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My agency has been tasked with transferring a CPFF LOE Term contract from another department. The contract was set up with a base and 9 option periods each with a level of effort and ceiling for a one year period of performance. I have a question concerning whether a restructuring of the future unexercised option periods would be allowed under a bi lateral modification or if adding options would trigger CICA. The rationale for considering such a change is that doing so would allow us to only exercise the amount of effort needed as we add work packages to the contract. In a way, making the contract operate more like an IDIQ.

Under the current structure if we exercise an option that contains 10,000 labor hours for year 3 (how effort is measured), and we only use 5,000 of those hours during that period, the unused 5,000 hours of effort dies with the expiration of the option period. This contract would have been better suited as an IDIQ with task orders rather than a base with options but since we are taking the contract as a transfer, we would be limited to changes we can make by modification.

My real question is this: If we do not exceed the total hours and dollars of the contract, can we redistribute our options by modification? Instead of 9 options, could we divide those options into 20 options? Note that we would be adding options but not adding any additional work or increasing the cost ceiling. It would essentially allow us to shift work to the future if we aren't ready to issue the work packages. Government anticipated issuing work packages earlier than they have. The work would still occur within the contract period of performance but not the original option period of performance. If we don't extend the option period of performance, we stand to run out of hours we can use before the end of the contract.

 

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Sounds to me like you need to start a new acquisition that meets your need, and let the transferred contract die without any more option exercises.

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13 hours ago, ConMan1982 said:

My real question is this: If we do not exceed the total hours and dollars of the contract, can we redistribute our options by modification? Instead of 9 options, could we divide those options into 20 options? Note that we would be adding options but not adding any additional work or increasing the cost ceiling. It would essentially allow us to shift work to the future if we aren't ready to issue the work packages. Government anticipated issuing work packages earlier than they have. The work would still occur within the contract period of performance but not the original option period of performance. If we don't extend the option period of performance, we stand to run out of hours we can use before the end of the contract.

 

While I agree with the stance to innovate and tailor the contract to fit actual needs, ji20874 is correct. While you aren't in all reality changing the work under of the contract you would be changing it enough to allow additional competition.

 

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Starting over with a new competition or doing a new contract under sole source authority is not currently an option. Our original plan was that we would move forward with a sole source award for an IDIQ Time and Materials contract rather than transfer the original contract. Department has overridden us and is now instructing us to transfer the contract. Thank you for the reference CC, I actually went down this rabbit hole previously about changing contract type but determined that changing from a CPFF LOE to a FFP T&M would trigger CICA due to the accounting system requirements for a cost reimbursement contract.

So I'm left with the stinker of a contract we will receive through transfer. Is there any case law or FAR reference that deals with restructuring options? I know adding options with additional work or that extend the contract POP would trigger CICA but does dividing up existing options into multiple meet in-scope change standards? My gut tells me since the changed work performs essentially the same function as the unchanged work, it would fall within scope. But maybe there's a rule that says if you add an option it's automatically outside of scope.

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1 hour ago, ConMan1982 said:

So I'm left with the stinker of a contract we will receive through transfer. Is there any case law or FAR reference that deals with restructuring options? I know adding options with additional work or that extend the contract POP would trigger CICA but does dividing up existing options into multiple meet in-scope change standards? My gut tells me since the changed work performs essentially the same function as the unchanged work, it would fall within scope. But maybe there's a rule that says if you add an option it's automatically outside of scope.

ConMan,

I agree the modification of the option periods would not change the scope of the work (service) being performed.

My concern is that maybe there are additional vendors who would have been interesting in competing for the work if the changes you are suggesting were a part of the original solicitation. When concerning protest, GAO will go back to the solicitation to determine whether they are in-scope or not when a MOD is awarded.

Example: If a janitorial solicitation/contract states, "provide all labor . . . . to perform janitorial services for the XXXXXXX facility" then it covers the facility as a whole. If half of the facility no longer needs those services (lease ends or demolition perhaps) then you can MOD down the work within-scope.

If however the solicitation/contract states, "provide all labor . . . . to perform janitorial services for 562,000 sq. ft. . . . "  and then try to half the requirement, another business (perhaps a lower socio-economic concern) amy have been willing to compete for the work.

The above example relating to commercial v. non-commercial, best interest of the government and terminating a portion of the work will change depending on the contract/agency/CO.

If you as the CO determine it would not change the availability of competition then it is not out of scope in my opinion.

 

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I appreciate your thoughts on the matter. I wish I could find a specific case that shows how GAO would rule on the matter. My opinion is that it would not have affected the availability of competition as it's the same work, it would just be re-organized how we structure and elect to exercise said work. The more I think about this the more my thought is to leave it be. If there isn't strong support that GAO would rule in favor of the COs decision to restructure it would likely be something that could trigger a protest. I'm not convinced the current structure is bad enough to be willing to introduce a protest risk.

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22 hours ago, ConMan1982 said:

Under the current structure if we exercise an option that contains 10,000 labor hours for year 3 (how effort is measured), and we only use 5,000 of those hours during that period, the unused 5,000 hours of effort dies with the expiration of the option period.

This really does not sound like a deal-killer.  I'd get it if you needed 15,000 hours and it only had the 10,000.  Could you just use the thing and see how it goes?  Maybe re-compete in a few years if it is driving you nuts?

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Yes, that may be our best bet. I prefer to solve problems before they've become problems but doing so could just cause more problems (protest). Based on the first two years of performance, government hasn't utilized the full level of effort afforded in the options. The thought is that the work, as originally estimated, still needs to occur just not at the schedule they wrote the contract for. We may end up just having to issue a follow on if the need arises.

