"Contract" v. "CLIN" - semantics?

In general, what are the CR line items for?

CR CLINs would be for labor, material, and travel of efforts that are not well-defined (for example - crash damage repair, engineering services or as-requested additional maintenance support)

What you are describing is a combination FFP/Cost reimbursement contract. I don't think that such a contract is FFP or FP/EPA and would, thus, be prohibited by statute and regulation.

Having said that, everyone is doing it and nobody is getting in trouble.

I'm not sure that what Don said is right for you. In any case, the fact that "everyone is doing it" does not make anything okay or professionally rewarding.

You said:

The majority of the effort is FFP (~92%) and we'd like to utilize a few CR CLINs (remaining 8%) on the otherwise FFP contract.

What does that mean? What is an "effort"? Is it a project, i.e., a nonseverable service (a single, indivisible undertaking), or is it severable services? Is the entire project or all of the severable services commercial? Do you want to use a fixed-price CLIN to buy part of a commercial service (92 percent) and a cost-reimbursement CLIN to buy the rest (8 percent)? Based on what you know, do you think you can legally do that?

Alternatively, do you want to buy a commercial service and a noncommercial service under a single contract? Is the commercial service 92 percent of the work and the noncommercial service 8 percent of the work? Do you want to use an FFP CLIN for the commercial service and a CR CLIN for the noncommercial service?

What is your question, in professional terms? What are the rules? What are your facts, in professional terms? What is the answer?

Here's the thing: you thought in muddled language ("effort"), which reflects carelessness or muddled thinking, which led to a muddled question, which makes a good answer impossible. But if you think things through and clear things up, we might be able to help you out. It might be okay to have a combination commercial item FFP contract and noncommercial item CR contract.

I'll let you decide what you want to do -- accept the "everyone is doing it" answer and proceed accordingly or do something that is harder, which is to think things through in professional terms and seek what might be a much more rewarding answer.

Your call.

My comment that "everyone is doing it" was meant as an observation, not to suggest a course of action.

What does that mean? What is an "effort"? Is it a project, i.e., a nonseverable service (a single, indivisible undertaking), or is it severable services? Is the entire project or all of the severable services commercial? Do you want to use a fixed-price CLIN to buy part of a commercial service (92 percent) and a cost-reimbursement CLIN to buy the rest (8 percent)? Based on what you know, do you think you can legally do that?

Alternatively, do you want to buy a commercial service and a noncommercial service under a single contract? Is the commercial service 92 percent of the work and the noncommercial service 8 percent of the work? Do you want to use an FFP CLIN for the commercial service and a CR CLIN for the noncommercial service?

What is your question, in professional terms? What are the rules? What are your facts, in professional terms? What is the answer?

The effort is a service, Contractor Logistics Support to be exact. Everything is commercial. When you ask if I think I can legally have a CR CLIN - in a nutshell, that was my question to the forum. Statutes/FAR say CR "contracts" are prohibited for acquisition of commercial items. Are "contracts" and "CLINs" considered the same thing? If they are, then I have my answer...it's not legal. If they aren't, then I would deduce that CR CLINs may be allowed on the contract.

I am trying to understand the FAR/statute and determine in the process what the available options are for doing the right thing. I am not in the Acquisition/Contracts field by trade, but am an analyst in a Product Office who has the task of researching solutions/identifying risks and any mitigation strategies for leadership.

The effort is a service, Contractor Logistics Support to be exact. Everything is commercial. When you ask if I think I can legally have a CR CLIN - in a nutshell, that was my question to the forum. Statutes/FAR say CR "contracts" are prohibited for acquisition of commercial items. Are "contracts" and "CLINs" considered the same thing? If they are, then I have my answer...it's not legal. If they aren't, then I would deduce that CR CLINs may be allowed on the contract.

My answer to your question is no, you cannot legally have a cost-reimbursement CLIN for a commercial item. A CLIN is a contract within a contract.

My answer is based on the FAR definition of "contract" and what it says about CLINs.

Here is the FAR 2.101 definition of "contract":

“Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see Part 16.

Note that the definition does not say that a contract is a specific document, but that it is a "relationship" or a "commitment".

Here is what FAR 4.1001 says about CLINS:

Contracts may identify the items or services to be acquired as separately identified line items. Contract line items should provide unit prices or lump sum prices for separately identifiable contract deliverables, and associated delivery schedules or performance periods. Line items may be further subdivided or stratified for administrative purposes (e.g., to provide for traceable accounting classification citations).

