CPFF and Rate Caps

[Don Mansfield]

So if the intent of the proposal revision is to arrive at a mutually agreeable cost objective for the contract on paper, why would it not also be reasonable to infer that in order actually meet that objective, certain steps, such as capping a rate, would need to be executed in order to meet that objective. A contractor says 'I'll agree to A% escalation on direct labor vs. the B% I propose and I'll revise my proposal'. Interpreting this as you say implies that an offer to do (proposed reduction in escalation) is not associated with the action (rate cap) that accomplishes the objective. The means and the ends are mutually exclusive interpretation? The way I interpret their reaction is that they didn't realize what they agreed to when they accepted a lower escalation. Sounds like bad faith to me when you accept a postion, but can't take the action required to execute. Would you accept this as a legitimate misunderstanding?

Yes, I would accept this as a legitimate misunderstanding. You seem to think that if a contractor revises its cost estimate, then it has, per se, agreed to limit the allowability of its costs (beyond the limits in FAR 52.216-7). That's quite an assumption. I would not have assumed such a thing, nor do I think that most people with experience negotiating cost-reimbursement contracts would. A cap can be a big deal for a contractor. I don't think that there's anything inherently wrong with a cap, but I would not assume that a contractor agreed to such a contract term--I would make sure that I was explicit about it.

[Guest Vern Edwards]

So there's been a misunderstanding. So Cg1 misunderstood. So what. That happens all the time in negotiations. That's not interesting. The government now wants a cap. The contractor had not expected that. The parties must deal with the present reality. All the contractor has to say is that they would not have agreed to change their rate if they had known that the government would want to cap it and that if the government now wants to do so all bets are off.

What is interesting is the question of whether a request for a cap on escalation rates is inherently unfair or inappropriate. I say it is not. (It might be inappropriate in this case, but we don't have enough information to make that judgment and we shouldn't be bothered to try.) If I understand H2H, he thinks that there is something inherently wrong with a cap on escalation rates. He says that seeking such a cap is an attempt by the government to hijack the company. I say that is utter nonsense.

H2H: The timing of the negotiation is irrelevant to that issue. It has nothing whatsoever to do with my point. I'll agree to any timing that you say. During negotiations, after negotiations, after award--it doesn't matter. If the government wants a cap it wants a cap. I see nothing inherently wrong with that. Your characterizations ("bad faith") are unjustified. I have completed negotiations, shook hands, sent the contractor home, had second thoughts, and called them up and called them back to reopen. I have had contractors do that to me. That is not okay if it is merely a tactic, but if it is the result of a genuine reconsideration of what is prudent, then that's the way it is. I'm not trying to get you to agree with me about that, I'm just telling you how it is.

So get off your "timing" bandwagon and deal with the issue, which is whether a cap on escalation rates is inherently unfair, wrong, bad, evil, whatever. If you think so, then we are in irreconcilable disagreement. If you not think so, then I don't have anything to argue with you about. Bite the bullet. What's your position?

[here_2_help]

So get off your "timing" bandwagon and deal with the issue, which is whether a cap on escalation rates is inherently unfair, wrong, bad, evil, whatever. If you think so, then we are in irreconcilable disagreement. If you not think so, then I don't have anything to argue with you about. Bite the bullet. What's your position?

Vern, I'm not obligated to defend a strawman position that you create for me.

I see that cg1 has left the scene and is, I hope, dealing with the situation. I don't see any need to continue to reiterate--or, if you prefer, to defend--my prior posts.

[Guest Vern Edwards]

Vern, I'm not obligated to defend a strawman position that you create for me.

I see that cg1 has left the scene and is, I hope, dealing with the situation. I don't see any need to continue to reiterate--or, if you prefer, to defend--my prior posts.

I don't know why you think it's a strawman issue. You're the one who raised it. But I don't blame you for not wanting to defend yourself.

[Whynot]

Cg1

If you are so inclined, I would be interested to see your proposed direct labor cost escalation cap language. I am not sure what element of direct labor cost you intend to cap? Do you intend to cap: salary, overhead or hours; by individual or in aggregate; by each contract period or by total contract? Do you intend to cap actual direct labor costs against proposed direct labor costs? I am interested in the what and the how. How exactly are you going to do it?

Also, when you capped direct labor cost escalation and raised the fee did the overall contract price go up, go down or stay the same?

[here_2_help]

Cg1

If you are so inclined, I would be interested to see your proposed direct labor cost escalation cap language. I am not sure what element of direct labor cost you intend to cap? Do you intend to cap: salary, overhead or hours; by individual or in aggregate; by each contract period or by total contract? Do you intend to cap actual direct labor costs against proposed direct labor costs? I am interested in the what and the how. How exactly are you going to do it?

Also, when you capped direct labor cost escalation and raised the fee did the overall contract price go up, go down or stay the same?

Whynot, if the contractor received an increased fixed fee as a result of the government imposing limits on the amount of direct labor escalation, I doubt I would have ever posted on this thread. My impression, rightly or wrongly, is that the contractor received no compensation for its increased cost containment risk.

[Guest Vern Edwards]

Whynot, if the contractor received an increased fixed fee as a result of the government imposing limits on the amount of direct labor escalation, I doubt I would have ever posted on this thread. My impression, rightly or wrongly, is that the contractor received no compensation for its increased cost containment risk.

So, if Cg1 agrees to a higher fee, then a cost cap would not be telling the contractor how to run its business. Is that right? The higher fee would make it all okay? Oh, boy.