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Basic Contract Types

Basic Contract Types. TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org. Tidewater Government Industry Council Training Program. Overview. TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org.

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Basic Contract Types

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  1. Basic Contract Types TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org Tidewater Government Industry Council Training Program

  2. Overview TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Fundamental principles surrounding Government contracts • Selection/negotiation of contract type • Contract types and contract forms • Fixed-Price contracts • Cost-Reimbursement contracts • Time & Material, Labor-Hour contracts • Indefinite Delivery, Indefinite Quantity (IDIQ) contracts

  3. Fundamentals TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Offer + Acceptance + (Adequate) Exchange of Consideration = (Binding) Contract • Consideration = Something of Value • Contract = Risk Sharing Arrangement • Technical, Cost, Schedule Risks • Government contracts attempt to shift maximum risk to the contractor • Risk reflected in type of contract • Contract pricing arrangement reflects risk sharing • Contract type is negotiable • Federal Acquisition Regulation (FAR) Part 16

  4. Factors to Consider in Selecting Contract Type TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Price competition • Price analysis • Cost analysis • Type and complexity of requirement • Urgency of the requirement • Period of performance • Contractor’s technical capability and financial responsibility • Adequacy of the contractor’s accounting system • Concurrent contracts • Extent and nature of any proposed subcontracting • Acquisition history

  5. Level-of-Effort/Term Form vs. Completion Form TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Contract Types and Contract Forms • Contract Type refers to pricing arrangement • Contract Form • Level-of-Effort or Term • Buying best effort within a stated ceiling of hours • Completion • Buying completed products or services

  6. Fixed-Price Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Fixed-price contracts can be firm or adjustable • Firm-fixed price • Fixed price with economic price adjustment • Fixed-price incentive • Fixed-price with prospective price redetermination • Fixed-ceiling-price with retroactive price redetermination • Firm-fixed-price, level-of-effort term

  7. Firm-Fixed-Price (FFP) TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Price not adjustable based on contractor’s cost experience • Maximum risk on contractor for all costs and resulting profit or loss • Maximum incentive for contractor to control costs and perform effectively • Best used: • Commercial items or services • Adequate price competition • Good pricing history • Realistic cost estimates • Any performance uncertainties identified and cost impacts estimated

  8. FFP Contract Risks to Government TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Question----- • With maximum performance and cost risks shifted to Contractor, what risks, if any, does the Government have or encounter?

  9. Cost-Reimbursement Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Cost-reimbursement contracts may or may not include fee • Cost • Cost-sharing • Cost-plus-incentive-fee • Cost-plus-award-fee • Cost-plus-fixed-fee

  10. Cost-Plus-Fixed-Fee (CPFF) TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Payment of actual, allowable, and allocable costs up to a negotiated, estimated cost ceiling • Payment of negotiated fee that is fixed at the inception of the contract • Minimum incentive for contractor to control costs • Best used: • Performance uncertainties/risks, e.g., research and development • Reality: • Often times CPFF is used as a result of funding non-availability (need to incrementally fund) rather than performance uncertainties

  11. CPFF Completion and Term Forms TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Completion Form • Definite goal and end product (could be a report) • Within the estimated cost to receive full fee • If work cannot be completed within the estimated cost • Additional effort, increased estimated cost, no additional fee • Term or Level-of-Effort Form • Work is described in more general terms • Contractor obligated to devote a specified level of effort (hours) for a stated period of time (period of performance) • Best effort exerted, level-of-effort delivered, fixed fee paid

  12. Labor Hour and Time & Materials Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Labor Hour • Fully burdened fixed hourly billing rates that-- • Include direct labor (wages), overhead, general & administrative expense (G&A), and profit • For labor that meets contract labor category qualifications • Time and Materials (T&M) • Time for Labor paid as described above • Materials including supplies, subcontracts, other direct costs, e.g., travel • Indirect costs associated with “materials, ” e.g., material handling, G&A

  13. Labor Hour and Time &Materials Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Are Labor Hour contracts also fixed price contracts? • Are Labor Hour contracts of the completion or term type? • What is the contractor’s incentive to control labor hours? • How could the contractor approach labor category qualifications and direct labor costs? • How can the contractor maximize contract revenue and profit?

  14. Delivery Order and Task Order Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Indefinite Delivery Contracts • Can be either “Definite Quantity” or “Indefinite Quantity” • Delivery Order and Task Order Contracts • Delivery order contract…does not procure or specify a firm quantity of supplies (other than a minimum or maximum quantity)…provides for issuance of orders for the delivery of supplies during the period of the contract. • Task order contract…does not procure or specify a firm quantity of services (other than a minimum or maximum quantity)…provides for issuance of orders for the delivery of servicesduring the period of the contract.

  15. Indefinite Quantity Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Indefinite quantity of supplies or services (hours) within stated limits (minimum guarantee to full LOE) during a fixed period (lot) • Estimate lot period requirements sufficiently • Minimum guarantee is “adequate consideration” that makes the contract binding • Minimum and maximum task order sizes and aggregate order limits during a period of time • Each delivery or task order is considered an individual contract • Task Order contract type(s) determined by overarching contract

  16. Indefinite Quantity Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • May be single-award contract (SAC) or multiple-award contract (MAC) • Sec 843 of the FY2008 NDAA mandated use of MACs unless special approval is granted for SAC • Only one capable contractor for unique or highly specialized services • All projected task orders are so integrally related that only a single contractor can perform the work

  17. Task Orders Under Multiple-Award Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Most task orders result from a competitive, best-value, source selection. • There can be sole source orders justified by a Justification and Approval (J&A) or as a “minimum guarantee” order • Increased PALT (45-60 days) compared to SAC task orders (30 days or less) • Task orders can include options • Options should be based on essential continuity of services and products and not defeat the competitive purposes of the MAC

  18. NAVSEA and FLC IDIQ Contracts TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • NAVSEA’s Seaport-e contract is an extensive Multiple-Award Contract that allows for competitive task orders of all contract types except Labor Hour and T&M • FLC IDIQ contracts are increasingly becoming Multiple-Award vice Single-Award and usually permit CPFF or FFP orders

  19. Cost-Plus-A-Percentage-of-Cost TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • The cost-plus-a-percentage-of-cost system of contracting shall not be used. • Prime contracts other than firm-fixed-price contracts shall, by an appropriate clause, prohibit cost-plus-a-percentage-of-cost subcontracts. • Are there any situations where a Government customer pays fee on this otherwise prohibited basis?

  20. Today’s Closing Thought TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org A verbal contract isn’t worth the paper it’s printed on! Samuel Goldwyn

  21. The Tidewater Government Industry Council TIDEWATER GOVERNMENT INDUSTRY COUNCIL www.tasc-tgic.org • Meets 0800-0900 the 2nd Thursday of each month • SAIC, 2877 Guardian Lane, Virginia Beach • Standing committees report • Small Business Affairs • Legislative Affairs • Acquisition Workforce • Contracting Approaches and Techniques • Social Networking/Networking • TGIC Exchange Briefing Program • www.tasc-tgic.org

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