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Modifying a Requirements Contract


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During a recent training session covering the use of the DD Form 2579, Small Business Coordination Record, a question came up regarding processing this document and issuing a synopsis when a requirements contract is modified to increase the estimated quantities. While it is understood that the order itself does not need to be synopsized, there was great debate as to whether the modification that increases the estimated quantities (should one need to be done) would need the coordination and the synopsis.

The argument against included comments such as it was an estimate, we wouldn't know the exact amounts which is why we used the requirements contract type, there is no ceiling/max with this contract type, to what end would we use any information received from the synopsis (generally time wouldn't allow for a recompete or a new award to be made), we've not done this before, it has not come up in reviews.

The argument for included comments such as the prima facia argument of competition, potential for better pricing with larger quantities. While it is understood that an immediate change to a different contract may not be possible, the information has been gathered for future use, say in the event the possiblity comes up again, or the consideration to get a new contract in the works.

I couldn't find a specific citation in the FAR or DFARS that indicates a synopsis would be required when modifying a requirements contract. All I could find is that as an exception the order would not need to be. In fact, what the FAR does say, is that a synopsis is required for "Modification to an existing contract for additional supplies or services that meets the threshold in 5.101(a)(1)" [FAR 5.201(:)(1)(ii)] - making no distinction for contract type.

Your input would be greatly appreciated.

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There was great debate as to whether the modification that increases the estimated quantities (should one need to be done) would need the coordination and the synopsis.

Maureen,

In your hypothetical, why would there be a need to modify the contract to increase the estimated quantities?

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One example that was discussed was our installation mortuary contract (forgive the morbidness). Say the contract was awarded for 15 departed. If a 16th should occur, we've exceeded our estimate. Some argue the basic contract should be modified to increase the estimated quantities so that the 16th order can be awarded. Should that modification be synopsized?

Sorry, that may not be the best example. We do use a lot of requirements contracts here. Training sessions for certain classes for NCOs, for example. If we have a larger group of NCOs go through the classes and we've used up the estimated quantity half way through the year, should that year's estimate be increased and if so, do we modify the basic contract and synopsize that modification?

Hope that helps.

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Guest Vern Edwards

I think it's a mistake to modify a requirements contract in order to change the estimated quantity. The estimated quantity is informational only and not binding on the parties. See FAR 16.503(a)(1) and 52.216-21(a). If I thought it necessary or appropriate to advise the contractor that we had revised our estimate, I would do it by letter or email. I would certainly not publish a synopsis because I had revised my estimate.

On the other hand, if the contract stipulates a maximum quantity, any increase in the maximum is a new procurement and must be competed or supported by a J&A for other than full and open competition. In that case a synopsis would be required.

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Mr. Edwards - always a pleasure to get your input!

I was in the "Yes you need to synopsize" camp, though I can see the point you make. What bothers me is that I often see these contracts double or triple in size because "it's a requirements contract, it was only an estimate". It's the most convenient thing to do, but is it right? What mechanism puts the burden on the contracting officer to make a better business decision than to just do what is easy? Synopsizing can open a can of worms we may not want to deal with, but are we abiding by a guiding principle of the Federal Acquisition System to promote competition (FAR 1.102) or giving a contractor a whole lot more business because he was the most expedient approach to use?

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Guest Vern Edwards

It's a requirements contract. See FAR 52.216-21. The government is obligated to buy "all" of its requirements from the contractor up to any limit on total orders. The estimated quantity is not a limit on total orders. It is merely a preliminary estimate. As long as the requirements are generated by "the Government activity or activities specified in the Schedule," what choice does the government have but to keep buying from the contractor until the ordering period comes to an end? Why do you synopsize? What would you do if you received responses to the synopsis?

Your organization has created a problem in its own mind. A change in the estimated quantity does not change the obligations of the parties. It seems to me that you are thinking that a change in the estimated quantity is a change in the scope of the contract that requires new competition. Absent some information that I do not have, I don't understand why think that and why you modify the contract to change an estimate.

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Your organization has created a problem in its own mind.

Well, not the organization. Most of them agree with you.

I was troubled by ordering double or triple the initial estimated quantities. The contractor seems to be benefiting a lot from our inability to come up with a good estimate. But as you say, an estimate is an estimate, 'nuff said.

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I was troubled by ordering double or triple the initial estimated quantities. The contractor seems to be benefiting a lot from our inability to come up with a good estimate. But as you say, an estimate is an estimate, 'nuff said.

I recommend trying to hold feet to the fire when establishing estimates. Unfortunately, when some people know that they will not be bound by the estimates, they don't put much effort in developing them. I see too many estimates that are justified by a statement that says something similar to, "We used 100 last year, we anticipate ordering 100 this year." Past usage/ordering is helpful, but not always the last word. Have laws, regulation or policy changed that will affect a contract? Has usage been trending upward or downward? There are all sorts of factors that may influence an estimate. Take a look at the reason you are ordering double or triple the estimated quantities. Maybe that will give you some insight into what else you should be considering when establishing an estimate.

If a good estimate is generated, but unforeseen circumstances result in an increase or decrease in the requirement, such a change could either help or harm the contractor depending on the circumstances. Such a risk is inherent in a requirements contract, and this risk, presumably, is factored into its offer.

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Iron Man:

What do you mean by "hold feet to the fire"? What course of action would that entail?

Good question, that statement is pretty vague.

When a new solicitation is in the works, I recommend questioning those that developed the estimates regarding how they were established. If you are aware of information that would impact the estimates, ensure that the information has been considered. If necessary, ask to review the back-up data that was considered. If there was a previous contract for the same or similar item/service and the orders significantly exceeded (or failed to meet) the estimate, ensure that whatever lesson to be learned (if any) has been incorporated into the new estimate. Do not automatically accept the estimate at face value, especially if there is a history of poor estimates in that area.

If you are comfortable that all relevant and available information was considered and the result is a good faith, reasonable estimate, then no problem. If you don?t come to that conclusion, then ask to have the estimates revised, or at least reviewed, based on your concerns. Of course, how successful you are may vary depending on your standing in the organization and your role in the process, e.g., contracting officer, program manager, agency attorney, or someone else.

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