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Tomahawk

T&M and FFP on the same contract?

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We received an RFP with a request for FFP labor rates for five years and ( I think) a time and material portion for materials ( parts) used in computer repair.

It is a bit hard to follow, but the government has budgeted a set $ amount for parts per year and the ability to request more dollars if required.

 

I have not seen a blended contract like this before.  It literally says on the solicitation:

Type of contract:

1. Firm-Fixed Price

2. Time and Material

 

It is SB set-aside, if that is relevant.

My question is:  How difficult will this be to manage from an accounting standpoint?

 

 

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I recommend you ask the contracting officer for clarification on which parts of the work are FFP and which parts of the work are T&M. Hopefully, the answer will be on a CLIN basis, where certain CLINs are wholly FFP and other CLINs are wholly T&M -- that is generally easier than having blended CLINs.  

A prospective offeror never has much time before proposals are due, so I suggest you hurry.

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Tomahawk, why do you say you think the RFP has a T&M portion for materials?  Is the contractor required to manufacture the parts or just provide them?  I'm having a hard time understanding how a T&M pricing arrangement would work if the RFP merely calls for the contractor to provide the parts.  In other words, what would be the time portion of such an arrangement?

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I could see an FFP/LOE portion for (say) supporting engineering services and a T&M portion for purchase/install/maintenance/repair of parts.

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3 hours ago, here_2_help said:

I could see an FFP/LOE portion for (say) supporting engineering services and a T&M portion for purchase/install/maintenance/repair of parts.

That's pretty close to what it will be when it gets awarded.

 

And to clarify, the FFP is for the service.  They are requesting an FTE for services with 2080 hrs,FFP.

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5 hours ago, ji20874 said:

I recommend you ask the contracting officer for clarification on which parts of the work are FFP and which parts of the work are T&M. Hopefully, the answer will be on a CLIN basis, where certain CLINs are wholly FFP and other CLINs are wholly T&M -- that is generally easier than having blended CLINs.  

A prospective offeror never has much time before proposals are due, so I suggest you hurry.

I agree, time is of the essence.  I will be asking questions of the KO, but I think the individual is in well over his head.

 

I've been successfully responding to state and federal bids for 30 years, but this is a type of RFP I've not seen before.  

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3 hours ago, Retreadfed said:

Tomahawk, why do you say you think the RFP has a T&M portion for materials?  Is the contractor required to manufacture the parts or just provide them?  I'm having a hard time understanding how a T&M pricing arrangement would work if the RFP merely calls for the contractor to provide the parts.  In other words, what would be the time portion of such an arrangement?

They want the contractor to repair the equipment and if parts (material) are needed to sell them to the government with no markup, only "cost".

 

I agree, I do not understand why the "time" is referenced as the "time" is already FFP.

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55 minutes ago, Tomahawk said:

That's pretty close to what it will be when it gets awarded.

 

And to clarify, the FFP is for the service.  They are requesting an FTE for services with 2080 hrs,FFP.

Yeah, I'm frequently told I'm psychic. Or is it psychotic? I get confused....

In any case, what's your concern? Are you concerned you cannot map your costs to the CLIN structure? Are you concerned about billing? What risks are you seeing?

You are asking about our views regarding your ability to account for contract costs, but how can we answer that if we don't know your company or its accounting system? How strong are your PMs? How granular is your Chart of Accounts? The point is, only you can answer the question because only you know your company.

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1 hour ago, here_2_help said:

Yeah, I'm frequently told I'm psychic. Or is it psychotic? I get confused....

In any case, what's your concern? Are you concerned you cannot map your costs to the CLIN structure? Are you concerned about billing? What risks are you seeing?

You are asking about our views regarding your ability to account for contract costs, but how can we answer that if we don't know your company or its accounting system? How strong are your PMs? How granular is your Chart of Accounts? The point is, only you can answer the question because only you know your company.

The bold portion of your reply is my concern.  First, let's be candid: everyone on the planet avoids T&M because of  the huge accounting and tracking problems, both on the government and contractor side.  Secondly, in our 20 years, we have never had any T&M contract, especially where there really is no "T".   Billing is not an issue, but one risk I am seeing is to have to establish a different accounting structure for a bunch of cheap parts.

 

Looking through the provisions more carefully, I did see where the government will pay "established catalog prices" so my intention is to establish a catalog.  After all, these items aren't that numerous or expensive.

I have no interest in selling the government a bunch of cheap parts and would be much happier if they would source the parts themselves, but it is a requirement and we will fulfill the obligation.

 

 

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So, maybe the solicitation CLIN structure is notionally something like this?

0001, Services, 2080 HR, unit price $100, amount $1,200 (FFP)

0002, Materials, reimbursable at cost (T&M, M only)

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21 hours ago, Tomahawk said:

My question is:  How difficult will this be to manage from an accounting standpoint?

 

10 hours ago, Tomahawk said:

Billing is not an issue, but one risk I am seeing is to have to establish a different accounting structure for a bunch of cheap parts.

Looking through the provisions more carefully, I did see where the government will pay "established catalog prices" so my intention is to establish a catalog.  After all, these items aren't that numerous or expensive.