Emphasis added. See also DFARS Subpart 204.71. In short, each contract line item could be awarded under a separate contract. In some cases, each sublime item could be awarded separately.

When you look at FAR 4.1001, it should be clear that a CLIN is a "separately identified" relationship or commitment that, depending on the interpretation of the contract, might be "entire" with the other CLINs or "divisible". The definition lists specific kinds of documents, but says that the term is not limited to those specific kinds or to a specific document of any kind.

In effect, a CLIN is a contract within a contract. It's relationship to other CLINs in a contract may be "entire" or "divisible", which means that a material breach with respect to a specific CLIN may constitute a breach of the entire contract or breach of only the CLIN in question, depending on the relationships among the items and the way the contract is written. See the discussion of contract divisibility in Calamari and Perillo on Contracts 6th (2009) by Joseph Perillo at § 11.23.

My answer to you is based on that reasoning.

So let's say that a contract includes two CLINs, one FFP and the other CR, and that the CLINs are "entire". In that case you might say that you have a combination FFP/CR contract, which is neither entirely FFP nor CR. Statute and FAR say that you must use only FFP, FFP with EPA, or T&M or L-H to buy commercial items. So the use of a CR CLIN would be improper under statute and FAR.

If the contract includes two CLINs, one FFP and the other CR, and if the CLINs are "divisible", then the CR CLIN is a CR contract (which must have its own clause set) and its use to buy a commercial item would be improper under statute and FAR.

If it is really a commercial service, you should be able to use time and materials/labor hours to cover the less defined part.

Thanks to all for the guidance....

"Everything is commercial"

Really? I wonder if Contractor Logistics Support is covered by the ( 5 ) or the ( 6 ) paragraph in the definition of commercial item? My purpose here is to say that just because it looks like "commercial" services, it isn't commercial services for purposes of the FAR unless it fits under the definition of commercial item in FAR 2.101. I tend to think we often call acquisitions "commercial" services and use the FAR Part 12 clauses and so forth without really meeting the definition in the FAR. This is another example where "everyone is doing it and nobody is getting in trouble" -- this is an observation, not a recommended course of action.

I have a follow-up question about subcontracts for DoD prime contracts based on the below statement.

So let's say that a contract includes two CLINs, one FFP and the other CR, and that the CLINs are "entire". In that case you might say that you have a combination FFP/CR contract, which is neither entirely FFP nor CR. Statute and FAR say that you must use only FFP, FFP with EPA, or T&M or L-H to buy commercial items. So the use of a CR CLIN would be improper under statute and FAR.

Do you know of any statutory prohibition against a prime contractor awarding a subcontract similar to the above scenario? The prime contractor would propose a similar CLIN structure (FFP/CR) at the prime level, but not claim anything as commercial after product integration at the prime. If the DoD customer asked for cost or pricing data on the subcontract, the prime contractor would simply provide the price negotiation memorandum documenting its price analysis. I think that CPSR reviewers might take issue based on DFARS 252.244-7001( c )(13), but would there be any public law violation?

On a Cost Plus Fixed Fee contract with multiple CLINs I believe that the fact that there are CLINs does not, in and of itself, require that incurred costs be segregated by CLIN. Along with that, Limitation of Funds or Limitation of Cost, applies at the contract level, not at the CLIN level.

I have seen instances where contract provisions require cost accounting by CLIN, but am just trying to verify my understanding that, absent terms requiring it, having multiple CLINs does not require collection and reporting of costs by CLIN.

Aren't materials under T&M contracts often contracted and paid for through a cost reimbursement arrangement? If T&M is allowed under commercial item contracting and CR is not allowed must materials be reimbursed by the government at price under commercial T&M?

Whynot,

See FAR 52.212-4, Alternate I, paragraph (i)(1)(ii).

So unless excepted in paragraph (i)(1)(ii)(A) and (D)(2) of your clause, materials are at cost. Cost reimbursement is allowed under commercial T&M.

Cost reimbursement is allowed under commercial T&M.

I wouldn't express it like that. I would just say that T&M is allowed for commercial services. Yes, the materials may be reimbursed at cost, but that does not make the contract cost reimbursement.

