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Weighted Guidelines


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Sole Source Fixed Price Contract with Progress Payment Clause. Offeror does not want Progress Payments and asks if the Progress Payment Feature in Weighted Guidelines can not be used because they have elected to not request Progress Payments. Our position, is no because they are available, and if you don't want them, that's your business, but it does not change the risk level.

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In DoD, in considering contract type risk and working capital adjustment, DFARS 215.404-71-3 includes a table with normal and designated ranges depending on "contract type," where "contract type" includes consideration of financing. Note (1) to the Table provides,

?No financing? means either that the contract does not provide progress payments or performance-based payments, or that the contract provides them only on a limited basis, such as financing of first articles.

You seem to be suggesting that because the government is willing to provide progress payments, then you will insert the Progress Payment clause over the objection of your sole source contractor. I don't see anything in Part 32 saying that a contractor must accept financing. Consider the order of precedence in 32.106 & 32.104(a)(1). What am I missing?

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I think my confusion is with the premise of the question, that, because the government is willing to offer financing, then the weighted guidelines should be calculated assuming the contract provides them, even when it does not. In the grand scheme of things, this is a very low threat issue; but If I were the government PCO, did what DOECPA is suggesting in coming to my objective, and someone in clearance or my chain was questioning this choice, I'm not sure I'd be able to defend it well.

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Guest Vern Edwards
Sole Source Fixed Price Contract with Progress Payment Clause. Offeror does not want Progress Payments and asks if the Progress Payment Feature in Weighted Guidelines can not be used because they have elected to not request Progress Payments. Our position, is no because they are available, and if you don't want them, that's your business, but it does not change the risk level.

Take the progress payment clause out of the contract, for pete's sake.

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To DOECPA,

The FAR clearly states that Performance Based Payments are the preferred form of financing (FAR 32.10), however, it is important that the PCO use good business judgement before agreeing to the payment events (see FAR 32.1004(a)). A payment event should equate to a significant performance milestone and the amount for the payment should be approriate to the event. A PCO should ideally get assistance from both the PM and ACO in negotiating a fair performance based payment plan with the contractor.

The reason that WGL allows for a higher profit is due to the idea that the contractor will have to self finance until they reach their milestone event. Therefore, it is important for the PCO to consider the impact of financing during profit negotiations. A fair performance based payment plan should ideally result in a higher profit for the contractor.

However, if the PCO does not carefully negotiate the performance based payment events and the amounts then there is a chance that the events might result in essentially the Government giving advance payments to the contractor. That type of a perfomance based payment schedule does not deserve a higher profit.

Be careful but be fair to the contractor!

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I remember in the pre cradle-to-grave days there were contractors would not request progress payments. The CS would run a weighted guidelines, w/o progress payments as a factor. The profit rate is higher when the contractor doesn't receive progress payments.

Once the contract was awarded, the contracting shop would toss the K over to K Administration.

After award, the contractor would request - guess what - progress payments! They knew K Administration wasn't going to run a new weighted guidelines (receiving progress payments would lower the profit rate) so the contractor would receive same profit as if they weren't receiving progress payments.

Curious if this contractor has a history of asking for progress payments after K award.

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Thank you WENO2 for sharing your story!

I guess the lesson learned from that story is that ACOs and PCOs need to communicate with one another.

There is a big difference between a PCO inadvertently forgetting to include the progress payments clause in the contract and one that purposely left it out because the contractor asserted that they were going to self-finance. Since your story suggests that the objective profit was purposely higher due to no progress payments then it sounds like the contractor had asserted that they were going to self finance. If the ACO knew the backstory, he/she may not have automatically modified the contract to offer progress payments.

It is so sad that so many in our profession do not understand the effect of the time value of money and financing.

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I remember in the pre cradle-to-grave days there were contractors would not request progress payments. The CS would run a weighted guidelines, w/o progress payments as a factor. The profit rate is higher when the contractor doesn't receive progress payments.

Once the contract was awarded, the contracting shop would toss the K over to K Administration.

After award, the contractor would request - guess what - progress payments! They knew K Administration wasn't going to run a new weighted guidelines (receiving progress payments would lower the profit rate) so the contractor would receive same profit as if they weren't receiving progress payments.

Curious if this contractor has a history of asking for progress payments after K award.

Maybe somebody should have told contract admin about FAR 32.005.

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