I have no interest in selling the government a bunch of cheap parts and would be much happier if they would source the parts themselves, but it is a requirement and we will fulfill the obligation.

Haven't you just answered your own question?

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Many companies -- especially small businesses -- have trouble with shoehorning their existing labor force with its existing compensation structure into rigid T&M hourly billing rates. This is a valid concern. As we all know, DCAA loves to question billed labor costs under T&M contracts because the individuals didn't meet the hourly billing rate qualifications.

And once the existing salary bands have been mapped to the hourly billing rates then somebody has to maintain them. People get raises. People get promoted. People depart and are replaced with new hires. That's certainly a painful situation to manage. But it's required.

Many companies -- even small businesses -- successfully rise to the challenges of T&M contracting through diligent management and proper staffing of the PM and HR and compliance functions.

H2H

Edited to add:

Also if a company's accounting system cannot accurately map costs to CLINs then it is by definition an inadequate accounting system. See the SF 1408. If that is the case, the contracting officer should not award that contract to the contractor.

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19 hours ago, here_2_help said:

I could see an FFP/LOE portion for (say) supporting engineering services and a T&M portion for purchase/install/maintenance/repair of parts.

FFP LOE vehicles are VERY restricted in their application: 

16.207-2 Application.

A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The product of the contract is usually a report showing the results achieved through application of the required level of effort. However, payment is based on the effort expended rather than on the results achieved.

 

One of the biggest illusions in federal acquisition is seeing the FFP LOE contract as a get-out-of-jail-free card.

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14 hours ago, ji20874 said:

0001, Services, 2080 HR, unit price $100, amount $1,200 (FFP)

I assume you mean 'the BOE for evaluating the total FFP is 2080 hours'?

I'm being purposely pedantic because of how often in practice these estimating/evaluation yardsticks end up in the resulting FFP contract  (i.e., 'Units' are measured in hours).  Poor tradecraft in my opinion.  

 

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REA,

I  most earnestly hope that the CLIN structure IS NOT set up like I asked -- but based on the original posting and the comments, I am wondering.  I hope the answer is NO, because indeed that would be very poor tradecraft -- but I have seen a lot of poor tradecraft regarding T&M lately.

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2 hours ago, REA'n Maker said:

16.207-2 Application.

A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The product of the contract is usually a report showing the results achieved through application of the required level of effort. However, payment is based on the effort expended rather than on the results achieved.

A made-up contract structure from an entirely fictitious solicitation:

CLIN 001: Installation/Repair/Maintenance services - fixed hourly rates by category

CLIN 002: Purchase of parts necessary for repairs/maintenance -- cost reimbursement, no fee

CLIN 003: Provide ___ labor hours for each of the following engineering labor categories for a fixed period of performance. Purpose of this effort is to review repair/maintenance activities, perform root cause analysis, recommend process improvements/changes so as to minimize future needs for repair/maintenance services. NSP associated CDRL: Quarterly report submitted to COTR showing analysis results. Firm Fixed Price/Level of Effort

Are you saying that structure would not be acceptable?

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6 hours ago, Vern Edwards said:

Tomahawk:

Please tell us the RFP number so we can look at it on FedBizOpps.

Would a PM be acceptable?

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1 hour ago, here_2_help said:

Are you saying that structure would not be acceptable?

What I'm saying is that you can't necessarily expect a defined outcome under an FFP LOE. If I were hiring engineers, I would want a finished product (a spec, etc.)  An FFP LOE is a highly specialized vehicle with a lot of risk for the government, i.e., all the vendor is really required to deliver is hours and report on  "...results achieved through application of the required level of effort".  

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9 hours ago, Vern Edwards said:

 

Haven't you just answered your own question?

I believe this will be acceptable.  

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2 hours ago, REA'n Maker said:

What I'm saying is that you can't necessarily expect a defined outcome under an FFP LOE. If I were hiring engineers, I would want a finished product (a spec, etc.)    

Would you be willing to enter into a FFP/LOE contract (or CLIN) for a fixed number of certain engineering hours for the sole purpose of monitoring a Bill of Material in order to identify technically obsolete parts and then, for those parts, identify potential technical solutions to mitigate that technical obsolescence?

Because in that case there would be no finished product or specification. Indeed, if no instances of technical obsolescence were identified during the PoP there would be nothing to show for the efforts, other than they occurred.

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Thanks, Tomahawk.

I have looked at the solicitation. It's for an IDIQ contract for commercial item maintenance and repair services. According to the proposal preparation instructions the contract type is to be T&M and FFP.

The CLINs are ordering years and data items. The services are to be priced as T&M based on proposed hourly labor rates.

So what are the FFP items? A quick perusal indicates that the FFP items are the data items, which are marked as "firm-fixed-price" and "not separately priced." (Go figure.) The RFP calls for proposed labor rates, but I could find no requirement for proposed fixed-prices for anything. I may have missed it. There is no provision for a price bill of materials. "Evaluated price" for each ordering period is to be determined on the basis of an estimated number of hours to be purchased multiplied by the proposed hourly labor rates. I could find no mention of any other firm-fixed pricing. There is no mention of "level of effort" in anywhere in the solicitation.

 

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