Adding a Person under CPFF (Term / LOE)

[Guest108830]

Under CPFF (Term / LOE), Contractor has 10 persons direct charging. Assume 1920 hours per calendar year = total 19,200 hours per year. Assume PoP is the same, Jan 1 - Dec 31.

Contractor seeks to add an 11th person six months into the PoP and receives no objection from the Gov't (KO and COR) in doing so. And there is no additional scope being added, so no mod from the Gov't. And Contractor believes adding this 11th person would be beneficial to the program (e.g., superior computer programming skillset).  Assume DoD, Army, Base Year with 4 one year options. Contract is in Base Year. 

If Contractor brings this 11th person on board, Contractor would be providing more hours to the Gov't than originally planned and the hours the Parties have contracted for (e.g., Contractor obligated to devote the specified level of effort for the stated time period per FAR 16.306(d)(2)).  

Does Contractor:

1. ask for a mod from the Gov't to increase the hours and if granted, bring the 11th person on board? And if not granted, don't bring the 11th person on board?

2. what happens when the Contractor runs out of hours before reaching the end of its PoP - then what? [Shouldn't be able to exercise the next OY early and have overlap of Base and OY for a month as that would conceivably violate FAR 17.207(f) (e.g., Options exercised in strict accordance with the terms, considered out of scope).] 

3. If the Gov't "accepts" the work of Contractor, including the 11th person (e.g., Gov't begins using the new / updated programming code), wouldn't the Gov't be required to compensate the Contractor for the accepted work irrespective of the hours?

[Don Mansfield]

3 hours ago, Guest108830 said:

If Contractor brings this 11th person on board, Contractor would be providing more hours to the Gov't than originally planned and the hours the Parties have contracted for (e.g., Contractor obligated to devote the specified level of effort for the stated time period per FAR 16.306(d)(2)).

Wouldn't you just be providing the agreed-to level of effort sooner than expected?

[Guest108830]

Don, thanks for the reply.

Yes. But the Contractor will surpass the contracted hours of 19,200 in total in Nov, for example. When end of PoP is Dec 31. Contractor still has another month of performance but technically, no hours left, unless Contractor decides to go over the contracted hours of 19,200. And should Contractor exceed the contracted hours, is the Gov't required to compensate the Contractor for those hours beyond 19,200? If so, why? If not, why not? Thanks.

[Don Mansfield]

2 hours ago, Guest108830 said:

And should Contractor exceed the contracted hours, is the Gov't required to compensate the Contractor for those hours beyond 19,200?

Under a typical CPFF LOE, no. It would be like delivering more widgets than the contract required.

 

2 hours ago, Guest108830 said:

If so, why? If not, why not?

There would have to be something in the contract obligating the Government to pay for hours in excess of the specified level of effort. Supply and construction contracts can have variation in quantity clauses. Maybe your contract has something like that.

I think you should probably inform the contracting officer that adding the extra person will cause you to deliver the LOE early. 

[Guest108830]

Don, thanks again. That's what I was thinking as well. Overdelivering hours has consequences as well.   

[joel hoffman]

36 minutes ago, Guest108830 said:

Don, thanks again. That's what I was thinking as well. Overdelivering hours has consequences as well.   

It looks to me that adding a person, without a modification, would be beyond the current scope (specified level of effort).

It would, like Don said and you agree, also result in an early depletion of funds for the other on-going efforts during this base year.

Then, to award the first option year early with higher hourly rates, would result in higher costs to complete the work currently being performed during the base year. This impact would also ripple down at the end of the option.

Would adequate funding be available to award the option early? What funds would be involved, if most of the option effort will be performed in the next fiscal year?

Seems to me that the government needs to modify the contract if it wants to add this effort…

Edited May 5, 2023 by joel hoffman

[Guest108830]

Thanks Joel. As you've mentioned, depleting the funds earlier than expected is a concern.  And exercising the option period ahead of schedule sort of falls into the grey area of sound contracting practice. Funds are RDT&E. 

[joel hoffman]

45 minutes ago, Guest108830 said:

Thanks Joel. As you've mentioned, depleting the funds earlier than expected is a concern.  And exercising the option period ahead of schedule sort of falls into the grey area of sound contracting practice. Funds are RDT&E. 

