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JoeJanus

Phase-In/Transition

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We are attempting to resolve a perplexing issue relating to the inclusion/exclusion of the phase-in period for service contracts as part of the period of performance (PoP). The continuity of services clause allows up to 90 days for phase-in for continuity of services. We generally excluded this from the phase-in as counting towards the 5 year (60) months period of performance and also have it as a Firm Fixed Priced Contract Line Item Number (FFP CLIN) in the contract. Some include it in the contract performance period while others exclude it. We have had various opinions from our legal staff and HQ Policy branch to include awarding a separate purchase order for the phase-in period. Is there any clear guidance out there to put this to rest?

Thanks. This forum is a valuable tool and resource. Keep up the great work.

Joe

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You have asked a good question, and I am going to give a more extended answer than you asked for, because FAR provides no guidance whatsoever about continuity of services and the clause is not very good. In the past, it has led to some disagreements between the government and the incumbent contractor about compensation. See ARKO Executive Services, Inc., 78 Fed. Cl. 420 (2007); ITT Federal Services Corp., ASBCA 46146, 97-1 BCA ? 28655; and Pacific Architects and Engineers, ASBCA 45136, 94-2 BCA ? 26604. Effective use of the clause requires planning by the contracting officer.

TERMINOLOGY

The new (successor) contractor phases-in; the old (incumbent) contractor phases-out.

Continuity of Services is phase-out services.

I will use the term "normal" performance to mean the performance of the ordinary duties of the contractor, exclusive of work associated with continuity of services and phasing-out.

PERIOD OF PERFORMANCE

The Continuity of Services clause applies to the old contractor. The obligation to provide such services should be stipulated in a separate contract line item.

The Continuity of Services clause describes the responsibilities of the incumbent contractor during phase-in by the successor and phase-out by the incumbent. However, the clause does not specify the responsibilities of the successor during that period.

Assuming that the incumbent contract is for one year with four one-year options, a Continuity of Services (phase-out) option should be set up to be exercisable before the end of any of the incumbent's one-year performance periods, since the government will not know in advance when it might need such services from the incumbent. The Continuity of Services period may overlap the final period of the incumbent's "normal" performance or it may extend beyond that period into the successor contract. Thus, supposing that the Continuity of Services period is to be 30 days, it may overlap the last 30 days of the incumbent's final year or run concurrent with the first 30 days of the successor contract, thereby extending the incumbent contract for 30 days. If the Continuity of Services period is an option that will extend the incumbent's performance past the last month of its last year, then the CO may have to decide which contract clauses will apply to the incumbent.

In the successor contract, the phase-in period could run concurrent with the first 30 days of ?normal? performance or precede the obligation for ?normal? performance by 30 days. No matter which, the phase-in period is part of the contract period of performance. Thus, if the contract is annually-funded and if the phase-in period will precede the successor?s obligation to provide ?normal? performance, then the first contract year (12 months) will include one month of phase-in and 11 months of ?normal? performance.

RESPONSIBILITIES AND WORK STATEMENT

The Continuity of Services clause does not describe the incumbent's and successor?s respective performance responsibilities during phase-in/phase-out. It says that the incumbent agrees to (1) provide training and (2) "exercise its best efforts and cooperation to effect an orderly and efficient transition to a successor." These are vague.

The key question is: Who is responsible for "normal" performance during the phase-in/phase-out period. This must be made absolutely clear in both contracts. This decision determines how the phase-in period will be handled under the successor contract. If the successor is to be responsible for "normal" performance, then the successor?s phase-in period should be treated as part of the incumbent?s contract?s period of "normal" performance. If the incumbent is to be responsible for ?normal? performance, then the successor's phase-in period should be separate from its "normal" performance period. Thus, the contract should provide for a 30 day phase-in period followed by an 11 month period of "normal" performance by the successor.

The clause illogically requires the incumbent to negotiate with its successor "to determine the nature and extent of phase-in, phase-out services required." This is nonsense. The incumbent will be providing a service to the government, not to the successor. The government must specify what it wants the incumbent to do during phase-n/phase-out in a Continuity of Services work statement. The work statement is covered by the Changes clause and may be changed as necessary, subject to equitable adjustment. What the incumbent and successor must negotiate is coordination between themselves. Their agreement should be subject to approval by the contracting officer.

The CO should write a Phase-In clause for the successor contract, stipulating the successor's obligations during the phase-in/phase-out period.

PRICING

The Continuity of Services option should be priced and the price evaluated during source selection. See Major Contracting Services, Inc., B-401472, May 11, 2010, 2009 CPD ? 170. That case is about the Extension of Services option at FAR 52.217-8, but I think that the same principles apply to Continuity of Services.

