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Anonymouse

Including an ODC CLIN

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Scenario:  A Program Office requires a contract for various cyber security services on a labor hour basis. The Government’s cost estimate for services is $1M/year. The anticipated placement procedures are FAR 12 and 13.5. The Program Office also requires occasional IT products to be purchased in support of these services. The precise IT products to be purchased are not easily defined. IT hardware and software are both anticipated. The Program Office needs the latest version of IT products at the time the need is identified, not necessarily the version anticipated at the time of contract award. And because of unknown potential threats and the criticality of maintaining the IT systems being protected, the need for very rapid procurement time is very important. For these reasons, the Program Office requests a T&M contract with an Other Direct Cost line item (ODC CLIN) in which the contractor would be authorized to purchase whatever IT products are needed when the requirement is identified by the Program Office. No specific IT products will be identified in the contract. The ODC CLIN will have a ceiling of $20K/year based on historical needs, and the ODC CLIN will be fully funded at time of award. The contract will contain (and the ODC CLIN will reference) FAR 52.212-4 Alt 1 Paragraph (i) stating that the Government will reimburse the Contractor on the basis of actual cost for ODCs and that the contractor shall obtain materials at the most advantageous prices available with due regard to securing prompt delivery of satisfactory materials.

1:  What if anything is improper about the proposed ODC CLIN?

2:  Does your answer change if the ODC CLIN ceiling is:
    a. $100K/year?
    b. $1M/year?
    c. $2M/year?

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19 hours ago, Anonymouse said:

1:  What if anything is improper about the proposed ODC CLIN?

First, if you're going to use a T&M contract, why do you need a separate line item for what are essentially materials? I'll let that lie, however, and make this point: see FAR Subpart 4.10, "Uniform Use of Line Items", quoted in part below. Note the emphases:

Quote

4.1000 Scope.

This subpart prescribes policies and procedures for assigning line items and subline items and their identifiers. However, in order to provide agencies with time to transition their information systems, agencies have until October 1, 2019, to apply the requirements of 4.1002 through 4.1008of this subpart.

4.1001 Policy.

In order to improve the accuracy, traceability, and usability of procurement data, procurement instruments shall identify the supplies or services to be acquired as separately identified line items and, as needed, subline items.

(a) Line items are established to define deliverables or organize information about deliverables. Each line item describes characteristics for the item purchased, e.g., pricing, delivery, and funding information.

4.1002 Applicability.

The policies of this subpart shall apply to the following procurement instruments, to include amendments, modifications, and change orders thereto:

(a) Solicitations.

(b) Contracts, including, but not limited to, Governmentwide acquisition contracts (GWACs), multi-agency contracts (MACs), Federal Supply Schedule (FSS) contracts, indefinite-delivery contracts, and purchase orders.

(c) Agreements that include pre-priced supplies or services.

(d) Task and delivery orders.

4.1003 Establishing line items.

Establish separate line items for deliverables that have the following characteristics except as provided at 4.1005-2:

(a) Separately identifiable.

(1) A supply is separately identifiable if it has its own identification (e.g., national stock number (NSN), item description, manufacturer’s part number).

(2) Services are separately identifiable if they have no more than one statement of work or performance work statement.

(3) If the procurement instrument involves a first article (see subpart 9.3), establish a separate line item for each item requiring a separate approval. If the first article consists of a lot composed of a mixture of items that will be approved as a single lot, a single line item may be used.

(b) Single unit price or total price.

(c) Single accounting classification citation. A single deliverable may be funded by multiple accounting classifications when the deliverable effort cannot be otherwise subdivided.

(d) Separate delivery schedule, destination, period of performance, or place of performance.

(e) Single contract pricing type (e.g., fixed-price or cost-reimbursement).

See FAR 4.1005-2 for exceptions. See also the definition of line item in FAR 2.101. See also, for example, the instructions in FAR 15.204-2(b).

Bottom line--Line items describe DELIVERABLES. "Other direct costs" are not deliverables. They are costs incurred in order to buy something that, presumably, will be delivered to the government in one form or another, through use or consumption in performance or simply through pass-through purchase and delivery. Since costs are not deliverables, and thus cannot be a basis for establishing line items, you cannot properly establish a line item for "other direct costs." I know people do it, but they're being dumb when they do. It's poor professional practice.

Establish a line item for"additional IT products (TBD)", materials, or data, etc., if you like, and price the line item in accordance with your needs. Use subline items if necessary to distinguish among miscellaneous deliverables. Nothing wrong with that. We were doing that 40 years ago. But don't establish a line item for "other direct costs." Costs are not deliverables.

If you are with DOD, then the rules for establishing line items already apply through the DFARS. If you are with another agency, you have until October 2019 to comply, but to establish a line item for "other direct costs" would be poor professional practice, rules or no rules.

