joel hoffman

In addition to what Vern said, the minimum guarantee on an ID/IQ is an obligation created at the time of award of the base contracts, right? That obligation doesn't start over as a contract crosses into the next fiscal year. As I understand it, the funds which were current at the time of the initial obligation are used to pay that obligation if it isn't supplanted by task order(s) that equal or exceed the minimum guarantee. I believe that the funding appropriate for any awarded task order(s) would replace the initial funding, if different than the initial funding.

Good luck getting SBA to take the lead or to do it quickly but they did work with us . Generally, the Surety is on the hook, so has the risk of liability, plus hires people to handle these affairs for construction contracts. Yes, the original contractor might be retained to complete the job, if their only problem is financial. If performance is also a problem, then that might not be the solution decided upon by the Surety and government, including the SBA. Sometimes, the SBA found a replacement and sometimes the Surety found a new firm.

Naw, its actually kinda fun, but challenging to think of all the possible pitfalls! Good luck.

In my opinion, this is not a commercial service, it is a small construction project. I doubt if the installation services are "commercial", based upon catalog pricing. But I might be wrong. I think that the government could purchase turnstiles as a commercial item acquisition and provide them as government furnished equipment to the installer on a small construction acquisition.

I would add 2 clarifications to say , "If wayforward's program team can look a Government auditor in the eye and say, with a straight face, that all claimed expenses incurred were necessary for performance within the contracts scope, then they are good to go, unless other contract language precludes shifting funding without authorization."

Not necessarily illegal but perhaps unallowable for reimbursement of that portion not within scope.

Noted. Thanks - you are correct. Sorry

kristeno, have your questions been answered? In the case where construction bid prices exceed the available budget or where they are more than twice the government estimate, I don't think that it is safe to say, simply consider the bids reasonable because there was price competition and that two low bids are close to each other. There is a big disparity which needs to be cleared up, if possible - in my opinion. Vern Edwards also advised to try to determine the reason for the disparity between the bids and the government estimate before making an award. Unless I can determine that the government's estimate is unreasonably low for the particular scope of work and/or the market conditions or grossly in error, I'm not sure that I could determine that the price I'm paying is fair and reasonable and in the best interest of the government (which includes the taxpayers). There may be some problem with the way the project is designed, the solicitation language may inadvertently place some unreasonable risk on the contractor, there may be interpretation problems, etc. Why waste the taxpayers' money that the USA doesn't have, if we can figure out a way to lower the price? EDITED 8/1/11. We shouldn't just award a contract because some paragraph in the the FAR says we can. The FAR doesn't cite the literal answer to every situation and we shouldn't need spoon feeding to make sound business decisions in the best interests of the Government and the Taxpayers. I would definitely have the estimate reviewed by the estimator for possible mistakes and by an independent person or persons to look for obvious mistakes. If that doesn't resolve the differences to your satisfaction, it would seem that you could reject all bids and use the negotiation process that I described earlier. I think that the procedures allowed within the Part 14 IFB process itself, for asking for more information from the contractors, are extremely limited. The process is mostly limited to asking the low bidder to verify their prices when the lowest price seems to be questionably low. Remember that the bid opening process is public, so the bidders should know what all the bids were. Bid prices are included on the Abstract of Bids, too. The IFB process wasn't set up for discussing disparities and scope issues after bid opening. It's set up as a one time shot. The IFB process considers price, plus responsibility, plus balancing of the bid, not negotiating the scope or requirements. That's why the option is available to convert to a negotiated process with those specific bidders. So, our procedures were to reject bids when we were uncertain that they were fair and reasonable or if we couldn't afford the lowest bid. We asked all firms who submitted sealed bids to submit a price proposal, as in an RFP. This might include a request for some type of price breakdown, preferably providing them a general format, so that the government could explore the areas of scope where price differences are. Or you could wait until the new prices come in before asking for the breakdown but I learned from experience that I was going to need the breakdown anyway. Then you would concentrate on looking for the underlying reasons for the disparity. You could do all that without it being called "price negotiations" and/or you could explore the details with the firms during one on one negotiations. I used to look for the areas of differences, then explore in as much depth as necessary with the firm during "negotiations". that's where we usually found the uncertainty, errors or some other reason why the prices were so high. If we found found something in the solicitation that could be fixed, such as errors, unreasonable requirements, too much bidding risk, requirements written around one product, misinterpretation, etc., we'd amend the solicitation somehow to lower the cost, if possible. Contractors are often good at suggesting alternatives. Sometimes we just bargained for better pricing Then we'd ask for final proposal revisions. If we find a mistake in the government estimate, our internal procedures allow us to correct the estimate or at least document where the errors are for the hindsighters who will often question why we paid much more than what our estimate could support. I believe that was one of your concerns.

