FFP FAR Part 12 Contract - Applicability of FAR Part 31 In Mods

So what you are saying is that, notwithstanding that changes require mutual agreement, the contractor is free to charge whatever it wants, regardless of reasonableness when negotiating modifications that involve a change in the contractors costs?

On 5/9/2024 at 1:58 PM, viceversa said:

In the context of a Firm-Fixed-Price (FFP) acquisition under FAR Part 12, is there any restriction on the application of FAR Part 31? My interpretation of FAR 31.102(b) suggests that its subparts are relevant during the negotiation of FFP modifications or change orders. It appears counterintuitive to apply cost principles in a FFP commercial contract context where negotiations are purportedly based solely on price (to my understanding). I have not identified any provisions within FAR Part 12 that explicitly exclude the application of FAR Part 31.

My view.

No restriction.   Think guidance and that guidance is if cost analysis is not being used and a contract clause does not require determination or negotiation of costs then donot negotiate on individual elements of costs, negotiate on total price.   This guidance does not restrict use of FAR part 31 principles to help in price analysis to determine fair and reasonable price it is attempting to make the Government actually negotiate on total price like you would do personally everyday.  For instance when you go to buy a car you do not have FAR part 31 to use as leverage as to why a cost is not allowed.  I believe my view is supported by FAR 15.404-1(b) regarding price analysis.

C Culham said:

My view.

No restriction.   Think guidance and that guidance is if cost analysis is not being used and a contract clause does not require determination or negotiation of costs then donot negotiate on individual elements of costs, negotiate on total price.   This guidance does not restrict use of FAR part 31 principles to help in price analysis to determine fair and reasonable price it is attempting to make the Government actually negotiate on total price like you would do personally everyday.  For instance when you go to buy a car you do not have FAR part 31 to use as leverage as to why a cost is not allowed.  I believe my view is supported by FAR 15.404-1(b) regarding price analysis.

I agree with Carl. However, when a mod involves a change in the contractor’s costs (I.e., not a standard charge or price), then some form of cost analysis may be necessary.

This is subject to Rule 17 and will be locked this weekend unless the OP returns.

joel hoffman said:

So what you are saying is that, notwithstanding that changes require mutual agreement, the contractor is free to charge whatever it wants, regardless of reasonableness when negotiating modifications that involve a change in the contractors costs?

I don’t think that’s what the OP was saying, but it is generally true. Absent a clause (e.g., DFARS 252.243-7002), the contractor is free to charge whatever it wants. That’s not to say the Government will or must accept it or determine it as fair and reasonable.

Are you saying that a contractor is generally limited in amount as to what price it may propose?

Jamaal Valentine said:

I don’t think that’s what the OP was saying, but it is generally true. Absent a clause (e.g., DFARS 252.243-7002), the contractor is free to charge whatever it wants. That’s not to say the Government will or must accept it or determine it as fair and reasonable.

Are you saying that a contractor is generally limited in amount as to what price it may propose?

Not necessarily but it takes two to negotiate and agree, it’s not one way.

Jamaal Valentine said:

Absent a clause (e.g., DFARS 252.243-7002), the contractor is free to charge whatever it wants. That’s not to say the Government will or must accept it or determine it as fair and reasonable.

joel hoffman said:

So what you are saying is that, notwithstanding that changes require mutual agreement, the contractor is free to charge whatever it wants, regardless of reasonableness when negotiating modifications that involve a change in the contractors costs?

Apparently that is what Jamal is saying .

It can TRY to “charge” whatever it wants in such circumstances but the government doesn’t necessarily have to accept an amount unrelated to the cost impact.

I thought it was noteworthy that the OP used the term price rather than cost, when referring to the contract.

Jamaal Valentine said:

I thought it was noteworthy that the OP used the term price rather than cost, when referring to the contract.

The OP was referring to negotiation of FFP modifications or change orders.on a commercial contract.

On 5/9/2024 at 3:58 PM, viceversa said:

FFP commercial contract context where negotiations are purportedly based solely on price (to my understanding).

FAR 15.4 doesn’t restrict the pricing of modifications or change orders for commercial contract changes or modifications when necessary to determine a fair and reasonable price. It depends upon the nature and context of the action

The following  is for the benefit of the OP, who posted their question as a “beginner” in this thread.

One of my friends told me the other day about his recent experience with dental implants. An oral surgeon performs the implant but a dentist has to install the crown.

