Service Contract FPP/FFPLOE/LH

DCDOD2020 said:

Thus, I think FFP, whereby the contractor invoices based on the number of actual hours worked is the most sensical approach. In simplistic terms, if 10 contractor's work 5 hours a day for 7 days" then they'd invoice for 350 hours for that period.

What you describe here is, in effect, Labor Hour.  If it were actually FFP, the number of actual hours worked would be irrelevant. FFP = Do job, get paid agreed to sum in full,  whether it takes 5 hours or 20 hours.

My understanding is FFP LOE is only for R&D, so no.

Most of the contractors I have dealt with love Level of Effort and Labor Hour because it has minimal risk for them.   Government pays for the input, not the output.  Easy to plan and/or max out revenue.  If you ever have a conference call with a contractor, and like 5 extra contractors are on the phone contributing nothing, they've got quotas to meet for their billable hours.   That said, I have used LH a lot, and opinions of competent and honest people will differ on what, exactly, is a " reasonable degree of confidence."  Comes down to trust, relationships, and negotiating prowess.  

From what you've written, it reads like a pretty clear-cut case for FFP.

Thanks for the reply. I concur with your position that LOE is intended for R&D which this is not. It's to staff a "Covid call center" of sorts with contractors, vice government employees. 

In the SOW we established what we anticipate the hours will be for all positions, and noted actual hours may vary. So while we have folks as FTE's ( 40 hours a week), we stated it could be more or less demanding on call volume and we would provide a week or so notice of any fluctuations in staffing hours. 

When you say that for FFP the actual hours would be irrelevant, then FFP wouldn't be proper here then, if our intent  is to pay out based on actual hours worked at fixed fully burdened labor rates? Continuing my example, if week 2 the 10 contractor's worked 4 hours a day for 7 days, that comes out to 280 hours and they would then invoice for 280 hours. But under FFP, if I understand you correctly, it wouldn't matter how many hours per se, because they will get the FFP value of the contract based, assuming they perform to the terms of the contract. 

So should it then be LH, since hours may fluctuate? It's all shift work. 

Rates are based on the IDIQ rates and are fully burdened. 

Now, we can T4C, if need be, if we no longer need the services ( but that's another discussion).

DCDOD2020 said:

Continuing my example, if week 2 the 10 contractor's worked 4 hours a day for 7 days, that comes out to 280 hours and they would then invoice for 280 hours. But under FFP, if I understand you correctly, it wouldn't matter how many hours per se, because they will get the FFP value of the contract based, assuming they perform to the terms of the contract.

True.  With a few caveats 

For a new call center, my guess is straight FFP is not appropriate,  I'd guess there is unknown and/or unpredictable call volume, or whatever, aka you cannot accurately estimate anticipated costs with any degree of confidence.

A call center is very much a 'commercial item,' so I would suggest follow commercial pricing practices to the extent possible.   Which, I would guess from what you wrote, is LH. If it is, and all is well with FAR 12.207, and you get approval to do it that way, by all means, do it that way. 

If its Call Centers As a Service (PSC DC10 & DC01) it probably uses typical 'As A Service' pricing - which is pay-for-usage.  Which is often T&M.  Or if-necessary to comply with some mandate to used firm fixed price,  some complicated pricing monster that is legally FFP, but sorta works for cloud services, and makes everyone unhappy (one of my specialties).

The real experts may weigh-in here, and I pre-emptively defer to them.

General.Zhukov said:

True.  With a few caveats 

For a new call center, my guess is straight FFP is not appropriate,  I'd guess there is unknown and/or unpredictable call volume, or whatever, aka you cannot accurately estimate anticipated costs with any degree of confidence.

A call center is very much a 'commercial item,' so I would suggest follow commercial pricing practices to the extent possible.   Which, I would guess from what you wrote, is LH. If it is, and all is well with FAR 12.207, and you get approval to do it that way, by all means, do it that way. 

If its Call Centers As a Service (PSC DC10 & DC01) it probably uses typical 'As A Service' pricing - which is pay-for-usage.  Which is often T&M.  Or if-necessary to comply with some mandate to used firm fixed price,  some complicated pricing monster that is legally FFP, but sorta works for cloud services, and makes everyone unhappy (one of my specialties).

