Jump to content

Pricing constraints on FFP orders under a GSA schedule with labor rates


Recommended Posts

A contractor holds a GSA schedule to provide services.  The schedule is priced with hourly rates that differ by labor category and geographic region.  Work orders under the schedule are competitively bid and are placed on a firm-fixed price (FFP) basis.  I am wondering what pricing constraints there are on the contractor when submitting quotes for work orders.  For example, is there anything (other than competition) preventing the contractor from doubling its estimate of the number of labor hours required for a work order? 

The solicitation contains the following clause:

SPECIAL INSTRUCTIONS FOR PRICING ALL SERVICES ON AN HOURLY BASIS AT THE TASK ORDER LEVEL

(a) Total price Services will be established at the time the Task/Delivery Order is placed by the ordering agency and will be based on the prices awarded in the resultant contract. The estimated number of hours negotiated with the ordering agency and the labor category (ies) provided will be shown on the resultant Task/Delivery Order. If the agency Contracting Officer has made a Determination and Finding (D&F) that it is necessary and in the best interest of the Government to purchase from these SIN(s) on a Labor Hour or Time and Material basis, the resultant Task/Delivery order shall specify the Not to Exceed price, showing the Labor Category (ies) proposed (with the hourly and daily rates for each) the material proposed with unit price for each, and any Other Direct Costs (ODCs). All prices/rates proposed must be derived from the awarded GSA schedule contract prices/rates awarded. Any item (ODC) proposed that are not derived from the GSA contract prices awarded must be identified as “Open Market Items” which can only be awarded at the task order level in accordance with FAR Subpart 8.402(f).

Link to comment
Share on other sites

You are talking about two different things.  In your first paragraph, you talk about FFP.  In the clause, you talk about T&M, and that entire clause is irrelevant to a FFP arrangement (it applies to purchasing services on an hourly basis, rather than a FFP basis).  Which is it, and what is the real question?

Link to comment
Share on other sites

Thanks for the response @ji20874.  I read the first, second, fourth, and fifth sentences of that clause as applying to both FFP and T&M orders (with the third sentence applying only to T&M).  In other words, a FFP task order would still need to identify the labor categories, estimated number of hours, and any open market items, but it wouldn't include a not-to-exceed price. 

Assuming I am wrong, my questions are: 

  1. What rules govern how the contractor must price a FFP quote? 
  2. For example, I presume the contractor would need to base its quote off of the labor rates in the GSA schedule.  What is stopping the contractor from basing its quote off of higher rates?
  3. May the contractor overestimate the number of labor hours required to perform the work?

Really appreciate the feedback! Thanks. 

Link to comment
Share on other sites

Yes, the contractor may grossly overestimate the number of hours required to perform the work -- but should stop short of fraud.  Hopefully, that contractor will not be selected for the work based on competition.  And, whether there is competition or not, the ordering activity is responsible for considering the level of effort and the mix of labor proposed to perform a specific task being ordered, and for determining that the total price is reasonable (see FAR 8.403-2(d)).  If the contractor overestimates the number of hours, it doesn't need to use inflated rates.

Do you want to buy a completed service for a firm-fixed-price? or, do you want to buy a certain amount of hours?  I am assuming it is the former.  The agency can consider the level of effort (required by the FAR) without incorporating the "[t]he estimated number of hours . . . and the labor category(ies)" into the order (not required by the FAR).  I do not like that solicitation clause, as you styled it.  To me, it is stupid [unwise] to put that information in the order if the agency wants to buy a completed service for a firm-fixed-price (which is what I am assuming).  Putting that information in the order seems to belie FFP assertion and points to a T&M arrangement.

Link to comment
Share on other sites

Super interesting.  So, getting on the GSA schedule gets a contractor special bidding access, and then the contractor can effectively price the quote however it wants, subject only to some undefined outer limit constituting fraud.  I thought the labor rates in the GSA schedule were supposed to be fully burdened rates inclusive of profit, etc.  It seems strange that a contractor could effectively add more profit at the task order level by intentionally overestimating labor hours.   

Link to comment
Share on other sites

I didn't say anything about a schedule contractor using different labor rates.

The labor rates on GSA schedule contracts are fully burdened.  As I wrote earlier, the ordering activity is responsible for considering the level of effort and the mix of labor proposed to perform a specific task being ordered, and for determining that the total price is reasonable (see FAR 8.405-2(d)).  So there is no problem with the system.

Did you lose a task order competition because of nefarious conduct by your competitor (the winner)?

Link to comment
Share on other sites

Thanks @ji20874.  I really appreciate the help on this one. 

Our company actually is winning every task order.  We just want to make sure we are quoting the task orders the correct way, and I have been tasked with figuring out how to do it.  To allocate risk more favorably, we (obviously) would like to build a labor-hour cushion into our quotes.  I am trying to figure out how much of a cushion we can include without running afoul of the rules.  I am struggling to find anything in the regs or guidance to serve as a guidepost. 

