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  1. The Fixed-Price Incentive Firm Target Contract: Not As Firm As the Name Suggests By Robert Antonio November 2003 At the end of 1976, I met the Director of the Procurement Control and Clearance Division of the Naval Material Command in Arlington, Virginia. The Director was a legend of the contracting community and any significant Navy contract had to be approved by his office prior to award. I was there because of a controversy involving a contract to acquire a new class of nuclear cruisers. The attendees at the meeting surrounded a conference table and waited for the Director to make his appearance. After several minutes, the Director entered the room and placed a chart on the table. "What do you see?" "What do you see?" He demanded. The fellow next to me said, "It says fixed-price incentive." "No, no, look at it," the Director said. It was a chart that depicted a fixed-price incentive (firm target) contract (FPIF). "Look how flat it is," the Director said. I tried to look at the chart but I was more interested in seeing the Director. Out of the corner of my eye, I saw him dressed in a dark suit, vest, watch chain connected to the middle button of his vest and dangling perfectly from one side to the other. He had a paunch and tufts of white hair on his head and he looked like Winston Churchill—the World War II Prime Minister of the United Kingdom. He was Gordon Wade Rule—the highest-ranking civilian in Navy contracting. Years later, I met a colleague of Gordon Rule and told him about my first impressions. The colleague looked at me and laughed, "Gordon not only looked like Churchill, he thought he was Churchill." Since this first meeting with Gordon Rule, I have been interested in the FPIF contract type and how it can be used on government contracts. The Rule Contract Table 1 is the pricing structure that Gordon Rule was talking about during our meeting. For the purpose of discussion in this article, it will be referred to as the "Rule Contract." Table 1: FPIF Structure on the Navy Contract Provided by Gordon Rule. Structure Description Target Cost $76,000,000 Target Profit $9,700,000 Target Price $85,700,000 Ceiling Price 133 percent of Target Cost at $101,000,000 Share Ratio 95/5 between $64,600,000 and $87,400,000 90/10 below $64,600,000 and from $87,400,000 to Point of Total Assumption Point of Total Assumption $92,366,660 Someone familiar with an FPIF contract will notice what Gordon Rule was talking about. For those who are not, the following discussion explains the mechanics of an FPIF contract pricing structure. Mechanics of the FPIF Contract The FPIF contract includes cost and price points, a ratio, and a formula. They include Target Cost (TC): The initially negotiated figure for estimated contract costs and the point at which profit pivots. Target Profit (TP): The initially negotiated profit at the target cost. Target Price: Target cost plus the target profit. Ceiling Price (CP): Stated as a percent of the target cost, this is the maximum price the government expects to pay. Once this amount is reached, the contractor pays all remaining costs for the original work. Share Ratio (SR): The government/contractor sharing ratio for cost savings or cost overruns that will increase or decrease the actual profit. The government percentage is listed first and the terms used are "government share" and "contractor share." For example, on an 80/20 share ratio, the government's share is 80 percent and the contractor's share is 20 percent. Point of Total Assumption (PTA): The point where cost increases that exceed the target cost are no longer shared by the government according to the share ratio. At this point, the contractor’s profit is reduced one dollar for every additional dollar of cost. The PTA is calculated with the following formula. PTA = (Ceiling Price - Target Price)/Government Share + Target Cost All of these points and shares have an effect on costs, profit, and price. However, two tools in the structure—the ceiling price and the share ratio—dramatically affect the potential costs, profits, and prices. For the examples in tables 3, 4, and 5, I use the target cost, target profit, profit rate at target cost, and target price identified in Table 2. The ceiling price and share ratio will vary according to example. Table 2: FPIF Structure Used for Examples in Tables 3, 4, and 5. Structure Elements Structure Amounts Target Cost $10,000,000 Target Profit $1,000,000 Profit Rate at Target Cost 10% Target Price $11,000,000 Ceiling Price At the ceiling price, the government's liability for cost within the terms of the original contract ends and the contractor pays for all costs above the ceiling price. The setting of the ceiling price significantly affects the relationship between the government and the contractor once the target cost has been reached. The example in Table 3 includes 4 different ceiling prices and the same 70/30 share ratio. Remember, the ceiling price is stated as a percentage of the target cost. Table 3: FPIF Target Costs and Profit with Different Ceiling Prices and Constant 70/30 share ratio. Dollar Costs Ceiling Prices (Percent of Target Cost) 115 120 125 130 $8,000,000 $1,600,000 $1,600,000 $1,600,000 $1,600,000 9,000,000 1,300,000 1,300,000 1,300,000 1,300,000 10,000,000 1,000,000 1,000,000 1,000,000 1,000,000 10,500,000 850,000 850,000 850,000 850,000 11,000,000 500,000 700,000 