VAO on Fixed Unit Price Contracts

[Freyr]

Came across the attached article today regarding fixed unit price contracts, it seems that the experts at VAO contend that FUP isn't a thing in federal acquisition and suggests using T&M/LH instead. I've seen the various articles on here that say otherwise and I know Vern has written an article though I don't have access to it. Curious what this forum thinks of the article and if their thought process is compelling at all...

VAO-Fixed-Unit-Price-Ceiling.pdf

[joel hoffman]

I don’t think that the article addresses unit pricing variable quantities of a definable service (e.g. CDRLs, meals, number of mowings, acres of mowing, SFt of  painting, etc.). Same thing in construction with variable quantities for a defined requirement,  (e.g., estimated quantities of cubic yards of excavation, fill, LF of….,   Cubic yards of dredging, etc.). One can establish line items for estimated quantities of such unit priced items, with controls on overruns and overall cost of the contract and/or orders.

The article addressed variable,  unknown or estimated hours of labor to perform various tasks, services, etc. 

Edited July 31, 2023 by joel hoffman

[joel hoffman]

Unit priced contracts with estimated quantities are quite common in commercial, state and local municipal government contracting. Especially in horizontal and vertical construction and light and heavy civil works, also including US and state Departments of Transportation and US Army Corps of Engineers Civil Works contracts.

In Germany, many or most construction line items are unit priced, even when the exact quantities were established and known. There are over 20,000 DIN (Deutsches Institut für Normung) standards, with  standardized definitions, descriptions means of measurement and payment, etc. for most, if not all line items.  It simplified measuring the work and facilitated collecting pricing data for estimating databases.. There are some drawbacks but that is beyond the topic of discussion here. 

Contracts are firm fixed price because the  agreed unit prices were  generally independent of the contractor’s actual cost/expense..

Im guessing that there are DIN standards for various services, too.

Sorry for the edits. I had eye surgery this morning. It’s hard to read today,using me magnifying glass And an “aye patch”“Arrrr., Matey!!

[Don Mansfield]

When I used to teach CON 360, I would have to grade essays. Sometimes I would get an essay that demonstrated a fundamental ignorance of contracting concepts. I would wonder how in the world the student was able to get in the class. I felt the same way reading that VAO article.

[joel hoffman]

1 minute ago, Don Mansfield said:

When I used to teach CON 360, I would have to grade essays. Sometimes I would get an essay that demonstrated a fundamental ignorance of contracting concepts. I would wonder how in the world the student was able to get in the class. I felt the same way reading that VAO article.

Aye, Matey!!

[Witty_Username]

On 7/31/2023 at 4:27 PM, joel hoffman said:

Contracts are firm fixed price because the  agreed unit prices were  generally independent of the contractor’s actual cost/expense.

The other question, though, is whether the quantity of fixed unit price items to be provided is at the discretion of the contractor (e.g. T&M, variations in quantity), of the government (e.g. BPA call, IDIQ order), or of some third party/random event (I can't think of a good example but I'm sure this happens).

My office often ends up jumping through approval hoops to use T&M, a contract type apparently intended to allow the contractor to vary the FUP items (e.g. labor hours), when in reality the government is "ordering" the specific quantity of hours to be provided by approving the use of already-obligated funds on the T&M line item, we just don't have the days or weeks necessary to get a funding document through the complex approval process and onto a call or order written by a warranted contracting officer (or even a micropurchase GCPC cardholder) with the obligation recorded back through the complex financial system.

[C Culham]

Any blah, blah, blah regarding T&M/LH policy is based on the inability to fund the acquisition workforce (COR's included) adequately to utilize all tools in the tool box.  If the FAR ever gets completely updated T&M/LH might as well be removed.  T&M/LH are in a way unfunded mandates. 

[joel hoffman]

4 hours ago, Witty_Username said:

The other question, though, is whether the quantity of fixed unit price items to be provided is at the discretion of the contractor (e.g. T&M, variations in quantity), of the government (e.g. BPA call, IDIQ order), or of some third party/random event (I can't think of a good example but I'm sure this happens).

My office often ends up jumping through approval hoops to use T&M, a contract type apparently intended to allow the contractor to vary the FUP items (e.g. labor hours), when in reality the government is "ordering" the specific quantity of hours to be provided by approving the use of already-obligated funds on the T&M line item, we just don't have the days or weeks necessary to get a funding document through the complex approval process and onto a call or order written by a warranted contracting officer (or even a micropurchase GCPC cardholder) with the obligation recorded back through the complex financial system.

T&M isn’t a firm fixed priced contract type. The only aspect that is fixed is the burdened labor rate.

[REA'n Maker]

On 8/1/2023 at 8:18 PM, C Culham said:

If the FAR ever gets completely updated T&M/LH might as well be removed.  T&M/LH are in a way unfunded mandates. 

Ouch (note my lack of disagreement).

The other farce is how agencies with no audit capability are allowed to award cost-reimbursement* contracts at all (the current answer is that they foist audit responsibility onto the COs and call it a day).  The Judicial Branch (at least when I was there) hard a hard prohibition on anything other than FFP just for that reason.

