Required Elements of T&M/LH Contract or Order

[Rachel_CO]

Within my civilian contracting office there has been some discussion regarding the required elements of a T&M or LH type contract, particularly with regard to task orders for services placed against a single-award IDIQ contract. Specifically, the contractor's task order proposals include labor categories with a corresponding labor rate and quantity of hours but the resulting TO instruments do not include labor categories, labor rates, or even an overall quantity of hours. Instead, the TO instrument includes the required ceiling price and simply states that all of the master contract labor categories and rates are included and may be used for the performance of the TO (the master contract includes a schedule of labor categories and rates for each year of performance). The COs utilizing this method argue that it provides much more flexibility for the contractor to use its desired skill mix to accomplish the TO SOW requirements. 

Is this an acceptable practice considering the fact that the master contract includes the labor categories, rates, and overall estimated LOE and the TO includes a ceiling price? Or, should the TO instrument include, at a minimum, the labor categories, labor rates, and a total quantity of hours for performance of the services identified in the TO SOW?  As a CO myself, I am struggling to understand how a TO can be considered a T&M or LH type if the TO instrument does not include any of these basic elements (i.e., labor categories, labor rates, or a total quantity of hours to be delivered during TO performance).

The following are a few relevant FAR references:

FAR 16.505(7) requires that orders placed under IDIQ contracts contain "quantity and unit price".

FAR 16.6 refers to the inclusion of labor hours and rates: “Description. A time-and-materials contract provides for acquiring supplies or services on the basis of- (1) Direct labor hours at specified fixed hourly rates..."; "Fixed hourly rates. (i) The contract shall specify separate fixed hourly rates that include wages, overhead, general and administrative expenses, and profit for each category of  labor." 

FAR 52.232-7(a)(1) (Payments under Time and Materials and Labor Hour Contracts) refers to hourly rates and labor categories prescribed in the contract and the Schedule: "Hourly rate means the rate(s) prescribed in the contract for payment for labor that meets the labor category qualifications of a labor category specified in the contract that are-      (i) Performed by the Contractor; (ii) Performed by the subcontractors; or (iii) Transferred between divisions, subsidiaries, or affiliates of the Contractor under a common control.    (2) The amounts shall be computed by multiplying the appropriate hourly rates prescribed in the Schedule by the number of direct labor hours performed."

FAR Subpart 2.1:  "Contract means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction ) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing . In addition to bilateral    instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications."

 

[C Culham]

Just now, Rachel_CO said:

Is this an acceptable practice considering the fact that the master contract includes the labor categories, rates, and overall estimated LOE and the TO includes a ceiling price? Or, should the TO instrument include, at a minimum, the labor categories, labor rates, and a total quantity of hours for performance of the services identified in the TO SOW?

My thoughts -

IDIQ Multiple Award where Fair Opportunity is used to select the contractor?   In general either approach is acceptable as to the award approach but if you are asking contractors to give a proposal that is used for fair opportunity selection it is interesting that the contractors proposal on labor categories and hours as proposed is not converted into the CLIN's for the TO.  Posed another way if selection under fair opportunity does not consider the labor mix and hours and selection is based on other stuff why even ask for the mix and hours in the proposal?  If mix and hours is used as evaluation (proposed price of TO) it would seem prudent to list them in the CLIN.  I say this as it would seem that if the mix and hours are evaluated the government is agreeing to the mix and hours approach.  Overall for me it boils down to how the mix and hours are used to evaluate for award.  By example if you are just worried about the "ceiling price" when evaluating for award just ask contractors how much they are willing to do the work for - total price - and then award as your office is currently doing.

IDIQ single award, I am back to my view that either approach works.

FAR references are guidance so I would not be too hung up on them.   My concern on payment would be that it might take a little extra effort to view and concur on an invoice when the labor mix and hours with rates are not on the TO.  Just takes looking at the parent IDIQ so not a big deal.    But what goes along with this is the expectation thing again.  Simplified example.   Contractor proposes 200 hours of a specialist (higher rate) and 50 hours of a technician (lower rate) to do the work.   Award is at ceiling price only.   When the invoice comes in contractor bills for 275 hours of technician and 75 hours of specialist.  Did the government get what they bargained for?  More importantly for post work completion evaluation by customer for the future maybe the completed work expectations could be viewed differently for future contracts.   In other words why do you need specialists on the example contract when techs can get it done. 