Although the Continuity of Services clause indicates that payment to the incumbent will be on a cost-reimbursement basis, I believe that the clause may be supplemented to provide for payment on a fixed-price basis. I do not think that would require approval of a deviation, but if it does, then so be it. In any case, the clause is optional, and I would not provide for cost reimbursement pricing for Continuity of Services at the end of a fixed-price service contract. That's asking for a misunderstanding and dispute. If the Continuity of Services period will be contracted for on a cost-reimbursement basis, and if "normal" performance was firm-fixed-price, then the contract must include cost-reimbursement clauses applicable to the continuity work.

CONCLUSION

In my experience, most COs do not think about Continuity of Services (Phase-In/Phase-out) in any detail, although I am sure that some do. I think that most just accept the clause at face value. That is a mistake. Effective transition requires forethought and planning. There are many ways to do it. These are my thoughts. See also my article in the November 2007 issue of The Nash & Cibinic Report, "Postscript: When The Government Can Choose Among Options."

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Mr. Edwards, Thank you for your quick response. I also have located a document you post entitled, The Five-Year Limit on Government Contracts: Reality or Myth? In that document you start out with the Task Order type contract and explain how the period of performance of a contractor can actually go 6 years if an order is placed at the end of the ordering period. I think that supports a phase-in period that can be excluded from the period of performance of the 5 years since the contractor is not actually fully performing the full effort but getting his personnel in place and inventorying equipment and doing those things to prepare for a contract performance start of ?X? date.

I was looking at a NASA FAR Supplement clause 1804.170 Contract effective date.

(a) "Contract effective date" means the date agreed upon by the parties for beginning the period of performance under the contract. In no case shall the effective date precede the date on which the contracting officer or designated higher approval authority signs the document. (:D Costs incurred before the contract effective date are unallowable unless they qualify as precontract costs (see FAR 31.205-32) and the clause prescribed at 1831.205-70 is used. The two clauses in particular to this circumstance along with the FAR Clause 52.237-3 -- Continuity of Services. Would make one believe that it is a cost that be negotiated at the prior to contract award if awarded and also be considered outside the actual performance period of the contract.

An Example:

So I can have a contract effective date of 1 December 2009 with a phase-in starting 1 December 2009 ? 31 Dec 2009 (FFP) and the period of performance under the contract from 1 Jan 2010 ? 31 Dec14 (5 year Basic Period of Performance).

This would still be within the 5 years correct even though it has a phase-in of 1 month where the contractor is not actually performing the work under the contract but preparing for the contract start date and he/she would have access to information/installation with a valid contract and be able to bill if necessary for those costs.

Additional information:

Also, a Phase-in plan is evaluated with the offer and the submitted plan is a part of contract award.

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I think that supports a phase-in period that can be excluded from the period of performance of the 5 years since the contractor is not actually fully performing the full effort but getting his personnel in place and inventorying equipment and doing those things to prepare for a contract performance start of ?X? date.

It sounds like you are concerned about some five-year limit. If so, what five-year limit are you concerned about?

A period of performance is a period of time within which a contractor must perform. Phase-in is part of the contract period of performance. I don't buy your notion that you can somehow exclude phase-in from the period of performance.

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II guess the question is: Is there a difference between ?program years? and ?contract years? and the performance period?

FAR 17.103 Definitions - ?Multi-year contract? means a contract for the purchase of supplies or services for more than 1, but not more than 5, program years. A multi-year contract may provide that performance under the contract during the second and subsequent years of the contract is contingent upon the appropriation of funds, and (if it does so provide) may provide for a cancellation payment to be made to the contractor if appropriations are not made. The key distinguishing difference between multi-year contracts and multiple year contracts is that multi-year contracts, defined in the statutes cited at 17.101, buy more than 1 year?s requirement (of a product or service) without establishing and having to exercise an option for each program year after the first.

17.104 -- General (a) Multi-year contracting is a special contracting method to acquire known requirements in quantities and total cost not over planned requirements for up to 5 years unless otherwise authorized by statute, even though the total funds ultimately to be obligated may not be available at the time of contract award. This method may be used in sealed bidding or contracting by negotiation.

Also see 17.105-2 for Objectives.

Because I work for NASA I go to its supplement and read:

NASA FAR Sup. 1817.204 Contracts and 1804.170 Contract effective date.

(a) "Contract effective date" means the date agreed upon by the parties for beginning the period of performance under the contract. In no case shall the effective date precede the date on which the contracting officer or designated higher approval authority signs the document. (B) Costs incurred before the contract effective date are unallowable unless they qualify as precontract costs (see FAR 31.205-32) and the clause prescribed at 1831.205-70 is used.

I see a dis-link between program years, contract effective date, the period of performance. I see the 5 year rule is generally for funding & budgeting and not really the period of performance by the contractor. So, in essence you can have a contract that runs 61 ? 63 months if acquiring services that need to be continuous and the awardee needs phase-in/transition time and bill for those costs. That the 1 ? 3 month phase ?in is not included as part of the contractors period of performance since there is currently a contractor performing those functions and it is budgeted for in the 5 program years.

