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 We have an A/E services IDIQ with the DoD that we initially entered in 2011 with a base year and four option years.  Each of the option years included rate escalation.  The IDIQ was fairly active and the ceiling was raised a couple of times.  In 2016 (the last year of the IDIQ) we were awarded a major FFP TO order that is the subject of this question.  Performance of this TO has been subject to delay after delay (changed client plans, re-scoping, etc). 

Unfortunately, throughout all these delays we've been stuck with rates from 2016 that have not escalated.  We are now on Mod 14.  With each delay, the 2016 rates become increasingly problematic.  The TO was finally slated to be complete this summer, but then COVID hit and the necessary travel to perform the services couldn't happen.  There was talk that the entire TO would move to a new IDIQ with fresh rates and much more ceiling.  However, we just learned this month that the DoD was going to raise the ceiling on the old IDIQ and also extend the TO POP to 2025.  Our company has historically just determined to take extensions like these as "mixed blessings" in the name of client care, and try save money on execution.  It looks like that's going to be the same approach to this one...but I have questions:

1.  This TO:  With each of these 14 mods, we've worked and re-worked the hours to fit the new scope.  We are at the point where our actual rates are so different than the contract rates that using our current profit projection tools, it's almost impossible for us to know if we'll make a profit.  So the pressure is to either:

    a) Use our current rates x hours to figure out what we need to make a reasonable profit, and then reverse engineer the hours with the old rates to figure out what we need to submit for back up and negotiations.  The client actually suggested we do this, but wouldn't this raise an issue with certified cost and pricing data if we are just pushing up the hours to make sure we don't go in the hole?

    b) Add in lots of contingency, on the basis that we have a performance risk based on low rates.  Maybe this is the way to go?  Not sure how that would go over with the client)

    c) Push much more senior positions onto the job (The client seems receptive to this, but I'm not sure if it's right.  How can you argue that a senior engineer is required for literally every task?), 

     d) Push up profit.  Correct me if I'm wrong, but I think the max is 12% under the Structured Approach.  Is there a way to go higher?, OR

     e) Mod the rates to bring them in line with current.  I'm getting mixed signals from our PgM that the client won't to do this for some fiscal law reason.  I'm not sure what that would be and I'm not sure he really understands either.  He might just be reluctant to engage the client.

Any recommendations on what might be done with this current ancient TO.  I've looked in the forums and haven't seen anything directly on point, so I'm probably missing something obvious.

2.  Future TOs on new/other IDIQs:  Any thoughts on negotiating escalation on multiple year TOs into the IDIQ? 

In the past, we've apparently tried to argue that we should be able to use the current option year rates as a TO lingers on.  We've been told 1) that the new option year rates can't be used until the option is exercised, and 2) even if the option is exercised, the rates in effect at the award of the TO govern.  I agree with both of those statements. 

But, our inability to figure out TO escalation seems to encourage a bit of strategy that seems unfair--e.g., in one instance, we had a client who literally awarded a TO in the last week of the option year just to slide under the old rates.  Then, the very next week they awarded the exercised the option.  I understand why the govt would do that.  Certainly makes a contractor want to figure out a way to address that behavior--because now we are performing the entire TO on old rates and there is nothing we can do about it. 

Any thoughts or examples of how such a clause might look?

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1 hour ago, BradB said:

...there is nothing we can do about it...

I am supposing you have agreed to all the modifications (or, at least to all the equitable adjustments).  Each of those was an opportunity for you to do something, but you have chosen not to.  

1 hour ago, BradB said:

...we just learned this month that the DoD was going to raise the ceiling on the old IDIQ and also extend the TO POP to 2025...

The DoD cannot do this unless you agree -- here is another chance for you to do something.

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1 hour ago, BradB said:

Any thoughts or examples of how such a clause might look?

You don't need a clause -- you just need to stop agreeing to bilateral modifications without negotiations -- bilateral means both parties agree.  But if you don't want to negotiate these bilateral modifications, maybe you can ask the contracting officer to include a clause such as the following--

RATE ESCALATION

In the event performance under this contract extends beyond the period for which hourly rates are established in this contract, each hourly rate for each extension year will be 12.5% higher than the rate for the preceding year.

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2 hours ago, BradB said:

DoD was going to raise the ceiling

Your post mentions "raise the ceiling" more than once and you also said "stuck." What do those two concepts mean to you in connection with your contract relationship with DOD? Do you have some kind of government approved rate agreement you must abide by or ??? Please elaborate.

