41 replies to this topic

[JandA100811]

I am fairly new to Contracting only a few years into my career and new to CPFF type contracts.

My customer is requesting an increase of ceiling of work within the PWS.

We told the customer the contractor can exceed the ceiling at their own risk unless approved by the Contracting Officer and if increasing the ceiling is necessary adequate justification is necessary. I am not sure the steps to be taken or how to direct the customer in this situation. Any help is greatly appreciated, thanks.

[kitty]

This is an easy one. If the Government is requesting new work to be added to an existing CPFF task order, then ask the Government customer for a revised PWS (preferably with track changes), an IGCE for the new work, funding evidence and other information that your organization requires for the package to provide to you as the contracting professional. If you have everything that you need to make a determination that it is within scope and it should not be competed, then create an RFP for this Contractor and let them know exactly what is expected of them for a Cost Proposal submission. Do not forget that task orders are subject to TINA (review FAR Part 15.403-1 for exceptions) if applicable. The cost proposal will be a sole source action; therefore, a cost analysis will be required. If TINA is applicable, follow Table 15-2 under FAR 15.408 and include this information in your request to the Contractor. Then you will need to perform a cost analysis (FAR 15.404-1© once you receive the Contractor's proposal submission). Remember under the scenario of New Work, the fixed fee is to be re-negoatiated based on the level of risk of the New Work. If this work is an overrun, no fee will be considered. If the customer tells you the Contractor just did not finish work that is already in your PWS, and you have validated this, then it is an overrun. If the Government has the funds, and is willing to increase the ceiling through modification, then document that it is an overrun and be very clear that no additional fee will be included in the ceiling increase.

[Don Acquisition]

The cost proposal will be a sole source action; therefore, a cost analysis will be required.

Incorrect. The fact that an action is sole source does not dictate whether cost analysis is required. Cost analysis is required when certified cost or pricing data are required (FAR 15.404-1(a)(3)).

[kitty]

Mere symantics my friend since I am referring to this gentleman's specific question and scenario. It is under a CPFF contract, and he is in a sole source environemnt, and I am not aware of other circumstances to make assumptions. A cost analysis may be used to evaluate data other than certified cost or pricing data... (4). Let's help the professional out by offering useful information.

[Vern Edwards]

My customer is requesting an increase of ceiling of work within the PWS.

What ceiling? Ceiling on what? What do you mean by ceiling "of work"? How is it expressed -- Hours? Some other unit of time? Dollars? Number of workers? What?

[Don Acquisition]

Mere symantics my friend since I am referring to this gentleman's specific question and scenario. It is under a CPFF contract, and he is in a sole source environemnt, and I am not aware of other circumstances to make assumptions. A cost analysis may be used to evaluate data other than certified cost or pricing data... (4). Let's help the professional out by offering useful information.

Did you mean "semantics"? In any case, what you wrote was incorrect and not useful. If you want to help people, give them accurate information. If you want to be professional, admit when you make a mistake.

[joel hoffman]

While Don may be technically right concerning when cost analysis is "required", it might be "necessary" for the government to perform cost analysis even when certified cost or pricing data are not required. See FAR 15.404-1(a)(4) for example:

"(4) Cost analysis may also be used to evaluate data other than certified cost or pricing data to determine cost reasonableness or cost realism when a fair and reasonable price cannot be determined through price analysis alone for commercial or non-commercial items."

In addition, for DOD, there is an open DFARS Case 2011-D013 "Only One Offer", which is still winding its way through. It is referenced on the WIFCON Rules and Tools page. It mentions the possible need to perform cost analysis on non-competitive offers below the TINA thresholds. I dont know if it would specifically apply to modifications.

Regardless, if one is modifying a cost type contract, I think that it would often be prudent to perform cost analysis techniques on such proposals regardless of the TINA thresholds.

[Vern Edwards]

Do any of you know what JandA100811 was talking about when s/he asked: "My customer is requesting an increase of ceiling of work within the PWS"? If so, will you please explain it to the rest of us and tell us how you know? If not, why are you pontificating about something you don't understand?

What "ceiling" is s/he talking about? "Ceiling" isn't standard CPFF terminology, and the poster said s/he was new to contracting and to CPFF contracts. People often use the wrong terminology. The increase in the ceiling of work could be a request for a change in scope, e.g., an increase of a level of effort, but it might be a reference to the estimated cost in the context of the Limitation of Cost clause or the funds allotted in the context of the Limitation of Funds clause. If s/he meant one of those latter things, then what happens to your talk of cost analysis and TINA? We haven't heard from JandA100811 for a week now. S/he is probably visiting Cluelesstan. What question are you answering?

