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Incentivize Me

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  1. Some practical concerns being expressed by PCOs that I have heard: 1. Paragraph (1) of the memo makes reference to "...rates paid to the contractor for the same or similar contract services performed under contract with procuring DoD component in fiscal year 2010". (Note: The emphasized language was not in the statute.) DPAP uses DoD Component as a broader context in its various memos than the contracting activities it lists in the DFARS 202.101. (No defintion of DoD Component exists in the DFARS.) Several DoD Components (e.g., Navy, Army) are rather large entities with multiple Heads of Contracting Activity which often have smaller procuring activities thereunder. So how will a PCO at one Navy buying activity know the rates of same or similar services paid in FY10 to a contractor under any contract/order across the entire Navy? 2. The same concern applies to paragraph (2) with regards to the annual price (not rates) paid in FY2010. How would a PCO find this out and how could a Secretary of MILDEP or Head of Defense Agency verify? 3. Paragraph (1) can be interpreted to mean a specific contractor and how the FY12/13 to-be-negotiated rates compare to FY10 rates paid to that same contractor. Can paragraph (2) be interpreted the same way? I say yes. Even if it is ambiguous, a PCO simply applies the notion of "contra proferentem" so if the drafters of the statutory/regulatory/policy language aren't nonambiguous they should not blame the folks for how they interpret the language but use more specific, exact language. However, applying that same approach for interpreting "DoD component" in paragraph (2) to mean HCA level or lower-tier procuring activity likely wouldn't be taken by the HCAs or lower-tier procuring activities without knowing how the waiver authority (SPEs) would interpret it and the SPEs are trying to work that out with the DAR Council know. Until the PGI language comes out, HCAs, lower-tier procuring activities, and PCOs are left to their own discretion. The PCOs are the ones executing the contracts/orders so they need to exercise their independent business judgment when interpreting the existing statutory and class deviation language. This is what we have to do when statutory/regulatory/policy language that is ambiguous.
  2. Comment/suggestion with regards to a protest to Court of Federal Claims (COFC). Exercise of option on IDIQ contract. See Magnum Opus Technologies, Inc., v. U. S. and Luke & Associates, Inc. and TerraHealth, Inc., Nos. 10-106C, 10-127C; May 28, 2010. (June 4, 2010) A: COFC case found for plaintiff (contractor) which alleged Govt.'s exercise of an unpriced IDIQ option violated Competition in Contracting Act (CICA) as Contracting Officer would not be able to make determination that: (1) the price of an unexercised option is the more advantageous offer and fair and reasonable per [FAR 17.207(d)]; and (2) that the option satisfies FAR Part 6 with regards to amount specified in or reasonably determinable from the basic contract [FAR 17.207(f)]. B: FAR 16.504 [indefinite Quantity Contracts] subparagraph (a) [Description] states "Quantity limits may be stated as number of units or as dollar values." Based on A & B above, one should always ensure option ordering CLINs are stated in terms of at least price (if not quantity AND price). Otherwise, exercise of the option would be in violation of CICA. (By the way, this is another reason advocating the use of using longer base year ordering CLINs in lieu of option CLINs for additional ordering periods.)
  3. Well, I posted a comment accordingly to the openregs.com website under this FAR Case. Surprised how user friendly the site is. First time I've submitted a comment on a FAR Case. We'll see if/how it gets addressed.
  4. From FAR Case 2008-11....." Language was added to FAR 15.404?4(a)(3) as follows? ??Unless the contractor acquired property is a deliverable under the contract, no profit or fee shall be permitted on the cost of the property.?? " I see the distinction you are trying to make interpreting the language as a deliverable itself vice being material that comprised part of the final delivered product. It may be a bad assumption on my part to assume this proposed language deals with contractor acquired property that is part of a deliverable (a broader interpretation) vice it being in and of itself a deliverable (a more strict interpretation). However, if it's the later interpretation, I'm lost as to what the intent of the proposed language would be. In that scenario, the contractor would only get profit on an item it acquires as a whole from its subcontractor and delivers "as is" to the Government. The majority of Government dollars spent on supplies involve the contractor acquiring material that is that bent, shaped, modified, configured (or otherwise twisted, turned, etc.) into a whole that is greater than the sum of its parts. The stricter interpretation would mean the Govt. is advocating (i.e. rewarding via profit) effort that is basically buying COTS "as is" and never rewarding innovation or using Govt. unique requirements. Maybe that's what Uncle Sam meant but as a taxpayer wanting my tax dollars spent wisely to support our troops and enhance our national security, I hope not. Regardless, either interpretation is bad for both the Contractor and the Government. Hopefully, the FAR Case language will be clarified.
