FAR 16.2:  Fixed-price contracts

Comptroller General - Key Excerpts

New Use of a Fixed-Price Contract

Lastly, Fluor challenges the agency’s decision to solicit for a fixed-price contract, arguing that “the agency asks offerors to take on an unreasonably high level of risk,” which will unduly restrict competition. Protest at 11. The protester contends that the compensation structure of the contract should change if we do not recommend the release of Fluor’s proprietary data, OEM specifications and component-level information, in order to shift the financial risk back to the agency. Id. We find no merit to this argument.

The mere presence of risk in a solicitation does not make the solicitation inappropriate or improper. CWTSatoTravel, supra, at 9; Pacific Consol. Indus., B‑250136.5, Mar. 22, 1994, 94-1 CPD ¶ 206 at 6 (an agency may properly impose substantial risk on the contractor and minimal risk on itself). Risk is inherent in most type of contracts, especially fixed-price contracts, and firms must use their professional expertise and business judgment in anticipating a variety of influences affecting performance costs. JRS Mgmt., supra; AirTrak Travel et al., B-292101 et al., June 30, 2003, 2003 CPD ¶ 117 at 14.

For example, in CWTSatoTravel, the protester challenged the fixed-price nature of the contract, alleging that it was required to perform “an unlimited number of unknown updates and refreshments to the [subject software system] at a fixed price” over a 15-year period. CWTSatoTravel, supra, at 7. We explained that offerors were not exposed to unacceptable or undue risk because there were methods of reducing the risk and there were limitations on the risk to be assumed. Id. at 10.

Here, the solicitation obligates the contractor to assume the base costs of labor and material for maintenance, repairs, and investment, and places significant financial obligation on the contractor. However, in terms of risk, as the Navy notes, offerors can mitigate their risk. For example, “if the offeror estimated maximum labor [32 hours] and material costs [$2500] for every service order, it would have no risk at all.” Navy Supp. Briefing, Feb. 15, 2017, at 2. The same principle applies to preventative maintenance and integrated maintenance. Offerors may choose to shoulder additional risk and propose lower prices, based on their own risk tolerance, but that choice is the contractor’s. Id. There is no prohibition on shifting risk to the contractor in this manner. See CWTSatoTravel, supra.

Fluor also alleges that the limitations of liability for this contract are illusory and that the agency could improperly obtain wholesale replacement of an entire system by piecemeal service order on its component parts. Protest at 23-24 (“[T]he Contractor could be forced to replace, at its own expense, each and every air conditioning unit for over 2000 barracks residents” or “Pensacola’s entire underground pipe system, 100 feet at a time.”). We see no evidence that the agency intends to use the contract in this manner. Furthermore, an awardee remains free to dispute this should it occurring during the course of the contract. (Fluor Federal Solutions, LLC B-414223: Mar 29, 2017)

URS raises various challenges to the solicitation. URS claims that, notwithstanding the agency’s characterization, the [fair opportunity notice] FON actually creates an improper fixed-price, level-of-effort CLIN. The protester also argues that the Air Force failed to reasonably consider the risk allocation in its selection of a fixed-price, level-of-effort CLIN. URS also claims that the FON does not provide for competition on an equal basis and is contrary to the task orders contemplated by the CFT contract. We have fully considered all of URS’s arguments and, although we do not address them all, we find no basis on which to sustain the protest.

Contracting agencies have broad discretion to determine their needs and the best way to meet them. Crewzers Fire Crew Transport, Inc., B-402530, B-402530.2, May 17, 2010, 2010 CPD ¶ 117 at 3; USA Fabrics, Inc., B-295737, B-295737.2, Apr. 19, 2005, 2005 CPD ¶ 82 at 4. Additionally, the selection of a contract type is the responsibility of the contracting agency; our role is not to substitute our judgment for the contracting agency’s, but instead to review whether the agency’s exercise of discretion was reasonable and consistent with applicable statutes and regulations. See Diversified Tech. & Servs. of VA, Inc., B-282497, July 19, 1999, 99-2 CPD ¶ 16 at 5; Hadson Def. Sys., Inc.--Recon., B-244522.3, Sept. 24, 1992, 92-2 CPD ¶ 201 at 2.