[JandA100811]

"Ceiling" was not the right term, sorry I am used to T&M. The increase the customer is requesting is in level of effort for work within scope of the task order.

[Vern Edwards]

You first post on March 20 and we don't hear from you again until June 1? Really? Were you deployed?

[HCuffage]

I have not awarded or administered cost-reimbursement contracts in my career. However, I read this thread for a learning opportunity and reviewed the FAR text on cost-reimbursement contracts to try and follow the discussion. I am puzzled over why "ceiling" is not a term normally used with CPFF contracts after reading FAR Subparts 16.301-1 and 16.306. Perhaps you can explain to JandA100811 and me why "ceiling" isn't standard CPFF terminology in light of the FAR cites below.

Subpart 16.3—Cost-Reimbursement Contracts
16.301 General.

16.301-1 Description.
Cost-reimbursement types of contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk) without the approval of the contracting officer.

16.306 Cost-plus-fixed-fee contracts.
(a) Description. A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract.

Given that FAR 16.306 describes CPFF contracts as a cost-reimbursement contract while FAR 16.201 describes cost-reimbursement contracts as those that establish an estimate of total cost for the purpose of obligating funds and establishing a "ceiling" that the contractor may not exceed (except at its own risk) without the approval of the contracting officer, why is "ceiling" not standard terminology for CPFF contracts? If I were venturing into Cost-reimbursement and CPFF contracts for the first time I would, hopefully, read the FAR application for these types of contracts as a first step and would reasonably interpret that the estimated cost on my CPFF contract would be a "ceiling" that the contractor could not exceed (except at his own risk) without my approval as CO.

What other policy reference should JandA100811 and I be aware of in order to know that "ceiling" is not terminology normally associated with CPFF contracts.

She may have not been precise in explaining what her question truly was, but for her sake, and mine, please share with us why we should not use the terminology "ceiling" when dealing with a CPFF contract.

[Vern Edwards]

It is not a policy reference that you should be aware of, it's contract language. The language in FAR 16.301-1 is merely explanatory. Note that it says that the estimate of total cost establishes a ceiling. But the language in a cost-reimbursement contract that is used to refer to such a ceiling is not ceiling. The contractual terms, which appear in FAR 52.232-20, Limitation of Cost, and FAR 52.232-22, Limitation of Funds, are "estimated cost" and "funds... allotted." The word ceiling does not appear in those clauses.

The word ceiling is used in FAR 52.216-7, Allowable Cost and Payment, but only to refer to agreements that the parties might negotiate to limit indirect cost rates, etc. See, e.g., paragraphs (d)(2)(iii)(O), (iv)(O), and (3). Such cost ceilings may be stated in contracts, but they are not standard terms of such contracts. They are special terms negotiated as desired by the contracting parties. That is why I said:

What "ceiling" is s/he talking about? "Ceiling" isn't standard CPFF terminology, and the poster said s/he was new to contracting and to CPFF contracts. People often use the wrong terminology. The increase in the ceiling of work could be a request for a change in scope, e.g., an increase of a level of effort, but it might be a reference to the estimated cost in the context of the Limitation of Cost clause or the funds allotted in the context of the Limitation of Funds clause.

Indeed, she was not precise, but we in contracting must always be precise in our use of terminology if we are to understand each other correctly, and if the people who answer questions here are to know what answers to give. She now says that she was referring to a level of effort, the proper term for which is level of effort, not ceiling. We still don't know the answers to the questions I asked in Post #5.

[HCuffage]

I read the 52.216-7 clause as well and interpreted the use of ceiling to refer to the estimate of total contract cost in this manner.

The actual language of 52.216-7(d)(3) which does discuss executing agreements to establish final indirect cost rates is:

(3) The Contractor and the appropriate Government representative shall execute a written understanding setting forth the final indirect cost rates. The understanding shall specify (i) the agreed-upon final annual indirect cost rates, (ii) the bases to which the rates apply, (iii) the periods for which the rates apply, (iv) any specific indirect cost items treated as direct costs in the settlement, and (v) the affected contract and/or subcontract, identifying any with advance agreements or special terms and the applicable rates. The understanding shall not change any monetary ceiling, contract obligation, or specific cost allowance or disallowance provided for in this contract. The understanding is incorporated into this contract upon execution.