700,000 700,000 11,500,000 0 500,000 550,000 550,000 12,000,000 500,000 0 400,000 400,000 12,500,000 1,000,000 500,000 0 250,000 13,000,000 1,500,000 1,000,000 500,000 0 PTA $10,714,286 $11,428,571 $12,142,857 $12,857,143 As can be seen, there is no difference in profit for any of the examples where costs are less than the target cost. This is because the ceiling price affects the cost and profit structure somewhere after the target cost is exceeded. Since the ceiling price is used to determine the PTA, it also results in different PTAs. Notice the PTAs for each ceiling price. Prior to the PTA, but after the target cost is reached, the 70/30 share ratio is in effect and the government shares 70 percent of all overruns and the contractor shares 30 percent of all overruns. Once the PTA is reached, the contractor’s profit will be reduced on a dollar-for-dollar basis up to the ceiling price. Remember when Gordon Rule said "Look how flat it is?" He was referring to the incentive curve. The incentive curve reflects the amount of potential profit for each cost level throughout the FPIF structure. The smaller the profit increment as costs increase, the flatter the incentive curve becomes. The flatter the curve becomes, the closer it approaches a cost plus fixed-fee (CPFF) contract since the fixed-fee on a CPFF remains constant for all levels of costs. By increasing the ceiling price on an FPIF contract, the government's share in cost overruns and the contractor's opportunity to recover costs is placed at a higher dollar level. The higher the ceiling price, the flatter the FPIF incentive curve is because it is being stretched in length. Share Ratios To compare the effect of share ratios on an FPIF structure, Table 4 includes 5 different share ratios ranging from 50/50 to 90/10. As mentioned earlier, the government's share of savings or overruns is the first number in the share ratio. In Table 4, a simple share ratio structure is used—one with the same share ratio throughout the structure— to analyze the effect of different share ratios. Share ratios can be complex and can include more than one share ratio. However, to explain the effects of different share ratios, a simple structure is adequate. Table 4: FPIF Target Costs and Profits with Different Share Ratios. Dollar Costs Share Ratios (Government/Contractor) 50/50 60/40 70/30 80/20 90/10 Contractor's Profit Based on Share Ratios Above and Costs In Left Column $8,000,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 8,500,000 1,750,000 1,600,000 1,450,000 1,300,000 1,150,000 9,000,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 9,500,000 1,250,000 1,200,000 1,150,000 1,100,000 1,050,000 10,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 10,500,000 750,000 800,000 850,000 900,000 950,000 10,600,000 700,000 760,000 820,000 880,000 900,000 10,700,000 650,000 720,000 790,000 800,000 800,000 10,800,000 600,000 680,000 700,000 700,000 700,000 10,900,000 550,000 600,000 600,000 600,000 600,000 11,000,000 500,000 500,000 500,000 500,000 500,000 11,500,000 0 0 0 0 0 PTA $11,000,000 $10,833,333 $10,714,286 $10,625,000 $10,555,556 Prior to the target cost, the different share ratios provide profits based on the contractor’s share of saved costs alone. Under the 50/50 share ratio, a contractor can increase its profit by $1 million when costs are $2 million less than the target cost because its share is 50 percent of any savings. On the other hand, with the 90/10 share ratio, a contractor can increase its profit by only $200,000 when costs are $2 million less than the target cost because its share is only 10 percent of any savings. The message is clear—there is less incentive to reduce costs as the government share increases. Once the target cost is exceeded, a contractor with a 50/50 share ratio has its profit reduced quickly below the PTA because it is sharing in half of the cost overruns above the target cost. On the other hand, the reduction in profit is less dramatic for the 90/10 ratio. In effect, the incentive curve is being flattened below the PTA. Take another look at the overrun structure for the 50/50 and 90/10 share ratios. Ceiling Prices and Share Ratios Working Together Now that you have seen the basics for different ceiling prices and different share ratios, it is time to see how they can work together. Table 5 illustrates the effect of different share ratios coupled with different ceiling prices. Compare a 50/50 share ratio with a 115 percent ceiling price structure to that of a 90/10 share ratio with a 135 percent ceiling price structure. Quite a difference! Table 5: FPIF Target Costs and Profits with Different Ceiling Prices and Share Ratios. Dollar Costs Share Ratios Combined with Ceiling Prices 50/50 115 60/40 120 70/30 125 80/20 130 90/10 135 $8,000,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 8,500,000 1,750,000 1,600,000 1,450,000 1,300,000 1,150,000 9,000,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 9,500,000 1,250,000 1,200,000 1,150,000 1,100,000 1,050,000 10,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 10,500,000 750,000 800,000 850,000 900,000 950,000 11,000,000 500,000 600,000 700,000 800,000 900,000 11,500,000 0 400,000 550,000 700,000 850,000 12,000,000 (500,000) 0 400,000 600,000 800,000 12,500,000 (1,000,000) (500,000) 0 500,000 750,000 13,000,000 (1,500,000) (1,000,000) (500,000) 0 500,000 13,500,000 (2,000,000) (1,500,000) (1,000,000) (500,000) 0 PTA $11,000,000 $11,666,667 $12,142,857 $12,500,000 $12,777,778 The 50/50 share ratio and 115 percent ceiling price structure is referred to as a “tight structure” because it places a good deal of cost control incentive on the contractor. On the other hand, the 90/10 share ratio and 135 percent ceiling price structure is referred to as a “loose structure” because there is less cost control incentive placed on the contractor. With the combination of a high ceiling price and a high government share, we have flattened the incentive curve significantly. Now, with what we have seen so far, let's go back to the contract that Gordon Rule was complaining about in 1976. To do this, we will compare a moderate FPIF structure with a 70/30 share ratio and 125 percent ceiling price to the Rule contract. Table 6: Moderate FPIF Structure Compared to the Rule Contract. Dollar Costs Profit Dollars Profit Rate 70/30 125 Rule Contract 70/30 125 Rule Contract $60,000,000 $14,500,000 $10,730,000 24,17% 17.88% 65,000,000 13,000,000 10,250,000 20.00% 15.77% 70,000,000 11,500,000 10,000,000 16.43% 14.29% 75,000,000 10,000,000 9,750,000 13.33% 13.00% 76,000,000 9,700,000 9,700,000 12.76% 12.76% 80,000,000 8,500,000 9,500,000 10.63% 11.88% 85,000,000 7,000,000 9,250,000 8.24% 10.88% 90,000,000 5,000,000 8,870,000 5.56% 9.86% 95,000,000 0 6,000,000 0% 6.32% 100,000,000 5,000,000 1,000,000 Loss 1.00% 101,000,000 6,000,000 0 Loss 0% As Table 6 shows, there is quite a difference between our moderate FPIF structure and the Rule contract. Look at the $95 million dollar cost level. Here the moderate FPIF results in no profit while the Rule Contract provides a 6.32 percent profit rate and a dollar profit of $6 million. This difference is caused by the higher ceiling price and the higher government share of overruns on the Rule Contract. Take a look at the profit rate on costs before the target cost is reached. It increases more slowly on the Rule contract as costs are reduced below the target cost of $76 million. Here, the flattening effect of the higher government share on any cost savings is evident. What Was Gordon Rule Saying? With the basic mechanics of an FPIF contract under your belt, we can go back to that day in 1976 when Gordon Rule said "What do you see?" "What do you see?” "Look how flat it is." Well, a CPFF is a flat curve. For example, on a CPFF contract, the share ratio is 100/0 because the government shares all of the cost savings and overruns within the original contract terms. Additionally, the ceiling price could be infinite if the government wishes. So, a CPFF contract has a 100/0 share ratio and whatever ceiling price the government is willing to accept. Gordon Rule was claiming that the FPIF example in the "Rule Contract" was, in fact, a CPFF contract. Was he right? In Table 7, a CPFF contract structure is compared to the structure of the Rule Contract. Table 7: CPFF Contract Structure Compared with the Rule Contract Structure Dollar Costs Profit Comparison (Dollars) Profit Comparison (Profit Rate) CPFF Rule Contract CPFF Rule Contract $60,000,000 $9,700,000 $10,730,000 16.17% 17.88% 65,000,000 9,700,000 10,250,000 14.92% 15.77% 70,000,000 9,700,000 10,000,000 13.86% 14.29% 75,000,000 9,700,000 9,750,000 12.93% 13.00% 76,000,000 9,700,000 9,700,000 12.76% 12.76% 80,000,000 9,700,000 9,500,000 12.13% 11.88% 85,000,000 9,700,000 9,250,000 11.41% 10.88% 90,000,000 9,700,000 8,870,000 10.78% 9.86% 95,000,000 9,700,000 6,000,000 10.21% 6.32% 100,000,000 9,700,000 1,000,000 9.70% 1.00% 101,000,000 9,700,000 0 9.60% 0% For the CPFF contract in Table 7, the fixed-fee is set at the same rate as the target profit on the Rule contract—$9.7 million at a cost of $76 million. Remember that between $64,600,000 and $87,400,000, the share ratio on the Rule contract was 95/5. So, the CPFF share ratio of 100/0 is quite close to that of the Rule contract at 95/5 between $64.6 million and $87.4 million. After $87.4 million, the Rule contract converts to a 90/10 share ratio until the PTA which is between $92 and $93 million. Notice how the percent of fee on costs closely parallels the percent of profit on the Rule contract. As Gordon Rule emphasized, it is flat—it is nearly a CPFF contract. Abuses of the FPIF The Federal Acquisition Regulation (FAR) at 16.403-1 (b) explains that an FPIF contract is appropriate when a fair and reasonable incentive and a ceiling can be negotiated that provides the contractor with an appropriate share of the risk and the target profit should reflect this assumption of responsibility. The FAR further points out that an FPIF is to be used only when there is adequate cost or pricing information for establishing reasonable firm targets at the time of initial contract negotiation. Further, FAR 16.401 explains that incentives are designed to motivate contractors to meet government goals and objectives. The guidance in the FAR, although general, appears sound. However, what happens when people and the survival of their programs or their organizations are involved? Unfortunately, the FPIF can be manipulated and abused by government and/or industry. It can be used to submit below anticipated cost offers, to hide huge anticipated overruns, or to deceive the uninitiated who only recognize the phrase "fixed-price." One Industry’s Experience with the FPIF In the 1970s, 1980s, and into the 1990s, a series of General Accounting Office (GAO) reports discussed cost overruns on shipbuilding