T&M and FFP on the same contract?

I recommend you ask the contracting officer for clarification on which parts of the work are FFP and which parts of the work are T&M. Hopefully, the answer will be on a CLIN basis, where certain CLINs are wholly FFP and other CLINs are wholly T&M -- that is generally easier than having blended CLINs.  

A prospective offeror never has much time before proposals are due, so I suggest you hurry.

Tomahawk, why do you say you think the RFP has a T&M portion for materials?  Is the contractor required to manufacture the parts or just provide them?  I'm having a hard time understanding how a T&M pricing arrangement would work if the RFP merely calls for the contractor to provide the parts.  In other words, what would be the time portion of such an arrangement?

I could see an FFP/LOE portion for (say) supporting engineering services and a T&M portion for purchase/install/maintenance/repair of parts.

here_2_help said:

I could see an FFP/LOE portion for (say) supporting engineering services and a T&M portion for purchase/install/maintenance/repair of parts.

That's pretty close to what it will be when it gets awarded.

And to clarify, the FFP is for the service.  They are requesting an FTE for services with 2080 hrs,FFP.

ji20874 said:

I recommend you ask the contracting officer for clarification on which parts of the work are FFP and which parts of the work are T&M. Hopefully, the answer will be on a CLIN basis, where certain CLINs are wholly FFP and other CLINs are wholly T&M -- that is generally easier than having blended CLINs.  

A prospective offeror never has much time before proposals are due, so I suggest you hurry.

I agree, time is of the essence.  I will be asking questions of the KO, but I think the individual is in well over his head.

I've been successfully responding to state and federal bids for 30 years, but this is a type of RFP I've not seen before.

Retreadfed said:

Tomahawk, why do you say you think the RFP has a T&M portion for materials?  Is the contractor required to manufacture the parts or just provide them?  I'm having a hard time understanding how a T&M pricing arrangement would work if the RFP merely calls for the contractor to provide the parts.  In other words, what would be the time portion of such an arrangement?

They want the contractor to repair the equipment and if parts (material) are needed to sell them to the government with no markup, only "cost".

I agree, I do not understand why the "time" is referenced as the "time" is already FFP.

By the way, thank you all for replying!

Tomahawk said:

That's pretty close to what it will be when it gets awarded.

And to clarify, the FFP is for the service.  They are requesting an FTE for services with 2080 hrs,FFP.

Yeah, I'm frequently told I'm psychic. Or is it psychotic? I get confused....

In any case, what's your concern? Are you concerned you cannot map your costs to the CLIN structure? Are you concerned about billing? What risks are you seeing?

You are asking about our views regarding your ability to account for contract costs, but how can we answer that if we don't know your company or its accounting system? How strong are your PMs? How granular is your Chart of Accounts? The point is, only you can answer the question because only you know your company.

here_2_help said:

Yeah, I'm frequently told I'm psychic. Or is it psychotic? I get confused....

In any case, what's your concern? Are you concerned you cannot map your costs to the CLIN structure? Are you concerned about billing? What risks are you seeing?

You are asking about our views regarding your ability to account for contract costs, but how can we answer that if we don't know your company or its accounting system? How strong are your PMs? How granular is your Chart of Accounts? The point is, only you can answer the question because only you know your company.

The bold portion of your reply is my concern.  First, let's be candid: everyone on the planet avoids T&M because of  the huge accounting and tracking problems, both on the government and contractor side.  Secondly, in our 20 years, we have never had any T&M contract, especially where there really is no "T".   Billing is not an issue, but one risk I am seeing is to have to establish a different accounting structure for a bunch of cheap parts.

Looking through the provisions more carefully, I did see where the government will pay "established catalog prices" so my intention is to establish a catalog.  After all, these items aren't that numerous or expensive.

I have no interest in selling the government a bunch of cheap parts and would be much happier if they would source the parts themselves, but it is a requirement and we will fulfill the obligation.

So, maybe the solicitation CLIN structure is notionally something like this?

0001, Services, 2080 HR, unit price $100, amount $1,200 (FFP)

0002, Materials, reimbursable at cost (T&M, M only)

Tomahawk:

Please tell us the RFP number so we can look at it on FedBizOpps.

Tomahawk said:

My question is:  How difficult will this be to manage from an accounting standpoint?

Tomahawk said:

Billing is not an issue, but one risk I am seeing is to have to establish a different accounting structure for a bunch of cheap parts.