 

Edited by Neil Roberts
delete redundant word "you"
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1 hour ago, ji20874 said:

-- you just need to stop agreeing to bilateral modifications without negotiations -- bilateral means both parties agree. 

Yes--I think this is where we are headed.  The way our business is structured, our senior PMs all have pretty strong personal relationships with the Govt PMs, so it definitely can be a challenge to insert myself.  Unfortunately, there is just no history of the company renegotiating rates.  Part of my question gets at how often/realistic it is to expect to successfully re-negotiate labor rates on an IDIQ (or even a TO under the IDIQ).  I assume by this that you are thinking there are no such mysterious fiscal law complications that would make it impossible/inadvisable to adjust the labor rates at this point?

 

38 minutes ago, Neil Roberts said:

"raise the ceiling" more than once and you also said "stuck." What do those two concepts mean to you in connection with your contract relationship with DOD? Do you have some kind of government approved rate agreement you must abide by or ??? Please elaborate.

The ceiling I am referring to is the IDIQ ceiling.  We had so many TOs under the IDIQ that we ran out of capacity.  So the client added more capacity to the IDIQ.  As far as being "stuck," I mean that we agreed in the original IDIQ to labor rates for each labor category for the IDIQ. The IDIQ included automatic escalation to those rates for each of the option years, but provided for no escalation of rates on long-running (or any) TOs.

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33 minutes ago, BradB said:

poster I assume by this that you are thinking there are no such mysterious fiscal law complications that would make it impossible/inadvisable to adjust the labor rates at this point?

I don't know yet what ji20874 thinks yet but based on what you have said, I see little or no success in proposing or submitting a claim for an adjustment of labor rates (including any rates for any agreed to work under any agreed to period of performance under any existing contract (IDIQ and/or Task Order) where the contract already includes the agreed to labor rates and period of performance. The government can't do that without consideration (a reason that benefits the government to do so because they already have a contract and don't have to). I don't see or understand what the consideration is from what you have posted. You may certainly propose new rates for any new contract work or any changes to work or period of performance in any existing contract.

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12 hours ago, BradB said:

Part of my question gets at how often/realistic it is to expect to successfully re-negotiate labor rates on an IDIQ (or even a TO under the IDIQ).  I assume by this that you are thinking there are no such mysterious fiscal law complications that would make it impossible/inadvisable to adjust the labor rates at this point?

You may propose re-negotiating labor rates anytime there is a bilateral modification for new contract work or changes to existing contract work, before you sign the bilateral modification.  

As Neil said, you already agreed to the existing contract and task orders -- you agreed, so how can you re-negotiate those?  You must perform according to your promises.  But for the next modification for new contract work or changes to existing contract work, you don't have to sign.  If you do sign, keep your promises.  Otherwise, try to re-negotiate and don't sign until both parties are in agreement.

12 hours ago, BradB said:

Part of my question gets at how often/realistic it is to expect to successfully re-negotiate labor rates on an IDIQ (or even a TO under the IDIQ).

How often?  Your call -- anytime there is a bilateral modification for new contract work or changes to existing contract work and your costs of performance have changed.  Or not -- your call.

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12 hours ago, BradB said:

 We have an A/E services IDIQ with the DoD that we initially entered in 2011 with a base year and four option years.  Each of the option years included rate escalation.  The IDIQ was fairly active and the ceiling was raised a couple of times.  In 2016 (the last year of the IDIQ) we were awarded a major FFP TO order that is the subject of this question.  Performance of this TO has been subject to delay after delay (changed client plans, re-scoping, etc). 

Unfortunately, throughout all these delays we've been stuck with rates from 2016 that have not escalated.  We are now on Mod 14.  With each delay, the 2016 rates become increasingly problematic.  The TO was finally slated to be complete this summer, but then COVID hit and the necessary travel to perform the services couldn't happen.  There was talk that the entire TO would move to a new IDIQ with fresh rates and much more ceiling.  However, we just learned this month that the DoD was going to raise the ceiling on the old IDIQ and also extend the TO POP to 2025.  Our company has historically just determined to take extensions like these as "mixed blessings" in the name of client care, and try save money on execution.  It looks like that's going to be the same approach to this one...but I have questions:

1.  This TO:  With each of these 14 mods, we've worked and re-worked the hours to fit the new scope.  We are at the point where our actual rates are so different than the contract rates that using our current profit projection tools, it's almost impossible for us to know if we'll make a profit.  So the pressure is to either:

    a) Use our current rates x hours to figure out what we need to make a reasonable profit, and then reverse engineer the hours with the old rates to figure out what we need to submit for back up and negotiations.  The client actually suggested we do this, but wouldn't this raise an issue with certified cost and pricing data if we are just pushing up the hours to make sure we don't go in the hole?