  5. The Govt. does not need to fully fund the minimum if the contract and fiscal law allows for incremental funding beyond the 1st year (e.g., R&D funding). However, the Govt. still needs to comply with fiscal law so that the funding is reasonably pro-rated across the fiscal years in which the effort is being performed. For example, if 50% of the effort would be completed in the 1st year and 50% in the 2nd year, one should not provide only 20% of the funds in the 1st year and 80% of the funds in the 2nd year as you would be using later-year funding to pay for prior year effort. The key point is that the conditions of the minimum must be clearly stated in IDIQ contracts (as always) and even more explicit when the initial ordering period is longer than 1 year. An auditor looking in from the outside may wonder if spreading the minimum over a longer-than-one-year ordering period is simply a multi-year contract by another name. Clear contract language that complies with fiscal law and expressing your minimum in terms of a quantity unit of supply/service vice a dollar amount can easily avoid this appearance of "multi-year" abuse. A simpler solution is simply plan to limit, buy, & fund your miminum in the first year (which is what Vern reminded all of us about earlier in this thread). It should be a rare circumstance that you would want to, and fiscal law will allow you to, have a minimum ordered piecemeal across a longer-than-12-month period. It does make for an interesting academic discussion though.
  6. I spoke with Professor Douglas Goetz, an true expert on Government Property, of Defense Acquisition University and asked him the very question about the FAR case excluding profit on contractor-acquired property that is not part of the delivered product to the Govt. He mentioned that the FAR Case was intended to address the matter (i.e. no fee/profit) with regards to facilities contracts and it does. That concept was inadvertently extended to apply to non-facilities contracts. Many, many, many times prime contractors buy materials from different vendors to test in their development & manufacturing process to determine which material is most suitable for meeting the Govt.'s requirements. Then, the prime selects the best material and the remainder does not end up in the delivered product to the Govt. This common risk reduction practices requires time, effort, and material necessary to provide a compliant, cost-effective deliverable and should be fee/profit bearing. The Govt. benefits greatly from this practice. Even if this FAR case language did pass "as is", I think the parties would find it nearly impossible to determine how much, and especially which, material would end up in the final deliverable product. Negotiating that would be a futile exercise. Nonetheless, let's hope the FAR Case is clarified and this idea of no fee on material not delivered as part of a completion type supply item deliverable goes no where. By the way, Professor Goetz wrote an excellent article in the Summer 2008 NCMA Journal dealing with the subtleties of when title of contractor-acquired-property transfers to the Govt., when contractor-acquired-property needs to be tracked IAW Government Property clauses, and how conflicting FAR language can lead to tax implications on such contractor-acquired-property. Even if you are not interested in the tax implication aspect, it provides a good summary of handling contractor-acquired-property.
  7. Distinguishing between: (i) award fee pool dollars that the contractor has not yet had a chance to earn; and (ii) award fee pool dollars that the contractor had a chance to earn but failed to do so (i.e. got a score < 100%).
  8. I didn't advocate or oppose locking in prices over five years. The pricing remains at the CLIN level. The question dealt with further subdividing hours & cost/prices down to the SLIN level. It was a contract administration question, not a pricing question.
