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Changing Contract Type


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Hello, I am part of an acquisition team that is trying to devise an acquisition strategy for an upcoming requirement. We are currently trying to determine what contact type we are going to use for this action. This contract is going to be funded through RDT&E dollars and will be for engineering services. We are as of right now planning on selecting a cost-type contract for this action. However, during the life of this contract we would like to switch the contract type from a Cost to a Fixed-Price type contract. That being said, how would you determine when the conditions are right and when it is appropriate to change the contract type from Cost to Fixed Price?

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5 minutes ago, Prosperity said:

That being said, how would you determine when the conditions are right and when it is appropriate to change the contract type from Cost to Fixed Price?

I'm informed that the objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance. A firm-fixed-price contract, which best utilizes the basic profit motive of business enterprise, should be used when the risk involved is minimal or can be predicted with an acceptable degree of certainty. However, when a reasonable basis for firm pricing does not exist, other contract types should be considered, and negotiations should be directed toward selecting a contract type (or combination of types) that will appropriately tie profit to contractor performance.

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I personally would conduct market research and talk with key industry players.  Get your technical people involved and let everyone discuss things like costs, risks, determining events and circumstances affecting performance, and anything else.  Then caucus with your technical team and make some planning decisions.

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3 hours ago, Prosperity said:

will be for engineering services.

Based on the indicated need being engineering services am I right in expecting that your will follow FAR Part 36.6 in the selection of a contractor?  If correct why don't you have a general idea of what you want to do but wait and negotiate with the selected contractor?  After all if FAR Part 36.6 is the selection process the contract type is fair game after selection and during negotiations is it not?

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Prosperity, what is the nature of the engineering work that you are going to contract for? I have some experience with cost reimbursement A/E services on a beyond the state of the art process and corresponding facilities. The evolving process also impacted the design of several of the facilities for an DoD industrial type site.

Note that the A/E contract became a cash cow for the A/E firm, because all ECP’s and other design corrections and revisions were paid for on a reimbursable basis, most with additional fee. 

I agree with the other respondents.

Just trying to understand the nature of the requirement.

As for your original question, I think that the further engineering and design services can be transitioned to FFP if and when the design matures to be able to define further efforts. 

 

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Prosperity, it’s important for you define what you mean by engineering services.

Since the OP talks about funding with RDT&E money, I assumed the intent is system engineering services such as SETA type work.  Take a look at the FAR definition of advisory and assistance services, particularly the part about engineering services.

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Good Evening, Everyone. Thank You for responding to my post. I apologize for not responding sooner. I also apologize for not describing what I am working on with more clarity when I originally posted. This requirement that I am currently working on is unique in that it is mostly for engineering services, specifically mechanical and design engineering. The intention of this requirement is to create a certain process improvement. However, there will also be a deliverable when the work is complete. A composite of something will be created at the end of this "process improvement". This is not a system under development. It is a fairly mature system that this requirement is in support of. To provide a little more background of my work experience, I am only a few years into the contracting career field and my work experience so far has been in a sole source environment. However, now I am getting the opportunity to work in a competitive environment and am now partaking in acquisition strategy which is something new for me but, has been a great experience in terms of growing and learning in the job. I was listening to our technical team talk a week ago when I originally posted and the discussion was to initially establish a cost type contract and then transition to a fixed price contract at some point during the life of the contract. And, I really wanted to reach out to some people that had a lot of experience for ideas on when it is appropriate to change the contract and how and who determines when that change is made?

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@Prosperity  Not answered but with the added information it sounds like your are following FAR part 36.6.  Yes or no?  

 If yes does it make sense that your selection of a contractor would be on their technical merit and that negotiation of a contract and its terms and conditions are left to you and the contractor to work out ?  In effect it is almost like a sole source, at least when it comes to negotiation of pricing structure and much of the terms and conditions of the contract.

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2 hours ago, C Culham said:

@Prosperity  Not answered but with the added information it sounds like your are following FAR part 36.6.  Yes or no?  

 If yes does it make sense that your selection of a contractor would be on their technical merit and that negotiation of a contract and its terms and conditions are left to you and the contractor to work out ?  In effect it is almost like a sole source, at least when it comes to negotiation of pricing structure and much of the terms and conditions of the contract.

My question was “what is the nature  of engineering services?  More specifically, are the “process” and improvement of the process part of a real property installed system that would be considered A/E services?

Or is it simply an industrial process line or other than real property installed equipment? I agree with Carl that, when using the Brooks A/E Act Selection Procedures in 36.6, the contract pricing method can be determined after identifying the most highly qualified item to negotiate price with. 

Or is it management procedures or the like?

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19 hours ago, Prosperity said:

I was listening to our technical team talk a week ago when I originally posted and the discussion was to initially establish a cost type contract and then transition to a fixed price contract at some point during the life of the contract. And, I really wanted to reach out to some people that had a lot of experience for ideas on when it is appropriate to change the contract and how and who determines when that change is made?

A fixed price would be appropriate when the work is capable of being priced with certainty. A cost type would be applicable when you expect the best efforts of the contractor because the requirement is in development mode and therefore not capable of being priced with certainty. Going from cost type to fixed price in the same contract instrument is tricky and may be seen as a potential fraud indicator risk if the fixed price work is to be performed at some time in parallel to to the cost type work due to potential charging errors. To promote competition, the cost type work may need to end before fixed price competitive solicitations and award. You may also wish to consider whether the cost type contractor shall be excluded from the fixed price bidding due to a potential conflict of interest/competitive advantage in establishing the fixed price requirements. You should disclose this in the competitive solicitation of the cost type work. I was not sure whether you were considering a non-competitive award of the cost type work and/or fixed price work.

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  • 2 weeks later...
12 hours ago, Prosperity said:

@joel hoffmanIt is real property installed equipment. I am still not following why FAR Part 36.6 is appropriate for this instance.

What exactly is being designed or redesigned? Building systems are RPIE for instance.

Turning to the question of cost reimbursement vs. FFP.  You could negotiate a phased contract to develop something that you can’t define the amount of effort for at the outset. As the design matures to a point where further design efforts can be defined, one could negotiate a fixed price for the remaining efforts. There would have to be a definitive cutoff point  - not concurrent cost and fixed price activity.

Yes- the initial design firm cannot compete for a follow-on construction contract even as a member of the construction team per the statutory based FAR 36.209.

 

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4 hours ago, Prosperity said:

@Neil Roberts If I am following you correctly, are you saying that for a follow-on contract it would be appropriate to use a fixed-price contract once the requirement is more well defined and no longer in development mode?

@Joel hoffman answered this question. As for the A&E contract terms and conditions, my experience is that this type contract should include a provision that states what the maximum price is to construct to the design and some kind of guarantee with respect to that price. That dollar amount should help you in analyzing the follow-on fixed price bids on a competitive basis.  

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Neil, in rereading the initial post, I think that Prosperity is only asking about an “engineering services” contract, using RTDE funding. Not the follow-on construction contract. At this point, I don’t even know if it would be for construction or if it is some type of process equipment.

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17 hours ago, Prosperity said:

@Neil Roberts If I am following you correctly, are you saying that for a follow-on contract it would be appropriate to use a fixed-price contract once the requirement is more well defined and no longer in development mode?

Yes in general. However, I am not clear whether this is ultimately for the delivery of goods or services after the cost type work. I am kind of thrown off by your use of the term "composite." A composite can be a "thing," not a service. A "thing" would be "goods," not services. Goods that are needed for year after year production but first go through a design and development phase, can be sole source through the production process, which is typically fixed price. I hope this helps.       

 

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