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Govt calls this bid opportunity a "fixed price level of effort."  Quite common.

The specified positions consist of an hourly rate multiplied by 1920 hours annually.  Yet there is no possible way the people can actually deliver 1920 hours due to vacation, holiday, sick leave, and any number of other situations which require time off the job.  Effectively, this creates an overpricing.

Once on a bid I factored the hours down in order to be realistic and the govt adjusted the price in order to "bring my pricing to an equal footing to the other bidders."  The "real" hours expected to be delivered was closer to 1860, and they adjusted my total price upward by a factor of 1920/1860.

My question:  How to submit a competitive and realistic total price with the govt taking the position that they insist??

And going down the road to the award:  The overinflated extended values become a fixed price billing, usually a total price divided by 12 months.  So the contract will be funded with this additional inflated amount of money, and billing will be allowed.

 

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Hey there Corduroy,

From the contractor's perspective, think of it this way:  if you had an FPLOE task that was estimated at 1,920 hours (assume that's accurate) and you responded with a rate and estimate of 1,860 hours, explaining that vacations and sick leave were the reason that 1,860 was appropriate is not sufficient.  You still have 1,920 hours of work to complete.  Based on this explanation, the government would always adjust upward.  However, if your proposal stated that due to the skill mix and your unique approach, you believe you could save 140 hours, then you may have success in reducing the estimated hours.

My thinking on why the government makes sense of this is that in an FPLOE, what really matters from a competition standpoint is the bill rate.  The government's independent estimate has determined that 1,920 hours will be required based on the work and skill levels required.  Multiplying these hours times each bid rate results in their budget estimate.  In their opinion, this is the only way to fairly evaluate potential bidders.  

As for billings, I'm not following what you're saying.  Your proposed bill rate will be the rate at which are paid, not the (rate * 1920/12) result. I don't understand the overbilling comment.  The adjustment made by the government is just for comparison purposes.  It does not change what you'll be paid.

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Guest Vern Edwards
5 hours ago, Corduroy Frog said:

Govt calls this bid opportunity a "fixed price level of effort."  Quite common.

The specified positions consist of an hourly rate multiplied by 1920 hours annually.  Yet there is no possible way the people can actually deliver 1920 hours due to vacation, holiday, sick leave, and any number of other situations which require time off the job.  Effectively, this creates an overpricing.

Those statements are made without any context. What kind of FPLOE? What does the S.O.W. require the contractor to do? What do you mean, "specified positions"? What does the prospective contract require? Hours of labor of a certain type or individual persons? There's a difference.

 

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3 minutes ago, Vern Edwards said:

Are you pricing hours of labor of a certain type or individual persons? There's a difference.

Interesting point Vern.  Help me understand - for that to matter in the calculations, wouldn't the RFX have requested total annual cost rather than an hourly rate?  What am I missing here?

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Thanks Guys.  The govt will expect a fixed price billing, even though an hourly rate was used to calculate the price.

And the overage does not stop with the bid.  The govt will use the extended dollars to award a contract value and fund accordingly.  That's why the billing will include the overage.  [HR rate X 1920 divided by 12]

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Guest Vern Edwards

Who knows what the solicitation should have requested? I don't know anything about the nature of the government's requirement, the period of performance, or the kind of pricing requested. How can we say what the solicitation should say? Another problem for me is that I cannot understand half of what the OP has written in either of his/her two posts. What the hell does he mean by "overage" and "overinflated extended value"?

A true FFP-LOE contract has a lump sum price. I think there will be one kind of pricing problem if the contract requires the services of a specific individual, as do some R&D FFP-LOEs. There will be a different kind of pricing problem if the contract calls for the performance of a task up to a level of effort without regard to who does the work.

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It would seem that each employee that you provide will cost you an hourly amount based upon a realistic number of annual hours that each person would be available to work.

So, even if sharing the 1920 hours between different employees is allowable, you wouldn’t be able to reduce the hourly rate for “bidding” purposes, correct?  

But how is the monthly billing calculated? Per month or by a certain number of hours? 

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Guest Vern Edwards

There should be monthly billing only if the services are severable. Otherwise, there should be payment upon completion, progress payments based on cost, or performance-based payments. If the services are severable on a monthly basis, there may be some question about the suitability of an FFP-LOE contract.

