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UCA Contract Type and Pricing


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2 hours ago, FrankJon said:

Why would any of this be common knowledge among today’s practitioners if the use of UCAs is so limited?

I assumed it is common knowledge because I often falsely assume that contracting "professionals" understand self-interrogation.

(Question: Why a UCA for a commercial item?)

This thread is off the rails, as often happens at Wifcon Forum. Let's not forget the questions that started it.

On 4/3/2024 at 12:51 PM, FrankJon said:

Questions:

  1. Why does DoDIG assume that all UCAs are cost-reimbursement contracts? Where does the FAR or DFARS support this assertion? I see clause 52.216-26, but that is only required when a cost-reimbursement definitive contract is contemplated. 
     
  2. Assuming the contract is definitized on time in accordance with paragraph (d) of clause 252.217-7027 and the CO does not include any other terms authorizing the adjustment of profit, what gives the Government de facto authority to adjust a contractor's profit in accordance with DFARS 217.7404-6? 
     
  3. Since unilaterally adjusting profit is not compatible with commercial procedures and utilizing weighted guidelines is not compatible with simplified acquisition procedures, would the inclusion of commercial terms in the UCA and the application of FAR subpart 13.5 procedures to the definitized contract action negate the requirement to follow DFARS 217.7404-6?
     
  4. Since "substantial portion" is not defined by the DFARS, it seems to me that the CO has total discretion to determine when the 217.7404-6 analysis applies, depending on her definition of "substantial" under the circumstances. Am I missing something?

I presume that the first question has been answered. What about the second and third question?

As to the second question, it is not a matter of "de facto authority". (Authority is the last refuge of the helpless.) It is a matter of business smarts.

DFARS 217.7404-6 states:

Quote

When the final price of a UCA is negotiated after a substantial portion of the required performance has been completed, the head of the contracting activity shall ensure the profit allowed reflects—

(a) Any reduced cost risk to the contractor for costs incurred during contract performance before negotiation of the final price. However, if a contractor submits a qualifying proposal to definitize a UCA, and the contracting officer for such action definitizes the contract after the end of the 180-day period beginning on the date on which the contractor submitted the qualifying proposal, the profit allowed on the contract shall accurately reflect the cost risk of the contractor as such risk existed on the date the contractor submitted the qualifying proposal;

(b) Any reduced cost risk to the contractor for costs expected to be incurred during performance of the remainder of the contract after negotiation of the final price; and

(c) The requirements at 215.404-71 -3(d)(2). The risk assessment shall be documented in the price negotiation memorandum.

That is an instruction about how to negotiate. Why the instruction? It's there for the clueless.

Smart, competent COs negotiating the definitization of an FFP letter contract would do that as a matter of course, as a matter of profit policy and commonsense business practice, because they know that before definitization an FFP letter contract "effectively" works like cost-reimbursement contracts, and they can explain why and how that is the case. And because some savvy contractors will take advantage of government ignorance and incompetence, while others are simply resigned to government slow motion.

Smart people negotiating a UCA for the first time engage in self-interrogation, determine what they do and do not know, and then research and study like heck. But those persons seem to be rare. It seems that some people have never heard of Google Books and Google Scholar. Some people don't search DTIC. They spend their spare time watching "Ted Lasso" and "Monarch: Legacy of Monsters". (I liked "Lasso", but "Monarch" is for idiots. "Godzilla Minus One", on the other hand, is sheer genius, but it's not streaming yet.)

So if you are negotiating an FFP contract price the guidance to the clueless is, first, to reward the contractor's assumption of risk with higher profit than you would agree to under a cost-reimbursement contract, but, second, if the contractor has incurred "a substantial portion" of the total cost by the time the letter contract is definitized, while the UCA functioned like a CPFF contract, then the contractor has not faced as much risk as it would have under an FFP contract and should not be rewarded with FFP-level profits. It's not about "de facto authority", it's just commonsense business practice.

Wonder why we have so much regulation? Look around you.

Okay, I hope that takes care of questions 2 and 3.

Question 4 does not deserve an answer. This isn't high school.

BTW, if you really want to understand the DODIG's concern about UCAs, go to Google Books and search for: "Acquisition Reform-1986." It's a transcript of a HASC hearing. Download it and then read pages 1-47, which are devoted to UCAs. Plenty of good background.

(Question for the self-interrogators who cultivate curiosity: Why does the DFARS say that change orders are not UCAs?)

The FAR is not a textbook. Most of the textbooks devoted to the practical sides of government contracting are legal hornbooks, like Formation of Government Contracting. They don't address and explain practical matters in any depth. You have to be able to gather info, put ideas together, think things through, follow the logic, and determine logical consequences. Competence is not handed to you on a platter.

We old-timers have failed the younger folk to the extent that we have not taught them how to think things through, and to the extent that we have engaged in too much hand-holding. Knowledge and competence are the products of career-long struggle.

Forgive any typos. I can barely see my screen.

