Service contracts: FFP w/ labor rates vs FFP w/o labor rates vs T&M? and does lump sum exist for T&M or only for FFP?

[NewbieFed]

I have a service contract that will be sole source to a particular vendor. Let's say our program office and the vendor are confident it will cost $50,000. They got to this 50k figure by working together and calculating the number of labor hours and labor rates. 

A previous CO in our office structured a similar service contract with the same vendor as a firm fixed price contract with multiple line items specifying the categories of work and hours that the vendor would bill (each line corresponded to a different labor type...eg. admin. assistant @ 100 hrs x $20 an hour = $2000 for the line item.

I was confused by this because this seems to resemble a T&M contract if the vendor can only bill for the hours they work? I'm under the impression that FFPs are lump sums where the vendor would get 100% of the fee regardless of whether they work 50% or 200% of the estimated hours.
 

Thus, my first set of questions is:

1. Should Firm Fixed Price service contracts use billing based on labor hours with fixed amounts of hours per labor category?

2. Or should FFP service contracts just have a total flat fee without regards to billing based on any type of labor category & labor hour breakdowns? Basically just a lump sum where the vendor can bill 100% of the total amount regardless of work effort as long as they complete the services.

 

Furthermore, this current service contract was structured as a single line item with some details on pricing in attachments. This confused the vendor into thinking the structure was similar to the old contract where they would bill based on labor rates and categories.

The vendor suggested we turn this into a T&M with a 50k ceiling.

My second  question is:

Is there any way to keep this agreement as an FFP? (eg. Turn this into a lump sum somehow) Or is this more appropriate as a T&M?

 

My third question is:

One of my colleagues, a veteran CO, told me I should turn this into a T&M lump sum. But I thought lump sum only exists for FFP and not for T&M - what is correct?

 

[C Culham]

2 hours ago, NewbieFed said:

Thus, my first set of questions is:

1. Should Firm Fixed Price service contracts use billing based on labor hours with fixed amounts of hours per labor category?

2. Or should FFP service contracts just have a total flat fee without regards to billing based on any type of labor category & labor hour breakdowns? Basically just a lump sum where the vendor can bill 100% of the total amount regardless of work effort as long as they complete the services.

Neither is should.  A read in FAR subpart 4.10 and your agency supplement of same may help you understand CLIN (and payment) structure.  In a sole source arena with great communication during negotiations to reach contract pricing agreement No. 2 could actually work but read on.

2 hours ago, NewbieFed said:

My second  question is:

Is there any way to keep this agreement as an FFP? (eg. Turn this into a lump sum somehow) Or is this more appropriate as a T&M?

Yes hold to your guns.   More appropriate for T&M, well why wasn't it when the contract was first awarded?   You can change any approach (supplemental agreement) but I would hope that there would be adequate justification why it is necessary to change the FFP arrangement.  Does the government really think the contractor did not understand or is just gaming the FFP arrangement for more money?

3 hours ago, NewbieFed said:

This confused the vendor

2 hours ago, NewbieFed said:

One of my colleagues, a veteran CO, told me I should turn this into a T&M lump sum. But I thought lump sum only exists for FFP and not for T&M - what is correct?

 

Consider this recent thread in WIFCON and refer to the additional thread that is referenced in this one.  Maybe it will help add substance to T&M overall and its proper use.  In the end it seems the negotiations were not good and the government may be the one that is confused and confusing the vendor!

 

[Vern Edwards]

Read this: http://www.wifcon.com/articles/BP_21-9_wbox.pdf

Don't ask another question here until you read that. Reading it won't answer your questions, but it will help you to answer them for yourself if you are willing to think things through.

People who ask questions like yours at a site like this probably think that "quick" answers are available. In this case, they aren't. You have asked about a complicated matter. The questions you have asked are fundamental and can be answered, but they are conceptual, and thus can be answered only at the expense of a lot of time and very careful writing. It's not easy to answer such questions in writing for someone you cannot communicate with directly. They will only have more questions, which will require even more time and careful writing. And writing complicated explanations in this format is exceedingly tedious. 