I realize this might be impactful to a person presently working on the existing LOE. You said there is “no additional scope being added”. This implies that the added expert would be working on the same task as at least one other person presently. But if the present scope is specified as a total number of hours or total number of people, adding either would seem to be be “additional scope”, depending upon the actual contract terms and conditions.

Regardless- Could the added expert substitute 6 months for one current employee and you move the current employee temporarily to other company work?  This assumes that the government can’t add this by mod for scope or fiscal constraints…. Just a suggestion.

EDIT But- this is a CPFF contract, so there is probably some flexibility regarding the LOE and probably extra funds available…

Edited May 5, 2023 by joel hoffman
CPFF is a consideration…

[here_2_help]

22 hours ago, Guest108830 said:

Under CPFF (Term / LOE), Contractor has 10 persons direct charging. Assume 1920 hours per calendar year = total 19,200 hours per year. Assume PoP is the same, Jan 1 - Dec 31. Contractor seeks to add an 11th person six months into the PoP and receives no objection from the Gov't (KO and COR) in doing so. 

If Contractor brings this 11th person on board, Contractor would be providing more hours to the Gov't than originally planned and the hours the Parties have contracted for (e.g., Contractor obligated to devote the specified level of effort for the stated time period per FAR 16.306(d)(2)).  

Does Contractor:

1. ask for a mod from the Gov't to increase the hours and if granted, bring the 11th person on board? And if not granted, don't bring the 11th person on board?

2. what happens when the Contractor runs out of hours before reaching the end of its PoP - then what? [Shouldn't be able to exercise the next OY early and have overlap of Base and OY for a month as that would conceivably violate FAR 17.207(f) (e.g., Options exercised in strict accordance with the terms, considered out of scope).] 

3. If the Gov't "accepts" the work of Contractor, including the 11th person (e.g., Gov't begins using the new / updated programming code), wouldn't the Gov't be required to compensate the Contractor for the accepted work irrespective of the hours?

Quote

16.306 Cost-plus-fixed-fee contracts.

*****

(d) Completion and term forms. A cost-plus-fixed-fee contract may take one of two basic forms-completion or term.

*****

(2) The term form describes the scope of work in general terms and obligates the contractor to devote a specified level of effort for a stated time period. Under this form, if the performance is considered satisfactory by the Government, the fixed fee is payable at the expiration of the agreed-upon period, upon contractor statement that the level of effort specified in the contract has been expended in performing the contract work. Renewal for further periods of performance is a new acquisition that involves new cost and fee arrangements.

*****

(4) The term form shall not be used unless the contractor is obligated by the contract to provide a specific level of effort within a definite time period.

1. Contractor has a CPFF LOE Term contract with an estimated cost agreed-upon based on 10 FTEs for one year (19,200 labor hours). By terms of the contract, the contractor must deliver all LOE hours within the estimated cost, or else notify the customer of a potential overrun IAW 52.232-20 or 52.232-22 (as applicable).

2. Contractor plans to add an additional 0.5 FTE (halfway through the Period of Performance). As a result, the contractor will deliver more labor hours than the parties originally contemplated (20,160 hours vs. 19,200). However, the additional hours come at an additional cost. Because the contractor will incur more labor hours than budgeted, it will burn through its funding faster, likely triggering the 52.232-20 / 52.232-22 notification.

3. Upon receipt of the contractor's notification, the contracting officer must decide whether or not to provide more funds. If more funds are provided, then a modification to the existing contract will need to be made. The customer will be compensating the contractor for the additional 0.5 FTE (presumably because value was received). If no additional funds are provided, then the contract will be completed earlier than the parties anticipated. Work will stop until the next option year is exercised (if it is exercised).

That's how I see the situation, anyway.

[joel hoffman]

I agree with H2H. I think you need to ask and get a decision from the government about additional funding before bringing the additional expert on board if you want to avoid an early funds expenditure that could cause work to stop until the next option is exercised - if it is exercised. 

[Guest108830]

Joel, yes. There's a number of options available as to the make up of the current personnel. For example, either move 1 person to another task order or remove him / her altogether. I was trying to see what options were available so as to keep the existing team in place and add the additional individual. There is no change in scope.

