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Shawn

Continuity of Services while negotiating annual NTE Fixed Prices.

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Hi Folks,

I'm working on a multi-year support services subcontract in which continuity of services are vital to the Government and must be continued without interruption. The contemplated Subcontract will priced annually through each Performance years under a Not-To-Exceed, fixed price basis for a term of up to 10 years. Based on the pricing being renegotiated every year and as a risk mitigation measure, the Gov't is requesting we include a provision to address the potential risk where the parties are unable to agree upon the next "Annual Not-to-Exceed Fixed Price". For continuity of service, the Gov't is seeking a fallback clause in the event negotiations breakdown, stall, or just take longer than expected.

Has anyone experience such encounter and identified a solution? Recommendations on how to best broach matters will be greatly appreciated by return.

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How about--

  • The Next Year's "Annual Not-to-Exceed Price"
    The parties agree to negotiate the next year's "Annual Not-to-Exceed Fixed Price" in good faith.  Failure to agree on the next year's "Annual Not-to-Exceed Fixed Price" shall be a dispute under the DIsputes clause of this subcontract.  The Subcontractor shall proceed diligently with performance of this subcontract, pending final resolution of any dispute arising under this subcontract.

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Appreciate the language!
 
I wonder how this suggested language works in practice as our price provisions include a limitation of funds clause and a downward only price adjustment to be calculated at the end of each Performance Year based on a defined formula (e.g. Annual NTE Fixed Price minus the Subcontractors actual incurred cost for that previous Performance Year completed). 
 
Thanks again!
 
Shawn

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Appreciate the language!
 
I wonder how this language works in practice as our price provisions include a limitation of funds clause and a downward only price adjustment to be calculated at the end of each Performance Year based on a defined formula (e.g. Annual NTE Fixed Price minus the Subcontractors actual incurred cost for that previous Performance Year completed). 
 
Thanks again!
 
Shawn

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What kind of subcontract are you using?  It doesn't sound like any type of fixed price contract.

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6 hours ago, Shawn said:
I wonder how this language works in practice...

From a Contractor prospective, I agree with your concerns Shawn. What are the fixed price rates that can be billed by the subcontractor and paid by the Government (even if only on an interim basis) during the Disputes Clause period? What is the contract specified time when negotiations and definitization is contemplated? Seems more difficult for the Contractor to know what its actual costs were until at least 30 days after its fiscal year ends and it closed the books. Is that when the "next year's price" begins? Seems like that is when the NTE negotiations would begin. Does TINA apply? 

Perhaps you could consider an RFI from subcontractors before the bidding or include the suggested clause language in the request for bid and ask for comments.   

Edited by Neil Roberts
sentence not finished

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Also, do you really mean "subcontract? If your company is prime contractor and providing services, is the Government contemplating a similar arrangement with your company?

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Yes its a Not-to-Exceed, Fixed Price Subcontract that is somewhat unique in that we are buying into the Subcontractors standard budget and accounting model. Subcontract is not subject to TINA, nor does CAS apply. Neither will fixed billing rates be incorporated. The redetermination period requires the Subcontractor to submit its actual operating cost (subject to audit) within 60 days of completion of each Performance Years to allow its books to close. 

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Looks like a convenient arrangement for the government - guaranteed NTE,  subject only to possible credit if there is an underrun in cost.  

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Shawn, I believe that this is in essence a cost type contract. I don't know what the contract terms are and therefore identifying a solid potential terms and conditions solution seems to be out of reach for me. I also agree you use ji20874's suggested clause, but I suggest you add language to it that in the event of such a dispute, Seller shall be paid in accordance with FAR 52.216-7 during the disputed period. It would be most helpful to all parties if you obtained the subcontractor's suggested solution.    

Edited by Neil Roberts
typo

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It is similar to a “guaranteed maximum price”, commercial contract but with a zero percent (sub)contractor share of cost savings.  

A GMP is common in the commercial world. They also use the term “cost plus” for contracts with GMP to signify that the (sub)contractor gets paid its costs plus some type of fee arrangement, not to exceed the GMP.  

Unlike the “generous” federal government cost reimbursement contract type, where the contractor must only make a good faith effort to complete the scope of the contract within time and budget, the commercial,“cost plus” (sub)contractor must complete the scope of work within the GMP.

The GMP-like arrangement described in this thread also works somewhat like a fixed price incentive (FPI) with a firm ceiling price except there is no shared savings or separate target price. 

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