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9 hours ago, Corduroy Frog said:

there is no possible way the people can actually deliver 1920 hours due to vacation, holiday, sick leave, and any number of other situations which require time off the job

Would you have the same opinion if the Government said it needed 2500 hours?  3000 hours?

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Mr. Edwards I appreciate your experience, but I am obviously not going to reveal too much about my client's proposal except in very generic terms, so I doubt I could ever supply you with enough information to expect an accurate response.

I believe from all the responses that I probably have the option of factoring down my hourly rate if the level-of-effort specifies more hours than will be spent.   In order to price a competitive bid where govt insists on pricing 1920 hours for people who can only deliver 1860, then I can factor down my hourly rate by 1860/1920.  If my hourly rate is $50 based on 1860 expected hours, that I can reduce my hourly rate to $48.4375.  In other words $48.4375 X 1920 = $93,000 and $50.00 X 1860 also = $93,000.

Thanks to all...

 

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I think I'm suffering from the same lack of information that Vern is, Corduroy...maybe you can shine just a little more light on the situation.  Which of these applies in your case (in line with Joel's comment above):

  • If the Government is saying that they expect 1,920 hours of work, then your client will need to show 1,920 hours...not 1,860 hours plus 60 hours of vacation.  Reducing the rate to $48.44 seems like it will cause a hit to their profit.
  • If the Government is saying that they expect one devoted head and they're willing to pay their salary for a year, then your $93K argument seems to hold.

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Guest Vern Edwards
3 hours ago, Corduroy Frog said:

I believe from all the responses that I probably have the option of factoring down my hourly rate if the level-of-effort specifies more hours than will be spent. 

Emphasis added. There is something very wrong with that statement, because under a firm-fixed-price level-of-effort contract the contractor is contractually obligated to deliver the specified level of effort for the firm-fixed price. See FAR 16.207-1:

Quote

16.207-1 Description.

A firm-fixed-price, level-of-effort term contract requires

(a) The contractor to provide a specified level of effort, over a stated period of time, on work that can be stated only in general terms; and

(b) The Government to pay the contractor a fixed dollar amount.

Emphasis added. Failure to deliver the specified level of effort would be a breach of contract. There should be no reason for the contract to specify more level-of-effort than will be spent.

Don't let the label that the government puts in its solicitation fool you. A contract is not FFP-LOE just because the government people call it that.

 

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From everyone's responses it appears the overwhelming sentiment is that the govt will expect delivery of the specified hours.  In my experience the govt awards the specified hours and rates, and then accepts billing on a fixed price monthly amount. 

A microcosm of the situation:  One Position, the pricing CLIN shows 1920 hrs X $50 = $96,000.  Monthly billing amount is $8,000.  The position has 100 hrs vacation, 80 hrs holiday, 40 hrs sick leave.  The environment is not conducive to 60 hours overtime.  How can the govt expect 1920 hrs from this position? 

 

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Guest Vern Edwards

@Corduroy Frog

Look--the answer to your questions depends on a thorough analysis of the terms of the solicitation. It does NOT depend on what anybody calls the bleeping contract.

1. Read the solicitation.

2. Integrate all of its terms.

3. Determine what the resulting contract will actually require of the contractor.

4. Price accordingly.

There is nothing else that anybody can tell you about this, especially in light of your statement:

7 hours ago, Corduroy Frog said:

I am obviously not going to reveal too much about my client's proposal except in very generic terms, so I doubt I could ever supply you with enough information to expect an accurate response.

Who cares about your client's proposal? It's the solicitation that matters.

But, okay, well, if the company submitting a proposal is your client, then...

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We don’t know what the actual positions are required for or whether only one person can fill the position. Is the effort such that your client can provide a sub to fulfill the requirement ?

Without knowing any more specifics, a 1920 hour requirement per year doesn’t look unreasonable to me for a 52 week year at 40 hours per week,  less 10 holidays,  if subs are allowable in order to provide coverage of a position. 

Having scanned the original post and all responses so far, I didn’t see where the OP or any of us mentioned asking the government POC to explain what the basis is for the 1920 hour requirement is. 

It would seem to me that, if the government will require 1920 hours of annual effort and one person wouldn’t be available but 1860 hours, you can’t factor DOWN the hourly rate based upon your annual cost for that person. You would have to make up 60 hours of absences with a substitute. 

