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Pricing mechanism option


Soccer5

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What pricing mechanism options would I have to set up a long term contract with suppliers to carry out asphalt/road surfacing services on a maintenance contract. I know what kind of work needs to be carried out. But not exactly where or when? So cannot get lump sum prices. Looking to lock suppliers pricing in for 3 years.

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15 hours ago, Soccer5 said:

What pricing mechanism options would I have to set up a long term contract with suppliers to carry out asphalt/road surfacing services on a maintenance contract. I know what kind of work needs to be carried out. But not exactly where or when? So cannot get lump sum prices. Looking to lock suppliers pricing in for 3 years.

Question: since petroleum products, aggregate material, trucking costs (fuel, etc.) and labor are volatile, why do you need to lock in long term prices with supplierS (single - multiple) ?

Question: Did you mean multiple “suppliers’ pricing” or a “single supplier’s pricing”?

Question: What advantage is there to “lock in” prices? 

Minimum DOL wage rates would require adjusting too and even more adjustment for different localities. 

Question: If multiple suppliers are being considered, why not establish a MATOC or BPAs and compete the work as needed for specific requirements, which can be relatively simple to define? You wouldn’t need to lock in unit prices if there is competition.

There are many standard road and paving/construction/maintenance operations specification manuals that could be referenced in a BOA or base IDIQ. Each state highway department has standard specification manuals and/or there are standard guide specs. Mostly what you have to do for a specific task or project is to define the scope of work. 

Normally, pricing each type of pavement construction/maintenance operation has many variables, including the specific “what”, “when” or “where”, General and site specific conditions, time of year/weather conditions, amount of each type of new construction, maintenance or repair operation or project, site or installation constraints, traffic, etc. 

Also, market conditions- timing and volume of other work too. 

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P.S. , In the past three years, on such type projects that I have been involved with privately, contractors and suppliers will only guaranty unit or lump sum pricing for a specific job for 30-60 days.

Developing an acquisition strategy requires market research…

Have you discussed your needs with industry?

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16 hours ago, Soccer5 said:

Looking to lock suppliers pricing in for 3 years.

Locking in the prices would , by experience, be a fools game, for the type of work you mention.  You can set a structure so that the contract pricing is adjusted in an agreed to manner over the 3 years.   How?  Some thoughts to consider.

Sounds like Labor Standards for Contracts Involving Construction will apply.  Have you read FAR 22.4?   If not FAR 22.404-12 may give you help in what to consider for your proposed contract.   Additionally take a look at FAR clauses 52.222-30, 31 and 32.

Other - You might want to do a dive into this website - https://www.fhwa.dot.gov/programadmin/contracts/price.cfm 

 

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If you will have multiple sources, there is no need to “lock in prices”. You can set up BPA’s and/or MATOC(s) without fixed prices. 

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1 hour ago, joel hoffman said:

If you will have multiple sources, there is no need to “lock in prices”. You can set up BPA’s and/or MATOC(s) without fixed prices. 

I know your intention is to provide for a simple solution with regard to upfront pricing but I do wonder if it is not more complicated than suggested.   

By example considerations of the SAT with regard to the BPA and calls made against it or them.   Afterall we are discussing construction to carry out asphalt/road surfacing  are we not?

Additionally there are significant considerations to be made with regard to wage determinations when talking BPA(s) versus a MATOC(s) especially where "where and when" is a question. 

And  to make it more complicated why not throw in Requirements Contract as a consideration where the contracts are for certain geographic areas?   Or even a Time and Materials contract?

The leading questions of the OP demand a whole lot more to focus on a contract type answer, pricing mechanisms related to economic adjustment in my view are something different.

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Carl, indeed, we don’t know if it is more complicated or not. We don’t know anything about the scope of individual resurfacing or other maintenance projects.

Some Corps of Engineers Districts have, to my knowledge, used competitive BPA’s for small construction, alteration, maintenance and repair construction projects for at least 12-15 years. The current SAP for non-commercial supplies or services is $250k, isn’t it?

Again, we know nothing about the acquisition strategy other than wanting to “lock in prices” for three years for some undisclosed reason.

Edit-  I just had a thought. Soccer 5 may be a purchasing specialist/subcontracts specialist on a prime contract, looking for subs or suppliers to perform future resurfacing work. 

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11 hours ago, joel hoffman said:

The current SAP for non-commercial supplies or services is $250k, isn’t it?

Yes Joel it is.  But even for work under the SAT FAR policy allows the use of a IDIQ.  My real point of my post was that you mention but two contract types with regard to the OP's questions when there multiple types of contracts that might work as as the alternative to use what I will call economic adjustment clauses that I see as an alternative to ill conceived "lock" on prices.  One might call it "pricing mechanism options".

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Carl, I definitely wouldn’t recommend the use of economic adjustment clauses if there are other simpler, workable alternatives for a situation when only the type of work is known but not the where, when, varying sizes or scope of specific projects, etc.

We don’t know the reason for the intent to “lock  suppliers pricing in for three years” or if that is the only option available. The original post asked (although didn’t include a question mark):

On 2/12/2023 at 5:10 PM, Soccer5 said:

What pricing mechanism options would I have to set up a long term contract with suppliers to carry out asphalt/road surfacing services on a maintenance contract.

I offered two possible options to the later stated mention of locking suppliers prices in for three years. Competitive BPAs can be set up when the work isn’t presently known and will be for small projects. MATOCs can work well when there might be a mix of small or larger projects under similar circumstances. And - to repeat- it isn’t necessary or practical to pre-price MATOC’s for this type of scope of work.