Looking through the provisions more carefully, I did see where the government will pay "established catalog prices" so my intention is to establish a catalog.  After all, these items aren't that numerous or expensive.

I have no interest in selling the government a bunch of cheap parts and would be much happier if they would source the parts themselves, but it is a requirement and we will fulfill the obligation.

Haven't you just answered your own question?

Many companies -- especially small businesses -- have trouble with shoehorning their existing labor force with its existing compensation structure into rigid T&M hourly billing rates. This is a valid concern. As we all know, DCAA loves to question billed labor costs under T&M contracts because the individuals didn't meet the hourly billing rate qualifications.

And once the existing salary bands have been mapped to the hourly billing rates then somebody has to maintain them. People get raises. People get promoted. People depart and are replaced with new hires. That's certainly a painful situation to manage. But it's required.

Many companies -- even small businesses -- successfully rise to the challenges of T&M contracting through diligent management and proper staffing of the PM and HR and compliance functions.

H2H

Edited to add:

Also if a company's accounting system cannot accurately map costs to CLINs then it is by definition an inadequate accounting system. See the SF 1408. If that is the case, the contracting officer should not award that contract to the contractor.

here_2_help said:

I could see an FFP/LOE portion for (say) supporting engineering services and a T&M portion for purchase/install/maintenance/repair of parts.

FFP LOE vehicles are VERY restricted in their application: 

16.207-2 Application.

A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The product of the contract is usually a report showing the results achieved through application of the required level of effort. However, payment is based on the effort expended rather than on the results achieved.

One of the biggest illusions in federal acquisition is seeing the FFP LOE contract as a get-out-of-jail-free card.

ji20874 said:

0001, Services, 2080 HR, unit price $100, amount $1,200 (FFP)

I assume you mean 'the BOE for evaluating the total FFP is 2080 hours'?

I'm being purposely pedantic because of how often in practice these estimating/evaluation yardsticks end up in the resulting FFP contract  (i.e., 'Units' are measured in hours).  Poor tradecraft in my opinion.

REA,

I  most earnestly hope that the CLIN structure IS NOT set up like I asked -- but based on the original posting and the comments, I am wondering.  I hope the answer is NO, because indeed that would be very poor tradecraft -- but I have seen a lot of poor tradecraft regarding T&M lately.

REA'n Maker said:

16.207-2 Application.

A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The product of the contract is usually a report showing the results achieved through application of the required level of effort. However, payment is based on the effort expended rather than on the results achieved.

A made-up contract structure from an entirely fictitious solicitation:

CLIN 001: Installation/Repair/Maintenance services - fixed hourly rates by category

CLIN 002: Purchase of parts necessary for repairs/maintenance -- cost reimbursement, no fee

CLIN 003: Provide ___ labor hours for each of the following engineering labor categories for a fixed period of performance. Purpose of this effort is to review repair/maintenance activities, perform root cause analysis, recommend process improvements/changes so as to minimize future needs for repair/maintenance services. NSP associated CDRL: Quarterly report submitted to COTR showing analysis results. Firm Fixed Price/Level of Effort

Are you saying that structure would not be acceptable?

Vern Edwards said:

Tomahawk:

Please tell us the RFP number so we can look at it on FedBizOpps.

Would a PM be acceptable?

here_2_help said:

Are you saying that structure would not be acceptable?

What I'm saying is that you can't necessarily expect a defined outcome under an FFP LOE. If I were hiring engineers, I would want a finished product (a spec, etc.)  An FFP LOE is a highly specialized vehicle with a lot of risk for the government, i.e., all the vendor is really required to deliver is hours and report on  "...results achieved through application of the required level of effort".

Vern Edwards said:

Haven't you just answered your own question?

I believe this will be acceptable.

REA'n Maker said:

What I'm saying is that you can't necessarily expect a defined outcome under an FFP LOE. If I were hiring engineers, I would want a finished product (a spec, etc.)

Would you be willing to enter into a FFP/LOE contract (or CLIN) for a fixed number of certain engineering hours for the sole purpose of monitoring a Bill of Material in order to identify technically obsolete parts and then, for those parts, identify potential technical solutions to mitigate that technical obsolescence?

Because in that case there would be no finished product or specification. Indeed, if no instances of technical obsolescence were identified during the PoP there would be nothing to show for the efforts, other than they occurred.

Tomahawk said:

Would a PM be acceptable?

What do you mean by "PM"?

Vern Edwards said:

What do you mean by "PM"?

