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AF Guide CPFF Term (LOE)


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The AF recently published a new guide that I am having trouble understanding.


It seems that the guide is in direct conflict with the FAR 16.306(a) which states that the fee is "fixed at the inception of the contract" however page 5 paragraph (h) of the guide states that the fee can be reduced if the contractor works less hours than the stated LOE. (To be clear, this is not an adjustment based on change in the work to be performed, but an adjustment based on the number of hours actually worked to achieve the LOE).

According to the guide, the fee is tied directly to the actual hours incurred and gets proportionally adjusted when the contractor expenses hours which is less than the identified LOE. Additionally, the guide specifies that the Fee is paid based upon hours expended. So my question for the WIFCON community is: If the guide were utilized, how exactly would the fee be considered fixed?


Note: I have been directed to utilize this contract type for emergency repair services as opposed to T&M. In my situation the LOE is unknown, definite goals as well as how long it will take components to be repaired are unknown, and the end products are also unknown as I cannot predict what component or product will need to be repaired. I had some creative solutions but after reading the guide, I am lost as to how a fixed fee is able to fluctuate. If the guide is accurate, my revised solution would be to set the LOE so high that it would be improbable that the contractor could ever attain it then simply be adjust the fee each period relative to actual hours expensed.

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Guest Vern Edwards

Contrary to popular belief, the fee of a CPFF contract is fixed if, and only if, the contractor copletes the work. If the contractor does not complete the work, and unless the perties agree otherwise, the contractor receives only a percentage of the fee equal to the percentage of completion. See FAR 49.305 and 52.249-6(h)(4).

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In my case the desired result (completion of all emergency repairs in a 12 month period), can be achieved without reaching the LOE. I charted the emergency repairs services that I mentioned in my previous post over the last 6 years and found demand to be considerably lumpy. Additionally, when demand is compared to the estimated demand, each period's estimate is so far off that the demand could easily be deemed unpredictable. To put some numbers to this analysis, the emergency repairs fluctuated from under 100 hours in one 12 month period to about 4000 hours in the next 12 month period.

So since I cannot identify a realistic LOE my only choice, as I see it given the direction to utilize this contract type, would be to ensure that the contractor could never reach the LOE and force a fee adjustment, based on the guide, at the end of each period of performance. Since the guide seems to imply that the desired result or completion cannot be achieved without reaching the identified LOE, I am not sure what other option I have but to make the LOE unattainable.

Can you think of any issue with setting the LOE so high that it most likely could never be attained?

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Since you say you must use this contract type, recommend Optional LOE CLINS rather than "lumping" all hours under 1 CLIN and then descoping a huge chunk; the fee would be fixed to each CLIN. Not really sure how you would chunk them, i.e. per 500 hrs or per type of repair. How are your CLINS structured currently? Believe a CO would not be fond of putting on contract scope that is not attainable.

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mm6ch ,

Please forgive the length of this post:

The CO lost the battle against the use of this contract type on this requirement and we have been informed in very certain terms that under no circumstances will T&M be approved. The reason for making the scope unattainable is that under CPFF Term, if the contractor satisfies the LOE then the contractor can end performance (unless I believe their is a bilaterial modification). This would mean that if we estimated the LOE to be too small then another contract would have to be put in place fairly quickly. To answer your question about my CLINs.

CLIN 0001 FFP - Program Support (Routiene Maintenance, bonded storage, etc)

CLIN 0002 CPFF Term - Product & Technical Support (Emergency Repairs)

CLIN 0003 CR - Materials

CLIN 0004 CR - Packaging/Handleing

CLIN 0005 CR - Travel

Originally I planned on taking a tiered approach to the CPFF type. (Note: this was before the AF published a guide indicating that the Fee’s are based on the actual hours expended. Prior to this AF guide, I was under the impression that the Fee was fixed and that the contractor received the fee if their performance was considered satisfactory).

I developed fee brackets/tiers and calculated an estimated cost for each bracket based on the maximum hours worked in that bracket. The fee would have been calculated as a percentage of that maximum cost. By the end of the period, if the contractor worked lets say 3250 hours, based on the chart below, then they would be entitled to the fee associated with that bracket which in this case would equal 9.5% * the max estimated cost of that bracket (i.e. 3600 * weighted average hourly rate). Of course this approach requires that the Fee % for each bracket be negotiated up front and the actual fee be identifed in terms of $$$ during the negotiation as well.

Hours Worked

Weighted Avg Hourly Rate

Max Est Cost

Fee %

Fee $$$

1 to 1200


1200 * XXX


10% * Max Est Cost

1201 to 2400


2400 * XXX


9.75% * Max Est Cost

2401 to 3600


3600 * XXX


9.5% * Max Est Cost

3601 to 4800


4800 * XXX


9.25% * Max Est Cost

4801 to 6000


6000 * XXX


9% * Max Est Cost

6001 to 7200


7200 * XXX


8.75% * Max Est Cost

7201 to 8400


8400 * XXX


8.5% * Max Est Cost

8401 to 10000


10000 * XXX


8% * Max Est Cost

Not sure if this method would fly or not but it was the best I could come up with. However since the AF guide was published I am now back to square one and looking for possible solutions. I will have to look at your optional LOE suggestion further to see if that would work.

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I think your table is Ok. It could be a special clause with tiered CPFF rates but that's not the issue. The issue is how to define the emergency repair requirement linked to CLIN 0002 in terms of hours (LOE)...since you must use CPFF Term (LOE). You were able to chart 6 years worth of data so that's a positive and is more data than most have when developing requirements. That data told you the emergency repairs were previously "lumpy" and inconsistent year to year so, given the variability in hours, I recommend you restructure CLIN 0002 (see PGI 204.7103 Contract line items) and use optional subCLINS so not to overcommit your organization to hours/$$ that may never be burned/expensed. I'd structure your emergency repair hours in chunks of 500hrs for example. Once you get to 75% burned exercise the next chunk. That still may be tricky given the "emergency nature" of the requirement though--just brainstorming here. Do you have data on the historical average LOE per repair--that would be helpful? Think we're beginning to veer outside the lane of this forum talking requirements development vs. CPFF-Term (LOE). Let us know your solution. Good luck.

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