You can figure out the answers for yourself by thinking things through, which would be the best way. But that will take time.

It's too bad that newbies get so little quality training from their employers.

[Don Mansfield]

12 minutes ago, Vern Edwards said:

 

It's too bad that newbies get so little quality training from their employers.

I just read this before coming here (f-bomb warning):

 

 

[here_2_help]

12 hours ago, Don Mansfield said:

I just read this before coming here (f-bomb warning):

 

 

I don't know, Don. I feel as if that's been every job I've ever had in a very long career. Finding a mentor who can guide you through the Kafkaesque maze is always a challenge.

The good news--and it's been very good news for me--is that once you've devoted hours to reading policy, procedure, and other command media, then YOU become the mentor. People reach out to you, asking for advice and assistance. It's job security.

Being able to navigate between organizational silos is a value-added skill. I come to WIFCON in the hopes of adding to my knowledge and skills re: contracting. I read and I try to learn. Now, at my place of work, contracts people come to me for advice and assistance. They come to me--a back-office beancounter--because I often know more about their own subject matter than they do. Why? Because I sought to learn.

So ... I don't know. I feel the person's frustration. But it doesn't feel to me like a challenge that can't be overcome with perseverance and a willingness to work at learning stupid bureaucratic rules.

[formerfed]

I agree.  Someone can be very knowledgable in contract laws, regulations, and policies at the governmentwide level.  But put them into a new agency that they aren’t familiar with and they have a lot to learn.  As far as basic contracting, everyplace has their unique ways of doing things.  Every agency has automated systems and newbies are faced with learning that.  Then there is acquiring an understanding of budget and finance procedures.  There are people to meet you need to work with like lawyers, policy analysts, and oversight staff.  Mentors are important in learning how to navigate all this but are few.

I’ve heard several times from multiple procurement senior managers it takes 6-12 months to bring a new person up to speed.

[Vern Edwards]

On 6/3/2022 at 10:38 PM, Don Mansfield said:

I just read this before coming here (f-bomb warning)...

I witnessed the effect of inexperience and inadequate training at the Dublin, Ireland, airport yesterday. I was lined up to check in and check bags for my flight to Reykjavik, Iceland. There were about 200 people in the line for my flight, and thousands in line for other flights.

I was near the head of my line. We had waited over an hour for an agent to show up. Finally, one did. Many prospective flyers were tired and annoyed by then, but calm. (Again, this was Ireland, not the U.S.) We had two hours before the flight was scheduled to take off.

The agent quickly turned on the computer, got set up, and started processing passengers. (Check passport; check Covid antigen test result; check reservation; print boarding pass; weigh bags; attach bag tag.) Of course, some people showed up with issues and problems that took longer. I used a stopwatch to calculate an average time for each boarding process before mine and calculated that the agent was taking an average of 2.5 minutes per process. (Most boarding involved two persons at time, so my average was based on 100 processes.)

At the average rate, the agent was going to need four hours to process everyone. Take-off was two hours away. People began wondering if the agent would get some backup.

Forty-five minutes later a younger agent arrived. But the second agent immediately ran into process issues that they could not solve. Thus, the experienced agent had to stop what they were doing to go help the inexperienced agent. There were two agents, but one of them was doing about 60-75 percent of the work.

Fortunately, I was near the front of the line.

The situation was similar at security. Huge line. Based on my observations, the agents scanning bags were diverting about 30 percent of them for more detailed inspections, including mine. There were hundreds of people lined up to pass through security, and the agents doing the detailed inspections were backed up, being overwhelmed. It took about 20 minutes for an inspecting agent to get to my bag. The agent opened the bag and rolled their eyes. The bag need not have been diverted. The scanning agents, inexperienced and doubtful about what they were seeing on their screens, resolved their doubts by diverting bags for detailed inspection, as they should have. Procedure required the inspecting agent to take everything out and then do an explosive residues test on diverted bags. The agent inspecting my bag kept apologizing for the delay (again, I was in Ireland), but I was okay with it. We ended up laughing about it. The scene was chaotic.