  9. "Rollover" is a term used to describe the carryover of award fee (AF) the contractor FAILED to earn (key is FAILED to earn) to a later award fee period/event in the contract. For example, if the contractor was eligible to earn $100 (i.e. AF pool is $100) during the 1st AF period but only earned $90, the remaining $10 would be considered "rollover" if it was added to a subsequent potential award fee pool. Let's say the CLIN price was $9000 cost and $900 award fee and the unit price was $90/hr. cost & $9/hr. AF pool for a maximum quantity of 100 hours for the current CLIN. If the contractor was tasked and delivered 80 hours at $7200 and earned only $700 of the $720 AF pool for those 80 hours, the remaining $20 is what the contractor FAILED to earn. $120 is what the unused award fee pool associated with unexpended work that could be transferred (not rolled over) to a subsequent CLIN, providing the contract language allows you to do that or there is a bilateral modification (mindful of orignal scope of competition) executed. Please note that this scenario assumes the maximum quantity is defined in terms of dollars (not hours). If it is in terms of hours, then this scenario assumes the hourly unit price is the same from one CLIN to the next. If not, then you should be transferring unused hours from one CLIN to the next CLIN but applying the price of the next CLIN. Otherwise, you are likely denying the contractor (or Govt.) the benefit of then-year pricing. Your recent comment about evaluating offers implies you are talking about transferring unused "ceiling" in a multiple award environment. If so, you should be transferring equal amounts of unused "ceiling" per contractor to ensure an equilibrium of fair opportunity for the remainder of the contract.
  10. I did describe rollover appropriately. The 2nd sentence of the quote could have been interpreted two ways (as your reply has shown). Failure to avoid transferring only the unearned AF attached to unpurchased quantities (i.e transferring unearned fee for purchased quantities) results in rollover.
  11. Agree with the longer-than-one-year ordering period. Folks make them annual options out of habit thus requiring a new contract modification and set of CLINs each fiscal year. (Note: I said CLINs, not SLINs. You will always need more SLINs to differentitate between funding lines within and in different fiscal years.) As to the other original comments, it is a good idea to avoid subdividing units/pricing at the SLIN level on services efforts. This allows more flexibility in contract administration (i.e. again, few contract modifications). Yes, follow what the contract states with regards to transferring unused quantity from one CLIN to another. If not in the contract, folks often do a bilateral modification to allow the Govt. to do so without requiring a bilateral modification each time. Yes, you need to be mindful of the protest risk (i.e. out of scope of original competition). One last note: If you are transferring unused quantity from one CLIN to another, be sure you are not transferring any award fee pool that was eligible to be earned but was not earned. This would result in award fee "rollover". You should transfer only the award fee pool portion that is associated with the unexpended work. Of course, if the contract already has language covering award fee rollover, then follow the contract accordingly. I am not saying award fee rollover is good or bad, but, given the current anti-rollover Govt. leadership sentiment, just making sure one doesn't inadvertently rollover award fee for which the contractor expended effort but didn't earn the full amount.
  12. Thanks for reminding me of the proper terminology. Understand that ECP is a configuration management (CM) term and as such is not inherently within or outside of scope. However, if an ECP then gets incorporated into a contract, a determination must be made that the effort is within the general scope of such contract and not outside the scope of the original competition (or, if a sole source contract, within the scope of the corresponding J&A). My personal experience (using "experience" in lieu of "training" as one has assessed my training to be poor; of course that does not mean my "experience" cannot be characterized as "pathetic") with incorporating an ECP into a contract has been applying the CM term ECPs to changes made to what is currently being bought under the contract. If the ECP was to an item previously bought under another contract but the ECP effort was to be procured under a new contract that stated words to the effect "The contract is to implement an ECP to "X" item that is provided as GFP", then yes, the ECP would be an out-of-scope ECP. However, in my personal (and possibly pathetic) experience, I have not encountered that scenerio. Is it absolute that an ECP cannot result in an increase in quantity ? For example, let's say the Govt. issued a contract for a surveillance system covering X square miles that must be comprised by Y interoperable units due to the force structure of the mission. The system was accepted on a per unit basis so the units could be immediately used as the old system was phased out. Then, due to a revised force structure, the new system still must cover the same X miles but cannot be interoperable unless 2 more units are added (i.e. Y+2). The Govt. considered it within the general scope of the contract and the orginal scope of the competition. Was this a judgment call or a flat-out wrong decision ? "The notion that an ECP that results in an upward equitable adjustment is, for that reason, not within scope is patently absurd." I am glad we agree on something....almost. I fail to see how FAR Part 27 has anything to do with this matter. (That was a joke -- not poor training.)