I meant "private message".

Thanks, Tomahawk.

I have looked at the solicitation. It's for an IDIQ contract for commercial item maintenance and repair services. According to the proposal preparation instructions the contract type is to be T&M and FFP.

The CLINs are ordering years and data items. The services are to be priced as T&M based on proposed hourly labor rates.

So what are the FFP items? A quick perusal indicates that the FFP items are the data items, which are marked as "firm-fixed-price" and "not separately priced." (Go figure.) The RFP calls for proposed labor rates, but I could find no requirement for proposed fixed-prices for anything. I may have missed it. There is no provision for a price bill of materials. "Evaluated price" for each ordering period is to be determined on the basis of an estimated number of hours to be purchased multiplied by the proposed hourly labor rates. I could find no mention of any other firm-fixed pricing. There is no mention of "level of effort" in anywhere in the solicitation.

My opinion was that it was poorly designed.   Hence, why I came to the forum looking for expert help.

The expectation is that the CO knows the rules better than we do, as that is their job day in and day out.  That said, as business owners entering into a contract, we should do our due diligence beforehand to know what we agreeing to do.

Tomahawk said:

The expectation is that the CO knows the rules better than we do.

You should get rid of that expectation.  A business owner can read the FAR as well as a contracting officer, or can hire the expertise to effectively participate in the government market.  I think "trust but verify" can apply here.

Yes, contracting officers will sometimes release solicitations with poorly-written CLIN schedules and so forth.  In those situations, I hope prospective offerors will share recommendations for improving the approach.  If they do, the resulting contract might be better for both parties.  Where prospective offerors don't share recommendations, or the contracting officer doesn't accept them, prospective offerors have to make a business decision:  continue to play or walk away.  

But this is true for all business arrangements everywhere, not just those with the government.  In the commercial market, it is very common for buyers to walk in and explain what they're looking for, and for sellers to advise them that they (the buyers) really don't want that.  Maybe the sellers are effective in changing the minds of the buyers, or maybe not.  

I tend to think sellers (or prospective Government contractors) should be experts in offering and packaging their services, and specifying payment terms -- and that is what a CLIN structure is, after all -- so yes, I think prospective contractors can be helpful to contracting officers in crafting CLIN structures that fit their market sectors.

ji20874 said:

You should get rid of that expectation.  A business owner can read the FAR as well as a contracting officer, or can hire the expertise to effectively participate in the government market.  I think "trust but verify" can apply here.

Yes, contracting officers will sometimes release solicitations with poorly-written CLIN schedules and so forth.  In those situations, I hope prospective offerors will share recommendations for improving the approach.  If they do, the resulting contract might be better for both parties.  Where prospective offerors don't share recommendations, or the contracting officer doesn't accept them, prospective offerors have to make a business decision:  continue to play or walk away.  

But this is true for all business arrangements everywhere, not just those with the government.  In the commercial market, it is very common for buyers to walk in and explain what they're looking for, and for sellers to advise them that they (the buyers) really don't want that.  Maybe the sellers are effective in changing the minds of the buyers, or maybe not.  

I tend to think sellers (or prospective Government contractors) should be experts in offering and packaging their services, and specifying payment terms -- and that is what a CLIN structure is, after all -- so yes, I think prospective contractors can be helpful to contracting officers in crafting CLIN structures that fit their market sectors.

Oh, I long ago got rid of that expectation.

Hiring the expertise is the preferred method as "learning it yourself" is trap many SB's fall into. Do what you do well; hire the rest out.  I am seeing it is quite difficult to hire an expert, at least in this case.

You can't really compare the commercial word, where the seller gets to meet with the buyer to a situation where the CO on the government side is disconnected from not only the prospective vendor, but from their own end-user customer.  Back in the day when contracting activities were less centralized your approach worked well, but now that situation has changed.  I bolded your last comment because I couldn't agree more,  but that is just much more difficult now.

On 7/15/2017 at 6:44 AM, Tomahawk said:

You can't really compare the commercial word, where the seller gets to meet with the buyer to a situation where the CO on the government side is disconnected from not only the prospective vendor, but from their own end-user customer.

You have just identified two of the biggest sources of problems in contracting, which have arisen in part from (1) the centralization of contracting officers in "contracting offices" and (2) the rules of competitive negotiation as interpreted by the GAO.