    b) Add in lots of contingency, on the basis that we have a performance risk based on low rates.  Maybe this is the way to go?  Not sure how that would go over with the client)

    c) Push much more senior positions onto the job (The client seems receptive to this, but I'm not sure if it's right.  How can you argue that a senior engineer is required for literally every task?), 

     d) Push up profit.  Correct me if I'm wrong, but I think the max is 12% under the Structured Approach.  Is there a way to go higher?, OR

     e) Mod the rates to bring them in line with current.  I'm getting mixed signals from our PgM that the client won't to do this for some fiscal law reason.  I'm not sure what that would be and I'm not sure he really understands either.  He might just be reluctant to engage the client.

Any recommendations on what might be done with this current ancient TO.  I've looked in the forums and haven't seen anything directly on point, so I'm probably missing something obvious.

2.  Future TOs on new/other IDIQs:  Any thoughts on negotiating escalation on multiple year TOs into the IDIQ? 

In the past, we've apparently tried to argue that we should be able to use the current option year rates as a TO lingers on.  We've been told 1) that the new option year rates can't be used until the option is exercised, and 2) even if the option is exercised, the rates in effect at the award of the TO govern.  I agree with both of those statements. 

But, our inability to figure out TO escalation seems to encourage a bit of strategy that seems unfair--e.g., in one instance, we had a client who literally awarded a TO in the last week of the option year just to slide under the old rates.  Then, the very next week they awarded the exercised the option.  I understand why the govt would do that.  Certainly makes a contractor want to figure out a way to address that behavior--because now we are performing the entire TO on old rates and there is nothing we can do about it. 

Any thoughts or examples of how such a clause might look?

1. The parties negotiated the rates for base and option years. You didn’t “bid” the rates. 

2. Each task order price and scope is negotiated. The negotiations should also include generally agreed assumptions and procedures, terms and conditions for the design and review processes. 

3. Both parties knew or should have known that the government could issue a task order anytime during the ordering period for base or any option year. Barring government delays or changes that extend the period of performance of a task order, your firm should have considered the company  personnel rates that would be effective during the periods of performance of typical task orders.

4. If government actions or inactions or changes cause delays  or increased efforts, “lost design efforts” etc., which increase the contractor’s personnel or other costs, the changes clause 52.243-1 with alt. IV and/or other clauses can provide the A/E a vehicle or opportunity for a price adjustment or an equitable adjustment to the contract time and price. If the changes or delays have or will push performance into timeframes involving salary escalation , then the parties should negotiate an appropriate price adjustment.

5. As others have stated, the government can’t unilaterally extend the ordering period of the contract or the price limitation. It takes bilateral agreement. From the contractor’s perspective, the contractor has to agree that the terms, conditions and price of any extension of the ordering period or option are acceptable before the government can do this. 

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52.243-1 Changes excerpt with Alternate IV revision to paragraph a) and added paragraph f):

“a) The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract in the services to be performed.

“b) If any such change causes an increase or decrease in the cost of, or the time required for, performance of any part of the work under this contract, whether or not changed by the order, the Contracting Officer shall make an equitable adjustment in the contract price, the delivery schedule, or both, and shall modify the contract.

...”(f) No services for which an additional cost or fee will be charged by the Contractor shall be furnished without the prior written authorization of the Contracting Officer.” 

The Suspension of Work clause at 52.242-14 provides for a cost adjustment for directed or constructive government delays in the administration of the contract. 

The clause at 52.243-7 Notification of Changes provides for an equitable adjustment of price and/or time due to government actions or inactions which the contractor considers to be constructive changes, such as lost design and delays when the customer changes its mind requiring revisions and resubmission, etc. 

Bottom line is that the A/E contract and task order prices and scopes are negotiated, not forced upon the A/E - so be vigilant. I’m not sure that the government can simply issue last minute task orders to avoid paying the  escalated rates of the next option year when the work would primarily be performed if the contractor doesn’t agree to the cost and particulars before the current ordering period expires. If the A/E wants to agree to last minute task orders in order to maximize workload and reserve the capacity for the next option period, then that is a business decision. But the Government must act in good faith, too. 