If the OP works for a prospective prime contractor, the government or owner might be trying to require a firm fixed price for undefined resurfacing services on a maintenance contract for a three year period.

If so, that doesn’t make any economic sense and is contradictory. One doesn’t sensibly require a firm fixed-pricing mechanism for this type of work when involving numerous variables, over a long time period and when the scope is undefined, as described in the initial post.

We can’t even reliably predict future inflation rates at this time!

If the OP is trying to frame/write a solicitation, then he or she needs to reconsider requiring a FFP under these circumstances. 

Edited by joel hoffman
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And to require FFP for asphalt concrete at different locations from various plants and with various sources of constituent materials??? Sheesh! 

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7 minutes ago, Vern Edwards said:

A question:

Why a three-year contract for road maintenance? Is there something about the nature of the work that makes a three-year contract advantageous, or is it just to avoid the work of awarding a new contract every year?

Anyway, Soccer5 has left the territory.

I don’t necessarily have a problem with a three year arrangement, mostly the idea that one can lock in “suppliers” prices for three years for this type of work at all, let alone under the unknown conditions mentioned.

7 minutes ago, Vern Edwards said:

or is it just to avoid the work of awarding a new contract every year?

I thought about that, too. If so, then the requirer is not only lacking awareness but would appear to be…

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Road maintenance is not the most complicated contract in the world. Of course, it depends on what the buyer means by "maintenance." We weren't given many facts, but in a time price uncertainty I question the business sense of entering into a three-year contract and trying to "lock in" prices. That could work out badly for the government if deflation sets in.

Agencies enter into a lot of long-term contracts. I can't help but believe that a lot of that is work avoidance. I don't think it's always good acquisition strategy.

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42 minutes ago, joel hoffman said:

Carl, I definitely wouldn’t recommend the use of economic adjustment clauses if there are other simpler, workable alternatives for a situation when only the type of work is known but not the where, when, varying sizes or scope of specific projects, etc.

Interesting conclusion considering that their use is common for  labor costs (see various FAR clauses) and used enough for other stuff that entities like FWHA discusses it  (see the FHWA website I referenced).   States as well have used successfully.  By experience I used them successfully for much the same as the OP has generally described when at the US Forest Service, Indian Health Service, and USACE back in the day.

 

18 minutes ago, Vern Edwards said:

Why a three-year contract for road maintenance?

Well at the risk of getting hit in the head with "Just because it is always been that way" consider the long experience of land management agencies such as USFS, BLM, Park Service, and yes even USACE (think the dams on the Columbia to the Oregon border and those on the Willamette River) where road maintenance and trail maintenance is handled easier through such contracts than individual contracts.   I could not find it quickly so just imagine by example the total mileage of paved roads in the Columbia River Gorge Scenic Area, Hood River National Forest and the Gifford Pinchot National Forest that require maintenance.   Playing around in SAM.gov will provide examples ( I note this as a hint to the OP) that will uncover all that has been discussed here (yes Joel even BPA's).  Conclusion by experience is that there is a place for such contracts long term  and while it could be concluded it is work avoidance such contracts do have a place in a good acquisition strategy.

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3 hours ago, joel hoffman said:

Carl, I definitely wouldn’t recommend the use of economic adjustment clauses if there are other simpler, workable alternatives for a situation when only the type of work is known but not the where, when, varying sizes or scope of specific projects, etc.

Carl, I didn’t say economic price adjustments don’t work.

But here, the variables appear to be much more than variations in labor costs or cost of materials from one supplier, plant or source. My problem is with long term FFP when there are so many variables that appear to extend beyond economic price adjustments. Unit prices per ton or SYD also depend things such as upon location, mobilization and transportation costs for materials and equipment , size of the job, etc.

Other than the type of work, everything else affecting pricing could vary,  based upon the very limited description provided. There are possibly multiple locations that might or might not be local to the same material suppliers, plant, etc.


P.S. Carl, I also have experience with pavement construction and maintenance.

Over a period of 52 years, since my first projects as an Air Force civil engineer, Ive been involved in many roles, virtually every phase and most aspects of pavements.

This included planning, design, contracting for new construction, maintenance and repair (bidding, negotiating, awarding, construction survey layout, contract admin and QA) plus actual hands-on constructing roads and pavements.

I planned and executed programs for Air Force airfields (runways, taxiways, aprons, etc.,) and for numerous streets, roads, roadways, parking areas, etc.

I did this in the military for five years while assigned at two different AFB’s. I was the Base Pavements Engineer for four of those years.

After that I was a City Engineer and then a consulting engineer on pavement projects for numerous municipal and private owners.

Then, in addition to other work,  I was involved in the same types of pavement activities over my 36 year DoD civil service career.

During that time and afterwards, I was also involved in the same type activities on pavement projects as a member of private organizations.

This experience occurred in five States and overseas in Germany and Saudi Arabia plus five other Middle East Countries during peace time and then during Desert Shield and Desert Storm operations.

Now - Off to Mardi Gras parades and a Ball tonight. 🤠 

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2 hours ago, joel hoffman said:

But here, the variables appear to be much more than variations in labor costs or cost of materials from one supplier, plant or source.

Yes Joel I know what you said and now have said again.  Your implication is you know.  What I have said along is maybe or maybe not.  By example this is from the FHWA website I mentioned as reference to my thoughts - 

  1. For multiple season contracts, all price-volatile materials and supplies expected to be used should be subject to price adjustments.

PS - I know your creds so no need to repeat.  As it goes in contracting there is more than one way to do the Cat work.

Enjoy your day!🚜

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It appears that the original poster has either decided not to participate and/or has abandoned this thread. 

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