 

* edit

[Jamaal Valentine]

1 hour ago, REA'n Maker said:

The other farce is how agencies with no audit capability are allowed to award cost-type contracts at all (the current answer is that they foist audit responsibility onto the COs and call it a day).  The Judicial Branch (at least when I was there) hard a hard prohibition on anything other than FFP just for that reason.

I find this very interesting. Can you expound on this.

[REA'n Maker]

2 hours ago, Jamaal Valentine said:

Can you expound on this.

 Because FAR 52.216-7 Allowable Cost and Payment.   

On my $300M nationwide cost-reimbursement contract consisting of 3 JV partners and 15 subcontractors, a final indirect rate determination is required every year based on a proposal (i.e., subject to negotiation and settlement) submitted 6 months following the end of each vendor FY.  There are 3 of these contracts split geographically for a total of 9 JV partners and ~45 subs.  All of them submit their indirect rates directly to me so as not to disclose sensitive corporate information to their JV primes.  Reconciling billed vs final rates is the final step.  Then do all this two more times.  For one program.  (Note that the 52.216-7 states that indirect rate proposals are to be submitted to the CO and auditor.) 

I can run circles around 99% of my colleagues with my contract cost analysis skills, but I have no clue whether (for example) state and local contracts can be included in a federal contract indirect cost base.  (I actually wouldn't be averse to learning how to do corporate-level rate determinations, but I would also need relief from about 95% of my contracting workload). 

 That 3 hours of FAR Part 31 'training' I received as part of my FAC-C Level III cert doesn't really qualify me for this kind of thing.  As Dirty Harry used to say, "A man's gotta' know his limitations".

 

[General.Zhukov]

 

In software development world, agile pricing is related may be of interest here -it is sort of like FUP (which I have no experience with).  

 

 

[formerfed]

Quote

The other farce is how agencies with no audit capability are allowed to award cost-reimbursement* contracts at all (the current answer is that they foist audit responsibility onto the COs and call it a day).  The Judicial Branch (at least when I was there) hard a hard prohibition on anything other than FFP just for that reason.

A lot of agencies without their own audit capabilities use DCAA or another agency for audit assistance.  A few contract out audit support to CPA firms.

Occasionally a diligent CO can squeak by without actual audit support.  They call DCAA and talk with auditors (although auditors are more reluctant now in releasing that information without a formal request.) Along those lines, the CO can ask the contractor which agency recently requested audits and get a copy of the report from them.  But mostly that’s just good for verifying indirect rates.

 

[REA'n Maker]

On 8/5/2023 at 9:35 AM, formerfed said:

A lot of agencies without their own audit capabilities use DCAA or another agency for audit assistance.

The problem is that DCAA only provides non-DoD audit assistance when they are not doing DoD work.  I have seen funded "DCAA non-DoD audit agreements" in place for years where the actual services provided were zero.  "We'll get to it when we get to it" doesn't really fly when you are running up against an award deadline.

Regardless, unless the audit capability is institutionalized, there should be no "final rate determinations" being made if for no other reason that the vendors turn around and use that assent on their other contracts.  I'm dealing with a vendor right now who declared a change to their accounting procedures and is submitting an entirely new methodology that has not been reviewed or approved by anyone.  How am I supposed to work "audit of new accounting procedures" into a milestone schedule AFTER we received proposals when we don't even have auditors? I looked at the numbers they submitted and they come out just fine, but the propriety of dropping direct O/H on consultants and subcontractors and replacing it with a lower G&A rate on a base consisting of all costs including subs & consultants?  Who knows?  

(My approach has been to only look at the difference between the approved method and the proposed method and only negotiate that amount.  That way I don't have to declare anything "compliant" or whatever the accounting term is.)

[Pnotty]

Freyr - I am not able to access the PDF you posted and did not find the article on VAO either.  Can you add the direct URL for the article? Finally able to access.

[here_2_help]

On 8/4/2023 at 11:23 AM, REA'n Maker said:

 I can run circles around 99% of my colleagues with my contract cost analysis skills, but I have no clue whether (for example) state and local contracts can be included in a federal contract indirect cost base.  (I actually wouldn't be averse to learning how to do corporate-level rate determinations, but I would also need relief from about 95% of my contracting workload). 

 That 3 hours of FAR Part 31 'training' I received as part of my FAC-C Level III cert doesn't really qualify me for this kind of thing.  As Dirty Harry used to say, "A man's gotta' know his limitations".

 

Sorry for being late to this party: I just wanted to address the above question.

The answer is provided (in detail) in CAS, not the FAR. See CAS 418. However, there is also a higher-level answer in FAR Part 31, at 31.203-3 ("Indirect Costs").

Quote

(d) Once an appropriate base for allocating indirect costs has been accepted, the contractor shall not fragment the base by removing individual elements. All items properly includable in an indirect cost base shall bear a pro rata share of indirect costs irrespective of their acceptance as Government contract costs. For example, when a cost input base is used for the allocation of G&A costs, the contractor shall include in the base all items that would properly be part of the cost input base, whether allowable or unallowable, and these items shall bear their pro rata share of G&A costs.

So, yes. The contractors' indirect cost pool allocation bases should--and must--contain all contracts being performed, if those contracts receive benefit from the activities in the pool.

Being provided three hours to learn FAR Part 31 is like me being provided three hours to learn FAR Part 15.