contracts. For the most part, these reports discussed FPIF contracts. Table 8 provides a summary of the anticipated cost overruns on most shipbuilding contracts during this period. Table 8: Anticipated Cost Overruns and Savings Reported on Shipbuilding FPIF Contracts. Report Date Number of FPIF Contracts Expected Costs Above Target Costs Expected Savings Below Target Costs Number of Contracts Expected to Finish at Target Number Dollars Number Dollars 1987a 22 19 $1,413,000,0000 3 $25,900,000 N/A 1989b 46 25 3,297,000,000 6 315,000,000 15 1990c 44 24 3,784,100,000 6 230,800,000 14 1992d 45 32 4,400,000,000 3 102,000,000 10 a Navy Contracting: Cost Overruns and Claims Potential on Navy Shipbuilding Contracts, GAO/NSIAD-88-15, October 16, 1987, p. 7 b Navy Contracting: Status of Cost Growth and Claims on Shipbuilding Contracts, GAO/NSIAD-89-189, August 4, 1989, p. 2 c Navy Contracting: Ship Construction Contracts Could Cost Billions Over Initial Target Costs, GAO/NSIAD-91-18, October 5, 1990, p. 12 d Navy Contracting: Cost Growth Continues on Ship Construction Contracts, GAO/NSIAD-92-218, August 31, 1992, p. 11 As we can see from the table, the majority of the contracts had cost estimates for completion that exceeded the original target costs. Additionally, the amount of estimated cost overruns dwarfed the amount of estimated savings in each GAO report. These numbers defy the law of averages. If we simply look at these results without asking questions, we would declare the FPIF contract type as ineffective. However, there is more to it than that. During the 1970s and 1980s, the commercial shipbuilding market was shrinking for U. S. shipbuilders and the U. S. Navy became the “sole-customer” for their work. At the same time, the Navy emphasized competition on its contracts and placed more emphasis on price in making decisions for contract awards. Price became more important because of tight budgets. The industry, recognizing that its commercial market had dried-up, placed survival above profit and cut prices in a frenzy of low-ball offers. Since the government was the sole customer, it had pricing power over its contractors. According to the GAO One shipbuilder said the Navy has sent a message that ship contracts will be awarded based on price and the response has been to bid aggressively. 1 How aggressive was the bidding? Here is one example. Navy analyses indicate that both contracts were awarded at a substantial cost risk to the government based on comparisons of the proposed prices with the Navy's estimates. In both of these awards, the Navy believes that there is a strong possibility that the contractors will exceed ceiling prices. 2 Yes, under these two contracts target cost was not the issue. The Navy concluded that the contractors offered to work at a loss somewhere beyond the ceiling price. Beware of the Hidden Target Cost If an industry or a contractor is trying to survive in a competitive environment, how might it approach the FPIF. As we have seen, contractors will bid below cost when they believe it is in their interest. Does the FPIF provide an opportunity for a contractor to offer a very low price, expect a very large overrun, and hope for a small profit? Yes, it does. Table 9 provides a theoretical example that includes an FPIF with a 95/5 share ratio and a 135 percent ceiling price. Included in the table is a "proposed target cost" which is the official offer amount that the contractor submits to the government. In the second column, there are a range of the contractor's real goals for its target cost. Table 9: Example of a Potential Contractor's View of a FPIF. Contractor's Proposed Target Cost Contractor's Actual Goals Target Cost Cost Overrun Overrun Rate Dollar Profit Profit Rate $100,000,000 $100,000,000 $0 0.00% $10,000,000 10.00% 100,000,000 105,000,000 5,000,000 5.00% 9,750,000 9.29% 100,000,000 110,000,000 10,000,000 10.00% 9,500,000 8.64% 100,000,000 115,000,000 15,000,000 15.00% 9,250,000 8.04% 100,000,000 120,000,000 20,000,000 20.00% 9,000,000 7.50% 100,000,000 125,000,000 25,000,000 25.00% 8,750,000 7.00% 100,000,000 126,315,789 26,315,789 26.32% 8,684,211 6.88% 100,000,000 129,807,000 29,807,000 29.81% 5,193,000 4.00% 100,000,000 130,000,000 30,000,000 30.00% 5,000,000 3.85% 100,000,000 135,000,000 35,000,000 35.00% 0 0 100,000,000 140,000,000 40,000,000 40.00% 5,000,000 Loss Assume that the contractor sets a goal of a 4 percent profit on costs. From past experience, the contractor expects that the government will be willing to negotiate a 95/5 share ratio, a 135 percent ceiling price, and a 10 percent profit rate at target cost. The contractor proposes a target cost of $100,000,000 but is really focusing on the 4 percent profit amount. At that profit rate, the contractor's actual target cost goal is $129,807,000. The government determines that the offer is fair and reasonable and negotiations are completed. At the time of agreement on the pricing structure, $100,000,000 is the contractual target cost and the contractor's actual goal is $129,807,000 for a target cost. In effect, the contract is negotiated with nearly a 30 percent cost overrun and a 4 percent profit. A Government Incentive to Underestimate Costs Does a government organization ever have an interest in understating the cost of an item? The President's Blue Ribbon Commission on Defense Procurement, popularly known as the Packard Commission, gave us the following answer. Once military requirements are defined, the next step is to assemble a small team whose job is to define a weapon system to meet these requirements, and "market" the system within the government, in order to get funding authorized for its development. Such marketing takes place in a highly competitive environment, which is desirable because we want only the best ideas to survive and be funded. It is quite clear, however, that this competitive environment for program approval does not encourage realistic estimates of cost and schedule. So, all too often, when a program finally receives budget approval, it embodies not only overstated requirements but also understated costs. 