Link to comment
Share on other sites

There are no rules.  With a manual lawn-mower, how long will it take to cut an acre of grass?  4?  You could bid 5 or maybe even 6 -- but you might lose if there is competition.  If sole source and you bid 6, the agency might negotiate you down to 5 -- if so, you still have an hour of cushion.  You want to bid so that you can win this task order and be invited to play for other task orders.

I still don't like that solicitation clause, and wouldn't use it in my practice, but you have to play with the cards as they are dealt.

I wonder, if your hourly rate is $100 and you bid 6 hours, and they negotiate you to 5, and they write 5 into the task order and declare it to be FFP for $500 -- if you then perform the work in 4 hours, are they going to pay you $500?  You said it is FFP.

 

Link to comment
Share on other sites

5 hours ago, Gold and Marooned said:

So, getting on the GSA schedule gets a contractor special bidding access, and then the contractor can effectively price the quote however it wants, subject only to some undefined outer limit constituting fraud. 

Never saw this answered this away so adding for clarification.   The FSS contractor must price using the labor rates in their contract.   Hours if not dictated by the RFQ are up to the contractor in preparing their "price".   A contractor may offer a discount however.   

Here are a couple of clause that you will usually find in your GSA FSS contract - 552.238-81 PRICE REDUCTIONS (MAY 2019) (ALTERNATE I - APR 2014) and I-FSS-600 CONTRACT PRICE LISTS (OCT 2020).     Might be worthwhile to read all the terms and conditions of your GSA FSS contract for further clarifying information.

Link to comment
Share on other sites

On 11/18/2020 at 5:27 PM, C Culham said:

Never saw this answered this away so adding for clarification.   The FSS contractor must price using the labor rates in their contract.   Hours if not dictated by the RFQ are up to the contractor in preparing their "price".   A contractor may offer a discount however.   

Here are a couple of clause that you will usually find in your GSA FSS contract - 552.238-81 PRICE REDUCTIONS (MAY 2019) (ALTERNATE I - APR 2014) and I-FSS-600 CONTRACT PRICE LISTS (OCT 2020).     Might be worthwhile to read all the terms and conditions of your GSA FSS contract for further clarifying information.

Excellent post Carl.

Adding more for OPs info plus for anyone else.

Schedule contracts awarded by GSA based on the principle of commerciality - items are commercial in nature and pricing supported by data as proof.  This includes published commercial price lists, proof of sales including paid invoices, and marketplace sales data.  For most items, the offeror submits their commercial price list.  They also show relative discounts from that price list to various classes of customers along with pertinent information on the specific sales.  For example, Walmart gets a 30% discount because they buy 10,000 units a month.  Or University of Illinois gets 20% discount and the federal government received 10% discount because they purchased 50 units last year.  Then the GSA negotiates discounts equal to or greater than offered the most favored customer.  

If the contractor later sells at a lower price to customers other than what was disclosed to the GSA CO, they are in violation of the Price Reduction clause Carl cited.

Link to comment
Share on other sites

  • 2 weeks later...

I was just thinking about this very topic the other day, I can see how it's normal to accept a firm fixed price task order quote without the price breakdown showing the labor rates and hours but then how would the CO know if the Contractor is proposing rates at or below their GSA rates for the respective labor category?

If I send an RFQ and in response get $100,000.00 as the price quote without a breakdown of how that $100,000.00 came to be, how do I know that $90,000.00 of that amount isn't from open market items/labor categories? And from a contractor's perspective, I wonder why it would be a problem to show the price breakdown, because I assume the Contractor comes up with the firm fixed price somehow internally anyways, so what's the problem with sharing how they got to the FFP with the government?

Edited by Sam101
grammar
Link to comment
Share on other sites

On 12/3/2020 at 6:13 PM, Sam101 said:

If I send an RFQ and in response get $100,000.00 as the price quote without a breakdown of how that $100,000.00 came to be, how do I know that $90,000.00 of that amount isn't from open market items/labor categories?

In my view the price breakdown should and can be requested.   Since GSA FSS contracts publicly post labor rates if that is the way the schedule pricing is, then it makes sense that the Government can request how said pricing was used to arrive at the lump sum of $100k.

On 12/3/2020 at 6:13 PM, Sam101 said:

I wonder why it would be a problem to show the price breakdown, because I assume the Contractor comes up with the firm fixed price somehow internally anyways, so what's the problem with sharing how they got to the FFP with the government?

Noting my previous statement I guess if I had a GSA FSS contractor that would not share how they got to their pricing using their schedule rates or otherwise I probably would not continue with them on trying to arrive on price and move on to another GSA FSS contractor.   I quickly looked and while I could identify a specific FAR 8.4 discussion nor a specific clause in a GSA FSS contract I most likely would also contact the GSA CO of record for the schedule and discuss the uncooperative nature of the particular contractor.

Link to comment
Share on other sites

I agree that the price breakdown should be requested from the contractor, and should be reviewed by the agency, when appropriate such as in order to comply with FAR 8.405-2(d)--

  • "The ordering activity is responsible for considering the level of effort and the mix of labor proposed to perform a specific task being ordered, and for determining that the total price is reasonable."

But the price breakdown need not/should not be included in the resulting task or delivery order when the intention is a firm-fixed-price for a deliverable or outcome.  

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...