[ji20874]

25 minutes ago, Rachel_CO said:

Instead, the TO instrument includes the required ceiling price and simply states that all of the master contract labor categories and rates are included and may be used for the performance of the TO (the master contract includes a schedule of labor categories and rates for each year of performance). The COs utilizing this method argue that it provides much more flexibility for the contractor to use its desired skill mix to accomplish the TO SOW requirements. 

The COs utilizing this method are correct.  See FAR 16.601(c)(2) and (d)(2).

 

27 minutes ago, Rachel_CO said:

Or, should the TO instrument include, at a minimum, the labor categories, labor rates, and a total quantity of hours for performance of the services identified in the TO SOW? 

The parent or master contract has the labor categories and the hourly rates, and you already said the TO incorporates those by reference.  That is fine.  It seems you also want the TO to include the total quantity of hours for performance -- you err in wanting that -- if you can make this decision, then make it FFP (or FP-LOE).  The reason for T&M is because you cannot determine the total quantity of hours, right?

[Vern Edwards]

5 hours ago, C Culham said:

FAR references are guidance so I would not be too hung up on them. 

@C CulhamWhich FAR references are merely "guidance"? You didn't cite any. Please be specific.

[Rachel_CO]

5 hours ago, C Culham said:

My thoughts -

IDIQ Multiple Award where Fair Opportunity is used to select the contractor?   In general either approach is acceptable as to the award approach but if you are asking contractors to give a proposal that is used for fair opportunity selection it is interesting that the contractors proposal on labor categories and hours as proposed is not converted into the CLIN's for the TO.  Posed another way if selection under fair opportunity does not consider the labor mix and hours and selection is based on other stuff why even ask for the mix and hours in the proposal?  If mix and hours is used as evaluation (proposed price of TO) it would seem prudent to list them in the CLIN.  I say this as it would seem that if the mix and hours are evaluated the government is agreeing to the mix and hours approach.  Overall for me it boils down to how the mix and hours are used to evaluate for award.  By example if you are just worried about the "ceiling price" when evaluating for award just ask contractors how much they are willing to do the work for - total price - and then award as your office is currently doing.

IDIQ single award, I am back to my view that either approach works.

FAR references are guidance so I would not be too hung up on them.   My concern on payment would be that it might take a little extra effort to view and concur on an invoice when the labor mix and hours with rates are not on the TO.  Just takes looking at the parent IDIQ so not a big deal.    But what goes along with this is the expectation thing again.  Simplified example.   Contractor proposes 200 hours of a specialist (higher rate) and 50 hours of a technician (lower rate) to do the work.   Award is at ceiling price only.   When the invoice comes in contractor bills for 275 hours of technician and 75 hours of specialist.  Did the government get what they bargained for?  More importantly for post work completion evaluation by customer for the future maybe the completed work expectations could be viewed differently for future contracts.   In other words why do you need specialists on the example contract when techs can get it done. 

@C CulhamThanks for your reply.  The contract is a single-award IDIQ.

[C Culham]

1 hour ago, Vern Edwards said:

@C CulhamWhich FAR references are merely "guidance"? You didn't cite any. Please be specific.

My statement was with regard to Rachel_CO FAR references.

[Don Mansfield]

7 hours ago, Rachel_CO said:

FAR 16.505(7) requires that orders placed under IDIQ contracts contain "quantity and unit price".

The requirement for a "unit price" doesn't apply to T&M/LH. See FAR 4.1005-2(c)(3).

 

7 hours ago, Rachel_CO said:

As a CO myself, I am struggling to understand how a TO can be considered a T&M or LH type if the TO instrument does not include any of these basic elements (i.e., labor categories, labor rates, or a total quantity of hours to be delivered during TO performance).

Do you think that "hour" is the unit of delivery under a T&M/LH contract?

[ji20874]

Rachel, 

Have you read the FAR citations I provided earlier?  You should.  Please do, and let me know if you see "total quantity of hours to be delivered."

[Vern Edwards]

The Time-and-Materials contract and the Labor-Hour contract are the two most misunderstood and misused contract types. 

[Vern Edwards]

13 hours ago, C Culham said:

My statement was with regard to Rachel_CO FAR references.

One of her references was to FAR 16.505(b)(7), which says that a T&M order "must" include certain things. Another was to FAR 52.232-7, a contract clause.

20 hours ago, C Culham said:

FAR references are guidance so I would not be too hung up on them. 

Really? I would be hung up about them. Some things in FAR have the force and effect of law.