3 If the government has an interest in underestimating the cost of a system, it can use an FPIF to its advantage by simply loosening the pricing structure of the FPIF contract. Let's look at an actual example—the original contract for the Trident submarine awarded in 1974. Table 10: Fixed-Price Incentive Pricing Structure for the Trident Submarine.4 Pricing Elements Pricing Structure Target Cost $253,000,000 Target Profit $32,400,000 (12.8% of Target Cost) Target Price $285,400,000 Ceiling Price $384,000,000 (152% of target cost) Share Ratio 95/5 from target cost to $279,600,000 85/15 from $279,600,000 to PTA 70/30 below target cost As can be seen, the contract had a 95/5 share ratio and an incredible ceiling price of 152 percent of target cost. Here is what Gordon Rule had to say about this pricing structure When the Navy negotiates a 95/5 share above target cost for the first 26 million of overrun of target, the target cost figure is patently phoney. Moreover, when the Navy negotiates a 95/5 share and then also a 152% ceiling, the target cost figure is patently ridiculous. First priority for the future must be the negotiation of more reasonable target costs for our FPI shipbuilding contracts and if the budget has to be changed, then change it. 5 Once a system receives budget approval with an understated cost, the government must find a way to contract for it at that underestimated cost. The FPIF provides the opportunity in two ways. First, it allows the government to hide expected overruns at the time the contract is awarded. Or, in Gordon Rule's words, it allows the government to include "an obvious overrun of target cost built in." 6 Second, the term "fixed-price" can be used to disguise a cost-reimbursement contract. For example, in regard to the Trident contract, the Commander of the Naval Ship Systems Command, explained 7 People said, "That's a CPFF [cost-plus-fixed-fee] contract under another name," and I said, "Right. You want to call it that, do what you like. Call it what you please." ... I suppose it's a matter for some slight chagrin that what really ought to have been a CPFF contract turned out to be something else, or to have a different label on it, but I don't feel bad about it. 8 Some Final Thoughts Does the FPIF contract have a place in federal contracting? I think it does when it is used as it is intended. However, it can and has been abused. In testing an FPIF structure, there are a number of things I ask. Here are several. Is the government's share of savings significantly lower below the target cost than its share of losses above the target cost. For example, is there a 50/50 share ratio below the target cost while a 95/5 share ratio exists above target cost. This alerts me to the possibility that the real target cost exceeds the negotiated target cost in the contract. Is the ceiling price above 135 percent of target cost? Although a 135 percent ceiling price is generous, anything above it is excessive. Does the share ratio flatten out around the target cost for an extended period? For example, is there a share ratio of 95/5 or 100/0 from 10 percent below target cost to 10 percent above target cost? This effectively converts the extended part of the FPIF structure to a cost plus fixed-fee contract. If I do identify a suspicious FPIF structure, I turn to the facts surrounding the negotiation of the target cost. For example, Is the government's budget for the item unrealistically low? Does the government have pricing power over the contractor? In short, can the government dictate the contractor's price because of market conditions? Is the contractor in survival mode or is the contractor trying to gain a foothold in a program area? If there was a final proposal revision, did the contractor's price drop substantially? 1 Navy Contracting: Cost Overruns and Claims Potential on Navy Shipbuilding Contracts, GAO/NSIAD-88-15, October 16, 1987, p. 9 2 Ibid 3 President's Blue Ribbon Commission on Defense Procurement, Final Report, June 30, 1986, p. 45. 4 J. Ronald Fox and Mary Schumacher, "Trident Contracting (C): Negotiating the Contract," John F. Kennedy School of Government, 1988, pps 6 and 7. 5 Hearings before the Committee on Armed Services, United States Senate, 94th Congress, Second Session, Part 8, Shipbuilding Cost Growth and Escalation, p. 4658. 6 Fox and Schumacher, p. 8. 7 In 1976, the Naval Ship Systems Command was renamed the Naval Sea Systems Command. Copyright © 2023 by Robert Antonio
  2. Here is a letter from Senator Warren and Congressman John Garamendi about contract pricing.
  3. This COFC opinion involves "a software developer’s claim for copyright infringement." It involves actions by contracting officers and contracting officer's technical representatives.
