Changing Contract Type

Folks, could use some advice/guidance on changing a CPIF to FFP. Contract is for delivery of items, with initial award amount about $115M. Performance is about mid-way through and we have a VAC of about $38M.

The company is a major defense firm. The company exec?s have been discussing the contract overrun with senior DoD exec?s (acquisition executive). In an effort to stop the bleeding, the company has offered to complete the program as FFP at the new EAC, $158M. Now I?m the stuckee to find out how to make it happen.

Anyone have any experience with changing contract type?s midstream?

Additional background info: contract was awarded sole source, we have about 18-20 months left until completion.

Jim111,

I'm not at Vern's expert level or anything, but wouldn't it make sense to first cover the cost growth on the CPFF via mod, and then do another bilateral mod to convert to FFP?

Hope this helps?

I have done it and it's been done by others. It's complicated and messy, and it's going to take some thinking and planning.

A key conceptual problem is this: Under the cost-type contract, the contractor is not obligated to complete the job as a condition of payment, but under an FFP contract it is. So -- what, exactly, is the contractor offering to do for a firm-fixed price? Is it offering to convert the entire project to FFP, retroactively to include the work already done, and to accept the contractual obligation to complete the entire work as a condition of payment of the balance and retention of reimbursements already made? I doubt it. If not, then what is it offering to do for a firm-fixed price? What will be the obligation? How will you specify it so that both parties know exactly what the obligation is?

If you can clearly demark the end of the CPIF work and the beginning and end of the FFP work, then you can separate the work into two CLINs -- one for the CPIF work already done, the other for the FFP work remaining. In short, you would not convert the contract to FFP. You would break it into a completed CPIF part and the uncompleted FFP part. Make sense? You would then add FFP clauses for the FFP CLIN and proceed accordingly. You really have to think it through. No matter what you do, you'll probably end up with loose ends that will have to be tied up in the future. It's hard to think through all of the implications.

I'll stop here to see if this has helped at all.

I have done it and it's been done by others. It's complicated and messy, and it's going to take some thinking and planning.

A key conceptual problem is this: Under the cost-type contract, the contractor is not obligated to complete the job as a condition of payment, but under an FFP contract it is. So -- what, exactly, is the contractor offering to do for a firm-fixed price? Is it offering to convert the entire project to FFP, retroactively to include the work already done, and to accept the contractual obligation to complete the entire work as a condition of payment of the balance and retention of reimbursements already made? I doubt it. If not, then what is it offering to do for a firm-fixed price? What will be the obligation? How will you specify it so that both parties know exactly what the obligation is?

If you can clearly demark the end of the CPIF work and the beginning and end of the FFP work, then you can separate the work into two CLINs -- one for the CPIF work already done, the other for the FFP work remaining. In short, you would not convert the contract to FFP. You would break it into a completed CPIF part and the uncompleted FFP part. Make sense? You would then add FFP clauses for the FFP CLIN and proceed accordingly. You really have to think it through. No matter what you do, you'll probably end up with loose ends that will have to be tied up in the future. It's hard to think through all of the implications.

I'll stop here to see if this has helped at all.

Vern, good points....we've been discussing some of the same. Right now the contractor states they're willing to accept the new EAC to complete the entire project, retroactively to include work already done. This contract is small potatoes for the company and they have their eyes on some bigger prizes. They don't want their reputation tarnished by this small effort.

We've been trying to envision the demark (just as you mentioned) to go from CPIF to FFP. One of our problems is that the items (only 3) are being worked concurrently. Item 1 is near completion, Item 2 is mid-way, and Item 3 is just starting. Given that the contractor is willing to accept the new EAC for completion of the entire project, might be easier to switch the contract type rather than adding another CLIN for FFP? Tough to sort costs with the way the project is laid out. What do you think?

I do know there are a lot of pitfalls and I appreciate any and all advice/comments.

Thanks

If they are willing to go to FFP retroactively, then you are in good shape. Wow. That's the best of all possible worlds given the situation. What you are going to do is reform the contract.

Prepare a mod changing the contract from CPIF to FFP. Changeout the clauses, set the delivery terms, and set the price. Make it clear that all terms are considered changed from the outset. Document the file thoroughly. Make it clear that complete reformation is the mutual objective of the parties.

There is more to it, but your attorney ought to be able to help with the details.

If they are willing to go to FFP retroactively, then you are in good shape. Wow. That's the best of all possible worlds given the situation. What you are going to do is reform the contract.

Prepare a mod changing the contract from CPIF to FFP. Changeout the clauses, set the delivery terms, and set the price. Make it clear that all terms are considered changed from the outset. Document the file thoroughly. Make it clear that complete reformation is the mutual objective of the parties.

There is more to it, but your attorney ought to be able to help with the details.

Interesting, I'll discuss with our acq attorney. Any other tips, recommendations are welcomed. Thanks Vern.