FAR 16.202-1 says I can use FFP contract in conjunctions with Delivery Incentives 16.402-3. Which Incentive Clause do I use?

[Carolyn Powell]

I have a SAP/SAT, Commerical Services, FFP, action for a Purchase Order from Original Equipment Manufacturer (OEM) with a history of late delivery.  OEM is providing inspection and repair services.  Although this is below $250K, the impact to the customer is significant if the items are returned late.  It holds up other production for a major weapons system and means the Acquistion group does not recoup their Working Capital payment until item is delivered to the end user. 

Our major concern is delivery.  We have enough historical data to establish that their quote can be determined fair and reasonable, and do not want the administrative burden for GOV or Contractor to incentivize price. 

Is there a clause for FFP that can be used to incorporate delivery fee incentive? 

[Don Mansfield]

20 hours ago, Carolyn Powell said:

Is there a clause for FFP that can be used to incorporate delivery fee incentive? 

Not a FAR clause. 

[ji20874]

Don is right that there is no clause, and that was your question.  But you can still do it.  Maybe the contract says price is $100K if delivery occurs before August 31, and $90K if delivery occurs before September 30.  Or the price is $90K with delivery September 30, with an incentive of $10K if delivery occurs before August 31.  Or some other approach depending on the actual circumstances and needs.  

[joel hoffman]

If the government will suffer damages for late delivery - which is your apparent concern, you could alternatively study FAR subpart 11.5 and consider liquidated damages for a commercial item or supply contract.

One has to be careful in how they implement such an approach.

For a positive incentive, do you want to pay more (is there any benefit) for early performance?

If so, then a delivery performance incentive (16.402-3) (plus and minus) could be the answer.

Do you want to pay a performance bonus for on-time performance?

 

 

[here_2_help]

1 hour ago, joel hoffman said:

If the government will suffer damages for late delivery - which is your apparent concern, you could alternatively study FAR subpart 11.5 and consider liquidated damages for a commercial item or supply contract.

One has to be careful in how they implement such an approach.

For a positive incentive, do you want to pay more (is there any benefit) for early performance?

If so, then a delivery performance incentive (16.402-3) (plus and minus) could be the answer.

Do you want to pay a performance bonus for on-time performance?

Joel, I thought about liquidated damages when I saw this question. All I can say is that when my company saw a liquidated damages clause in a proposed contract, we always proposed an incentive clause as well. Our thinking was that the door needed to swing both ways.

Also, it is okay to structure a contract to pay a bonus (other than award fee) for completing the work on-time? Isn't that the parties' expectation?

Early delivery bonus/incentive? Yes, I can see that. But on-time? I don't see what the government gains for incentivizing a contractor to comply with the delivery terms of the contract.

[Retreadfed]

2 hours ago, here_2_help said:

Early delivery bonus/incentive? Yes, I can see that.

Believe it or not, several years ago, the DoD IG issued a report recommending a regulatory change that would penalize contractors if they delivered early.  That report was immediately rejected.

[joel hoffman]

22 hours ago, here_2_help said:

Also, it is okay to structure a contract to pay a bonus (other than award fee) for completing the work on-time? Isn't that the parties' expectation?.

Did you mean “is it okay…”? I would presume that the government’s expectation is to receive the product(s) on-time.

i don’t know what the vendor’s delivery expectations  would be.

22 hours ago, here_2_help said:

Early delivery bonus/incentive? Yes, I can see that.

Yes, if it provides some additional value. Otherwise, I would likely disagree with paying a bonus price incentive for earlier than required delivery performance.

22 hours ago, here_2_help said:

But on-time? I don't see what the government gains for incentivizing a contractor to comply with the delivery terms of the contract.

I agree. The price should presumably reflect meeting the required delivery date. 

The specific concerns expressed in the original post are over this specific contractor’s past performance history of late deliveries and the resulting impacts to the government and programs if this delivery is late.

As this is a sole source acquisition from the OEM source, the vendor will preumably have the opportunity to price the product to consider what it will take to ensure on-time delivery.

Of course, it can also price the order in advance to simply cover intended or unintended late delivery liquidated damages…

So, are there other non-monetary incentives available to consider?

[joel hoffman]

20 hours ago, Retreadfed said:

Believe it or not, several years ago, the DoD IG issued a report recommending a regulatory change that would penalize contractors if they delivered early.  That report was immediately rejected.

I remember such concerns that early delivery could result in additional storage and other costs, plus possible problems with aging/deterioration in storage or early commencement of warranties, etc.

Just in-time delivery of parts and assemblies in industry is very popular these days. I imagine that cost as well as cost impacts for early or late deliveries are important for manufacturers. An additional net $.10 or $1.00 cost per each of 50,000 or 1,000,000 vehicles is extremely important to manufacturers.

How do manufacturers structure their supplier contracts for on-time deliveries?

Obviously, I’m not an industrial engineer or efficiency expert. Those are the experts in these areas.

 

[C Culham]

On 5/21/2024 at 2:20 PM, Carolyn Powell said:

SAP/SAT, Commerical Services

 

On 5/22/2024 at 11:07 AM, ji20874 said:

But you can still do it. 

My belief is - it depends.  

Read FAR subpart 12.302 do your market research and then decide what you can do in tailoring an existing FAR clause or otherwise create contract terms and conditions (or not) that follow the commercial practice for the service you are acquiring.

[joel hoffman]

2 hours ago, C Culham said:

 

My belief is - it depends.  

Read FAR subpart 12.302 do your market research and then decide what you can do in tailoring an existing FAR clause or otherwise create contract terms and conditions (or not) that follow the commercial practice for the service you are acquiring.

So, you may think that commercial entities don’t include incentives or other terms in contracts to encourage or incentivize on-time performance or delivery, when such is deemed critical? I will venture a guess that timely performance is more often then not a primary goal and objective in the commercial marketplace. 

[C Culham]

58 minutes ago, joel hoffman said:

you may think

My belief is that with regard to FAR 12.302 it's not what I may think but rather I "shall" support my tailoring with market research.  

Check out GAO protest decision B-411760.3.  Flimmsy support? Think what you may!

 

 

 

[joel hoffman]

41 minutes ago, C Culham said:

My belief is that with regard to FAR 12.302 it's not what I may think but rather I "shall" support my tailoring with market research.  

I agree with that. I think I asked such a question earlier today.