Keeping price volumes from the technical team

[ji20874]

formerfed,

Isn't it good to have competitors who already understand all those things?  They might have an advantage, but it need not be an unfair advantage.  An outsider might have some other advantages, and it all works out in the competition.

[Vern Edwards]

On 5/9/2021 at 8:46 AM, Vern Edwards said:

While there is nothing inherently improper (as far as I know) about disclosing the government's estimate or budget, you should be very careful about doing it, especially in acquisitions for services.

I want to emphasize that my remarks pertain to contracts for services, especially long-term and complex (multi-function/multi-task/situation-dependent) services, such as contracts for various types of support services.

I won't write a lengthy treatise here, but long-term and complex service contracts are invariably incomplete. Such contracts require the contractor to respond to contingencies, but the SOW cannot describe every contingency that may emerge in the course of performance.

Contract law has long been grounded in the presumption that contracts are complete, and government contract policy and contract clauses reflect that notion. But legal scholars and economists now recognize that contractual completeness is often an impossibility. There is now an extensive literature in the fields of law and economics about incomplete contracts, and I wrote about it at Wifcon in the past. One American economist, Oliver Hart, won the Nobel Prize in economics for his work on incomplete contracts. 

One result of the recognition of contractual incompleteness  has been the emergence of the concept of relational contracts. Ralph Nash and I wrote a long article about relational contracting for the Defense Acquisition Review Journal in September 2007, entitled, "A Proposal For A New Approach To Performance-Based Services Acquisition," pp. 352-363. https://www.dau.edu/library/arj/ARJ/arj45/ARJ45_complete.pdf, in which we stated:

Quote

 

It is unrealistic to ask agencies to specify services at the time of contract award in clear, specific, objective, and measurable terms when future needs are not fully known or understood, requirements and priorities are expected to change during performance, and the circumstances and conditions of performance are not reliably foreseeable. Yet those are the difficulties faced by agencies and their contractors when they negotiate long-term and complex service contracts.

In real life, parties to long-term and complex service contracts do not specify all requirements at the time of contract award in clear, specific, objective, and measurable terms. Instead, they engage in ad hoc decision making in response to emerging and changing requirements, shifting priorities, and unexpected circumstances. They make it up as they go along, developing and adjusting expectations and agreements accordingly. Reality is never the same as expectations and projections, and plans and agreements go awry. No matter how long and hard future needs are considered, contracts will include things that will not be needed and leave out things that will be. Specifications and expectations must be adjusted over the course of time.

 

And it is for those reasons that I urge readers here to be cautious about disclosing budgets or estimates in RFPs, because budgets and estimates may not, in and of themselves, communicate the realities of contract performance, and because those realities might not be known or knowable at the time of proposal preparation.

Disclosure of budgets and estimates might mislead, rather than inform, unless accompanied by appropriate supplemental information, advisories, caveats, and disclaimers. Incumbent contractors and others familiar with an agency's objectives, operations, and behavior, and with the actual conditions or performance, will know more about the truth, because they have lived it or seen it. They will know about the kinds of contingencies that might arise during the course of performance and the kinds of adjustments that might have to be made during performance, and are thus wise to the limits of budgets and estimates. But it may be hard for uneducated contracting officers and "technical" personnel to acknowledge and explain the inability of their solicitation and contract documents to communicate the government's "true" requirements.

Be cautious. That is the only point that I want to make. And conduct discussions during source selection.

Google "incomplete contracts" and "contract incompleteness" if the idea interests you. See "Overcoming contractual incompleteness: The role of guiding principles," by Frydlinger and Hart, at https://voxeu.org/article/overcoming-contractual-incompleteness-role-guiding-principles. And read, "The Many Futures of Contracts," by Ian R. Macneil, 47 S. Cal. L. Rev. 691 (1973-1974).  It's a great and influential legal essay, written by the father of relational contracting.

[joel hoffman]

22 minutes ago, Vern Edwards said:

I want to emphasize that my remarks pertain to contracts for services, especially long-term and complex (multi-function/multi-task/situation-dependent) services, such as contracts for various types of support services.

I won't write a lengthy treatise here, but long-term and complex service contracts are invariably incomplete. Such contracts require the contractor to respond to contingencies, but the SOW cannot describe every contingency that may emerge in the course of performance.

Contract law has long been grounded in the presumption that contracts are complete, and government contract policy and contract clauses reflect that notion. But legal scholars and economists now recognize that contractual completeness is often an impossibility. There is now an extensive literature in the fields of law and economics about incomplete contracts, and I wrote about it at Wifcon in the past. One American economist, Oliver Hart, won the Nobel Prize in economics for his work on incomplete contracts. 

One result of the recognition of contractual incompleteness  has been the emergence of the concept of relational contracts. Ralph Nash and I wrote a long article about relational contracting for the Defense Acquisition Review Journal in September 2007, entitled, "A Proposal For A New Approach To Performance-Based Services Acquisition," pp. 352-363. https://www.dau.edu/library/arj/ARJ/arj45/ARJ45_complete.pdf, in which we stated:

And it is for those reasons that I urge readers here to be cautious about disclosing budgets or estimates in RFPs, because budgets and estimates may not, in and of themselves, communicate the realities of contract performance, because those realities might not be known or knowable at the time of proposal preparation.