  4. That was how Virginia O'Hanlon began her letter to the Editor of The Sun in 1897. The Editor's response to Virginia is the most read editorial that was ever written That is not exactly what this entry is about. However, four years ago I did some research on Virginia and found the room where Virginia wrote her letter. You can read about it in the brief entry shown below. What caught my eye was the comment from Alan to my earlier entry. The comment was written in 2021 and I first noticed it tonight. Alan, thank you for the comment. It added a bit of cheer to my Christmas in 2023.
  5. Vern: I have one comment. You suggest I suggest that the CO decision get one oversight appeal and that be limited to the appropriate board of contract appeals. You get the COFC out of the protest process. Don't let them back in at the end. With the COFC you get the CAFC and SCOTUS.
  6. Defense Contracting Workforce Development and Continuous Learning. Issued today.
  7. Acquisition Research Program Newsletter: October 20, 2023
  8. This topic is now subject to Rule 17 which is quoted below. This topic was posted on Friday of last week. It will be locked at the COB on Friday of this week unless the Original Poster (OP) responds to those tryng to help the OP.
  9. THE NASH & CIBINIC REPORT presents: Evaluator Working Papers and Notes: What To Do With Them? by Vernon J. Edwards -----------------------------------------------------------------------------
  10. Every once in a while, you read something that amazes you. In this case, the Aerospace Industries Association provided something special in its letter to Congress complaining about a needless annual event. See what you think.
  11. One of the things I first noticed when we drove from Marshall Space Flight Center (MSFC) to our hotel was a sign post that looked like a corkscrew with a road sign on top. Someone told me: "A tornado did that." How could wind do that? I was about to find out. It was April 3, 1974. When we left MSFC after work, there was a strange feeling in the air. One that I have never forgotten. In fact, I stll feel if it is there after all of these years. There was no wind, no noise, just a stillness. Nature was waiting for something. As we approached our hotel in Huntsville, there were people on second floor balconies looking towards the southwest. What was that about? We went straight to dinner that night and knew something was wrong but we didn't know what it was. In the restaurant, the television was turned to a channel that had only white noise. Everyone was watching it. Later, I found out they were using the Weller Method of TV-Tornado Detection. We asked the waitress: what's going on? "Three tornados went north of us and hit Jeff and Toney." Jeff and Toney were small villages just north of Huntsville. We quickly finished dinner and I went back to my room to watch the weather on a local television station. The guy doing the weather was just finishing his coverage of a tornado that went south of Huntsville. Tornado to the north of us, tornado to the south of us, and the night was still young. As I noticed a storm on the television near Decatur pass over the Tennessee River, the weather guy said the worst was over and returned us to the regular programming. Decatur is southwest of Huntsville and Huntsville is northeast of Decatur. In between them is the Huntsville International Airport. But what about that tornado that just crossed the Tennessee River? I didn't have to wait long for an answer. Within minutes, the weather guy was back on television telling us about the tornado that was taking aim on the Huntsville Airport. He showed us the hook pattern in the storm that indicated it was a tornado and then reported that the tower at the airport had been evacuated and a tornado was crossing the runway. The weather guy still didn't mention Huntsville and we were directly in the tornado's path. I wasn't waiting for the weather guy. That tornado had Huntsville in its crosshairs and I wasn't waiting for the weather guy to tell me. I looked around the room and saw the bathtub and two sofa cushions I could use. I jumped in the bathtub and put the cushions over my head. Then I waited. Finally, the weather guy said that the tornado was on University Drive. I was on University Drive too! Then the power went out. I slipped down into the bathtub and waited to die. I continued to wait for a few minutes. Then I got tired of waiting and looked out the window. As I looked out, I could see power generators exploding on the top of Monte Sano mountain which was in back of our hotel. The tornado missed me by 1/4 mile but mowed though Huntsville just east of me. I had survived the 1974 Super Outbreak of tornadoes that stretched from Ontario, Canada to Alabama. One police officer, who saw the tornado that went through Huntsville, said it was one large tornado and two smaller ones on each side of the main tornado. They flew in formation and left devastation behind. All through the night, I heard ambulances. It's not a good feeling. I knew Huntsville had been hit hard but I didn't know how bad it was. The next day, we went to MSFC where some windows were blown out of the Administration building. Some furniture was on the ground and there were long white sheets of what looked like cloth hanging out of some of the windows. After work, we found a place to eat on University Drive and passed by a 1,000 foot-wide path of destruction left by the tornado. It was on both sides of the street. I remember a hotel that looked much like the Tourway Inn where I stayed. This hotel was demolished but a flimsy free-standing yellow wood wall was left standing. The tornado sent several things through the wall that I could identify. For example, I could see the outline of a bathroom sink that passed through the wall. Don't ask, much like the cork-screw sign post, I still can't figure it out. Over the weekend, I drove up to Monte Sano mountain. From the street, I could see a path cut through the trees. The cut was cleanly done as if the tornado was giving the woods a manicure. It even took the tops of the trees with it. At the end of April, I drove home to Maryland. I can remember several things about my drive to Huntsville but I cannot remember one thing about the drive home. Maybe, I was just glad to get home.