COs, except commodity buyers, should be located in program offices and work for program managers. I have always thought that to be a better arrangement than consolidating contracting operations within central contracting offices. I have never liked working for a "chief of the contracting office." I know all the arguments pro and con, but would stiff prefer to work for and be evaluated by the program office for which I am negotiating and administering contracts. However, COs should be "licensed" (appointed) by independent agency staff offices in order to ensure their integrity and compliance with the law.

The rules of competitive negotiation under FAR Part 15, as interpreted by the protest tribunals, effectively discourage communication and real bargaining between buyer and seller during contract formation. When the Government awards contracts pursuant to Part 15, buyer and seller very often are virtual strangers who have never really "discussed" the terms of the massive RFPs that agencies issue. We are long past time to rethink the Competition in Contracting Act.

Vern makes a good point -- I think my most professionally rewarding and learning years were spent as a contracting officer in program offices working directly with program managers.  When arguments arose about my appraisal, I was always in favor of the program manager doing the writing/signing rather than the contracts chief.

Putting COs in centralized contracting offices is efficient for the purpose of processing large numbers of diverse requisitions and relatively small acquisitions. But in some agencies and bureaus within agencies it isolates COs from the organizations that they serve, especially when COs are located remotely from those offices. Thus, COs may be seen as outsiders and obstacles--"staff weenies."

I think that the ideal scheme would be for contract specialists to apply to an independent appointment office for competitive contracting officer appointments. Appointments (licenses) to conduct specified categories of non-commodity, non-simplified acquisitions would be made on the basis of experience, past performance, a written exam, and an oral exam. A CO could apply for a general or specialty license.

PMs would advertise open CO positions. A licensed CO could then apply to program managers for employment. Contracting authority would be delegated by agency heads to PMs, who would sign and be bound by a Code of Contracting Ethics, and each CO would be an agent of their PM and report directly to the PM they serve, not to contracting "staffs." There would be no contracting office or chief of the contracting office within a program. That would cut a layer of bureaucracy. Each CO would conduct his or her own "practice." Each CO could hire one or more contract specialists and appropriate clerical support. This is only for the big buys, not commodity buys.

COs would be required to meet annual continuing education requirements. A PM could "fire" a CO from the program, but not from the Civil Service. The independent licensing board would investigate all accusations of CO incompetence and misconduct. Only the board could terminate a CO's license. A CO who had been fired from a program office would have to seek employment in another program office or in a centralized contracting office doing commodity buying. A CO who lost their license might be fired from Civil Service or limited to working as a contract specialist. This would be similar to the system used to license many professionals, such as architects, physicians, and attorneys. COs would manage their careers based on performance, reputation, contacts, and recommendations.

Putting COs in the program offices they serve could greatly improve acquisition planning and processing. It could increase the likelihood that COs could actually be "business managers" or "business advisors."

While that's my ideal, I acknowledge that it is not widely practical. It would work best for big program offices conducting major system acquisitions, or programs that specialize in only one kind of acquisition, such as IT support, and that do large acquisitions for other than "commodity" supplies and services.

It will never happen. So don't worry.

Vern's idea sounds almost like a full implementation of the current half a** implementation of a system of COR certification.   And a sensible full implementation ideal in my view and wish it would happen!

Carl:

I could not follow your post about COR certification.  I only see Vern talking about COs in program offices.  Could you elaborate?

Please see below...

bob7947 said:

Carl:

I could not follow your post about COR certification.  I only see Vern talking about COs in program offices.  Could you elaborate?

Bob, I believe that Carl is simply comparing Vern's idea to what some current program for certifying Contracting Officer Representatives might look like, if it were fully implemented.  He appears to like Vern's ideas.

bob7947 said:

I could not follow your post about COR certification.  I only see Vern talking about COs in program offices.  Could you elaborate?

Bob – Joel caught the essence of my thought. 

 At least for the civilian side of things there was this vision captured from a 2007 OFPP memo - “Contracting Officer Technical Representatives (COTRs) perform critical acquisition and technical functions, and Contracting Officers rely on them to ensure that contracts are managed properly to meet mission needs.” that ramped up a supposed emphasis in creating COR’s that would be an “agent of their PM”.  By experience in some cases the COR isn’t even from the program area whatsoever just a person that was head hunted because they had the necessary certification.    I am not damning the whole as some agencies have associated certification and functional program requirements especially for construction, like the USACE or Forest Service but for others getting someone COR certification is like, well making them get a new system password every 90 days.  Just a have to do instead of want to do to make them an agent for successful contract outcome.  I see Vern’s suggestion of embedding CO’s with the program area as an alternative to a COR certification program whose intended goal has fallen short.