edited 8/1/11 Todzilla, I didn't mean to attack you, personally. I began with respectfully disagreeing with you then went off. Sorry. But I don't know how you got the impression on an IFB for construction that the questioner had done due diligence in analyzing pricing. In fact in her first sentence in her first post, she specifically asked how to do a price reasonableness determination: "How do we make a price reasonableness determination when all bids are over twice the GE? This is a FFP construction arena. The FAR makes mention of being able to question/revise the GE when bids are below the GE but not above. Is it enough to say that the two low bids are within 6% of each other and therefore reasonable? " How would you analyze the basis of the bidders' pricing after opening bids? How would you compare what is in the government estimate to what the bids are based upon?

I would agree that the answer to cmoore's question depends on the language of the various contracts. The 2000 version of the T&M Payments clause was in the contract in the Serco case that you cited above. It wasn't clear to me whether the Board only referred to the language in the contract clause or if there was other language in the contract in addition to the language of the older clause which clearly established that the hourly labor rates didn't cover subcontracted labor. Not to stray too far off the subject, but didn't the current version (Feb 2007) of the FAR Clause 52.232-7 -- Payments Under Time-and-Materials and Labor-Hour Contracts result from a rather spirited discussion thread here on the WIFCON Forum? I recall that it was debated whether the contract T&M or Labor Hour unit rates covered work performed by either the prime or by subcontractors. The Materials paragraph of the previous version of the clause appeared to require that any subcontracted work be reimbursed at cost. Seems like somebody here raised the subject to the DAR or FAR Council and they revised the clause to eliminate that ambiguity. The new clause provides that the hourly unit rates cover "payment for labor that meets the labor category qualifications of a labor category specified in the contract that are — (i) Performed by the Contractor; (ii) Performed by the Subcontractors; or (iii) Transferred between divisions, subsidiaries, or affiliated of the Contractor under a common control." I assume that if the government now wants to distinguish between the three types of labor, it would have to establish separate labor hour rate CLINS for each source.

Vern, cmoore appears to be an employee of the company. From my reading of his various explanations, he feels that his company is trying to pass off contract labor as costing the company the same as in-house labor, using its Disclosure Statement as justification. Apparently 2 government agencies aren't agreeing, because they are not "approving", as he put it, the company's rates or the Disclosure Statement. I think you and I agree in principle. We don't know what is going on on "all contracts". I was just trying to clarify that if there is misrepresentation involved in negotiated pricing for fixed price contracts, there could indeed be a problem. Then 'whynot' later jumped in, making a generalized statement about labor cost not being relevant on fixed price contracts, for the most part. Then I responded to his post, again trying to make the point that there could be problems with labor cost on FP contracts, if misrepresentation was involved in the pricing of the labor. For the record, I agree with you that what and how the contractor charges for labor on a competitively negotiated or competitively bid fixed price contract generally isn't an issue. But labor cost may become an issue on such contracts, such as in a claim or a negotiated change involving cost considerations, if misrepresentation is involved. It may be an issue on a negotiated contract, if misrepresentation is involved.

Vern, I was referring to the situation on a FFP where, if a contractor misrepresents the cost to the company of subcontracted labor, during negotiations to establish the rates or price, in an attempt to convince the owner that subcontracted labor costs the same as in-house labor, there could be a problem. Or, if the contractor misrepresents that it will use in-house labor during negotiations, but instead uses less expensive contract labor that it had really planned to use at the time, there could be a problem. If you were referring to something else, I apologize. In response to your post #25 on July 18, in which you stated: "The issue is irrelevant under fixed-price contracts. " I responded to you in post #26 on the same day, stating "...If the FFP rates or costs were competitively bid or if they were competitively negotiated without detailed representation of the basis of pricing, then I'd generally agree that the issue isn't relevant. However, if the FFP unit rates or costs are negotiated on the representation that the contractor would use the higher cost, in-house labor and if the contractor never intends to use the in-house labor or if the contractor intends to use a mixed labor force without disclosing it , then it might well be relevant. But it depends upon the circumstances." I thought that was fairly clear and you didn't challenge my statement until after I responded in post #38 on July 28 to whynot's post #36 of July 28. Whynot indicated that the labor cost on FFP contracts are not relevant, for the most part, without any explanation. I believe that my second response was pretty consistent with my July 18 response to your post #25. Regarding the instant situation in this thread, a company employee stated that two government agencies apparently don't agree with this person's company billing rates or its accounting methods shown in its Disclosure Statement. The employee also claims that the company is using these rates for all sorts of contracts, including FFP contracts. I'm not accusing them of misrepresentation and never did. But there could be a problem.