  13. "out-of-scope" work that is not "new work" ? This is a case of semantics -- likely poor semantics on my part. Let's take out the fact of an FMS customer officially stating the specific vendor. (In that scenario, there is no requirement to synopsize and I'll be using synopsizing as part of my clarifying response to Vern's question.) Some folks are very specific about the term contract scope and view "new scope" or "out of scope" work quite literally to mean any change in specs (i.e. any non-administrative word, paragraph, page changes) or quantity or pricing. Other folks view contract scope more broadly by using the litmus test of the need to synopsize and execute a J&A per FAR 6.3. If a synopsis and (presuming no viable industry response from another source to perform the work) a J&A is required, then the work is "new scope" or "out of scope". Now we introduce an engineering change proposal (ECP). My personal training was that ECPs are "within scope changes". A "within scope increase" was an ECP (if incorporated into contract) that results in an increase to the current contract quantity and/or (mostly likely at least) price (i.e. an equitable adjustment due to the contractor). A "within scope decrease" is an ECP (if incorporated into contract) that results in a corresponding decrease. However, some folks (of the specific interpretation) often wanted to argue that any ECP requiring an upward equitable adjustment (i.e. "within scope increase" in my book) was "out of scope" simply because the Govt. would be increasing the quantity and/or price. The number of these folks seemed to be growing in the organization I previously worked in so the "terms of choice" evolved into "out of scope work that is new work" vice "out of scope work that is not new work". My thought is that this stricter intrepretation was only adding confusion. The bottom-line litmus test is ensuring the Govt. always stayed mindful of the need to synopsize and comply with FAR 6.3 (J&As). If the synopsis and J&A were required (or in the event of an FMS customer specificying the vendor, just the J&A being required), then the effort is in effect a new contract, even if executed via a contract modification. Thus, if executing via contract modification, one must then include the most current FAR/DFARS clauses in the resulting contract action and cannot simply piggy-back on 100% of the terms & conditions in the existing contract. Hope this clarifying response "educates" more than "confuses". Any better or official terminology folks can point me to would be most appreciated. On another note, I was surprised to hear no one object to the notion that the most current FAR/DFARS clauses must be used when a new contract effort (i.e. FAR 6.3 applies) is added as a modification to an existing contract. Later in my career, I noticed a growing number of Govt. attorneys, contract specialists, & PCOs missing this critical step and would get such vehement objections on this very point (or dirty looks from those who I reminded when they forgot about this).
  14. I am one of "those" contracting folks that once believed price analysis was always required. I guess I was very impressionable because I had an excellent mentor and viewed his "should" statements in his world to be "shall" statements as I was new to the field. Years later, it was pointed out to me. Agree absolutely that if price analysis could be done, then it should be done. To take this "should" one step farther, let's look at FAR 15.404-1((2)(i) & (ii): "(2) The Government may use various price analysis techniques and procedures to ensure a fair and reasonable price. Examples of such techniques include, but are not limited to the following: (i) Comparison of proposed prices received in response to the solicitation. Normally, adequate price competition established price reasonableness (see 15.403-1©(1)). (ii) Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items, if both the validity of the comparison and the reasonableness of the previous price(s) can be established." Five price analysis techniques are subsequently identified but FAR 15.404-1((3) states that the 1st two (identified above) "are the preferred techniques". For competitive proposals, many folks simply state that adequate price competition automatically establishes price reasonableness and simply state that as the basis of price analysis. Note the FAR says [b]"Normally"[/i] . It is not automatic by default. I was trained that whenever the 2nd preferred technique can used in competitive situations, one should use it. If the 2nd preferred technique results in a significant difference from the proposal prices and one cannot explain it via changes differing market conditions or specifications, then one needs to double-check that there were no unintended mistakes in the Govt.'s term and conditions or specifications that could have cause the price analysis differential. If your price analysis indicates $300,000 for a widget and the proposal prices all come in about $150,000 for the same widget and there is no known different market conditions, it is prudent to go over your solicitation (including specifications) with a fine-toothed comb before executing the contract and obligating our taxpaying dollars.
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