H2H. In a CPFF (Term), the parties are contracting for hours, not dollars. The dollars may or may not surpass the estimate, even with the additional .5 FTE. The dollar situation is fairly straightforward.

The focus is on the hours and the Contractor required to deliver a certain number of hours over a given timeframe. Contractor will only be able to provide the contracted hours up to a certain point. In any event, Contractor will not be able to reach the end of the current PoP as it will run out of hours.  (Cost) underruns and (cost) overruns are relevant as to the dollars, not hours. Once the hour situation is addressed, the money will follow suit as appropriate. 

The focus I have is addressing the hours and the Contractor possibly overproviding on the contracted hours. Contractor is not going to perform at its own risk until the Option is timely exercised. And exercising the option early is questionable contracting practice.

Everything seems to point to issuance of a mod to increase the hours (and dollars) (but not fee) in this instance. Else get rid of the 11th person or perform gratis until the exercise of option period. I can't find any authority as to possible options or remedies in this scenario. 

[Vern Edwards]

On 5/4/2023 at 9:39 AM, Guest108830 said:

Under CPFF (Term / LOE), Contractor has 10 persons direct charging. Assume 1920 hours per calendar year = total 19,200 hours per year. Assume PoP is the same, Jan 1 - Dec 31.

How is the LOE specified?

1. Total number of hours?
2. Number of hours/month?
3. Total number of persons?
4. Number of persons/month?
5. Something else?

On 5/4/2023 at 9:39 AM, Guest108830 said:

And there is no additional scope being added...

Any increase in the LOE is a change in scope.

[Guest108830]

Vern. Specified at 1,920 hours annually for each of the 10 Labor Categories. And all slots are already filled with personnel. And there's no change in scope.

[here_2_help]

38 minutes ago, Guest108830 said:

H2H. In a CPFF (Term), the parties are contracting for hours, not dollars. The dollars may or may not surpass the estimate, even with the additional .5 FTE. The dollar situation is fairly straightforward.

The focus is on the hours and the Contractor required to deliver a certain number of hours over a given timeframe. Contractor will only be able to provide the contracted hours up to a certain point. In any event, Contractor will not be able to reach the end of the current PoP as it will run out of hours.  (Cost) underruns and (cost) overruns are relevant as to the dollars, not hours. Once the hour situation is addressed, the money will follow suit as appropriate. 

Well, if this was a FFP-LOE contract I would 100% agree with you. However, this is a CPFF LOE-Term contract, so there is no way to avoid compliance with the LoF / LoC clauses, to my way of thinking.

To be more explicit, in a Cost-Type contract, the labor hours and dollars are integrated. You say the customer is buying hours but there is also an estimated cost (and fixed fee) inextricably associated with those labor hours.

As I basically agree with your conclusion (a mod is required or else the contractor stops work or else the contractor continues to perform without remuneration) I will say no more.

[Vern Edwards]

@Guest108830So the contract schedule specifies 10 labor categories (10 types of work) to be done) and a number of hours/category. That is what the contractor must delivery. Is that right?

The contract does not specify  the number of persons to be employed Is that right?

If so, then as a practical matter, the contractor could use more or less that 10 workers to deliver those hours. Is that right?

Or does the contract require the contractor to hire one person for each labor category on a full time basis?

[Guest108830]

Vern,  the 1920 hours will be achieved and contracted hours have been delivered and before the contemplated exercise of next option period. There is no other wording surrounding the 1920 hours per labor category. Just labor category and 1920 hours each labor category and for a period of performance.

What happens when the hours have been fully delivered and short of the next option period? Contractor continues to provide same effort and Gov't accepts the work, thus making the Gov't liable?  Contractor demobilizes and remobilizes upon exercise of the option period? Contractor performs at-risk between end of current PoP and start of new option? 

Is this the first time this has been brought up here at WIFCON? 

[Retreadfed]

Guest, take a look at 31 U.S.C. 1342.  That might provide you with some insight.

[Guest108830]

RetreadFed, appreciate the call out and the insight it provides regarding voluntary services. 

[formerfed]

6 hours ago, Guest108830 said:

What happens when the hours have been fully delivered and short of the next option period? Contractor continues to provide same effort and Gov't accepts the work, thus making the Gov't liable?  Contractor demobilizes and remobilizes upon exercise of the option period? Contractor performs at-risk between end of current PoP and start of new option? 