If the government won’t require you to provide or account for 1920 hours of effort and cost to receive the full monthly payment, then I can see how the rate could be factored down. 

Oh well. 

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The key issue, which both Vern and Joel have already noted, is that we do not know if the contractor must deliver hours by specified individual, or by defined labor category, or simply by anybody with the basic qualifications. The reason this matters is that individuals do get sick and take leave, but companies do not. In other words, the government may reasonably expect the contractor to have additional personnel on hand to fill in when people get sick or take leave, such that the required hours are still delivered.

If individuals (e.g., key personnel) are being specified, you bid their actual expected availability at their actual expected pay rates; but if not then you bid the hours as specified and make sure you have the workforce available to deliver those hours. The latter approach includes blending of expected pay rates to calculate a composite average.

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1 hour ago, here_2_help said:

government may reasonably expect the contractor to have additional personnel on hand to fill in when people get sick or take leave

Or require mandatory overtime for the one person...or require 2 bodies at 960 hours each...or...

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I'll add some more to help paint the picture.  From the responses, there is overwhelming emphasis that if this is really a level-of-effort contract, the contractor is obligated to deliver the hours or be non-compliant.

It is my opinion that the contracting office who designed this RFP is not competent.  Mr. Edwards made reference to the possibility that this may NOT really be a LOE contract in spite of what they call it.  The COR is young and not very well versed (for that matter, neither am I).  They are expecting us to bill on a fixed-price format:  Hourly Rate X 1920 divided by 12.

The RFP is not on the street.  It is small and we are expecting a sole source award.  I'm afraid as long as the contract is defined as a FPLOE then we will be in violation if the positions do not deliver a full 1920 hrs.  I hope this clears up the misinformation. 

Your comments are welcome, and even better would be suggestions as to how to clear this up.

 

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1 hour ago, Corduroy Frog said:

I'll add some more to help paint the picture.  From the responses, there is overwhelming emphasis that if this is really a level-of-effort contract, the contractor is obligated to deliver the hours or be non-compliant.

It is my opinion that the contracting office who designed this RFP is not competent.  Mr. Edwards made reference to the possibility that this may NOT really be a LOE contract in spite of what they call it.  The COR is young and not very well versed (for that matter, neither am I).  They are expecting us to bill on a fixed-price format:  Hourly Rate X 1920 divided by 12.

The RFP is not on the street.  It is small and we are expecting a sole source award.  I'm afraid as long as the contract is defined as a FPLOE then we will be in violation if the positions do not deliver a full 1920 hrs.  I hope this clears up the misinformation. 

Your comments are welcome, and even better would be suggestions as to how to clear this up.

 

I think what you just said is that your company is negotiating the price and can negotiate the clear intent of the terms of this contract with the government agency. That is new knowledge to me, which provides a totally different perspective to this discussion for me and to recommendations. 

Here is my advice.

You should ensure that both parties have a clear, common understanding of the requirement and how to fill it.  

Do not rely on this forum for that understanding! 

You MUST negotiate with the customer, explaining what you “think” the terms of the RFP mean and their significance concerning staffing and pricing the effort and your concerns. 

You should explain how you determine your employee salary and benefit cost and that it is based upon the number of hours that you think the employee will actually be available and how you would intend to staff the effort for 1920 hours.

Determine if the additional hours are “overtime” hours  or just more days than you think the employee will be available. If the latter, then explain that you will provide substitute personnel or whatever your plan would be. Explain then that there will be additional cost to you to staff the project for those extra hours.  

Determine your overall cost to staff the effort for 1920 hours and propose or revise your proposed hourly rate, accordingly.

Explain all this to the customer during negotiations. 

Be sure both sides have a full, common  understanding of the above and how you are to invoice and get paid for the effort. 

Do negotiate. Request the opportunity to negotiate a clear understanding of the governments expectations, how you interpret the requirement and priced it, and the implications for both parties if 1920 hours is not really what will occur. 

Insist on negotiations. Sole source allows you to realistically price your initial proposal without having to cut prices for fear that someone else will undercut your price. 

Sole source means NEGOTIATE, reach common understanding, and seek a WIN-WIN result. 

If it hasn’t been awarded yet, request negotiations or further negotiations to clear this up! 