  12. Thank you, Joel. There are 5 parts of the story now. A sixth will follow and then, maybe, a seventh which would be a summary.
  13. Contractors and offerors have the legal right granted them by federal law to protest an award and dispute a contracting officer' decision. You all know that! You CANNOT penalize them, for them employing their rights. If a government agency is going to use any device to punish an offferor or contractor for using their legal rights, you better have a cause that can hold up in some legal forum. For example, look at this from the Administrator, OFPP, entitled Protests, Claims, and Alternative Dispute Resolution (ADR) as Factors in Past Performance and Source Selection Decisions. I hope your evaluations and preformance ratings do not include any type of punisment in them. On the other hand, if someone is extremely abusive and disruptive, even GAO managed to ban one protester for a year, if I remember correctly.
  14. I remember, by law or regulation, that an agency is not allowed to penalize a company because it protests a procurement or disputes a contracting officer's opinion. It's probably in law.
  15. This Appropriations decision is discussed by the Architect of the Capitol's Inspector General in the Audits Section of the Home Page. Architect of the Capitol—Purchase and Use of Motor Vehicles, B-333508, September 7, 2023
  16. Acquisition Research Program Newsletter: September 8, 2023
  17. There has been a question asked of the original poster. Rule 17 is in effect.
  18. This morning CMS identified the first 10 drugs that would be subject to contract negotiations for prices in the Medicare program. Is there anyone here invoved in this new program?
  19. I was thinking this phrase comes from another phrase "two bites at the apple." My memory is telling me that may come up in sealed bidding. A bid, unlike an offer is meant to be final. You don't get a second bite at it. GAO uses the same logic as in "claim preclusion." They just don't call it that (at least I never noticed it.) So, where does "two bites at the apple" come from in a judicial proceeding?" I looked that up. "The first use of “two bites at the apple” in a judicial opinion did not come until the 1922 case of McCoy v. Tolar, in which the Supreme Court of Mississippi held that a party was not entitled to a new trial just because they had failed to offer available proof at the first trial." (Source: Noah Chauvin's How Lawyers Eat Apples.) There you are: Legal theory is based, in some part, on idioms.
  20. I don't know but here is A Guide to the Rulemaking Process by the Federal Register.
  21. What did I do in Huntsville, Wifcon? For the 3 months in 1974 that I was there, I worked, drove around the Huntsville area in my 1971 240Z and began collecting and reading books. I'm looking at one of the those books now. It's still in my library: Will Rogers, The Man and His Times by Richard M. Ketchum. One of my colleagues from Atlanta took me to see "Contractors Row," in Huntsville which is a group of federal contractors and subcontractors lined up together on the same street. Then there was the French kid selling peanuts in one of the nearby shopping malls. Me with a Philadelphia accent and him with a French one. I bought a bag of the peanuts. The SRM Contractor Selection The Solid Rocket Motor (SRM) solicitation was for a Cost-Plus-Award-Fee procurement and the offerors in the table below were ranked according to technical factors in the following order. Although, the first three offerors were rated very good the numerical score favored Lockheed by 4 points. However, the Source Evaluation Board (SEB) evaluated Thiokol as the lowest most probable cost performer by $122 million on this estimated $800 million procurement. The SEB submitted its written report to the NASA Administrator who was the Source Selection Official (SSO) Score Overall Adjective Rating Lockheed 714 Very Good Thiokol 710 Very Good UTC 710 Very Good Aerojet 655 Good After selecting Thiokol, the SSO issued a selection statement that read A protest was inevitable and Lockheed protested. My Work Evaluating Offerors' Proposals and NASA's Evaluation As I look back now, I believe my 3 months in Hunstville was supposed to be little more than a learning experience or a training exercise. GAO was big on getting its auditors to experience field work and this was problably my chance. I had graduated from college in May 1971 and now I was in Huntsville in the Spring of 1974 effectively delaying the Space Program. GAO took pride in calling itself Congresses' Watchdog. With my lack of experience I, at best, was a Watchpuppy. In the beginning, I didn't know what a work breakdown structure (WBS) was nor did I know how a learning curve worked. And I surely didn't know how to build a solid rocket motor. By the end of my stay in Huntsville, I had memorized every WBS of manufacturing labor in both Thiokol's and Lockheed's proposals, understood Lockheed's Best & Final Offer with its troubling and unsupported learning curve projection, and knew enough to run the other way as fast as I could if someone mentioned ammonium perchlorate in my presence. Each member of our small audit team had a section of the offerors' proposals to study. I had to study the manufacturing labor hours section of the two proposals and then NASA's evaluation of them. In studying the two proposals, I noticed that one offeror presented manufacturing hours and quality assurance hours separately and the other presented them as one. However, they came out roughly the same. When I looked at NASA's evaluation of the offerors' presentation