So, the clause essentially says that the understanding on agreed final indirect cost rates shall not change any monetary ceiling, contract obligation, or specific cost allowance or disallowance provided for in this contract. And I take that to mean that if the understanding establishes an indirect cost rate above the original estimated indirect cost rate, that I as a CO am not changing the monetary ceiling of estimated total cost of contract performance, or the obligation amount of the US Government, or any other specific cost allowance or disallowance, including any ceiling on indirect cost rates set as a term of the contract. I am only agreeing what the final rate should be based on the audit of the contractor's accounting system.

As example, if the estimated total cost (ceiling as FAR otherwise calls it) of the CPFF contract is $3 million and the final indirect cost rate as recognized in our written understanding is double the original estimated indirect cost rate, applying the final indirect cost rate to actual direct costs shall not send the total cost to be reimbursed above the $3 million estimated total cost (ceiling) established at award, despite our written understanding on the final indirect cost rates. That understanding is just a recognition of the actual indirect rate based on the contractors operation and if it would send the total costs to $3.1 million when it is applied to the total direct costs, the $100 k overage would be a disallowed cost because it exceeds the ceiling, or total estimated cost, which the contractor was not to exceed without approval of the contracting officer.

In that context, could the contract language conceivably make use of both terminologies (estimated costs, and ceiling)? Could it not be possible that the terminology total costs in the clauses you referenced and the terminology of ceiling in 52.216-7 are one and the same? These clauses were likely drafted by different folks who each may have preferred one terminology over the other but were both referring to the same thing.

It would seem odd that the regulation would establish a terminology considered interchangeable with another and that the so established terminology would not be recognized in addressing contract issues just because a contract clause makes use of the interchangeable terminology.

[Vern Edwards]

I don't accept your reading of the clause. The only use of the term ceiling in 52.216-7 is in a paragraph about indirect costs. I read "any monetary ceiling" as referring to any ceiling on indirect costs. Even if you want to read it more broadly, the clauses that actually set the limits on the government's cost liability, 52.232-20 and 52.232-22, do not use the word.

But you are free to read (d)(3) any way you like, and if you want to go around referring to the "ceiling" of a cost-reimbursement contract, you go right ahead. Don't be surprised if the person you are talking to asks you "What ceiling?"

References to "estimated cost" and "funds allotted" refer to specific contract terms in the words used by the contract and are clear in meaning. No one except a rookie is going to ask you what you're talking about if you use those terms. A reference to "ceiling" could refer to any of several things, and so is not clear, not precise, and thus should not be used without elaboration. "Ceiling of work" is obscure.

You wanted to know why I said that "ceiling" is not standard language for cost-reimbursement contracts. Now you know.

[JandA100811]

The level of effort being increased is expressed as hours, it is a CPFF term effort so those hours are tied directly to cost.

[Vern Edwards]

So your "ceiling" is the level of effort? And your customer wants to increase it?

Any increase in the "ceiling" is a change in scope and will require justification and approval for other than full and open competition.

[JandA100811]

Correct, the "ceiling" is the level of effort.

The increase in the level of effort is not due to a change in scope but more due to the unknowns of a cost type contract. The customer is requiring more hours due to additional work within scope of the PWS for this CPFF term effort. Please let me know if I am not being clear enough in explaining this.

[Vern Edwards]

If you awarded a CPFF level-of-effort term contract, then the level of effort sets the scope of the contract. A modification to increase in the level of effort ("ceiling") would be a change in scope. (If the CO used a PWS in a level-of-effort term contract then your office does not know what it's doing.)

If you awarded a CPFF completion contract, and the contractor has to expend more effort than planned in order to complete the work, then you have a cost overrun, not a change in scope. If the customer has the money and wants to spend it to keep the contractor working you're good to go and should mod the contract to increase the estimated cost (not fee) and, if the contract is incrementally funded and it is necessary, the funds allotted.

This thread should demonstrate to everyone why it is important to use proper terminology if you want to communicate clearly.

[JandA100811]

Point taken in regards to the CPFF completion contract and I understand that.

I am just having a tough time seeing how we would automatically rule my example out of scope. The reason this task order was solicited as CPFF is because there were many unknowns, the proposed level of effort and corresponding dollars seems like an estimate to me and if the level of effort were to increase and still in the realm of the scope of the PWS, how would this be in violation of CICA and require a J&A? The work being added is within the scope of what was intended when the PWS was written. To me this seems kind of grey. Thanks for your input.

[Vern Edwards]

Is the contract a CPFF level of effort term contract as described in FAR 16.306(d)(2)? Does the contract expressly require the contractor to deliver a specified level of effort, or was the level of effort just something in the contractor's proposal that was not put in the contract document?