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Another thought. The parties negotiate the contract professional rates and each task order. Even when certified cost or pricing data are required, the A/E and the government need to consider when the actual A/E services for tasks will likely be performed. If the government has a habit of issuing task orders at or near the end of an ordering period, the A/E can propose separate rates for the portions of orders that would primarily be performed later* , i.e. during the next ordering period. If the government doesn’t want to agree to that, then - and if the A/E doesnt want to consider possibly losing money on late issued orders, it should insist on factoring some anticipated escalation into its contract rates. This is judgmental data, not “cost or pricing data” (“data other than C or P data”). Don’t be a doormat. But partner with the government for a win-win scenario. Negotiate fair and reasonable rates.

I strongly advise you NOT to propose false assumptions about what level will be doing the work I.e., senior rates to cover escalated costs when you know that junior level designers will be assigned. ...padding the hours for the purpose of covering lesser but more expensive labor costs, etc.

When negotiating, seek legal and ethical means and rates to resolve the type issues or practices that you have or anticipate can occur. An A/E contract does have terms and conditions to cover some of them, such as government changes and delays. You shouldn’t have to fake your task order pricing.

*When I worked for an A/E firm, my company principal planned when and how much wage escalation for his employees. When we negotiated with owners, our proposals reflected that planning.

If your A/E firm is going to contract for INDEFINITE Delivery/INDEFINITE Quantity , recognize and be prepared for the fact that there can be uncertainties. Government A/E contracting processes using qualifications based selection and NEGOTIATED contracts and task orders were designed to promote partnering together to obtain quality professional services at fair and reasonable prices (for both parties). Find ways to mutually meet each party’s needs and objectives. I think that it can be done. It appears that your PM’s are trying to promote close customer relations. 

 

 

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14 hours ago, BradB said:

in one instance, we had a client who literally awarded a TO in the last week of the option year just to slide under the old rates.  Then, the very next week they awarded the exercised the option.  I understand why the govt would do that.  Certainly makes a contractor want to figure out a way to address that behavior--because now we are performing the entire TO on old rates and there is nothing we can do about it. 

The task order was negotiated, wasn’t it? The government appears to have acted in bad faith.  Your firm appears to have rolled over and accepted it for some business reason or through lack of knowledge of alternatives or through lack of negotiating skills? 

If the government only had one week to issue the task, your company had one advantage to seek better terms - the limited time for government to negotiate and for your firm to agree to the price. Unless the scope and labor effort were totally specified/pre-determined ahead of time, the government would need your input and agreement before their deadline. A/E task orders aren’t the same as buying commercial supplies, commercial commodities or commercial services. The actual amounts and types of efforts and other costs are not generally fixed or catalog priced. 

Of course, I’m assuming that the A/E contract task ordering procedures are based upon bi-lateral agreement. If not, you are at the mercy of the government’s good faith or lack thereof. Don’t  agree to such terms and conditions when negotiating the base ID/IQ contract.

Always remember that the principle of A/E Contracting is quality based selection, then negotiating mutually agreeable terms, conditions and fair and reasonable pricing. 

The impacts you described shouldn’t be a surprise. Good luck! 

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12 hours ago, BradB said:

The way our business is structured, our senior PMs all have pretty strong personal relationships with the Govt PMs, so it definitely can be a challenge to insert myself.

You have gotten great advice on your questions but  the above jumped out at me.   I wondered what is the PM's relationship with their own company especially those, for lack of a better term, that control the purse strings.  It would seem that if the PM's relationships are putting the company in a loss or loosing position someone would not like that.  I know I would not if I owned the company and would appreciate someone inserting themselves in a professional manner to point out the situation for at least discussion and in the end an approach to deal with the matter going forward.

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Many thanks for the all the fantastic advice!  I appreciate you all sharing your thoughts.

To paraphrase what I've learned so far:

1.  Get rate escalation clauses into the IDIQ so it's upfront.

2.  Barring that, negotiate rate escalation at the TO level, if there is a bilateral mod at some point.  Corollary:  a POP extensions seems a good time to make the case that the delay is increasing costs. 

3.  "Don't be a doormat"

4.  I'm still unclear on potential C&P ramifications.

 

14 hours ago, Neil Roberts said:

You may certainly propose new rates for any new contract work or any changes to work or period of performance in any existing contract.

Do you think there is any qualitative difference in the chances of success or equities involved in negotiating rate changes at the IDIQ v. TO level?  To me it seems that if we don't have escalation baked into the original IDIQ, there is little chance of changing that even if there's a later mod.  In this case, I suppose the best time to have done this at the IDIQ level would have been when they extended the ordering period back in 2016.  Now that the ordering period is passed, it seems like trying to negotiate a rate change for a lingering TO wouldn't make sense.  And it also seems like it wouldn't make much sense (for the government) to agree to new IDIQ labor rates if there were many active TOs--assuming there was some need for a bilateral mod to the IDIQ.  As for a mod at the TO level, it probably would have been good to do this when we agreed to the most recent TO POP extension.