Some are under the assumption that the phase-in time counts as a part of the 5 year contract limit which if you write a contract with the phase-in period that it is included as part of the 5 years and you need to back-out the contract performance time so not go over the 60 months hard and fast rule. (is it)

The rationale for Phase-in/Transition as not being applied to the 5 year period of performance is that 1) This is a time frame for the contractor to prepare logistically to start actual contract performance (e.g. contact incumbent personnel to hire, acquire badges and passes for the new employees, inventory and transfer government property, coordinate the transfer of ongoing projects and if in an overseas area acquire passports, country clearances) and not actual full performance of the contracted work, (e.g. Statement of Work, Performance Work Statement, Tasks). 2) Day-to-day operations are still ongoing by the incumbent contractor who is performing the Government requirement and keeping the mission going. 3) The staff hired to coordinate and do this work can be a direct cost to the contract and billable, if that is how the contractor has its accounting records established, yet there is not full service for a month of a contractor who is maybe only performing pre-performance logistical type service. 4) Normally a contractor cannot jump right into a sustained service type contract without the added upfront period prior to ?full contract performance? and there is a cost associated to that which may not be wrapped up into the contract cost/price. 5) The playing field would never be level to displace an incumbent contractor because a competitive contractor would have taken its start up costs as a loss. Some contractors do price out phase-in as ?Zero Dollar?, especially the incumbent; however, the actions of an evaluated Phase-in Plan enable the Government to evaluate competitive Offerors and build confidence that if contracting with other than the incumbent the mission would be met without sacrificing valuable time and resources which is a benefit to the Government yet also a loss if this time is counted as a part of performance to the contract.

Administratively s contractor needs a signed contract to start the process of gaining access to an installation and transfer of government furnished property, if in the contract. This type of work is normally accounted for in a CLIN as Firm Fixed Price for Phase-in/transition and it is understood within the contract terms and conditions that actual contract performance begins sometime after this is accomplished. If counting the phase-in/transition as part of the period of performance of 5 years then we would always be short changing the contractor from a full contract performance period of doing the actual statement of work required. We know we cannot pay two contractors for the same work so I guess the Phase-in CLIN is distinguishing the fact that we are not paying twice for the same service yet contractually binding the incoming contractor to initiate transition so there will be a continuity of service which is a benefit to the Government.

Also, I have seen past performance and award fee?s given specifically for this period which was evaluated separately from the actual contract statement of work performance. I have seen these phase-in periods from 30 ? 90 days depending on complexity of the service and location (dispersed overseas areas).

Some have proposed to do a separate action (e.g. purchase order) to cover this period and not put it in the awarded contract. The flaw with this approach is 1) it is not efficient contracting and 2) I don?t know what the deliverable would be. Some have proposed that if a contract was going to be 61 months that it requires higher HQ approvals because it went over the over the 60 months. Again, that is not efficient contracting.

There have been various different schools of thought and of course different opinions and experiences depending on the Agency, Contracting Officer, and legal advice.

Thank you for your time and again, appreciate your contributions to the profession.

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I think the question was whether a 90-day phase-in is included in the 5 years mentioned in FAR 17.104(a) or is separate.

That last post is rambling and poorly written. It was painful to read. How do you people manage to get anything done when so many of you write so badly? Do you think like you write? I'm horrified at some of the stuff I read at Wifcon. If this is what we can expect from NASA, then I'm glad Obama is shutting down the manned space program before somebody gets hurt.

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Yes it appears that the question was whether a 90-day phase-in is included in the 5 years mentioned in FAR 17.104(a) or is separate?

And it appears that it was answered above (i.e., the up to 90 days in the continuity of services clause applies to the incumbent's period of performance, and don't exclude phase-in from successor's period of performance and if that contract/order is one with options then it should not exceed the 5-year limitation in 17.204(e) unless the agency has in place specific procedures to authorize more than 5 years).

A related question is -- shouldn't a contractor be on guard for correctly pricing a government RFP/RFQ that includes both the Extension of Services clause and the Continuity of Services clause?

In those circumstances the government could require the incumbent contractor to perform for up to 6 months and 90 days, respectively, (i.e., 9 months total) beyond the 5 year period of performance, right?

P.S. Seeker - I am new to this board to and I guess can look forward to Copper Members taking cheap shots at my employer/agency if they find my posts painful to read. FWIW, while JJ's post was a bit rambling, it did exhibit his research, rationale, and gratitude for assistance.

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P.S. Seeker - I am new to this board to

I think you wanted "too," the adverb, instead of "to," the preposition, for your second "to."

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A related question is -- shouldn't a contractor be on guard for correctly pricing a government RFP/RFQ that includes both the Extension of Services clause and the Continuity of Services clause?

In those circumstances the government could require the incumbent contractor to perform for up to 6 months and 90 days, respectively, (i.e., 9 months total) beyond the 5 year period of performance, right?

Absolutely. I would think that smart contractors would already be doing this.

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