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On ‎4‎/‎2‎/‎2019 at 2:54 PM, ConMan1982 said:

we only use 5,000 of those hours during that period

I'm curious how this is effected. Isn't the contractor obligated to devote the specified level of effort for the stated time period per FAR 16.306(d)(2)? It sounds like, somehow, the contract is already operating like an IDIQ.

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I have come to believe that most contracting professionals do not understand LOE contracts, even those who award and administer LOE contracts.

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5 hours ago, ji20874 said:

I have come to believe that most contracting professionals do not understand LOE contracts, even those who award and administer LOE contracts.

PepeTheFrog agrees.

Will you please provide your best explanation for LOE and contrast it with other forms of contracting it gets confused with? Or point to a source you think really hits the nail on the head? PepeTheFrog hasn't found many useful, written sources that explain what it is, when to use it, when not to use, pitfalls, etc. 

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FFP LOE

A FFP LOE contract is described in FAR 16.207.  It might look like this--

  • CLIN:  001
  • SUPPLY/SERVICE:  Environmental Observations Report IAW Attached PWS, LOE = 500 Hours of Principal Researcher and 500 Hours of Assistant from Jan. 1 through Dec. 31.
  • QTY:  1
  • UNIT:  JB
  • UNIT PRICE:  $100,000
  • AMOUNT:  $100,000

The contractor promises to dedicate 500 hours of its principal researcher and 500 hours of staff assistants from Jan. 1 through Dec. 31.  In order to be paid, the contractor must produce a report and provide 500 hours of its principal researcher and 500 hours of staff assistants from Jan. 1 through Dec. 31.

If the contractor delivers its report (an excellent report!) and the records show that the contractor provided 400 hours of its principal researcher and 600 hours of staff assistants, the contractor is in default and is entitled to zero payment (even though the report is excellent!).

CPFF (TERM)

There really is no such thing as a CPFF LOE contract -- FAR 16.306(d) tells us that a CPFF contract will take either of two basic forms: completion or term.  The term form is described in FAR 16.306(d)(2) and (4).  It requires the promise of a certain level of effort, much like the FFP LOE contract, but it is properly called a CPFF (Term) Contract or something along these lines rather than a CPFF LOE contract. 

In the CPFF (Term) contract, using the same numbers as above, the contractor would be in default if it provided only 400 hours of principal researcher time, just as it would be with a FFP LOE contract.  Since this is a cost-reimbursement contract, the Government would be paid its costs for the 400 hours, but the Government would not pay anything for the 100 hours the contractor did not provide, and the Government would pay zero for fixed fee (because the contractor failed in its obligation to provide the promised specific level of effort).

COMPARISON

In both a FFP LOE contract and a CPFF (Term) contract, the parties agree up front on the specific level of effort (usually measured in hours) to be provided over a definite time period -- the contractor provides exactly that effort during the period, not fewer (in default) and not more (we won't pay for it).

CONFUSION

[FFPLOE and CPFF (Term)] contracts are often confused with LH or T&M contracts.  None of these buy hours -- [all of these] buy a result, such as a job, a service, or an item.  None of these allow the Government to flexibly order hours -- [FFPLOE and CPFF (Term)] contracts [require] a specified number of hours, and LH and T&M contracts [allow for] however many hours (up to the ceiling price) that it takes for the contractor to perform the service or deliver the item.  If the agency wants a contact where it can flexibly order hours from time to time, it could set up--

  • a FFP contract with an estimated quantity and HR as the unit; or
  • an FFP IDIQ contract with min. and max. quantities and HR as the unit.
Edited by ji20874
Update to show that FFPLOE, CPFF Term, LH, and T&M contracts buy effort (hours) towards a result.

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From Formation of Government Contracts, Chapter 9, Section V, "Level of Effort Contracts":

Quote

There are two techniques used to contract for a level of effort. First, the parties can agree to fixed hourly rates for specified classes of labor with payment based on the number of actual hours incurred. These rates include the contractor's indirect costs and profit. If this type of contract calls for labor only, it is called a "labor-hour" contract, FAR 16.602. If it includes the purchase of materials as well as the incurrence of labor effort, it is called a " time-and-materials" contract, FAR 16.601. The second technique provides a stated amount of compensation for the incurrence of a specified number of labor-hours over a fixed period of time. This type of contract is generally called a "term" type contract and can be written as a "firm-fixed-price, level-of-effort term contract," FAR 16.207, or a cost-reimbursement term contract, FAR 16.306 (d). In the former contract, the contractor is paid the price upon the incurrence of the labor-hours, while in the latter contract, the contractor is paid the fixed fee plus the costs upon the incurrence of the labor-hours.

From The Government Contracts Reference Book:

Quote

LEVEL OF EFFORT CONTRACT
A type of contract stating the work in terms of an amount of effort (usually labor-hours or labor-years) to be performed by specified classes of employees over a given period of time. There are four types of level-of-effort contracts: the FIXED-PRICE LEVEL-OF-EFFORT CONTRACT, the TIME-AND-MATERIALS CONTRACT, the LABOR-HOUR CONTRACT, and the TERM CONTRACT.

 

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Don,

I agree that cost-plus-fixed-fee term, time-and-materials, and labor hour contracts buy a level of effort towards a result, but they shouldn't be styled as LOE contracts -- rather, they should be styled CPFF (Term), T&M, or LH contracts, respectively.

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