One agent wasted at least 15 minutes trying to find the person who had placed a small bottle of Pepto Bismol in the scanning tray. Not in a bag, in a tray. The agent wanted to give it back, shouting over the din, "Whose is this? Whose is this?"  I wondered why the agent didn't just toss it or set it aside. 

The weekend before in Dublin, about 1,400 persons missed their flights because of check-in and security delays. It was a national scandal, and made headlines in all the Irish newspapers.

Thus, the wages of inexperience and inadequate training.

I found the whole thing fascinating, especially after reading Don's post.

[formerfed]

Travel is crazy.  My neighbor came back from Ireland recently.  She went with a travel club and her husband didn’t want to go. The day before leaving everyone had to do a Covid test.  She tested positive.  They wouldn’t redo it.  She did a self test that was negative and then took a taxi to Dublin for a doctors test that was also negative.  They let her board with that.  She was worried being stuck there by herself.

Check-in and security delays are here too.  A few weeks ago my wife and I ran into them in Miami.  The only way we made our flight was I had a knee brace on and had handicapped assistance via a wheelchair.  The attendant went around lines.  I overheard a flight crew in line complaining by the wait.  The Captain said the wait was going to cause their flight to be late and TSA didn’t care.  Apparently the TSA person scheduled to staff the gate for flight crews didn’t show up and TSA didn’t have a replacement!

[jtolli]

On 6/4/2022 at 12:49 PM, here_2_help said:

The good news--and it's been very good news for me--is that once you've devoted hours to reading policy, procedure, and other command media, then YOU become the mentor. People reach out to you, asking for advice and assistance. It's job security.

One of my most memorable quotes from Mr. Vern Edwards is, "I will let no one know more about my job than me."  That has stuck with me for years, and I try to live by it. 

[joel hoffman]

1 hour ago, jtolli said:

One of my most memorable quotes from Mr. Vern Edwards is, "I will let no one know more about my job than me."  That has stuck with me for years, and I try to live by it. 

Hmm, are you able to delegate to your employees and to train and develop them? 

[Vern Edwards]

On 6/4/2022 at 10:49 AM, here_2_help said:

I don't know, Don. I feel as if that's been every job I've ever had in a very long career. Finding a mentor who can guide you through the Kafkaesque maze is always a challenge.

Formal (classroom) training in government contracting has never been very good. But I received excellent OJT from a cadre of very experienced DOD 1102s, from GS-12 through GS-16 (now SES). They had worked in the business for years and gladly taught us from the ground up. And the training program in which I was enrolled, the old Air Force "Copper Cap" program, ran for five years, from GS-05 through GS-12. You could not become a CO until you were a GS-13. And that was when contracting was much simpler than is today.

I never had a proper mentor. Everyone in the office was willing to answer a question or two face-to-face. But being told something is not good enough. And there is nothing more pathetic than the person who is in the boss's (or mentor's) office every 15 minutes with yet another question.

You must learn what, how, and why, and in order to learn you have to read and think.

1 hour ago, jtolli said:

The good news--and it's been very good news for me--is that once you've devoted hours to reading policy, procedure, and other command media, then YOU become the mentor. People reach out to you, asking for advice and assistance. It's job security.

Absolutely right! Read, read, read! Study, study, study! It pays off in work and life!

Never, ever, let anybody know more about your job than you! (It's a never-ending road, because there's always somebody who knows more than you about something.)

And don't just read regulations and contracting stuff. Read about thinking and writing and questioning and explaining. Read Plato, Aristotle, and Euclid. Train your brain to read hard stuff. Trust me, if you can get through even part of Aristotle's Organon you'll never be daunted by the FAR or any other government regulation. Even a paragraph or two will make you smarter than you were, and dumber at the same time, if that makes sense, because then you'll want to know more. Unless you're one of those sad incurious people.