12 hours ago, joel hoffman said:

I’m not sure that the government can simply issue last minute task orders to avoid paying the  escalated rates of the next option year when the work would primarily be performed if the contractor doesn’t agree to the cost and particulars before the current ordering period expires.

12 hours ago, joel hoffman said:

If the A/E wants to agree to last minute task orders in order to maximize workload and reserve the capacity for the next option period, then that is a business decision.

Yes, I agree with this.  As stated above, we haven't historically pushed back in instances like these (again, client care/cultural focus, and perhaps capacity strategy).  It seems like we should take a closer look at this to make sure we aren't shooting ourselves in the foot longer term.

6 hours ago, joel hoffman said:

If the government doesn’t want to agree to that, then - and if the A/E doesnt want to consider possibly losing money on late issued orders, it should insist on factoring some anticipated escalation into its contract rates. This is judgmental data, not “cost or pricing data” (“data other than C or P data”).

I'm not sure I understand--how can we factor in escalation if the government doesn't want to agree?  Are you making a distinction between negotiating new labor rates altogether and proposing something else (e.g., escalate all LCats by 3%)?  Is there another way to factor in escalation (e.g., hours?).  As far as judgmental data goes, what exactly are you saying is judgmental and not C&P data?  

6 hours ago, joel hoffman said:

I strongly advise you NOT to propose false assumptions about what level will be doing the work

Concur.  This isn't what is happening.  These rates (and LCats) are 10 years old now.  If the folks working on the project meet quals for the higher LCats, this isn't a problem is it?

 

4 hours ago, joel hoffman said:

The task order was negotiated, wasn’t it? The government appears to have acted in bad faith.  Your firm appears to have rolled over and accepted it for some business reason or through lack of knowledge of alternatives or through lack of negotiating skills?

Mainly business reasons and perhaps some internal negotiating processes we need to improve.  But I appreciate all the advice (and experience) because it helps me calibrate expectations going forward.

 

3 hours ago, C Culham said:

 I wondered what is the PM's relationship with their own company especially those, for lack of a better term, that control the purse strings.

Interesting question.  Client care is a cultural imperative that goes all the way up the chain.  I don't feel frozen out of the process, so I think there are things we can do to improve and create win-win situations.

 

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7 hours ago, joel hoffman said:

If the government has a habit of issuing task orders at or near the end of an ordering period, the A/E can propose separate rates for the portions of orders that would primarily be performed later* , i.e. during the next ordering period. If the government doesn’t want to agree to that, then - and if the A/E doesnt want to consider possibly losing money on late issued orders, it should insist on factoring some anticipated escalation into its contract rates. This is judgmental data, not “cost or pricing data” (“data other than C or P data”). Don’t be a doormat. But partner with the government for a win-win scenario. Negotiate fair and reasonable rates.

 

25 minutes ago, BradB said:

I'm not sure I understand--how can we factor in escalation if the government doesn't want to agree?  Are you making a distinction between negotiating new labor rates altogether and proposing something else (e.g., escalate all LCats by 3%)?  Is there another way to factor in escalation (e.g., hours?).  As far as judgmental data goes, what exactly are you saying is judgmental and not C&P data?  

I meant that - if the government wants to issue task orders at the last minute before the next option year, then you should try to negotiate using labor rates that correspond to when the work is going to be done. Say 90% of the effort would occur in the next option period. Then I’d want to be able to price the task order based upon 10% of the time at current contract rates and 90% at the next year’s rate. 

If the government doesn’t agree to allow you to propose a mix of applicable rAtes for when the work will be performed,  next time we negotiate contract rates for a new contract,  I’d propose higher contract rates to factor in for situations where most of the work occurs in the year after the ordering period. The Contract  rates would then be a blend of actual pay rates and judgmental escalation . Judgmental factoring for escalation is not defective cost or pricing. 

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To me, it’s in both parties best interests to negotiate contract professional labor rates that reflect when work will be performed, not tied to the ordering periods.

Otherwise, the A/E would have to negotiate contract professional rates for ordering periods ( Base and options).  But in establishing those rates one must escalate them sufficiently to CYA (risk) based on possible or probable timeframes for task order awards, knowing that the effort will trail the actual task order negotiation and award. In your situation that may have occurred but the whole contract got out of hand by extending the ordering period without adjusting the old rates. 

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