Some of the people reading Wifcon posts take them literally and do not know better. We have to be careful in what we say. That applies to me, as well.

[C Culham]

10 hours ago, Vern Edwards said:

The Time-and-Materials contract and the Labor-Hour contract are the two most misunderstood and misused contract types. 

Could be that the IDIQ is the most misunderstood and misused!

And not to be reasoned as an exception to what has been stated so far, just clarification that I felt compelled to offer.

Paraphrased specific to this thread the single award IDIQ is providing for services specified as labor categories, rates, and overall estimated LOE.  Not stated is how the associated TO can be placed - FFP, TM/LH, Cost - but it appears that at least TM/LH is allowed by the master IDIQ.   To illustrate it sounds like, by example, the contract is for say janitorial services.  It further sounds like the master IDIQ is stating the services of janitors, as a labor category(s) are priced at specific rates as opposed to the services of clean a toilet at a specific job rate.  ( I will admit I do not get the LOE reference in the original post without seeing the master.)  The IDIQ orders nothing (52.216-21) hopefully in the master contract) but establishes the unilateral right of the government to order the janitor services at the hourly rates specified to a stated maximum and the IDIQ states that a specified minimum of janitor services must be ordered.  Again all at labor rates it sounds like.

With regard to a TO, and again noting that the IDIQ has established labor categories and rates, then it makes sense (FAR 16.601) that a TO, as a TM/LH type of order, that it would acquire the need at stated labor hours at  specified labor rates identified in either the schedule of the master contract or a more specific schedule of a TO.  Such as some might take a short cut and just say any of the categories/rates of the master apply and advise the contractor not to exceed a ceiling (dare I say a single lump sum CLIN on the TO) while others might have the TO state (by separate CLINS in the TO schedule) the labor category(s), hours and rates that are to perform the work at a stated ceiling price for all.  Either fits from my view.

13 hours ago, Don Mansfield said:

The requirement for a "unit price" doesn't apply to T&M/LH. See FAR 4.1005-2(c)(3).

Not so explicit in my view as the the door is left open with a "may" at (4)..... The contracting officer may structure these procurement instruments to reflect a firm or estimated total amount for each line item .

13 hours ago, Don Mansfield said:

Do you think that "hour" is the unit of delivery under a T&M/LH contract?

I think I do because FAR 16.601(b) states in part "Description. A time-and-materials contract provides for acquiring supplies or services on the basis of- (1) Direct labor hours at specified fixed hourly rates".

11 hours ago, ji20874 said:

let me know if you see "total quantity of hours to be delivered."

  The TM/LH is to acquire hours at specified rates.  The total quantity of hours must not exceed the ceiling price.  So the door is open to the CO's discretion (see above) as to hours of specific labor categories that will be delivered.

So all told -

21 hours ago, Rachel_CO said:

Is this an acceptable practice considering the fact that the master contract includes the labor categories, rates, and overall estimated LOE and the TO includes a ceiling price?

Yes it would appear that the FAR allows such discretion to the CO.  One caveat it will also depend on what the IDIQ itself establishes.

21 hours ago, Rachel_CO said:

Or, should the TO instrument include, at a minimum, the labor categories, labor rates, and a total quantity of hours for performance of the services identified in the TO SOW? 

It may.  Again discretion of the CO unless the IDIQ itself states otherwise. 

[C Culham]

Just now, Vern Edwards said:

We have to be careful in what we say.

I try to be!

[Vern Edwards]

12 minutes ago, C Culham said:

The TM/LH is to acquire hours at specified rates. 

That's wrong.

12 minutes ago, C Culham said:

The total quantity of hours must not exceed the ceiling price.

That's wrong.

Quod erat demonstrandum.

[C Culham]

Just now, Vern Edwards said:

That's wrong.

How so?  

Description. A time-and-materials contract provides for acquiring supplies or services on the basis of-

           (1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; 

Just now, Vern Edwards said:

That wrong.

How so?

The contract or order includes a ceiling price that the contractor exceeds at its own risk.

[Vern Edwards]

1 minute ago, C Culham said:

How so?

Really? You want me to tell you instead of thinking it through yourself?

Please confirm that you want me to do that.

[C Culham]

6 minutes ago, Vern Edwards said:

Really? You want me to tell you instead of thinking it through yourself?

Please confirm that you want me to do that.

Really?  Nothing has ever stopped you before, why now?  

[Vern Edwards]

3 minutes ago, C Culham said:

Nothing has ever stopped you before, why now? 

Because it's boring to discuss something so elementary.