Under a fixed-price contract, the price is not subject to any adjustments on the basis of the contractor’s cost experience in performing the required work. Under this contract type, maximum risk and full responsibility for all costs and resulting profit and loss associated with performing the required work is placed on the contractor. FAR §§ 16.202-1, 16.202-2. By contrast, under a fixed-price, level-of-effort contract, the government pays a fixed price for, and the contractor is obligated to provide, only a specified level of effort, identified and agreed upon in advance, over a specified time. FAR § 16.207-1. A fixed-price, level-of-effort contract is generally intended for use in contracts for studies in research and development areas where the work required cannot be clearly defined. The FAR explains that the product of a fixed-price, level-of-effort contract is usually a report showing the results achieved through application of the required level of effort; payment, however, is based on the effort expended by the contractor rather than the results achieved. FAR §§ 16.207-2, 16.207-3; Multi Servs. Assistance, Inc., B-232082, Oct. 28, 1988, 88-2 CPD ¶ 407 at 2.

As set forth above, the PWS requires the contractor to provide augmentation labor to support the [Tobyhanna Army Depot] TYAD maintenance mission. In addition to certain performance metrics, the PWS includes minimum staffing levels--the minimum team complement--that the contractor is to both propose and provide during task order performance. Quite simply, the Air Force has decided to define its requirements here in both performance and staffing terms. We find this to be reasonably within the broad discretion afforded contracting agencies, and to the extent URS challenges how the Air Force has defined its needs, we find this challenge to be without merit.

With regard to URS’s disagreement with the agency’s choice of contract type, we note that the decision as to the appropriate pricing format was also within the discretion of the agency, and we believe that the agency’s exercise of that discretion here was reasonable. As detailed above, the Air Force is essentially buying qualified staffing, with the base/minimum level of at least 107 FTEs being procured in lump-sum format under the fixed-price CLIN and the balance of the required staffing being procured under the T&M CLIN. The FON, however, also allows offerors to propose more than the minimum team complement under the fixed-price CLIN. As the required level of effort is not identified and agreed upon in advance, but left up to the discretion of each offeror, we find that the CLIN here does not represent a fixed-price, level-of-effort contract as the protester claims. See FAR § 16.207-3(b). In addition, as the agency explains, the work required is clearly defined insofar as it describes the types of tasks that the contractor’s personnel are to perform. See FAR § 16.207-3(a). In short, we see nothing in the FAR guidance about permissible contract types that suggests that the agency is acting improperly here.

URS also claims that once the TYAD task order is awarded, “performance will be based on a ‘hybrid’ of [fixed-price] and T&M work,” and “[t]his type of ‘hybrid’ task order is not contemplated by the underlying CFT contract.” Protest, Oct. 5, 2012, at 17. We disagree. The CFT contracts permit the issuance of fixed-price, T&M, and CR-type task orders. We find no merit in URS’s assertion that different types of CLINs cannot be employed in the same task order, or its assertion that the task orders must be “all or nothing” in their approach.

Lastly, URS alleges that the FON’s PWS does not provide a definitized scope of work upon which to propose, or the basis on which offerors can determine the hours required to perform the scope of work and, as a result, offerors will not be competing on an equal basis. Protest, Oct. 5, 2012, at 1720. The protester’s argument here reflects a fundamental misunderstanding of the PWS requirements. The PWS simply does not require the CFT contractor to perform a defined number and type of tasks (nor does the FON establish pricing by task completion). Rather, the scope of work on which all offerors are to propose (and on which the fixed-pricing is based) is staffing levels. Although, as the protester states, the fixed-price CLIN is based here on input rather than output, we find no merit in URS’s assertion that offerors will thus be competing on different scopes of work and an unequal basis.

The protest is denied.  (URS Federal Support Services, Inc., B-407573, Jan 14, 2013)  (pdf)

Comptroller General - Listing of Decisions

For the Government For the Protester
New Fluor Federal Solutions, LLC B-414223: Mar 29, 2017  
URS Federal Support Services, Inc., B-407573, Jan 14, 2013  (pdf)  


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