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Critical Thought on a Current Event


Voyager

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Here is some wisdom on selecting contract types, according to Professor Ralph Nash in the attached publication "Selecting the Right Type of Contract" (The Professor's Forum, April 30, 2020):

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Traditionally, the use of fixed-price type contracts to develop major systems has created a myriad of problems. It should therefore be clear that the CPIF contract is the best contract type for this type of work. Policies that induce agencies to depart from this well-established precedent are foolish and counter-productive."

Here is the newest practice, proposed in a rule that will update the DFARS.  It is a new check and balance on COs that took an Act of Congress.  The quote is from CODSIA.

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DFARS Case 2023-D009 implements section 808 of Public Law 117-263, the Fiscal Year (FY) 2023 National Defense Authorization Act (NDAA). Section 808 limits the number of Low-Rate Initial Production (LRIP) lots on a single contract for a [Major Defense Acquisition Program] MDAP under certain circumstances. Specifically, if the Milestone Decision Authority for that MDAP authorizes the use of a fixed-price type contract and the fixed-price type contract includes both development and production work, then the contracting officer must limit the number of LRIP lots to not more than one. This requirement may be waived by the applicable Service Acquisition Executive (SAE) or his designee. However, this waiver authority may not be delegated to the level of the contracting officer, and written notification of any waiver must be provided to the congressional defense committees within 30 days.

Can anyone tell me which of the 12 factors in selecting a contract type available for review in the attached and at FAR 16.104 were not being properly analyzed by contracting officers that utilized FPIF for these contracts?

Ralph Nash on Selecting Contract Type.pdf

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51 minutes ago, Voyager said:

Can anyone tell me which of the 12 factors in selecting a contract type available for review in the attached and at FAR 16.104 were not being properly analyzed by contracting officers that utilized FPIF for these contracts?

 

My thoughts are not at a high level of reasoning but rather just the quick ones that came to mind as I read.

Seems that the last paragraph on Page 6 answers the question.

Possibly not practiced that much is this ideal - "Negotiating the contract type and negotiating prices are closely related and should be considered together."   Government picks the contract type and sticks to it regardless of the knowledge learned from receipt of proposals and how a different contract type might actually fit the need.   

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44 minutes ago, C Culham said:

last paragraph on Page 6

...which says:

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The policy guidance that we have identified makes this job more difficult. A good contracting officer may have to swim upstream in order to gain approval for the best type of contract, and a mediocre contracting officer might not make the effort. Contractors can also become impediments by pushing for a type of contract that they perceive will be of immediate benefit but will do harm over the long run. It’s a challenging aspect of the contracting process.

Yes, speaking from experience, the Better Buying Power initiative that led to many of these decisions certainly had gravitas and momentum.  I am not blaming the COs in my opening question.  The pendulum swings on.

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The statement that “Normally effective price competition results in realistic pricing…” isn’t necessarily true. Witness the convoluted, politically driven Air Force Tanker replacement debacle where the public was told that the contract would be fixed price with Lowest priced technically acceptable offer as the basis of award.

What they didn’t say was that the initial award was going to be Fixed Price Incentive and that the winner significantly lowballed its pricing. I think that CPIF would have been equally or more ineffective.

See, for instance,  https://www.rand.org/pubs/research_reports/RRA1676-1.html

The competition itself was cutthroat…

Edited by joel hoffman
Added link to Rand reference report
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Just reading the FAR prima facie, what about these three factors?

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(d) Type and complexity of the requirement. Complex requirements, particularly those unique to the Government, usually result in greater risk assumption by the Government. This is especially true for complex research and development contracts, when performance uncertainties or the likelihood of changes makes it difficult to estimate performance costs in advance. As a requirement recurs or as quantity production begins, the cost risk should shift to the contractor, and a fixed-price contract should be considered.

* * * *

(j) Concurrent contracts. If performance under the proposed contract involves concurrent operations under other contracts, the impact of those contracts, including their pricing arrangements, should be considered.

* * * *

(l) Acquisition history. Contractor risk usually decreases as the requirement is repetitively acquired. Also, product descriptions or descriptions of services to be performed can be defined more clearly.

When you go from Development to LRIP in the same contract, isn't that a complex requirement with no cost history that is highly risky for faulty proposal assumptions if priced concurrently?  To me, that's three weighty factors leaning heavily towards cost-type.

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On 12/2/2023 at 12:05 AM, joel hoffman said:

The statement that “Normally effective price competition results in realistic pricing…” isn’t necessarily true. Witness the convoluted, politically driven Air Force Tanker replacement debacle where the public was told that the contract would be fixed price with Lowest priced technically acceptable offer as the basis of award.

What they didn’t say was that the initial award was going to be Fixed Price Incentive and that the winner significantly lowballed its pricing. I think that CPIF would have been equally or more ineffective.

See, for instance,  https://www.rand.org/pubs/research_reports/RRA1676-1.html

The competition itself was cutthroat…

Did they perform a price realism analysis in the tanker source selection?  Per FAR 15.404-1(d)(3):

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(3) Cost realism analyses may also be used on competitive fixed-price incentive contracts or, in exceptional cases, on other competitive fixed-price-type contracts when new requirements may not be fully understood by competing offerors, there are quality concerns, or past experience indicates that contractors' proposed costs have resulted in quality or service shortfalls. Results of the analysis may be used in performance risk assessments and responsibility determinations. However, proposals shall be evaluated using the criteria in the solicitation, and the offered prices shall not be adjusted as a result of the analysis.

Even if so, I just find it unreasonable to stray from commonsense logic that development and production must be iterative, separate contracts.

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The production orders for the KC-46 will be separately priced.

LPTA was used to win the FPIF base contract. With the award at risk do you think for a minute that the proposal was “realistically” priced? I have no idea what the government price analysis team did. 

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