Two options as I see it.  One is contractor demobilizes and starts back up next option period.  The second is work out some agreement with the CO such as recognizing a slow down of hours burned through the end of the current period, adding additional funding/hours for the 11th person, or exercise the option early.

You can’t do the other two things you expressed - continued working in excess of hours and have the government accept or perform at risk.

These type questions are crazy.  If performing extra work is important to the government, they need to fund it and modify the contract.

[Vern Edwards]

I'm confused. The contract is described as CPFF level-of-effort, specified in terms of hours. But it appears that the agency wanted the service performed throughout some period of time. That being the case, the contract should have been written and managed to ensure that the level of effort was not expended prematurely. Or it might have included an option to buy additional hours if more were needed than anticipated.

Without options, any increase in the level-of-effort would be an increase in scope, and the purchase of more hours would either have to be done competitively or on a sole source basis with justification and approval.

What am I missing?

[Guest108830]

Vern, you aren't missing anything except there are option periods. Option is set up to be exercised at the end of the base year PoP (Dec 31). I took early exercise of the option period off the table as that tends to cut against FAR 17.207(f)(e.g., Options exercised in strict accordance with the terms, considered out of scope). There is no surge CLIN holding unused hours or related.

Remember, it's the Contractor that believes the addition of this 11th person would greatly benefit the effort due to his superior skillset with a piece of software. Contractor seeks to insert his skillset (in a fulltime capacity) within the existing scope and still keep all existing full time individuals. 

Everyone knows if a Contractor fails to provide the contracted level of effort over a specified time period under CPFF (Term), Contractor could face contractual remedies, including, but not limited to breach. What happens when the Contractor provides more than the contracted level of effort? I can find no regulation or case law on point with this scenario. 

The only way to get more hours, absent competition or sole source with J&A, would be to exercise the option earlier than originally planned. 

[Vern Edwards]

17 minutes ago, Guest108830 said:

Everyone knows if a Contractor fails to provide the contracted level of effort over a specified time period under CPFF (Term), Contractor could face contractual remedies, including, but not limited to breach.

FAR 16.306(d)(2) states:

Quote

The term form describes the scope of work in general terms and obligates the contractor to devote a specified level of effort for a stated time period. Under this form, if the performance is considered satisfactory by the Government, the fixed fee is payable at the expiration of the agreed-upon period, upon contractor statement that the level of effort specified in the contract has been expended in performing the contract work. Renewal for further periods of performance is a new acquisition that involves new cost and fee arrangements.

That's just a description. It is not a rule.

A CPFF LOE-Term might be written in more than one way. The first way is that the level of effort is a rate: X hours/month for 12 months.

The second way is that the level of effort must be reached by a deadline: 1,500 hours by DD/MM/YYYY.

I have written them both ways.

How is your contract written?

[Guest108830]

PoP Jan 1 - Dec 31 (Base)

Labor Cat1 1920 (hours)

Labor Cat2 1920 (hours)

etc.

Labor Cat10 1920 (hours)

Total Hours 19,200 (hours)

 

[Guest108830]

Just fyi, my possible breach scenario mentioned above is only in the unlikely event of failure to show best efforts, which is extremely difficult to achieve. Just wanted to clarify myself. 

[here_2_help]

54 minutes ago, Guest108830 said:

Remember, it's the Contractor that believes the addition of this 11th person would greatly benefit the effort due to his superior skillset with a piece of software. Contractor seeks to insert his skillset (in a fulltime capacity) within the existing scope and still keep all existing full time individuals. 

I apologize. I said I was done with this discussion but here I am again. Shrug.

I have seen the scenario quoted above many times in my career. The contractor believes it is smarter than the government and wants to innovate unofficially and without the mess of a contract modification. Adding another person who was not contemplated at the time of contract formation and price agreement must make sense, right? At least from a technical perspective. 

The perspective ignores the agreement struck between the parties.

If the contractor wants to add another FTE (and associated labor hours) then Vern's post of an hour ago is the way to do so. Doing so unofficially is going to lead to all the problems already mentioned in this thread.

Again, I bow out unless a comment is specifically directed to me. I will attempt to stay "bowed-out" this time.