Alex, inasmuch as this is a very technical issue, the answer may depend upon expert opinions from other geotechnical engineers as to whether or not the subsurface conditions made it technically impossible or economically impractical to construct a levee. The contractor may bear some responsibility if it failed to take any of the known conditions into account when preparing a proposal or bid. The contract apparently did make the contractor responsible for the design of the levee as well as determining the proper construction techniques - assuming that the levee can be built. The mere fact that it cant be built for the contract price doesn't carry much weight, particularly where the contractor failed to take the conditions described in the geo-tech report into consideration. But one still has to determine if the structure could be built. Also, we don't know the contract price in comparison with other bidders/proposal/estimate, the basis of award, what level of design was expected from the contractor, whether the offered price should have raised suspicions, etc.

By the way, the original question concerned evaluation of reasonableness in an IFB situation, not source selection. Conversion of an IFB to negotiation isn't "source selection". However, I can assure you that I'm very familiar with source selection procedures for construction contracts. Edited 8/1/11

The original question was about a price reasonableness determination in an IFB situation ("bids"). Unless you try to examine why there is a large discrepancy between the bids and the Government's estimate for a construction contract, your statement that you can simply rely on adequate price competition to determine reasonableness is senseless to me. Those who cling to statements in the FAR for support in making business decisions, without knowing anything about the business or the basis of the pricing are poor business persons. I read your post as essentially saying not to worry about discrepancies between the estimate and the proposals or bids - If you have two responsible offers, then you are good to go no matter what the IGE says. I thought that was rash and poor advice.

Vern, nobody "said that it does not matter how the prices are established ("represented") under a fixed-price contract". I never said that anyone said that. I said "I wish people would refrain from making broad assertions that how a fixed price contract is priced isn't an issue." The issue, as I understand it is that a firm is apparently charging the same price for much less expensive contract labor as it charges for in-house labor "on all sorts of contracts", including cost, fixed price, T&M, etc. Whynot said this in post 336 on Jul 28 2011, 12:17 PM' : "For FP price and its cost is not an issue for the most part." Vern said this in post #25 on July 18th: "The issue is irrelevant under fixed-price contracts. " All I am saying is that it COULD very well be an issue on a fixed price contract under certain circumstances with specifically negotiated prices or rates.

I wish people would refrain from making broad assertions that how a fixed price contract is priced isn't an issue. Probably true in the case of a bid contract or a source selection, when pricing wasn't established through negotiation at the time of contract formation. But when unit prices are developed through cost or price negotiations, how the unit price is represented and negotiated is usually important and pertinent. It could involve issues of false statements, false claims, fraud or defective pricing, if misrepresented at the time of negotiations.