Whynot, if you look at Alt I to 52.212-4, you will see that materials are reimbursed at cost, but the cost principles in FAR Part 31 do not apply in determining what the contractor is paid. Further, the government does not have the audit rights under a T&M contract for commercial items (services)that it is granted under 52.215-2 in regard to cost reimbursement contracts and T&M contracts for non-commercial items. Finally, under a T&M contract for commercial items (services), the contractor does not have to adjust applicable indirect cost rates allocable to the contract because of material costs as contractors under cost reimbursement and T&M contracts for non-commercial items are required to do. Instead, under a T&M contract for commercial items (services), the contractor is paid a flat amount (not rate) of indirect costs. Thus, there is a substantial difference between what and how a contractor is paid for materials under a T&M contract for commercial items (services) and what and how a contractor is paid under a cost reimbursement contract and for materials under a T&M contract for non-commercial items.

I disagree. The distinctions do not change the cost reimbursable nature of the contract. Costs, whether audited, estimated or adjusted are still costs. You have either price or cost.

"You have either price or cost."

Not so. You have a choice between ( a ) fixed-price, ( b ) cost-reimbursement, or ( c ) time-and-materials (or labor-hour).

Whynot,

You understand that a T&M contract is not a cost-reimbursement contract under the FAR, correct?

Yup.

A separate CLIN is often used for the Materials in T&M contracting. This CLIN is sometimes CR. Since this post discusses CLINs and Contracts, I was wondering if under commercial T&M contracting if this Material CLIN should be on a price basis to comply with statute. I was hoping that this CLIN must be at price basis if at all possible and only on cost basis as a last resort - not because a government CO prefers it to be at cost.

Whynot,

If it is a T&M CLIN, then it is neither fixed-price nor cost-reimbursement.

Until you accept this, you cannot proceed. You err in insisting on calling the M part of T&M cost-reimbursement. There's a difference between cost-reimbursement as understood in FAR 16.3 and reimbursed at cost as understood in FAR 16.6.

Whynot, the use of T&M contracts to acquire certain commercial services is authorized by statute. Therefore, what statute did you have in mind when you said "I was wondering if under commercial T&M contracting if this Material CLIN should be on a price basis to comply with statute" in your post 22?

I wonder if whynot is buying services for which some incidental materials will be needed, or if he is she wants to buy supply items on a cost-reimbursement basis under the masquerade of T&M? Everything I posted above is based on buying services, not supplies.

I am not disputing that the use of T&M contracts to acquire certain commercial services is authorized or that the use of CR is prohibited – see FAR 12.207(a). I am not disputing that payment of commercial T&M is per FAR 52.212-4 Alt 1 which allows for reimbursement of material in certain situations to be at cost. All I am asking is how strong is the requirement to maximize the use of prices as opposed to the use of costs (see FAR 12.207((1)(iii)) in commercial T&M? If a CLIN is a contract, is it possible to extend the prohibition on CR contract type to a T&M CLIN? The forum says no – so be it.

For a T&M contract, or a T&M CLIN, you absolutely MUST have ceiling price. You cannot have an estimated cost.

ji, I think Whynot's issue is based upon this statement from his post 22: "A separate CLIN is often used for the Materials in T&M contracting. This CLIN is sometimes CR." I don't know why someone would do this as it seems unnecessary and overly complicated. To me, if there is a separate CLIN that is cost reimbursement, the contract should have the clauses for a cost reimbursement contract for that CLIN when you are not dealing with a commercial item. That raises the question as to whether the labor portion of the so called T&M contract is called a fixed price CLIN, when the price for the CLIN is plainly not fixed.

I am also confused by his post 26 when he wrote "is it possible to extend the prohibition on CR contract type to a T&M CLIN? " Earlier, he had acknowledged that a T&M contract is not a cost reimbursement contract. If that is the case, it follows that a T&M CLIN is not a cost reimbursement CLIN. Thus, I am confused as to the intent of his question?

I'm confused, too.

I also don't understand why a separate CLIN just for the M in T&M. That makes me think the "materials" are not an incidental part of the service. If so, a T&M masquerade is inappropriate and he or she ought to use a CR CLIN.

ji, I think Whynot's issue is based upon this statement from his post 22: "A separate CLIN is often used for the Materials in T&M contracting. This CLIN is sometimes CR." I don't know why someone would do this as it seems unnecessary and overly complicated. To me, if there is a separate CLIN that is cost reimbursement, the contract should have the clauses for a cost reimbursement contract for that CLIN when you are not dealing with a commercial item.

