Cg1

H2H- You're only seeing part of this as you wish and I sense a certain, for lack of a nicer description, bias, toward the contractor. Correct. Negotiations over the cost objective were cocluded, so I thought. The contractor's cost were challanged and countered on travel, proposed hours, training, direct labor escalation and profit all based on what I and the COTR know about the work to be accomplished. I countered their proposal and they agreed to everything except on profit and direct labor escalation. I asked for a reduced escalation and they asked for more profit. We compromised here. They got what they wanted on profit and I thought I got what I wanted on escalation. THEY revised the proposal to reflect the agreement and resubmitted it to me. I said all of this (without the details on the other cost objectives negotiated) in the thread above. I guess you missed this. The original discussion was about the interpretation of our respective actions in getting to the meeting of the minds here. The first point is that they agreed to the capped escalation by receiving consideration on the profit position they requested and I honored. In enforcing the agreement in the form of cap language to the contract, the contractor refused this language. Bear in mind that the contract does read with the estimated cost and fee that was agreed to based on their revised proposal. In my opinion, the cap language serves to enforce what they agreed to which is that direct labor will not increase at a rate in excess of that agreed to. There is nothing wrong with having prior agreements memorialized in the contract if the parties see fit to do so. That's not unusual. The second point revolves around reasonableness. The contractor refused the cap because they believe that they can escalate direct labor however it sees fit on the basis that whatever they chose to escalate we have to pay and on that belief of CPFF contracting, they 'don't do caps'. I disagree with them as they just agreed to a lower escalation 1) as represented by their revised proposal and 2) consideration on fee as a trade off. You seem to aspire to the 'goofy principle' that Vern identifies and that any cost that the contractor says is allocable to my contract is therefore allowable as long as it meets the allowability standards of FAR part 31. What's the point of negotiating? Based on your and the contractor's understanding of CPFF contracting you can propose whatever you like, revise it to what the government believes is a reasonable cost objective, agree to it as est. cost/fee and then do as you please so long as it's allocable and allowable based on FAR, etc.? You can't leave out cost reasonableness here. I believed that the contractor's proposed direct labor rate of escalation was unreasonable as proposed. I am not saying they can't escalate; just at a more reasonable rate. They agreed to this in a trade off for profit. If they didn't want to agree to lower escalation, they could have said so and I would not have proceeded to craft language that holds them to their part of the bargain. They could have said 'no, we like the escalation and the profit we've proposed'. Not only was that not what they said, they said yes in writing to the countered rate of escalation and profit and revised their proposal reflecting the compromise. No one's trying to 'slip' anything in here and I'm a little offended that you're implying that I'm trying to do something that is outside of the understanding of negotiations which you have absolutely no knowledge of. Again, I interpreted their compromise on escalation in return for consideration on profit and their revised proposal as agreement to the cap on the escalation. If I've negotiated 3 other contracts the same way with different contractors and we mutually arrive at the same understanding that the trade offs mean they've agreed to a cap on the particular cost element in order to best meet the overall cost objective of the contract and they agree to cap language without the kind of objection I'm describing, I think I'm a little justified in at least questioning this contractor's intention and even their understanding of CPFF contract. Their belief that they can do whatever you want on CPFF and it's ok is what's getting the way. Vern, I'm not sure this is worth laboring much further with H2H. I'm happy to move on.

Vern- Thanks for your insight. I was beginning to think I was the only one that's negotiated a rate cap on a CPFF contract. Your understanding of the scenario is correct. We don't need to go into detail about the reasonableness of the cap in this discussion. Suffice it to say that the contractor understands the reason their proposed rate escalation was questioned and subsuquently reduced and their proposal revised and resubmitted. I will be careful about characterizing this contractor's actions as bad faith, but when I asked them to justify their response in light of their proposal revision reflecting the reduced direct labor escalation as agreed to, but not stating the intent as a cap, their response was 'We don't do caps'. Amazing. My initial response was to advise them that they just did. I've never had a contractor propose a cost objective and not understand that there are agreements capping certain cost elements in order to meet the objective. Needless to say, I'm bugged by the way this is working out and I'm in a cooling off period right now before re-engaging this contractor. I haven't done anything differently in this negotiation than I normally do. This is the first time that I personally have negotiated with this particular contractor. After speaking with others that have dealt with this contractor in the past, I'm finding out that they have relatively little experience with CPFF and some of that experience is conditioned by how we've negotiated with them and the way some of our contracts are written, i.e. with no stated caps. I also see evidence of the "goofy principle" in effect with our own folks as well which doesn't help matters. So to some extent, we've created our own difficulties with the contracts that have been written. Without the contract language memorializing the cap, any escalation in excess of what was agreed to gets allowed on audit as actual cost.

That's exactly what happened. Fee was negotiated and there was a tradeoff. There was enough give and take here for them to understand the context and implication of offering and accepting reduced escalation and receiving more fee. That's why their response, while not surprising, is a little hard to understand under the circumstances and I can only interpret it as bad faith. What I'm not hearing from you is why it appears to be acceptable reach a mutually acceptable objective, but not reasonable to make the contractor accountable for meeting it? Again, if the point of negotiating how future cost are accumulated and the contractor indicates their understanding of this, why should they be averse to the mechanism that acheives the understanding?

So if the intent of the proposal revision is to arrive at a mutually agreeable cost objective for the contract on paper, why would it not also be reasonable to infer that in order actually meet that objective, certain steps, such as capping a rate, would need to be executed in order to meet that objective. A contractor says 'I'll agree to A% escalation on direct labor vs. the B% I propose and I'll revise my proposal'. Interpreting this as you say implies that an offer to do (proposed reduction in escalation) is not associated with the action (rate cap) that accomplishes the objective. The means and the ends are mutually exclusive interpretation? The way I interpret their reaction is that they didn't realize what they agreed to when they accepted a lower escalation. Sounds like bad faith to me when you accept a postion, but can't take the action required to execute. Would you accept this as a legitimate misunderstanding?

What is the experience out there when negotiating with contractors on CPFF contracts? Scenario: Contractor proposes a direct labor rate escalation factor in excess of what you believe to reasonable. You negotiate an acceptable rate with the contractor and they revise their proposal to reflect the reduced estimated cost & fixed fee based on the reduced rate of direct labor escalation over a 2 year PoP. In finalizing the contract language, they take exception to language that articulates that they have agreed to a specific rate of escalation, which effectively caps the base direct labor rates to be charged. The contractor's explanation for this is that this is a CPFF contract and they can escalate their base rates as they need regardless of what they have proposed and negotiated and that the effect of the proposal of the reduced escalation rates only has a bearing on the determination of the contract's estimated cost and fee and not on the actual execution of contract activities toward the negotiated contract cost and fee objective. Is this reasonable to anyone? The purpose of negotiating the rate of escalation upfront is to mitigate potential cost growth due to increasing direct labor base rates and establish the expectation of what is allowable and reasonable based on what has been negotiated. It would seem to me that if contractors don't intend to control the growth of direct labor base rates via the negotiated escalation rate, then there is no need to negotiate and propose a reduced rate. Why, as a contracting officer, would you negotiate and arrive at an agreement on an element of cost if you didn't expect the contractor to adhere to what was negotiated?