I will respectfully disagree with your statements that "[a]dequate price competition is the best and primary way to establish price reasonableness. If you have two responsible offers, then you are good to go no matter what the IGE says", when applying that philosophy to construction solicitations. In fact, that is sometimes (often?) overly simplistic - crock - reasoning. I'm sorry for the length of the following but those statements hit my "irked me" button. To start with, I agree with Vern above. However, I feel that I need to expand on his (clear and succinct) post that said "...you ought to try to determine the reason for the disparity between the bids and the government estimate before making an award. It is likely that there has been some misunderstanding about the specification or drawings. If I were your boss I wouldn't let you make an award until you figure it out.". Acquiring construction is much different than purchasing well defined commercial supplies or equipment and it is different than buying standardized or well established services. If Contracting types insist that they should be treated and respected as "professionals", "professional business advisors", etc. , then they must understand these differences and take the time and trouble to examine the reasons for wide differences between what the Government thinks a project "should cost" versus what the industry is willing to bid or propose to accept the contract in such cases. You must understand that construction is generally a very risky business. When contractors see unclear plans and specifications or solicitations with terms and conditions that involve, impose, or transfer risks and unknowns, prices go way up. Just because prices are close to each other doesn't automatically mean that they are fair or that they are reasonable. There are many reasons for price differences. I have had some very good experience in uncovering why such differences existed. In many cases, I or others and I were able to significantly reduce awarded prices by correcting defective plans and specs, reducing risks placed upon contractors or even in finding alternative material and equipment sources when it was discovered that our plans and specs were written around a product from a supplier who thought they had a lock on supplying the items. FAR 14.404 covers situations where it appears that all prices are unreasonably high or that industry might not understand the scope pf work, etc. I have includes some relevant excerpts from 14.404-1 below, which allows the KO to convert the IFB to an RFP under the same solicitation and seek proposals from those firms who submitted bids. I remember at least two situations where we did this and we discovered from the firms that the Government's approach or design was inappropriate for the market conditions and material and labor availability. In one case, the lowest bidder, who was also the lowest offeror after the conversion offered to drop his price by 1.5 million dollars if we would allow him to select, design and construct a more economical structural framing method. He offered to guarantee matching the Government's architectural facing and looks. The problem turned out to be that the government designed structure required extensive use of structural masonry following 2 recent, massive hurricanes, which swallowed up the entire availability of masons and masonry subcontractors for a four state area. Plus the frame was uneconomical to begin with, requiring three separate mobilizations and demobs of a masonry sub brought in from North Carolina. The project was in Florida. Obviously, just because there were 7 bids higher than the Government estimate, did not result in price reasonableness in that case. The proposing construction company's president and I found a way to save the taxpayers $1.5 million dollars. This is but one example of many in which it paid to examine large price differences rather than simply rely upon simplistic beliefs that ""[a]dequate price competition is the best and primary way to establish price reasonableness" and "If you have two responsible offers, then you are good to go no matter what the IGE says" when contracting for construction. Don't just search for words or the easiest way in the FAR to allow you to declare prices fair and reasonable. Successful business professionals become savvy and they learn how to maximize opportunities to save or make money. In our case in the federal government acquisition and contracting arena, everyone needs to learn how to look out for the interest of the taxpayers and how to reduce the massive deficit! Here are the relevant excerpts from FAR 14 that we followed when we had to convert an IFB to an RFP: 14.404 -- Rejection of Bids. 14.404-1 -- Cancellation of Invitations After Opening. (a) (1) Preservation of the integrity of the competitive bid system dictates that, after bids have been opened, award must be made to that responsible bidder who submitted the lowest responsive bid, unless there is a compelling reason to reject all bids and cancel the invitation. … ( c) Invitations may be cancelled and all bids rejected before award but after opening when, consistent with subparagraph (a)(1) of this section, the agency head determines in writing that -- … (6)All otherwise acceptable bids received are at unreasonable prices, or only one bid is received and the contracting officer cannot determine the reasonableness of the bid price; (7) The bids were not independently arrived at in open competition, were collusive, or were submitted in bad faith (see Subpart 3.3 for reports to be made to the Department of Justice); (8) No responsive bid has been received from a responsible bidder… … (e) Under some circumstances, completion of the acquisition after cancellation of the invitation for bids may be appropriate. (1) If the invitation for bids has been cancelled for the reasons specified in subparagraphs ?(6), (7), or (8) of this subsection, and the agency head has authorized, in the determination in paragraph ? of this subsection, the completion of the acquisition through negotiation, the contracting officer shall proceed in accordance with paragraph (f) of this subsection… (f) When the agency head has determined, in accordance with paragraph (e)(1) of this subsection, that an invitation for bids should be canceled and that use of negotiation is in the Government’s interest, the contracting officer may negotiate (in accordance with part 15, as appropriate) and make award without issuing a new solicitation provided -- (1) Each responsible bidder in the sealed bid acquisition has been given notice that negotiations will be conducted and has been given an opportunity to participate in negotiations; and (2) The award is made to the responsible bidder offering the lowest negotiated price.