19 hours ago, Anonymouse said:

2:  Does your answer change if the ODC CLIN ceiling is:
    a. $100K/year?
    b. $1M/year?
    c. $2M/year?

No. Of course not. What does dollar amount have to do with it?

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Mr. Edwards,

Thank you for your response to my question. This is very good information about line items that I had not considered and I will definitely alter my approach to comply with Subpart 4.10 requirements. My experience with T&M is limited (it must show with my sloppy use of terminology). So separate CLINs for Labor and Materials (where “materials” represent contract deliverables), as opposed to CLINs for Labor and ODCs.

You mentioned a Materials CLIN could describe products that are “TBD”. This was where I was going in the second part of my question and perhaps I simply should have stated so. Is it permissible for the Materials portion of a time-and-materials contract to be undefined at time of award? Both in terms of product description and price? If yes, are there any limitations? For example, can a CO simply write a Materials CLIN with all products “TBD” and then allow the Project Manager or COR to direct the contractor what products to purchase when they are needed? If the consent requirements of Part 44 do not apply, then does the CO need to approve Materials purchased? What dollar limit applies if any (could the Materials CLIN be 2X, 5X, 10X the value of the Labor CLIN)?  Do the brand name requirements of Part 11 apply or can the COR direct the contractor to purchase name brand products with no justification? Buy America Act? Sustainability?

Re-reading my response here and further articulating my issue, it seems clear I'm lacking a firm handle on this issue and need to do more reading and research on my own. I continue to welcome any feedback from this community, but I think I must go back and spend more time researching this myself.

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Anonymouse:

In a "true" T&M contract for commercial items, using the clause at FAR 52.212-4, Alt. I, you would have one contract line item. The unit of delivery would be "Job" (JO), and the line item would include a ceiling price. Prime and subcontractor labor rates could be stipulated in informational subline items or elsewhere in the contract. Materials are not always specified or separately identified. They are TBD, meaning that the contractor will determine, buy or draw from inventory, and use whatever is required as the work progresses. The contractor will invoice to the one CLIN. But, if you want, you could have one or more informational subline items specifying and capping the cost of materials within the ceiling price. You could also write contract terms that let the CO or the COR specify, approve or disapprove, or otherwise control what the contractor uses, buys, and spends. The are no regulatorily specified limits on the ratio of labor to material costs, but I think the normal expectation is that labor costs will exceed materials costs.

Having said all that, many T&M contracts today are more complex than what I call "true" T&M and have complicated funding schemes. Agencies have developed different kinds of CLIN structuring and work procedures to cope.

In short, you can do pretty much what you want within the limits set forth in FAR, your agency supplement, local policy and procedures, and with any mechanical limits imposed by any "automated" contract writing system.

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On 12/4/2017 at 7:09 PM, Vern Edwards said:

Establish a line item for"additional IT products (TBD)", materials, or data, etc., if you like, and price the line item in accordance with your needs.

Vern - Am I being unreasonable when I say that this scenario creates extreme dissonance for me as an 1102? Or is my discomfort merited, and this is why T&M is considered the riskiest contract type?

Short of a competent, engaged, questioning CO exercising complete oversight of purchases, this scenario seems ripe for abuse and waste. I envision a situation in which the customer places a lump of money there and deals directly with the contractor (or, alternatively, with a standard, "customer service"-oriented CO), placing orders for any items remotely related to the purpose of the contract, with the intention of circumventing the FAR for these purchases. I also envision a contractor that feels no incentive to price compare, instead repeatedly visiting its "most favored" supplier.

I've seen a CO structure a big contract this way for the express purpose of "delegating" the procurement function for future small purchases - whatever they may be - to the contractor. Because the contract was for severable support services, the scope was rather vague. Anything that the Government wanted that touched upon the subject matter, the customer could get in the name of "support." Thankfully, the contract terms required the contractor to provide the Government three quotes prior to purchasing materials, to show that it made a reasonable effort to price compare. But even with this modest precaution in place, the situation seemed absurd to me. I mean, to what extent can a CO "outsource" his obligation to conduct a F&R determination for future purchases? Where does the line get drawn?

 

 

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12 minutes ago, FrankJon said:

I envision a situation in which the customer places a lump of money there and deals directly with the contractor (or, alternatively, with a standard, "customer service"-oriented CO), placing orders for any items remotely related to the purpose of the contract, with the intention of circumventing the FAR for these purchases.

You're not being unreasonable. What you describe could happen if the CO does not do his or her job.

The CO should ensure that the materials purchased were required for the work being done. The CO should not allow the contractor to act as a purchasing agenct and circumvent acquisition laws and regulations under the guise of buying materials for use under a T&M contract. The CO should require the contractor to show why the materials were required and how they were used for or incorporated into the work.

All kinds of schemes are probably being carried out under T&M contracts, some of which are little more than money laundering.

All in the name of "innovation".

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