of labor hours, there was no mention of the differences. I was looking for precision and there wasn't any. After I finished my analysis, my Audit Manager from Washington arrived for my presentation to NASA's evaluators. I discussed in detail, from the smallest WBS to the largest, what the NASA evaluators had missed. In the end, I told the NASA evaluators they had compared apples to oranges in their evaluation. Here is what GAO wrote in its bid protest decision. In English, that meant that NASA did not make any adjustment to either offerors' cost. It accepted them as proposed. Then there was Lockheed's Best and Final Offer (BAFO) which reduced its estimated costs based on a learning curve adjustment. Learning curves are based on the theory that the more times you do the same task, the less time it takes you to do the task as one gains experience at it. In the protest decision, GAO wrote GAO was being kind. However, NASA accepted Lockheed's BAFO as submitted. What About Those O-rings Well, it comes from an offeror's technical proposal. I don't remember which offeror but we were having a discussion with a NASA evaluator. It was a drawing that showed the SRM before it was ignited and then after ignition. After ignition the sides of the SRM expanded and the O-rings were shown holding the gasses within the SRM. I was amazed that the O-rings could withstand that pressure. That drawing remains etched in my brain. GAO's and NASA's Decision After about 6 months, GAO issued its bid protest decision on June 24, 1974. GAO's decision lists 25 bullets. The first one said Within hours of GAO's bid protest decision, NASA chose not to reconsider its selection decision and moved ahead with the Shuttle Program. Copyright © 1998 - 2023 Wifcon.com LLC
  22. Using the Solid Rocket Motor requirement from the solicitation that appears in Part 3 of this article, you can see that NASA may have been thinking of Low Rate Initial Production (LRIP) for Increments 1 and 2 and Full Scale Production (FSP) for Increment 3. In FSP, NASA planned 385 Space Shuttle flights between 1981 and 1988 or a little more than 1 Space Shuttle flight per week. Solicitation Increments Years Covered Planned Flights Planned Motors 1+2 1973 - 1981 54 108 3 1981 - 1988 385 770 Total Planned Flights & Motors 439 878 I cannot remember what time of day I placed the Space Shuttle example in my course for GAO Auditors but it always was after a break. I had to prepare myself for it. Perhaps, my voice would break. Perhaps a tear would roll down my cheek while my voice was breaking. It wasn't an act. It's happening now. My first question to the class was: How many flights did NASA plan for the Space Shuttle in each year? The guessing usually started at around 20 but before it reached 50 I would chime in with 50. The second question was: How was the program sold to Congress? It was Cost Per Flight. The more flights you plan, realistic or not, the lower the cost per flight, realistic or not. Of course, the last question was: How do you fix problems on a tight budget? After that, I simply looked into the eyes of the class members. I didn't have to say anything, the answer was obvious. If you want a complete aswer to that question, I suggest reading: Truth, Lies, and O-Rings: Inside the Space Shuttle Challenger Disaster, by Allan J. McDonald and James R. Hansen, Mar 11, 2012. Years Covered Actual Flights Actual Motors 1973 - 1981 2 4 1981 - 1988 25 50 1989 - 1995 46 92 1996 - 2000 28 56 2001 - 2005 13 26 2006 - 2011 21 42 Total Flights & Motors 135 270 Now, take a look at my 2nd table. Let's see how NASA measured up to the solicitation's planned schedule. I'll start with Increments 1 and 2 from the solicitation in the first table. The solicitation planned for 54 flights between 1973 - 1981. During that period, it actually achieved 2 flights. For increment 3 which appears to be full scale production during the years 1981 - 1988, the solicitation planned for 385 flights. During that period, NASA actually achieved 25 flights. We might as well look at the entire program schedule. The solicitation planned for the program to last from 1973 to 1988 (15 years) with 439 flights. It actually lasted between 1974 and 2011 (37) years with 135 flights. The simple facts are that the Space Shuttle Program missed, by a huge margin, the delivery requirements laid out in the solicitation for the SRMs and without the SRMs, the Shuttle was going nowhere. The solicitation requirement was for about 1 flight each week during production for about 7 years. I was going to descibe how the 2,200 tons of the Shuttle was going to be built by different contractors and shipped to Florida for assembly but why belabor the point. The best NASA could do was about 6 or 7 flights a year--not 1 per week. The solicitation was issued in 1973 and since then no agency, no contractor, no country, nor the entire planet Earth has been able to come close to such a requirement for manned space flight. Richard P. Feynman recognized it in 1986 as a bogus requirement. The bogus requirement had its cost per flight purpose needed for Congress but meeting the requirement was an impossibility. Just read the quote I added from the Packard Commission in Part 3. So, how do we judge the Space Shuttle program against a bogus requirement? That too is an impossibility. Decide for yourself. _______________________________________________________________________ The source for the totals in the second table is from Wikepedia.com's List of Space Shuttle Missions Copyright © 1998 - 2023 Wifcon.com LLC
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