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MAY-D-FAR-B-WIT-U

FFP plus delivery Incentive

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We are looking at the possibility of structuring an FFP contract with a delivery incentive for a ship repair contract and there's a debate as to whether there needs to be a target cost, target profit, target price, ceiling price, and share ratios for this kind of contract as a way to satisfy the requirement for a cost incentive or constraint. A part of the confusion may be due to the fact that we keep calling this a FPIF where the IF portion is to incentivize schedule only. My interpretation of FAR 16.202-1 leads me to conclude that this is still an FFP and an FFP satisfies the requirement for a cost constraint.

"The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives."

Another way I have tried to look at it is as an FPIF with a 0/100 over and under share ratio, and target = ceiling.

My question is, does an FFP satisfy the requirement for a cost constraint? Let me know why you agree or disagree. We need to make a case to our level above that this can be done without a FPIF geometry and also argue that an FFP satisfies the requirement for a cost constraint. I am hoping someone here has examples, GAO cases, case law, that they can point to.

Also, i thought i read a chapter on incentive contract in Formation of Govt Contract that an FFP meets the requirement for a constraint but, I don't have a copy handy.

Another part of this conversation is per FAR 16.202, the type of contract we're proposing is an FFP,  should the requirement for a D&F under 16.401 (d) apply? This second part is probably purely academic as there's no chance it will fly in my organization but just wanted to get some thoughts on this.

Just in case anyone is wondering, the plan is to have a positive incentives only  and use liquidated damages to take care of late delivery while making sure the relationship between , incentive, LD, inspection and acceptance clauses is clear. For example:

June 1 $ 1,500,000 fee

July 1 $1,000,000 fee

Aug 1st $0 fee Delivery Date per contract

After Aug 1 : liquidated damages kicks in

 

Your feedback is appreciated.

 

 

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I believe you can have a FFP contract with a firm fixed price for a June 1 delivery, one for a July 1 delivery, and one for an August 1 delivery.  Don’t call it FPIF, and don’t use the word “fee” as you show in your original posting.

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You can use FFP contract with an early completion award fee incentive  (for other than military construction).

There is a risk however, that if contractor encounters delays during performance, it will try to show that it would have completed early, thus is owed the award fee anyway. 

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38 minutes ago, joel hoffman said:

You can use FFP contract with an early completion award fee incentive  (for other than military construction).

There is a risk however, that if contractor encounters delays during performance, it will try to show that it would have completed early, thus is owed the award fee anyway. 

Joel

We discussed the use of award fee mostly due to the situation you described above, ship repair will have a good amount of unforeseen work that will have an impact on schedule and subjectively evaluating all the factors outside the control of the contractor that impacted the ability to meet the schedule before awarding the incentive will be beneficial. Ultimately the administrative burden of the award fee and anticipated difficulty getting buy-in form the ACO side led us to leaning more towards something more objective while addressing how delays will be handled. 

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2 hours ago, ji20874 said:

I believe you can have a FFP contract with a firm fixed price for a June 1 delivery, one for a July 1 delivery, and one for an August 1 delivery.  Don’t call it FPIF, and don’t use the word “fee” as you show in your original posting.

ji20874,

would you need a D&F for this type of contract per FAR 16.401(d)?

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20 minutes ago, MAY-D-FAR-B-WIT-U said:

ji20874,

would you need a D&F for this type of contract per FAR 16.401(d)?

ji’s  approach may be more practical than an award fee where the contract is dirty enough to have other causes for delay. Then, when other impacts arise it could delay the contractually required completion date that you pick, you can effectively accelerate the contractor by paying them mor  during settlement of the various modifications  e not to be delayed

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1 hour ago, MAY-D-FAR-B-WIT-U said:

... ship repair will have a good amount of unforeseen work that will have an impact on schedule and subjectively evaluating all the factors outside the control of the contractor ...

Having been on the periphery of some West Coast shipbuilding/repair firms, and haven spoken with their finance/accounting personnel, I believe the quote above may be an understatement. I was told that the first change order is submitted about 5 minutes after the ship hits the dock, because no ship ever looks like its drawings.

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@MAY-D-FAR-B-WIT-U,

You've described a FFP contract. A FFP contract is not an incentive contract. See FAR 16.401(a). FAR 16.401(d) doesn't apply to FFP contracts.

I used to be a CO for ship repair and we used delivery incentives on FFP contracts. This was not groundbreaking.

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