the contracting officer shall state a realistic estimated total quantity in the solicitation and resulting contract. This estimate is not a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal. The contracting officer may obtain the estimate from records of previous requirements and consumption, or by other means, and should base the estimate on the most current information available" (emphasis added).

Also see clause 52.216-21 which states:

"The quantities of supplies or services specified in the Schedule are estimates only and are not purchased by this contract.  Except as this contract may otherwise provide, if the Government’s requirements do not result in orders in the quantities described as “estimated” or “maximum” in the Schedule, that fact shall not constitute the basis for an equitable price adjustment" (emphasis added).

While a contractor may prepare their pricing on these estimates and/or the government negotiated rates based on these quantities, the rates in the contract are the same and binding on the parties regardless if a quantity of one or something greater is ordered. This assumes that a maximum quantity limiting the contractor’s obligation to deliver is not stated in the contract (FAR 16.503(a)(2)). 

I'm not sure what is meant by the government issuing a change order requiring the government to buy B instead of A in some circumstances.  Unless the contract specified which one had to be purchased, I don't understand why a modification would be necessary.  It is my understanding that the government already has the choice.  Because no specific quantities are guaranteed in a requirements contract, the change in demand for one or the other should be irrelevant.  Nothing in the requirements contact clause requires equitable adjustment based on changes in estimated quantity or requires re-pricing.  The contract was already priced with the risk that a low or high quantity, or none would be ordered among all contract line items.  I suppose if the government was concerned it would be paying too much for the service it could ask the contract to renegotiate a downward price or consider terminating the contract for convenience.  However, I can't think of anything in the contract that would compel the contractor or government to renegotiate price.

I haven't looked to see if there is any case law related to this type of situation.

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On 4/14/2017 at 9:07 AM, jc04sti said:

Midway through the contract, the Government issues a change order requiring Government end-users to use Service B, instead of Service A, in certain circumstances. 

Did the contracting officer literally issue a "change order"? Did the CO do it under one of the changes clauses at FAR 52.243-XX? That question is important, because if the CO issued a proper change order, and if the change order caused an increase or decrease in the contractor's costs, then one of the parties might be entitled to an "equitable adjustment" to the contract prices. If the CO did not issue a "change order," but modified the contract in some other way, then the rights and obligations of the parties might be entirely different.

On 4/14/2017 at 9:07 AM, jc04sti said:

Recognizing the mod changed the quantities of services to be ordered (and not some other normal reasonably expected qty fluctuation), can and should the Government require the Contractor to provide cost or pricing data in order to assess whether the unit prices of Services A and B should be adjusted (i.e., re-priced)? 

Does the contract include the clause at FAR 52.215-21, "Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data"? If not, then the CO has no contractual authority to "require" that the contractor provide cost or pricing data.

On 4/14/2017 at 9:07 AM, jc04sti said:

Theoretically, the price of Service B goes down because of increased qty and vice versa for Service A.

Not true, theoretically or factually. The contractor's unit costs might be lower or higher as a result of changes in quantity, but the unit prices are not affected unless the parties agree to change them.

On 4/14/2017 at 9:07 AM, jc04sti said:

If the answer is yes [that the unit cost are increased or decreased], must the Contractor provide all cost or pricing data to “prove” the buildup of the new Service A and B prices? 

It's not clear whether the contractor "must" provide any cost or pricing data. See the question above regarding whether the contract includes FAR 52.215-21.

In any case, cost or pricing data are facts, and such facts, in and of themselves, might not "prove" anything. However, those facts might be the basis for an argument asserting that the unit costs have changed.

On 4/14/2017 at 9:07 AM, jc04sti said:

Or is that prohibited by 15.403-1 Prohibition on obtaining certified cost or pricing data?

See FAR 52.215-21, paragraph (a).

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On ‎4‎/‎17‎/‎2017 at 11:03 AM, Vern Edwards said:

Did the contracting officer literally issue a "change order"? Did the CO do it under one of the changes clauses at FAR 52.243-XX? That question is important, because if the CO issued a proper change order, and if the change order caused an increase or decrease in the contractor's costs, then one of the parties might be entitled to an "equitable adjustment" to the contract prices. If the CO did not issue a "change order," but modified the contract in some other way, then the rights and obligations of the parties might be entirely different.

Yes - The change was issued under the authority of the Changes - Fixed Price clause. 

On ‎4‎/‎17‎/‎2017 at 11:03 AM, Vern Edwards said:

Does the contract include the clause at FAR 52.215-21, "Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data"? If not, then the CO has no contractual authority to "require" that the contractor provide cost or pricing data.

Yes.

On ‎4‎/‎17‎/‎2017 at 11:03 AM, Vern Edwards said:

Not true, theoretically or factually. The contractor's unit costs might be lower or higher as a result of changes in quantity, but the unit prices are not affected unless the parties agree to change them.

Agree.  I did not explain that well.  The theory is that the Contractor now has more quantities of Service B to spread its fixed costs over, thus making Service B more profitable.  Same for Service A, less quantities to cover fixed costs and less profitable.  Must the Government require the Contractor to provide data to show if this is actually the case and if so, must the Government and Contractor negotiate an equitable adjustment of unit prices (either way) to account for the new spread of fixed costs? 

Just to be clear, if quantities were changing on their own (if you will) and not affected by a change order, I understand that the spread of fixed costs over a higher or lower quantity within estimated/maximum quantities is not an REA matter and the Contractor "owns" the outcome either way under indefinite quantities.  The crux is that a mod is in play and does that even matter? 

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On ‎4‎/‎14‎/‎2017 at 0:34 PM, Todd Davis said:

If the contract gives the government unrestricted choice to use, I don't think the government's reason for picking one over the other matters.  While the government may have provided estimated quantities of what would be ordered for each, that is normally not binding.  The clause does not restrict the governments choice of what quantities of which line items to order, so any restriction would have to be one that was added by some other term or condition.  FAR 16.503(a)(1) states:

At first, it was unrestricted choice.  The mod basically says in certain circumstances end-users can only use Service B. 

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1 hour ago, jc04sti said:

The theory is that the Contractor now has more quantities of Service B to spread its fixed costs over, thus making Service B more profitable.  Same for Service A, less quantities to cover fixed costs and less profitable.  Must the Government require the Contractor to provide data to show if this is actually the case and if so, must the Government and Contractor negotiate an equitable adjustment of unit prices (either way) to account for the new spread of fixed costs?

Since the change was made pursuant to the Changes clause, the rule is that if the change causes an increase or decrease in the cost of performance the contracting officer "shall" make an equitable adjustment and "shall" modify the contract. 

The first problem for the CO is to determine whether the change has caused an increase or decrease and, if so, by how much. So, yes, since the change was made pursuant to the changes clause and the contract includes FAR 52.215-21, the CO can and should ask the contractor to provide cost or pricing data showing what effect, if any, the change has had on the cost of performance and then decide (a) that the price need not be changed, (b) that the price should be reduced, or (c) that the price should be increased.

Does that answer your questions?

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