I did not envision the CO licensing and positioning scheme that I described as an alternative to a COR certification program. COR certification is a separate matter.

COR certification has largely failed simply because agencies did not really commit to it. COR is considered an "other duty as assigned," not a professional specialty.

Acquisition management is a failure in most agencies. Although the term "acquisition" applies broadly to multiple agency functions, I think most people see it as the "contracting" function, and the contracting function in many agencies is held in no higher esteem than the personnel function. Both are considered necessary evils: They are not one of us. Ya gotta have 'em to do the paperwork, but ya don't have to like 'em.

On 7/13/2017 at 6:59 PM, here_2_help said:

Would you be willing to enter into a FFP/LOE contract (or CLIN) for a fixed number of certain engineering hours for the sole purpose of monitoring a Bill of Material in order to identify technically obsolete parts and then, for those parts, identify potential technical solutions to mitigate that technical obsolescence?

Well....an FFP LOE would facilitate such a review of a BOM only until the hours ran out, so I would say, "no".  Why wouldn't you just estimate the total FFP effort using the number of items on the BOM as your basis of estimate?  It is finite and tangible.  

I would use an FFP/LOE for something like "what is the statistical rate at which items on the BOM will go obsolete in any given year?"*  The confidence interval  associated with  the resulting deliverable  would be defined by the LOE.

(*Edit: Better example - "FFP/LOE contract to identify major challenges and areas for further study  associated with sending an unmanned mission to Planet 9.")

J and C:

Thanks.

REA'n Maker said:

Well....an FFP LOE would facilitate such a review of a BOM only until the hours ran out, so I would say, "no".  Why wouldn't you just estimate the total FFP effort using the number of items on the BOM as your basis of estimate?  It is finite and tangible.  

I would use an FFP/LOE for something like "what is the statistical rate at which items on the BOM will go obsolete in any given year?"  The confidence interval  associated with  the resulting deliverable  would be defined by the LOE.

You can use an FFP-LOE for anything if you can get permission. But the intended use is for R&D, to devote a certain number of hours to the study of something and report what you found out.

Tomahawk,

Based on Vern's comments of the RFP, there are some contract writing systems that require every line item to specify a contract type whether it is priced or not-priced. For the contract writing system I am thinking of, this was part of a mass update that will not allow the line item to go on the contract without the contract type.  Not sure if this is the exact situation because I haven't seen the RFP but wanted to let you know as this may appear depending on the contracting agency's contract writing system.  As previously noted, industry should always ask questions.  Ultimately, the awardee and the Government will live with the contract so at the very least industry's questions should force the CO to think about the question.

On 7/18/2017 at 4:51 PM, Vern Edwards said:

You can use an FFP-LOE for anything if you can get permission

"You can drive a car with your feet if you want to; it don't mean it's a good [gosh darn] idea!"

                                                                                                                                        - Chris Rock

REA'n Maker said:

"You can drive a car with your feet if you want to; it don't mean it's a good [gosh darn] idea!"

Well, let's get down to brass tacks.

FFP LOE can be used effectively whenever the buyer has no end in sight, but still wants to look, so to speak. It can be used effectively when the value is in the effort, not the outcome. It can be used effectively in any endeavor in which the buyer wants the contractor to do something for a period of time and then report what happened during that time. Thus it can work effectively for certain kinds of basic research, natural resource exploration, durability or endurance testing, well digging (in which the LOE is measured in feet), law enforcement search or surveillance, wildlife tracking and observation, and many similar tasks. It can be used for such tasks when the cost of an hour of labor can be fixed at the outset and for the duration.

FFP LOE can be used with options to buy additional hours (or other units of effort) if observations to date suggest that continued work might be fruitful of more good information.

If the cost of an hour cannot be fixed at the outset, then a CPFF LOE is more appropriate.

FFP LOE should not be used when the buyer wants a contractor to finish a job.

On 7/18/2017 at 1:20 PM, REA'n Maker said:

I would use an FFP/LOE for something like "what is the statistical rate at which items on the BOM will go obsolete in any given year?"*  The confidence interval  associated with  the resulting deliverable  would be defined by the LOE.

I wouldn't use an FFP LOE for that, because if I remember my basic statistics correctly the amount of effort would be based on a predetermined sample size based on the size of the population and would should be known in advance. Moreover, the buyer wants an outcome--a statistic.