Disclosure of budgets and estimates might mislead, rather than inform, unless accompanied by appropriate supplemental information, advisories, caveats, and disclaimers. Incumbent contractors and others familiar with an agency's objectives, operations, and behavior and with the actual conditions or performance will know more about the truth, because they have lived it or seen it. They will know about the kinds of contingencies that might arise during the course of performance and the kinds of adjustments that might have to be made during performance, and are thus wise to the limits of budgets and estimates. But it may be hard for uneducated contracting officers and "technical" personnel to acknowledge and explain the inability of solicitation and contract documents to communicate the government's "true" requirements.

Be cautious. That is the only point that I want to make. And conduct discussions during source selection.

Google "incomplete contracts" and "contract incompleteness" if the idea interests you. See "Overcoming contractual incompleteness: The role of guiding principles," by Frydlinger and Hart, at https://voxeu.org/article/overcoming-contractual-incompleteness-role-guiding-principles. And read, "The Many Futures of Contracts," by Ian R. Macneil, 47 S. Cal. L. Rev. 691 (1973-1974).  It's a great and influential legal essay, written by the father of relational contracting.

Thanks, Vern I agree with you. My comments were intended only to apply to construction/D-B contracts. 

[Vern Edwards]

You're welcome, Joel. I think that what you were talking about was a form of design-to-cost, which was an old DOD policy used mainly in weapon system development and is still used in design-build contracting and in commercial design projects. You don't read much about it in government contracting anymore.

For those interested in design-to-cost (DTC), there is plenty of material about it available by Googling the term.

[joel hoffman]

2 hours ago, Vern Edwards said:

You're welcome, Joel. I think that what you were talking about was a form of design-to-cost, which was an old DOD policy used mainly in weapon system development and is still used in design-build contracting and in commercial design projects. You don't read much about it in government contracting anymore.

For those interested in design-to-cost (DTC), there is plenty of material about it available by Googling the term.

Vern, if you are referring to a form of design-to-cost where the government would conduct a design and construction competition based upon a pre-established contract price, that's not a form of "design-to-cost" competition that USACE has allowed. I just want to clarify that we don't pre-establish a price or contract amount for the firms to design or to propose a design solution to 

Such a concept was floated to HQUSACE Office of Counsel in the early to mid 2000's timeframe when the Army Transformation Program decided to use design-build to enlarge, transform,,BRAC,  re-organize and move 1/3  the Army. The program required up to 6 times the normal yearly Army MILCON budget over a six-seven year period. The goals included full scope awards within the Programmed Amounts,  high quality, sustainable, energy efficient construction and  much shorter overall acquisition and construction periods.  USACE-OC nixed that design-to-cost idea, stating that cost or price has to be competitively evaluated in every source selection (FAR 15.304(b)92) and 10 U.S.C. 2305(a)(3)(A)(ii) and the 41 USC 253a equivalent0.  

That was before the recent exception for Multiple Award competition for basic contract awards, when proposed order prices will be competitively evaluated. But competing prices at the order level is consistent with the above concept 

In addition, Government Estimates are just that "estimates".  Budgets are often ultimately based upon some type of estimate. If a full-scope, high quality project can be designed and built for less than the funding limits through competition, that is a benefit, saving money that wouldn't necessarily have to be spent or could be re-programmed for or transferred to other projects.. I've seen design-build projects awarded at full scope for up to seven million dollars under the advertised cc limit.

On the other hand, if the CCL is too low, it would be a costly exercise for the competing firms, who would have to make extensive revisions to their preliminary proposals..

 

 

[Vern Edwards]

9 minutes ago, joel hoffman said:

Vern, if you are referring to a form of design-to-cost where the government would conduct a design and construction competition based upon a pre-established contract price, that's not a form of "design-to-cost" that USACE has allowed.

That's not what I was talking about. DTC was a program in which the government would specify the requirement as something like: "Design a bomb that will blow the enemy to bits and cost no more than $50,000 per unit to produce." (Design to Unit Production Cost)

[joel hoffman]

3 minutes ago, Vern Edwards said:

That's not what I was talking about. DTC was a program in which the government would specify the requirement as something like: "Design a bomb that will blow the enemy to bits and cost no more than $50,000 per unit to produce."

Great. Thanks.  Industry does sometimes use the form of DTC that I mentioned above

[joel hoffman]

7 hours ago, joel hoffman said:

Great. Thanks.  Industry does sometimes use the form of DTC that I mentioned above

It was industry who proposed using a design-to- specified cost during the $56 billion Army MILCON Transformation Program Industry days and roundtable acquisition strategy meetings in 2005.

[formerfed]

I only see need for divulging estimates when there’s nothing else to let offerors know limits or boundaries.  Recurring or one time services can be easy - just include the government LOE.  Or show historical cost data.  Or disclose workload data.  But if none of that exists, what’s the alternative?  

 

[Vern Edwards]

25 minutes ago, formerfed said:

But if none of that exists, what’s the alternative?  

Sit down and talk it out. Like business people have done for—how long, centuries?

[formerfed]

47 minutes ago, Vern Edwards said:

Sit down and talk it out. Like business people have done for—how long, centuries?

Sure.  Providing all the information the government reasonably has available usually works.  But sometimes saying $1 million is all we have is a prudent choice.  I know of an agency studying climate change on coastal flooding.  They wanted a contractor to do the analysis.  The agency felt a Government estimate would be misleading because they knew academia and some nonprofits already had models for this.  But they also knew some experts they were interested in weren’t associated with tools like that and would do the work relying upon their expertise and experience.  They wanted the most they could afford and published their estimate as the best they could come up with.