Yes, I've had experience with several 8(a) contract defaults when I was with the Mobile District Corps of Engineers back in the 1990's. We generally coordinated with the SBA but we dealt directly with the Surety to arrange to get the project completed. I sense that this may be your first default of a construction contract. They can be tricky, especially when dealing with an 8(a) situation. From my experience, the SBA did not have a clue as to how the process of completing the project works. The SBA also may not understand the urgency required to get the project restarted and completed. The Surety often doesn't act like it but they are responsible for all delay and other damages to the government in getting the project completed. A bond isn't "insurance". The Bonding company requires that the contractor indemnify the surety for any losses it incurs. As the clock ticks, the contractor is on the hook, often covering losses with the owner's personal assets that it had to pledge to obtain the bond in the first place. So prompt action on our part is absolutely essential. We generally had to prod the surety to finalize the arrangements to complete the project. The SBA certainly doesn't have the same sense of urgency or the skills that the surety has to make these arrangements. The Surety most often found a GC type subcontractor to complete the work and we negotiated a Takeover Agreement. Sometimes the Surety managed the work directly and arranged to keep the existing subs. That was when the job was almost complete. in the case of a Takeover Agreement, we informed the Surety up front that the Surety would be liable for LD's at the end of the job. Once, we collected L.D's up front and established a new contractual completion date and maintained the established LD rate in the contract in order to collect damages in the event that there are unexcused delays in meeting that new completion date. Occasionally, a Surety just wanted to get out from under the hassle of completion altogether. In those cases, the Surety approached the Government to see if we would accept a new general contractor and a new Surety/bond to complete the project. If we agreed, then we negotiated a Tender and Release Agreement with the surety and the new firm. It was important to ensure that the original surety retained responsibility for anything that the Takeover contractor and its Surety might not take responsibility for, such as latent defects in the original work. I can't recall all the details as the last time I did this was 17 or 18 years ago. I know that we negotiated a new contractual completion date into the Tender and Release Agreement. We collected liquidated damages (LD's) up front, at the time the Tender and Release was executed for the unexcused portion of the delays between the previous contract completion date and the new date. When a Tender and Release was involved, we issued a new contract to the new contractor entity and obtained new bonds. The previous contract was kept administratively open to cover the possibility of problems uncovered in the original work by the new contractor. The answer to your final question is who you deal with on warranty issues depends upon the terms of the agreements and who finishes the work. This is something that you will have to hammer out with the Surety and clarify in the Agreement. In your case, it is important that you dot all the i's and cross all your tees in the actual default and move swiftly to mitigate delays in getting the Takeover Agreement or Tender and Release agreement in place. This is because the Surety is on the hook for liquidated damages and any other Government damages and we want to minimize the cost and time involved, for everyone's sake. We also want to minimize weather damage to unfinished work and to protect materials and supplies from theft or storage damage. And NO, before you ask - to the best of my recollection, the completion contractor didn't have to be another 8(a) firm. I was the negotiator but worked directly for the KO and worked closely with our attorney throughout the process. There were always negotiations and revisions to the proposed terms before we settled with the Sureties.

Take your pick from most of FAR Part 25.

What kind of pricing arrangement is used for your prime contract, which I assume is to perform 3rd party oversight of some other contract or activities for the government? I assume that you also proposed to use 6 specific subcontractors.

Vbus, not that it is a particularly burning topic, but what do you mean by the statement "Woe is me! -Part 53?" Just curious

I agree Vern. An FPIF arrangement with a generous (or any) government share of cost growth doesn't insulate the government from an overrun due to a "buy in". If it was obvious that the contractor was going to "invest" in the development cost for the prototypes, then there should have been no government share and the target and ceiling costs should have been the same - in other words, a guaranteed maximum price arrangement . For the AF acquisition types to say that the overruns are Boeing's problem, when the contract appears to contain a 60/40 share ratio, begs the question - are they nuts or? Just my opinion.

So, why would one accept an offer for a Fixed-Price Incentive contract with a 60% Government cost share, for overruns above the target cost up to the ceiling price, if he knew that it involved a "buy-in", where the costs would exceed the target price???? Maybe because the Government would allegedly "save" 40% of the overrun amount?

According to an article I just read, there was apparently only 2 billion dollars difference between the EADS and Boeing proposals ($22.6 vs. $20.6). Had Boeing proposed "$5.5B" or even "5.2B" (the current estimate), would the Air Force have selected them over EADS? That is only for the first f-o-u-r planes. Hmm... see http://www.defensemedianetwork.com/stories...c-x-tanker-win/ Bob - Yes, I do assume that this was an obvious buy-in.