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Me of Little Faith

Labor Rates for FFP Commercial Items Award

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Hi folks.  I have a strange demand from a Prime FFRDC who has awarded a FFP contract under FAR Part 12 through competitive bidding for commercial software and implementation.  During a change order process, they are requiring we provide labor rates and incorporate them into the contract.  When asked why, the FFRDC says "the FAR requires it to show fair and reasonable pricing."  Didn't they already determine pricing was fair and reasonable through selection and award?  Does anyone see any potential "gotchas" if we do provide the labor rates while reserving the right to make reasonable adjustments at any time?

Thank you for any insight you might have!

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It sounds like the FFP contract incorporates a fixed sum of money for the software and implementation. I am guessing that no labor rates were incorporated into the contract terms. Could you please clarify? You are right that the showing of fair and reasonable pricing is executed by the prime's internal memorandum summary of the stated prices (s), source selection, bidding, evaluations and comparisons. If labor rates are incorporated into a FFP contract because the deal (SOW) is contractually based on such rates, there would not normally be a basis for contractual adjustment of such rates unless a change notice is negotiated. If the seller believes it has the unilateral contractual right to adjust labor rates in a FFP contract, I have doubts about whether it is a FFP contract. Please provide more details about the transaction to receive the best responses. 

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22 hours ago, Me of Little Faith said:

During a change order process, they are requiring we provide labor rates and incorporate them into the contract.  When asked why, the FFRDC says "the FAR requires it to show fair and reasonable pricing."

Did you ask where that requirement is in the FAR?

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Thanks, Neil Roberts.  No labor rates were incorporated into the contract terms.  If I were to allow for incorporation with a disclaimer the rates incorporated are solely for the one change order, would that negate a purchaser's argument they were entitled to those rates should there be additional changes or SOWs?  The organizational concern is given the probability of subsequent change orders that might necessitate different labor categories and/or rates dependent on assumptions about the purchaser's environment, incorporation of current labor categories and rates could cut into margins. 

9 hours ago, Neil Roberts said:

It sounds like the FFP contract incorporates a fixed sum of money for the software and implementation. I am guessing that no labor rates were incorporated into the contract terms. Could you please clarify? You are right that the showing of fair and reasonable pricing is executed by the prime's internal memorandum summary of the stated prices (s), source selection, bidding, evaluations and comparisons. If labor rates are incorporated into a FFP contract because the deal (SOW) is contractually based on such rates, there would not normally be a basis for contractual adjustment of such rates unless a change notice is negotiated. If the seller believes it has the unilateral contractual right to adjust labor rates in a FFP contract, I have doubts about whether it is a FFP contract. Please provide more details about the transaction to receive the best responses. 

 

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I absolutely did ask, Don Mansfield.  I was told "it's in the FAR and that's all we're going to tell you."  I asked to escalate and was told they would not do so, and will not sign off on the change order until we incorporate the labor rates.  We don't want to cause a customer satisfaction issue, but demanding a contract modification based on hand waving doesn't make a lot of sense. 

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@Me of Little Faith,

I can understand the request for labor rates for pricing purposes, but I don't understand the need to "incorporate" them into the contract. Well, at some point they will ask you to sign a modification. At that point you can see what you'd be agreeing to. 

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You could consider the following:

1. Escalate to higher management.

2. If the amount is not too large, negotiate the change value as zero and walk away from the dispute.

3. Refuse to finalize negotiations of the change notice. When the contract is over, file suit against the prime for breach of contract, bad the  faith negotiations, etc.

4. Offer a certificate of current cost or pricing data that reveals the current rates. State on the certificate that Seller does not believe this certificate is required by the contract or that the rates herein are required to be furnished to Buyer per the contract. Seller agrees to furnish it only to resolve a dispute with Buyer, who states that FAR and the contract require a disclosure of such rates. You may agree to incorporate the certificate into the contract for purposes of the change notice only.

Edited by Neil Roberts
typo in numbers

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The Government may be asking for labor rates in order to help them determine whether the price of the change order is fair and reasonable.  For the contract, I am going to assume there was adequate competition so that the CO could determine the total price to be F&R based on that competition.  Now there is a change being ordered/requested where he/she won't be able to determine it to be F&R based on competition because there won't be any.  In order for the CO to ensure that the amount of this change is fair and reasonable without competition, they must use another method.  The most common method that I've come across in my career is to ask for the information that the Government is asking you, so that they can determine that the rates being charged and the level of effort are acceptable enough to make that F&R determination.  Without that F&R determination, the CO should not make award. 

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Hi Desperado.  Thanks.  This would make sense if the Change Order was outside the scope of the award.  The customer wants some small changes to the Statement of Work under the same rates as the original award.  This is why it doesn't make a lot of sense to me that they would need to find F&R pricing when it's the same pricing they already supposedly found to be F&R through the competitive process.  That's what struck me as odd.

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Prime contractor has come back and refused to incorporate the rate card with any disclaimers, claiming they want to incorporate the same rate card in every change order, effectively cutting us off from any price adjustments or changes to labor categories.  They say a "best value, not low bid" award means they can't include the disclaimer, which I find to be more hand waiving.  They still refuse to specify where in the FAR these requirements are located.  I'm at a loss. 

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21 hours ago, Me of Little Faith said:

I'm at a loss. 

Other than what I said previously, I am at a loss too. It sounds like you just hooked up with an unreasonable customer. On the outside chance that it is otherwise, could you display the changes clause that is included in your contract?    

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On 12/2/2019 at 2:40 PM, Me of Little Faith said:

This would make sense if the Change Order was outside the scope of the award.  The customer wants some small changes to the Statement of Work under the same rates as the original award.

Could you provided the date of award, the POP, the date of the change notice and explain your thinking in stating that this change notice is not outside the scope of award and Statement of Work? 

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On 11/28/2019 at 12:27 PM, Me of Little Faith said:

change order process

This is a clue.  My guess is that they are trying to price the change (maybe an equitable adjustment?) and can't figure out how to do that without more granular pricing data. 

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Thank you both, Neil Roberts and General Zhukov (love the name).  It looks like the procurement person (who refused to let our attorneys speak to their attorneys to try to get to the bottom of the ask) finally had their boss come back to work.  The boss contacted us and said we didn't need to incorporate a rate card into the subcontract anymore, and would we just please provide them pricing in response to their requested change orders.  Well sure, of course we can do that.  

But yes, unreasonable customer was unreasonable.  Luckily, adult supervision intervened and everyone is now happy.  Thanks to everyone who provided suggestions and sanity checks.  I really thought I must be missing some double secret FAR provision somewhere.  

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