Mightn't an agency want to limit the amount that a noncommercial T&M contractor spends on materials to an estimated cost within the ceiling price, such that the contractor would have to get the CO's permission to spend more? If so, wouldn't a separate "materials" CLIN be useful for accounting and billing purposes? Why would such a CLIN require additional clauses, other than a special clause requiring the contractor to get the CO's consent prior to exceeding the materials cost estimate? The clauses applicable to T&M should be fine

If the agency's objective is to place a limit on the amount it pays for material, there are several ways of doing that, one of which would be to have a separate CLIN. My issue with Whynot's statement was that he said the separate CLIN would be a cost reimbursement CLIN. To me, that indicates a separate contract type. It is not clear what Whynot meant by that statement.

But since a contractor's purchase of materials under a noncommercial T&M contract is subject to the Allowable Cost and Payment clause, a CLIN for materials would be cost-reimbursement. Wouldn't it? Why would that be a problem?

Vern, I am not sure how you envision the contract being structured if a separate CLIN is used for material. However, I do not fully accept your statement that material under a non-commercial T&M contract is subject to the Allowable Cost and Payment clause. The T&M Payments clause, 52.232-7, says that payment for materials is subject to that clause. However, there are other parts of 52.232-7 that apply to material such as the requirement to obtain materials at the most advantageous prices available. Further, while the ACP clause and 52.232-7 incorporate the cost principles from FAR Part 31, there are provisions in the latter clause that are exceptions to the cost principles. For example, if a contractor furnishes a commercial item that it manufactures, the contractor can charge that item at its catalog price, which would include profit. There is no such exception in 31.205-26. Also, if the T&M contract is for services, the Treasury's Prompt Payment regulations apply to interim payments under that contract. This would also cover the cost of materials that are included in an interim invoice. If the separate materials CLIN is not subject to 52.232-7, the Prompt Payment Act regulations would only apply to labor and not the cost of materials. Therefore, materials are subject to both the ACP clause and the T&M Payments clause. If a separate cost reimbursement CLIN is used for material and that CLIN is subject only to the ACP clause, many parts of 52.232-7 applicable to material would be rendered useless.

The use of a separate CLIN for Materials in T&M contracting seems to be sanctioned by GSA.

www.gsa.gov/graphics/fas/CLINStructure-TandM.doc

However, this does not indicate that the separate CLIN is a cost reimbursement CLIN.

However, this does not indicate that the separate CLIN is a cost reimbursement CLIN.

That's because it isn't a cost-reimbursement CLIN. It is a T&M CLIN, where travel is reimbursed at actual cost in accordance with the limitations set forth in FAR 31.205-46.

Retread and ji: You guys are confusing me. A separate CLIN for materials under FAR 52.232-7 must be a cost-reimbursement CLIN pursuant to the very terms of that clause. What other kind of CLIN could it be? Materials are to be reimbursed at cost with payment subject to the allowable cost and payment clause, which provides for reimbursement of allowable costs. That's cost-reimbursement.

Retread, as for contract structure, how about this (off the top of my head):

0001 Performance IAW the Statement of Work. 1 JOB, Ceiling Price $200,000

0001AA Labor at a fixed hourly rate of $150.00. Estimated number of hours: 1,000. Total estimated amount: $150,000

0001AB Materials at cost. Estimated cost: $50,000, which may not be exceeded without advance written approval of the Contracting Officer. Amounts in excess of the estimate incurred prior to receipt of Contracting Officer's written approval shall be unallowable.

Clearly, the notion of the use of a separate CLIN (or SUBCLIN) for materials and consideration of that to be a cost-reimbursement CLIN (or SUBCLIN) troubles the two of you. I don't understand why.

Retread, what do you mean when you say that you don't "fully accept" my statement? You accept some part of it, but not all? What part don't you accept? As for exceptions to the allowable cost and payment clause, that clause and 52.232-7 provide for several exceptions. So what? You always read a contract as a whole. When you integrate the terms and read them as one they make perfect sense.

ji20874, a fixed hourly rate labor CLIN or SUBCLIN and a cost-reimbursement materials CLIN or SUBCLIN would be two parts of a single T&M undertaking. The contract would be T&M entire under a single ceiling price. Why is it important to you that a separate materials CLIN not be considered a cost-reimbursement CLIN?

