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Realignment of hours and CCPD

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Suppose you have a non-commercial cost type term contract for 300,000 hours of effort. The government wants to realign the effort, as the original contracted effort does not meet the Government?s current requirements. The original effort on contract and the realigned effort is as follows:

Category 1 Contract Hours 100,000 Realignment Hours 130,000

Category 2 Contract Hours 50,000 Realignment Hours 0

Category 3 Contract Hours 100,000 Realignment Hours 130,000

Category 4 Contract Hours 50,000 Realignment Hours 0

The value of the contract is $45M and the net impact of the realignment is net 0. However, the increases and decreases in hours represent a pricing adjustment of over $700k. The contract involves multiple subcontractors and was awarded competitively only 6 months ago. Under the competitive solicitation, the offerors submitted other than cost or pricing data to support a cost realism assessment. The prime is arguing that the cost of obtaining certified cost or pricing data from all teammates and submitting a certificate of current cost or pricing data is a waste of Government funds and it would be more cost effective to rely on the data submitted with the original proposal. The contract does not meet any of the exceptions to cost or pricing data in 15.403-1. I don't see any way that the requirement to obtain certified cost or pricing data described at 15.403-4(a)(iii) does not apply. The realignment of hours may introduce additional subcontract teammates and eliminate others so I don't think a waiver would be appropriate. Any thoughts?

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KMY, make sure you consider the third prong of adequate price competition--FAR 15.403-1©(1)(iii): "Price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items, adjusted to reflect changes in market conditions, economic conditions, quantities, or terms and conditions under contracts that resulted from adequate price competition."

The FAI CONTRACT PRICING REFERENCE GUIDES, referenced at FAR 15.404-1(a)(7), discuss what is a "recent price": "Normally, competition is considered recent if it took place within the last 12 months," but "a price that is only a few months old may not be recent enough to use as a basis for determining price reasonableness." Para 3.2.1. In other words, like almost all pricing issues, it requires the exercise of informed judgment.

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I think that Jacques has made a good point. But I want to make another.

What is the contractual significance of the numbers of hours for each labor category? Does the contract promise to buy those numbers, or are they merely estimates or limits? Perhaps a work-around is available that would not require a contract mod. Modifying a competitively-awarded contract in a significant way six months after contract award might raise eyebrows and even a challenge as being outside the scope of the original competition. I would not be in a hurry to do a mod. Since you say that the mod would have no cost impact, might an exchange of letters be sufficient?

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You have very legitimate concerns about a modification to a competitively awarded contract shortly after award. The number of hours by labor category is specified in Section B. My personal opinion is that the change in hours constitutes a change in scope, since the number of hours in a term contract is one of the essential elements of the scope of the contract.

This is an issue we wrestle with on a frequent basis in our command because we have technical customers who can?t adequately describe their requirements. We have a concern on using price analysis alone as a basis for reasonable price determination based on the following: One subcontractor might be able to deliver an hour of labor for $100.00, based on their unique compensation package, benefits, indirect rates, and a reasonable profit. However, the realistic cost for a second subcontractor to deliver the same hour of labor may be substantially more or less, depending on their unique compensation package, benefits, indirect rates, and a reasonable profit. We often see ranges during our cost realism assessments for the same category of labor vary from subcontractor to subcontractor by as much as 100%. With such concerns, we feel it is not prudent to rely on price analysis alone. Thoughts?

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I just noticed that I inadvertantly posted this to the wrong discussion group. Is there a way to transfer it to the Contract Pricing Discussion Group?

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You have very legitimate concerns about a modification to a competitively awarded contract shortly after award. The number of hours by labor category is specified in Section B. My personal opinion is that the change in hours constitutes a change in scope, since the number of hours in a term contract is one of the essential elements of the scope of the contract.

This is an issue we wrestle with on a frequent basis in our command because we have technical customers who can?t adequately describe their requirements. We have a concern on using price analysis alone as a basis for reasonable price determination based on the following: One subcontractor might be able to deliver an hour of labor for $100.00, based on their unique compensation package, benefits, indirect rates, and a reasonable profit. However, the realistic cost for a second subcontractor to deliver the same hour of labor may be substantially more or less, depending on their unique compensation package, benefits, indirect rates, and a reasonable profit. We often see ranges during our cost realism assessments for the same category of labor vary from subcontractor to subcontractor by as much as 100%. With such concerns, we feel it is not prudent to rely on price analysis alone. Thoughts?

Either you are not responding to me or you have ignored my question. I asked you what is the legal significance of the numbers of hours. What are they? Estimates? Minimums? Maximums? How if at all do the specify the rights and duties of the parties?

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KMY, make sure you consider the third prong of adequate price competition--FAR 15.403-1?(1)(iii): "Price analysis clearly demonstrates that the proposed price is reasonable in comparison with current or recent prices for the same or similar items, adjusted to reflect changes in market conditions, economic conditions, quantities, or terms and conditions under contracts that resulted from adequate price competition."

The FAI CONTRACT PRICING REFERENCE GUIDES, referenced at FAR 15.404-1(a)(7), discuss what is a "recent price": "Normally, competition is considered recent if it took place within the last 12 months," but "a price that is only a few months old may not be recent enough to use as a basis for determining price reasonableness." Para 3.2.1. In other words, like almost all pricing issues, it requires the exercise of informed judgment.

If the original question was modified to the following:

Suppose you have a non-commercial cost type term contract for 300,000 hours of effort per contract year for five years and you are in contract year 2. The Government realizes it needs to increase the level-of-effort, as the original contracted effort does not meet the Government?s current requirements (the type of work, has remained the same; however, the need (volume) has increase). Therefore, mid contract year 2, the Government requests a cost proposal and conducts an evaluation (cost and/or price analysis as needed) and negotiates the additional level-of-effort for year 2. Approximately six months later, the Government again needs to increase the level-of-effort for year 3 and 4 of the contract.

Assume the increases are not immaterial and the increases were due to factors that the Government was unable to foresee. Additionally, assume the prime has a voluminous team of 45 subcontractors all with various allocated hours.

Does FAR 15.403-1?(1)(iii) allow the Government to utilized the cost/rates, with an escalation, that were previously analyzed for the year 2 increase (where other than cost and pricing data and cost and pricing data was obtained to determine the negotiated rates to be fair and reasonable) to derive at cost/rates to establishing a fair and reasonable position for the additional level-of-effort for year 3 and year 4 of the contract?

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Either you are not responding to me or you have ignored my question. I asked you what is the legal significance of the numbers of hours. What are they? Estimates? Minimums? Maximums? How if at all do the specify the rights and duties of the parties?

Sorry Vern, have been very busy and out on leave a few days and hadn't seen this reiteration of your initial question. I am not sure I fully understand th nature of your question. It is a CPFF Term (LOE) contract in which we have specified the number of hours to be provided during the PoP. The contractor is obligated to provide the specified LOE as stated in section B of the contract.

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The contractor is obligated to provide the specified LOE as stated in section B of the contract.

"The Contractor shall provide no less than 100,000 hours under Category 1."

"The Contractor shall provide no more than 100,000 hours under Category 1."

"The Government anticipates the Contractor shall perform 100,000 hours under Category 1."

"For proposal preparation purposes, the Offeror shall assume 100,000 hours under Category 1."

Each of these phrases is very different, and the way its stated in your contract is key. Depending on how its worded, the answer to your question will be different. Can you "cut & paste" the language from your Section B?

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