Ask for a copy of the government’s record of negotiations based upon their understanding of the discussions concerning the intent and scope, etc. If they won’t provide that, ask for a Memorandum of Agreement or Memorandum of Understanding documenting the mutual understanding and agreements reached.

In case I wasn’t clear enough above in my recommendation, NEGOTIATE.   

Good luck! 

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If it's sole source, then their justification for adjusting your hours to put you on equal footing with other bidders makes little sense.

Agreed with Joel--you're in a much better position in a sole source environment to negotiate and reach a clear meeting of the minds. Discuss your concerns with the Government, and figure out their concerns. Then resolve them in the contract document.

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50 minutes ago, kevlar51 said:

If it's sole source, then their justification for adjusting your hours to put you on equal footing with other bidders makes little sense.

Agreed with Joel--you're in a much better position in a sole source environment to negotiate and reach a clear meeting of the minds. Discuss your concerns with the Government, and figure out their concerns. Then resolve them in the contract document.

Right on! Your first point suggests that the story changed!  

At any rate, one should never ASSUME that the contracting agency will think or act in harmony with the interpretations offered here.   Opinions are frequently based upon the context or assumed context of the information provided by the questioner, which often dribbles out as the thread progresses.  

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Thanks to all who have responded.  I am pricing enough hours to fill 1920 hours and told the project manager that the hours have to be delivered (with part-timers if need be) or we will be noncompliant.  There is also the possibility that the contract can be negotiated to a T&M hours billing.

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Especially given this is not a competitive procurement, the simplest thing to do would be to pick up the telephone and talk to the Contracting Officer.  By and large, I find most CO's are reasonable people and would rather resolve the issue before you spend time putting a proposal together that they will turn around and ask you to revise.  The 1920 hours is probably not a scientific estimate but instead a WAG put together by their program office.  Make a call.

 

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On 2/17/2018 at 7:52 AM, Corduroy Frog said:

Thanks to all who have responded.  I am pricing enough hours to fill 1920 hours and told the project manager that the hours have to be delivered (with part-timers if need be) or we will be noncompliant.  There is also the possibility that the contract can be negotiated to a T&M hours billing.

 

18 hours ago, Redskin Fan said:

Especially given this is not a competitive procurement, the simplest thing to do would be to pick up the telephone and talk to the Contracting Officer.  By and large, I find most CO's are reasonable people and would rather resolve the issue before you spend time putting a proposal together that they will turn around and ask you to revise.  The 1920 hours is probably not a scientific estimate but instead a WAG put together by their program office.  Make a call.

 

To CFrog:  I hope you aren’t making a unilateral interpretation of the government’s RFP. A sole source procurement is intended to be a one-on-one, negotiated process that should allow and encourage you to ask questions and seek a mutual understanding of the requirement. You are also allowed to explain how the requirement would be priced or costedin your proposal. After-all, they have already selected you as the contractor. Help them to formulate the best, clearest contract possible.

Beyond being the “simplest thing to do” to pick up the telephone - it appears from your posts to be necessary...

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I have observed over the years a reluctance by both government and contractors to  communicate frankly and openly, preferring to hold their cards close to their chests. There are many reasons for this behavior.  

I once had to negotiate mods to a large civil works contract with a “top twenty” , heavy construction company. The site superintendent was extremely hard to get along with, argumentative and brusque at the beginnning of the project. He seemed suspicious of anything that the government would say or do. I wanted to find a way to build some trust and to crack the hard shell. After all, we were going to have to work the same project for the next two years. 

One early change was rather small, to add a stand alone restroom building on the new dam site.  I reviewed the contractors detailed proposal and it was fairly reasonable overall, in comparison with my detailed estimate. There were some areas where I could have tried to get them to reduce some small costs. But I noticed that they had overlooked including the cost to paint the building. 

I began the negotiation by saying that the proposal was reasonable overall and that I would not nickel and dime it - which brought a look of surprise from the man. He was expecting us to find something to criticize or cut from the proposal. 

Then, I told him that it appeared to me that they had neglected to include painting and to check. That really floored him. He asked his office engineer and they confirmed the omission.  We quickly settled the mod for a little more than they had proposed and it broke the ice. After that, we were able to develop some trust and a reasonable working relationship. 

Ive always remembered that situation as an example of an effective approach to developing better lines of mutual trust and communication.

 

 

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