I don't get it.

It's semantics -- a T&M contract allows for materials on a direct reimbursement basis -- just call it T&M. Heck, the time portion of a T&M contract is fixed-price (a fixed-price per unit of labor), but we don't call it fixed-price (or labor-hour).

If I had a T&M contract and I provided separate CLINs for time, materials, and travel (as shown in the GSA example), I would categorize all three CLINs as T&M. I wouldn't call the first CLIN fixed-price (or labor-hour) and I wouldn't call the materials and travel CLINs cost-reimbursement. I would code all three CLINs as T&M in my automated system. My T&M D&F would cover all three CLINs. I would not do anything required by FAR Subpart 16.3, Cost-Reimbursement Contracts.

Stay in your lane. If we start talking cost-reimbursement for the M in T&M, then smple-minded reviewers and attorneys are going to start looking in FAR Subpart 16.3 for guidance. A cost-reimbursement contract (or CLIN) requires a written acquisition plan signed at least one level above the contracting officer (FAR 16.301-3( a )( 2 )) -- I have no intention of ever doing that for the M portion of a T&M contract. It's professionally sloppy to insist on using "cost-reimbursement" to describe the M portion of a T&M contract.

That's why.

I would code all three CLINs as T&M in my automated system... If we start talking cost-reimbursement for the M in T&M, then smple-minded [sic] reviewers and attorneys are going to start looking in FAR Subpart 16.3 for guidance.

Fair enough. That makes sense to me. Now I understand our differences.

You are thinking of the need to cope with automated systems and "simple-minded reviewers and attorneys." You are concerned about fitting into the categorizations of software programmers, which require a formal designation of a CLIN with which the system can cope. And you don't want to deal with confused and ignorant staff blockheads who'll want acquisition plans and approvals for a simple materials CLIN. I get it now, but I'm too old for that.

I still think in terms of what things really are, without concern for automated systems and their protocols and the dummies in the staff offices. If a CLIN is for work for which the contractor will be compensated on a cost-reimbursement basis, then I think it's a cost-reimbursement CLIN. I don't think it's "professionally sloppy" to call a CLIN what it is. I think it's professionally pathetic to have to call a thing something other than what it is in order to fit it into the mindsets of nonprofessionals. Yet I understand the sad world in which contracting "professionals" have to work today, dominated by finance people and information technologists. Happily, I don't work in a drudge contracting office. Happily, I never did.

So I understand you, and I see your point. Given those terms, there's no point in discussing this further. Thanks for clearing things up and filling me in.

I understand ji's position. Mine is a little different. I have been trying to figure out what Whynot meant by the use of a cost reimbursement CLIN for materials. What he was saying raised this situation in my mind

CLIN 0001 Labor (T&M) subject to 52.232-7

CLIN 0002 Materials (cost reimbursement) subject to 52.216-7

In this scenario, materials would not be subject to 52.232-7.

As for your example, that would be the way I would prefer to have the contract structured. That makes perfect sense.

As for not accepting your statement that materials under a T&M contract for non-commercial items are subject to 52.216-7, I should have said that I do not accept that they are subject only to that clause, because they are also subject to 52.232-7.

I have been trying to figure out what Whynot meant by the use of a cost reimbursement CLIN for materials. What he was saying raised this situation in my mind

CLIN 0001 Labor (T&M) subject to 52.232-7

CLIN 0002 Materials (cost reimbursement) subject to 52.216-7

In this scenario, materials would not be subject to 52.232-7.

Retread:

You have to read contracts as a whole and integrate the parts. Both 52.216-7 and 52.232-7 must be included in T&M contracts. You are reading a lot into your CLIN 0002 phrase "subject to 52.216-7" when you interpret it to preclude the application of 52.232-7 to that CLIN. A court might well interpret that phrase as nothing more than an annotation that is in accord with the sentence in 52.232-7 that says, "Payment for materials is subject to the Allowable Cost and Payment clause of this contract."

See also FAR 16.307(a)(1): "If the contract is a time-and-materials contract, the clause at 52.216-7 applies in conjunction with the clause at 52.232-7, but only to the portion of the contract that provides for reimbursement of materials (as defined in the clause at 52.232-7) at actual cost."

I don't think there is much chance on relying on the 52.216-7 language to read 52.232-7 out of your CLIN 0002.