Indirect Rate Caps

Where ir how is the rate cap published?

Jo, in what context are you asking the question?

If you're talking about requesting a contract mod to remove the rate ceilings in a contract, what consideration are you offering?

I hadn't thought about the "consideration" part.  This is a 10 year contract and we are at the 5th year where the caps come into play from year 5 on out.   We would like to be able to ask them to remove the caps so we can adjust them accordingly due to inflation, etc.,  I don't know what consideration we could offer, most the clins are FFP.

Jo Brown said:

I hadn't thought about the "consideration" part.  This is a 10 year contract and we are at the 5th year where the caps come into play from year 5 on out.   We would like to be able to ask them to remove the caps so we can adjust them accordingly due to inflation, etc.,  I don't know what consideration we could offer, most the clins are FFP.

You want to modify the contract and you didn't think about "consideration?"  That's Contracting 101 - "consideration" is found in every single Elements of a Contract list I've ever seen.

What I'm seeing more and more on this forum is people aren't thinking - they're just coming here to ask for free advice and for someone else to do their thinking for them.  This discussion forum would be much more vibrant and beneficial for all if it wasn't devolving into predominantly simple, half-baked Q&As...

Thank you Matthew.  Have a good day!

Not sure how a rate cap applies to firm fixed-price CLINs other than to price adjustment  mods.

Jo Brown,

Simply stated, you have to show the government CO why it is in the government's interest to remove the rate caps. "Because are rates are increasing and we are losing money" is probably not your strongest argument. Think about what the government might gain, not about what you might gain, from the removal of the ceilings/caps. If you cannot come up with a good reason, you are not likely to get your request approved.

Matthew Fleharty said:

What I'm seeing more and more on this forum is people aren't thinking - they're just coming here to ask for free advice and for someone else to do their thinking for them.  This discussion forum would be much more vibrant and beneficial for all if it wasn't devolving into predominantly simple, half-baked Q&As...

Matthew Fleharty,

While you're not wrong, I think you don't take into account that not everybody here has had CON training. Perhaps we can think of this forum as an opportunity to give out some knowledge (to the extent we have any) and learn 'em up.

Also, please consider changing your user name to "VERN JUNIOR"

Thank you for your comments.  Greatly appreciated.  Love the VERN JUNIOR!

here_2_help said:

Matthew Fleharty,

While you're not wrong, I think you don't take into account that not everybody here has had CON training. Perhaps we can think of this forum as an opportunity to give out some knowledge (to the extent we have any) and learn 'em up.

Also, please consider changing your user name to "VERN JUNIOR"

Well there is a Beginner's Forum for that reason - any post outside that section I assume that person should know the basics of contracting.

My experiences are anecdotal, but it seems there is a growing tendency to just ask for answers rather than contemplate and critically think.  When I see a post that is literally a one sentence question, that screams to me "easy button."  The more we cater to that, the more we're going to get those sorts of questions - I think we all should expect more from individuals in this profession.

Matthew Fleharty said:

The more we cater to that, the more we're going to get those sorts of questions - I think we all should expect more from individuals in this profession.

Quote

Never be cruel, never be cowardly. And never ever eat pears! Remember – hate is always foolish…and love, is always wise.

Always try to be nice and never fail to be kind. ... Laugh hard. Run fast. Be kind.

There is nothing cruel or hateful in my remarks @here_2_help

Jo Brown said:

I hadn't thought about the "consideration" part.  This is a 10 year contract and we are at the 5th year where the caps come into play from year 5 on out.   We would like to be able to ask them to remove the caps so we can adjust them accordingly due to inflation, etc.,  I don't know what consideration we could offer, most the clins are FFP.

It sounds to me like you bargained for and got a 10-year contract -- as part of that bargain, you agreed to rate caps starting in the 5th year -- now that you have the contract, you no longer want to honor your agreement?  You want to renege on your promises?  Look at here_2_help's question:  Why is it in the Government's interest to remove the rate caps?

On a FFP CLIN, an example of consideration would be reducing the unit price by 40% -- just an example.

Jo Brown said:

I don't know what consideration we could offer, most the clins are FFP.

In a contract, one consideration (thing of value given) is exchanged for another consideration. Not doing an act (forbearance) can be consideration. Maybe you can find something in a critical to X factor--Ct(x)--in the arena of time, quality, or cost.

Matthew Fleharty said:

There is nothing cruel or hateful in my remarks @here_2_help

Do you deny you eat pears?

here_2_help said:

Do you deny you eat pears?

I plead the Fifth 😉

On ‎1‎/‎9‎/‎2019 at 10:12 AM, joel hoffman said:

Not sure how a rate cap applies to firm fixed-price CLINs other than to price adjustment  mods.

Jo, can you address this comment from Joel?  I don't see your problem.

Trying to understand how and to what extent the indirect rate caps come into play at years five through ten of your (mostly) FFP contract. Is it for the ‘leastly’ , non FFP CLINs?

Joel,

I suspect this is one of those contracts where things are more complicated that we can understand without reading the contract. I'm guessing some kind of services deal -- maybe an assess/repair thing -- where the assessment is FFP but the repair or replace, if needed, is quoted using current year rates. *Shrug* It's just a guess. As we all know, the contractor went into the competition with eyes wide open and was awarded a 10-year contract. Now the contractor is (perhaps) looking at profit erosion because it couldn't control its rates.

To be fair, I don't believe ANY contractor can forecast, with accuracy, its rates 10 years in the future. I know a few that would be proud to forecast, with accuracy, their next year's rates.

Putting rate caps or ceilings in a contract is well and good. It certainly protects the government's risk of overrun from that cause. On the other hand -- taken to extreme -- if the contractor goes out of business because it's losing too much money then what has the government customer really gained from the risk mitigation strategy? I was just a kid at the time and I had no way to appreciate the contracting nuances involved, but I remember the Lockheed bailout in 1971.

Thanks, ‘Help’. I agree.  I don’t necessarily fault Jo Brown for the question or the fact that ten years is a long time to forecast and lock in indirect cost rates if that is what happened.  I was trying to understand the context of the “rate caps”. 

It may well also very difficult to forecast FFP CLIN costs ten years out.