Contracting Officer requesting to negotiate indirect rates & profit in anticipation of future contract mods

[Boomer635]

Background:  Recently awarded competitive FFP task order for fuels system repair project.  In anticipation of an upcoming government initiated contract modification, the Contracting Officer (CO) has requested we submit a completed NAVFAC 4330/43 Form (Oct 2011), HOOH, FOOH, Executive compensation, Employee Fringe and additional documentation.  We have received the modification scope of work and we estimate the threshold value to be approx. $150K, which is less than the NDAA 2018 increased SAT threshold of $250K and significantly lower than the current TINA threshold of $2M.   I understand that the CO is not requesting this information be certified; however, In my review of the FAR, DFARS and PGI, the guidance I find directs the CO to use price analysis in lieu of cost analysis.   Specifically, FAR 15.404-1(a)(2)  --  "Price analysis shall be used when certified cost or pricing data are not required (see paragraph (b) of this subsection and 15.404-3)".   Paragraph (b)(1)   "Price analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit..." .

Further reading in DFARS, PGI and DoD Guidebook for Acquiring Commercial Items (Jan 2018), the guidance offered goes into detail of price analysis techniques available to the acquisition team for determining price reasonableness.   

I talked to the CO and informed her that we could quickly negotiate a reasonable price on the anticipated change order by negotiating our labor category mix, labor hours and materials, but the process the CO was requesting was going to place undue burden and hours on our company to comply.  Her argument is that this modification places us in a sole-source environment and the CO is required to perform a cost analysis.  When I recommended price analysis, the CO said it could only be performed under competition and that I was misinterpreting the FAR.  The CO also said NAVFAC had more strict guidance on the subject.  Am I misinterpreting my FAR research and would I be out of line to ask where to locate the more strict NAVFAC guidance?  

Thank you for your help.

Boomer635

 

 

 

  

[ji20874]

Really, it doesn't matter what the FAR says, does it?  The FAR guides the contracting officer's actions, not yours.  Maybe you can help the contracting officer understand the FAR better, or maybe not.

I think there are two more important questions:  

1. Is there anything in your contract that requires you to submit any or all of the data?
2. How badly do you want the modification?

[joel hoffman]

I am assuming that this is a construction contract (some or all non-commercial services involved in the change). The KO is within her rights to ask for cost breakdown information for non-commercial related costs) because the price adjustment for a Change is based upon the increases and/or decreases in the cost to perform the work as changed. 

“15.403-3   Requiring data other than certified cost or pricing data.

(a)(1) In those acquisitions that do not require certified cost or pricing data, the contracting officer shall—

(i) Obtain whatever data are available from Government or other secondary sources and use that data in determining a fair and reasonable price;

(ii) Require submission of data other than certified cost or pricing data, as defined in 2.101, from the offeror to the extent necessary to determine a fair and reasonable price (10 U.S.C. 2306a(d)(1) and 41 U.S.C. 3505(a)) if the contracting officer determines that adequate data from sources other than the offeror are not available. This includes requiring data from an offeror to support a cost realism analysis;

(iii) Consider whether cost data are necessary to determine a fair and reasonable price when there is not adequate price competition...”

In addition, if it is the first mod involving labor, materials, equipment, etc.,  I found it necessary and helpful to determine what and how various common aspects of pricing changes would be based, such as how indirect costs are treated. Better to get that out of the way or understood up front, rather than re-inventing the wheel each time. 

As for cost analysis, you misinterpreted the FAR guidance, ignoring subparagraph (4) below:

“404-1   Proposal analysis techniques.

(a) General. The objective of proposal analysis is to ensure that the final agreed-to price is fair and reasonable.

(1) The contracting officer is responsible for evaluating the reasonableness of the offered prices. The analytical techniques and procedures described in this section may be used, singly or in combination with others, to ensure that the final price is fair and reasonable. The complexity and circumstances of each acquisition should determine the level of detail of the analysis required. 

(2) Price analysis shall be used when certified cost or pricing data are not required (see paragraph (b) of this subsection and 15.404-3). 

(3) Cost analysis shall be used to evaluate the reasonableness of individual cost elements when certified cost or pricing data are required. Price analysis should be used to verify that the overall price offered is fair and reasonable. 

(4) Cost analysis may also be used to evaluate data other than certified cost or pricing data to determine cost reasonableness or cost realism when a fair and reasonable price cannot be determined through price analysis alone for commercial or non-commercial items.”

Since the equitable adjustment is “cost based”  (effect on the contractor’s cost) and the fact that equitable adjustments include an allowance for profit on costs and profit on deductions, asking for the direct and indirect cost basis and the profit basis is reasonable in order to mutually arrive at an overall reasonable “price”. 

I cant speak for NAVFAC and their internal policies but I negotiated changes for Air Force in the 1970’s and for the Corps of Engineers on contracts for Army, Navy, Air Forces, civil works and for FMS work at home and overseas for over thirty years and typically obtained and evaluated detailed proposals, such as what the Navy is asking for.  

Realize too, that you won’t have to repeat the effort to familiarize the KO with how indirects are costed/priced for every subsequent mod. 

[Boomer635]

46 minutes ago, ji20874 said:

Really, it doesn't matter what the FAR says, does it?  The FAR guides the contracting officer's actions, not yours.  Maybe you can help the contracting officer understand the FAR better, or maybe not.

I think there are two more important questions:  

1. Is there anything in your contract that requires you to submit any or all of the data?
2. How badly do you want the modification?

ji20874, 

Maybe it doesn't matter what the FAR says.  (1) There is no requirement within the contract stating that this is required.  (2) There is little profit in this modification; however, we want to be responsive to the Government and receive and a good CPAR in the end.  Besides, I am sure we would receive a unilateral change order should we not comply. 

[ji20874]

35 minutes ago, Boomer635 said:

Besides, I am sure we would receive a unilateral change order should we not comply

Okay, so your contract allows for unilateral change orders followed by equitable adjustment.

41 minutes ago, Boomer635 said:

we want to be responsive to the Government and receive and a good CPAR in the end

Okay.