Instead of me telling you, why not read "The Time and Materials Contract: The Time Has Come for a Long Hard Look"?  It's available here at Wifcon at the articles page.

[C Culham]

Just now, Vern Edwards said:

Because it's boring to discuss something so elementary.

Instead of me telling you, why not read "The Time and Materials Contract: The Time Has Come for a Long Hard Look"?  It's available here at Wifcon at the articles page.

Really?  Talk about boring.   We have been down this road before Mr. Edwards!    So now tell me, please I beg you,

1. Why a TM contract, pursuant to the FAR does not  acquire supplies or services on the basis of direct labor hours at specified fixed hourly rates; and 

2. Why pursuant to the FAR that "it wrong" that a TM contract has a ceiling price that the contractor exceeds at their own risk?

[Vern Edwards]

Okay. You asked two questions. First:

46 minutes ago, C Culham said:

1. Why a TM contract, pursuant to the FAR does not  acquire supplies or services on the basis of direct labor hours at specified fixed hourly rates

That's not what you said that I said is wrong. This is what you said:

1 hour ago, C Culham said:

The TM/LH is to acquire hours at specified rates. 

The T&M contract does not "acquire" hours. It acquires services, i.e., work—the performance of a job, the requirements of which are not known at the time of contracting.

The parties agree that the government will pay for the work at hourly rates. (Few things are more professionally stupid than to say than that the government buys hours under a T&M contract.) The objective is not to acquire hours, but to complete the job, if it can be completed, within a ceiling price (which is a dollar amount, not a number of hours). If the job cannot be done within that price, the government has the option of increasing the ceiling price and requiring the contractor to continue to work.

Under a T&M contract "hour" is not a valid "unit" of purchase. (That's what Don was alluding to.) Hours are units of input, not units of output. Hours are not the deliverables. You don't inspect and accept hours. The contractor is paid to make its best efforts to do the specified work within the ceiling price not just book time.

Second, you asked:

46 minutes ago, C Culham said:

Why pursuant to the FAR that "it wrong" that a TM contract has a ceiling price that the contractor exceeds at their own risk?

That's not what you said that I said is wrong. This is what you said:

1 hour ago, C Culham said:

The total quantity of hours must not exceed the ceiling price. 

It should be obvious why that is wrong, and I don't want to insult your intelligence by explaining why it's wrong. But I will, since you insisted that I do so:

A ceiling price is a quantity of dollars, not a quantity of hours. According to the T&M payment clauses, the government will not be obligated to pay more dollars than the ceiling price. If the contract involves more than one hourly labor rate, then the quantity of hours that will result in a cost that exceeds the ceiling price will vary by labor mix. And let's not forget the cost of materials.

I hope that shows why you must be more careful about what you say.

[C Culham]

Just now, Vern Edwards said:

It acquires services,

On the basis of direct labor hours.  A job bought and paid for not my a shovel full or a tree planted but hours that are acquired from the contractor to dig the hole or plant the tree.   

Just now, Vern Edwards said:

Under a T&M contract "hour" is not a valid "unit" of purchase.

It can be if the CO so chooses it to be.   It seems this is true "...The customer agrees to pay the contractor by the hour..."

 

3 minutes ago, Vern Edwards said:

A ceiling price is a quantity of dollars

Yep I agree and is the aggregate of hours the customer has agreed to pay the contractor for the hour by a stipulated hourly rate.  Now before you nit pick I have kept my comments to hours to be in line with the primary subject of the thread but I do understand that the aggregate includes materials as well for a TM.

[Vern Edwards]

😏 Oh, Carl. 😉

[Retreadfed]

8 minutes ago, Vern Edwards said:

Oh, Carl. 

There is none so blind as he who will not see.

[C Culham]

4 minutes ago, Retreadfed said:

There is none so blind as he who will not see.

I see...because nothing is acquired except hours 

[Vern Edwards]

Deleted. Not worth it.

 

[Retreadfed]

10 minutes ago, C Culham said:

I see...because nothing is acquired except hours 

Wrong.  The government is acquiring supplies or services under a T&M contract.  Think getting your car repaired.  When you take it in to the mechanic, you get an estimate of the number of hours of labor and the material and parts that will be needed to complete the job.  If it will cost more to get the job done than originally estimated, the mechanic needs to inform you of that and get our permission to exceed the estimate.  This is the classic T&M contract.  You want your car repaired and that is what you bargained for, not for the mechanic to work on your car for a specified number of hours.