You cannot know it all, and you'll never know enough, but keep at it. It will be like the fighting retreat from Tu Lē, you'll lose in the end because you can't know everything, but people who matter will remember your fight.

If you think you got a good education at the university while studying for a bachelor's or master's degree, then you weren't paying attention.

[formerfed]

2 hours ago, joel hoffman said:

Hmm, are you able to delegate to your employees and to train and develop them? 

I heard a speaker say his golf score reflects his job performance.  He was a senior executive at a company and said his biggest duty was training and developing his subordinates.  When he was confident he did a proper job, he took time off for golf.  The more he delegated and more he taught, the more time he had for golf. 

[Vern Edwards]

57 minutes ago, formerfed said:

The more he delegated and more he taught, the more time he had for golf. 

Invest the time saved by delegating to providing more training.

[NewbieFed]

On 6/3/2022 at 7:29 PM, C Culham said:

Neither is should.  A read in FAR subpart 4.10 and your agency supplement of same may help you understand CLIN (and payment) structure.  In a sole source arena with great communication during negotiations to reach contract pricing agreement No. 2 could actually work but read on.

Yes hold to your guns.   More appropriate for T&M, well why wasn't it when the contract was first awarded?   You can change any approach (supplemental agreement) but I would hope that there would be adequate justification why it is necessary to change the FFP arrangement.  Does the government really think the contractor did not understand or is just gaming the FFP arrangement for more money?

Consider this recent thread in WIFCON and refer to the additional thread that is referenced in this one.  Maybe it will help add substance to T&M overall and its proper use.  In the end it seems the negotiations were not good and the government may be the one that is confused and confusing the vendor!

 

Thanks for the explanations and link, this is useful and helpful.

 

On 6/4/2022 at 1:23 AM, Vern Edwards said:

Read this: http://www.wifcon.com/articles/BP_21-9_wbox.pdf

Don't ask another question here until you read that. Reading it won't answer your questions, but it will help you to answer them for yourself if you are willing to think things through.

People who ask questions like yours at a site like this probably think that "quick" answers are available. In this case, they aren't. You have asked about a complicated matter. The questions you have asked are fundamental and can be answered, but they are conceptual, and thus can be answered only at the expense of a lot of time and very careful writing. It's not easy to answer such questions in writing for someone you cannot communicate with directly. They will only have more questions, which will require even more time and careful writing. And writing complicated explanations in this format is exceedingly tedious. 

You can figure out the answers for yourself by thinking things through, which would be the best way. But that will take time.

It's too bad that newbies get so little quality training from their employers.

Thank you for the link. 

Unfortunately, I get different answers from multiple COs I ask. After reading these links, I am thinking I should proceed one way....but I'm not the CO so I should still ultimately do what the COs suggest.

 

As for training, yeh, unfortunately I've been bounced around multiple COs who tell to do contradictory things, and my training most of the time was basically being told to "use this template for this" (which sometimes turned out to be outdated).

[Vern Edwards]

1 minute ago, NewbieFed said:

Unfortunately, I get different answers from multiple COs I ask. After reading these links, I am thinking I should proceed one way....but I'm not the CO so I should still ultimately do what the COs suggest.

Their name and signature goes on the document, so...

[C Culham]

Some how, some place I think some regulatory direction has been forgotten....

FAR 1.102-2 (c) "An essential consideration in every aspect of the System is maintaining the public’s trust. Not only must the System have integrity, but the actions of each member of the Team must reflect integrity, fairness, and openness. The foundation of integrity within the System is a competent, experienced, and well-trained, professional workforce. Accordingly, each member of the Team is responsible and accountable for the wise use of public resources as well as acting in a manner which maintains the public’s trust. Fairness and openness require open communication among team members, internal and external customers, and the public."

FAR 1.102-4 (c)  "The Team must be prepared to perform the functions and duties assigned. The Government is committed to provide training, professional development, and other resources necessary for maintaining and improving the knowledge, skills, and abilities for all Government participants on the Team, both with regard to their particular area of responsibility within the System, and their respective role as a team member. The contractor community is encouraged to do likewise."