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On 4/3/2024 at 2:51 PM, FrankJon said:

Assuming the contract is definitized on time in accordance with paragraph (d) of clause 252.217-7027 and the CO does not include any other terms authorizing the adjustment of profit, what gives the Government de facto authority to adjust a contractor's profit in accordance with DFARS 217.7404-6? 

My response is Holy Sh…!

…Because you are NEGOTIATING the definitized price  of a contract. You aren’t “adjusting the contractor’s profit”, as though it is an entitlement.

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17 minutes ago, Vern Edwards said:

We old-timers have failed the younger folk to the extent that we have not taught them how to think things through, and to the extent that we have engaged in too much hand-holding. Knowledge and competence are the products of career-long struggle.

Forgive any typos. I can barely see my screen.

Thank you for your responses here, Vern!.🌹❤️

My phone broke earlier this week - just got it back plus we had company all week. Just catching up now on WICON Forum…

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15 hours ago, Vern Edwards said:

Presumably, the contractor will want some kind of revenue flow during performance unless its is willing to provide its own financing. So it seeks progress payments based on costs, which will be anchored to the Government's maximum liability. See 52.232-16.

Thanks for the response.  This is what I was thinking would be the situation.  It was the use of the word "allowable" that had me spun up since to me, allowable denotes application of the cost principles in FAR Part 31 while 52.232-16 does not incorporate the cost principles.

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1 hour ago, Retreadfed said:

It was the use of the word "allowable" that had me spun up since to me, allowable denotes application of the cost principles in FAR Part 31 while 52.232-16 does not incorporate the cost principles.

No, the clause doesn't mention the cost principles, and I don't think I cited Part 31. (I see a quote box for me in your post, but no quote.)

But see DCAA 17500 Audit Program for Progress Payment, Cost AP, Item 8:

Quote

The objective of progress payments is to provide the contractor with interim financing for a percentage (stated in contract) of allowable costs incurred for undelivered and uninvoiced items.

Emphasis added.

https://www.dcaa.mil/Portals/88/17500 Audit Program for Progress Payment Cost AP.pdf?ver=1DtDHZB6nPAH_hdDTBOkgA%3D%3D 

See also DCAA CAM 14-200 Section 2 Audit of Progress Payments, 14-201 a.;

Quote

Interim contract financing is available on certain fixed price contracts during the predelivery period as a percentage of allowable costs adjusted as discussed in this section. Financing is interest-free, but the amount is subject to limitations specified in the contract.

Emphasis added. And see 14-202.1 d.:

Quote

The contractor can request progress payments as work progresses, but not more frequently than monthly. The amount of each progress payment is computed by (i) applying the rate stipulated in the progress payment clause of the contract (DFARS 252.232-7004) to the cumulative total allowable costs under the contract as shown in the contractor's books and records (see 14-202.4); (ii) plus financing payments to subcontractors or other divisions of the contractor's corporate office (see 14-205h); (iii) less the sum of all previous progress payments. The contracting officer is responsible for approving progress payment requests.

Emphasis added. The contractor will ultimately be paid the full contract price for acceptable performance, but, apparently, progress payments include only allowable costs pending liquidation. At least, that seems to be DCAA's position and has been my understanding. Maybe DCAA has a different definition of "allowable".

https://www.dcaa.mil/Portals/88/Documents/Guidance/CAM/Chapter 14 Other Contract Audit Assignments.pdf?ver=CF-j6io9SKfawNSSXQpCwQ%3d%3d

 

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Vern has done a great job of supporting a dumb statement by DoDIG.  And in my view a DFARS definition that seems inconsistent with a full read of the FAR  and DFARS as well.

Example per DFARS 217.7401 a UCA can not be a change order.  Yet a UCA can be a letter contract?  The definition of UCA should be be changed to Undefinitized Action.

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1 hour ago, Vern Edwards said:

Maybe DCAA has a different definition of "allowable".

Having worked for DCAA for 15 years I can tell you that it is a very inward looking agency.  Unless things have changed drastically, it refuses to allow its auditors to receive procurement training from anyone outside DCAA.  Thus, DCAA perpetuates its own views of procurement policy, including interpretations of the FAR.  In this regard, 52.232-16 never uses the term allowable, neither does the SF 1442 nor the instructions for that form.  Instead, the 1442 and its instructions use the term "eligible."

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@Retreadfed 

Allowable, eligible... Whatever. 😀 

It doesn't change my explanation of the DODIG's and the GAO's simile that a UCA is "effectively" like a cost-reimbursement contract until definitization, which explains why Congresss placed statutory limits on them.

We use a lot of similes to explain things to people in our business. Remember when some people insisted that a T&M contract was a kind of cost-reimbursement contract. That was not even close to being true.

Vern, is leaving the building. Going to France on Monday to spend a month on the Seine and the Loire in Spring.

Y'all carry on.

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6 hours ago, Vern Edwards said:

Vern, is leaving the building. Going to France on Monday to spend a month on the Seine and the Loire in Spring.

Enjoy your time there. My Pastor has a River barge house boat in Auxerre on the River Yonne. Least it will be in May, it’s in a shed at the moment. They have invited us to visit before the Olympics.

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