He asked the dentist how much the crown would cost and it was $1400. That seemed very high since the oral surgeon did all the basic work. All the dentist had to do was make a mold on the implant base, order the crown and install it. He asked what would a normal crown cost with all the prep etc. the Dentist said $1400. Mick said, “I’ll go somewhere else”.

He checked with another dentist who also charges the same price for crown with or without the separate implant.

He found another dentist who said $700. When Mick asked why do the others charge the same price for the two obviously different crown procedures, she said “because they can”. She said they were zf&$@ examples of shady practices.

She wasn’t going to charge the same price when most of the labor cost was for the normal effort to prepare the tooth for the crown, which the oral surgeon had already done. She is now Micks regular dentist.

Another example is where on many car or truck engines, to replace the water pump requires removal of front engine cover plate and pulley(s) to get to the water pump. If you keep a vehicle for a long time, chances are that the original water pump WILL eventually wear out.

So if the bearings go out on something that has to be removed and you ask the dealer to replace the water pump while they have the cover off to avoid  a separate replacement  later when it WILL go out,  ask how much the labor cost will be to also replace the water pump before authorizing the other work. The actual water pump price is relatively inexpensive 

For my neighbor as well as me, on separate occasions, they were going to charge the standard shop book rate for the water pump replacement, as an independent operation. I balked and refused, saying that the shop book rate included all the labor to do the removal and reinstall action of the parts they were going to do for the other repair, thus was double charging.

The service managers excuse was, “well what if a bolt on the water pump breaks and we have to drill it out? The standard shop rate includes labor risk for such contingencies.”

I replied “ If that highly unlikely event occurs, I’ll pay for that EXTRA labor effort but I’m not going to pay your standard labor price for something that is already included in the other repair that I came in for.”

“I’ll pay for the water pump and the quarter hour necessary to walk to the parts counter to pick it up and for removal and installation of two bolts on the water pump.” The dealer agreed…

My neighbor complained to me earlier this week about what they charged him when he had asked to replace the water pump when they had the engine cover off for another repair. He didn’t challenge them…

So…even in the commercial market place, you can negotiate the cost versus the standard book price for something’s like car repairs or dental work, for example.

I was taught many years ago in a negotiation class that “almost anything is negotiable”.

I was also taught many years ago in a Business Law course, under the Uniform Commercial Code the listed or sticker price for any product sold in a store normally is negotiable, if you can find someone in the store that is authorized to negotiate/haggle or bargain with.

Thats been very handy knowledge for me over the years.

EDIT: The above examples are price negotiations based  upon examination of cost differences and/or elements of costs.

joel hoffman said:

The OP was referring to negotiation of FFP modifications or change orders.on a commercial contract.

Actually I believe the OP was talking about all.  I was confused of sorts as modfications and change was thrown in. But as Jamaal noted  I purposely used the word contract in my response because I keyed in on price.   Credit given by me that all, contract, modification, change, under a commercial item contract are to be generally negotiated based on price analysis but one gets to cost analysis techniques as well.  I can not state a reference for "generally" other than FAR Clause 52.215-21 if were to be in the contract. 

On 5/9/2024 at 1:58 PM, viceversa said:

In the context of a Firm-Fixed-Price (FFP) acquisition under FAR Part 1

Broad, covers all.

C Culham said:

FFP modifications or change orders

More specific

On 5/9/2024 at 1:58 PM, viceversa said:

FFP commercial contract context

Specific

On 5/9/2024 at 1:58 PM, viceversa said:

31.102 Fixed-price contracts.

Once again broad.

On 5/9/2024 at 3:58 PM, viceversa said:

In the context of a Firm-Fixed-Price (FFP) acquisition under FAR Part 12, is there any restriction on the application of FAR Part 31? M…

…My interpretation of FAR 31.102(b) suggests that its subparts are relevant during the negotiation of FFP modifications or change orders.

Then the OP stated: 

On 5/9/2024 at 3:58 PM, viceversa said:

…It appears counterintuitive to apply cost principles in a FFP commercial contract context where negotiations are purportedly based solely on price (to my understanding).

My interpretation, thus my responses,  focused on modifications or change orders “in the context” of a Part 12 acquisition.

My question in response to the original post, which @viceversa hasn’t answered, asked if viceversa was referring to “negotiating modifications that involve a change in the contractors costs?”

I assume that the context of the original acquisition would primarily employ price analysis.

Thus, I assume that the question in the OP pertains to negotiations of changes or other types of price modifications.

The OP hasn’t engaged in the conversation or addressed my opening question to clarify the context of the question regarding application of FAR part 31 to “negotiations”.