The real experts may weigh-in here, and I pre-emptively defer to them.

The IDIQ has labor categories and we selected the LC that is basically for admin related work. Then we created the SOW with the duties. And as I previously stated the rates are based on the IDIQ with a slight discount. So it’s a bit like a call center, but with lipstick if you will.  

With straight FFP for services, is it correct to say that you basically “guarantee” the hours, even if you break it out by positions? But, you in theory can always de-scope to reduce hours from what’s in the SOW.   

The CLIN has a value that’s based on the current hours expected to be working by the dozen or so positions referenced in the SOW.    

And it’s fully funded.   

The threads on wifcon and NCMa are all over the place on the topic.   

My takeaway has been basically that call it FFP/loe/lh, but what matters is how you tell them to invoice lol-but I’d rather get it right and know why, rather than relying on the “oh, it’s just because that’s how we always have done it!”

@DCDOD2020

DCDOD2020 said:

I did some research and there seemed to be different philosophical views on whether a particular service contract should be FFP LOE/FFP/LH and it almost seemed like people prefer one over the other, not because its right, but because its just how they've always done it. 

My previous experience was in commercial FFP EPA IDIQ supply contracts, so I don't have as much familiarity with service contracts, so I appreciate anyone's thoughts/perspectives.

Firm-fixed-price. You should use a firm-fixed-price contract when you can specify the work you want done and you and the contractor can agree on a fair and reasonable price. The government pays the stipulated price when the work is completed acceptably.

Firm-fixed-price level-of-effort term. You should use a firm-fixed-price level-of-effort term contract when you want something done, but there is no natural beginning and end to the job. You might want a contractor to observe some natural or man-made phenomenon for some period of time and report its observations. Such a study might entail the work of one or more persons and go on for years. The purpose of the combined level of effort and term is to set the scope of the project, which otherwise would have no inherent boundaries.

For example, you might want ornithologists to observe and report the social behavior of bald eagles in the Columbia River Gorge between the Wind River estuary and The Dalles Dam during the period 1 December 2020 through 28 February 2021. You agree with the ornithologists to a level of effort---a number of hours of observation---that is to be delivered during that period of time. You might also agree on the number of observers and the places, hours, methods, and standards of observation. The combination of the level of effort and the term establish the scope of the project. The government pays the stipulated price upon completion of the level of effort, performed acceptably throughout the term, and the delivery of a report.

While this type of contract is typically used for research, its use is not strictly limited to research, except, perhaps, by individual agency policy. And while the level of effort is commonly expressed in terms of hours, other measures and units of effort can be used

Labor-hour. You should use a labor-hour contract when you know the result you want the contractor to produce, but the two of you cannot estimate how long it will take and how much it will cost to achieve the result, because you are not sure what work the contractor will have to do to achieve it. An example might be the repair a malfunctioning item of complex equipment when you don't know what's wrong with it. You and the contractor agree to hourly labor rates, a ceiling price, and a period of performance. If the contractor reports that it cannot complete the repair within the ceiling, you can increase the ceiling and require the contractor to keep working at the agreed hourly rates until the period of performance expires. The government pays the stipulated labor rates up to the ceiling price for the actual hours of work used to complete the work acceptably.

Summary. Confusion and conflict about the appropriate use of those three contract types is not uncommon. It is generally the result of (1) poor training and (2) not thinking things through. Proper selection and use is part of the practitioner's art.

@General.ZhukovGeorgy, Do you know you were promoted to Marshal?

DCDOD2020 said:

My takeaway has been basically that call it FFP/loe/lh, but what matters is how you tell them to invoice lol-but I’d rather get it right and know why, rather than relying on the “oh, it’s just because that’s how we always have done it!”

I hope @Vern Edwardspost helped you on the difference.   I do have to say that the difference stretches to "how you tell them to invoice" as well.    Specifically I suggest a close read of the payment clauses.   As it does not appear that you have settled on commercial item or not (or least it is not stated in this thread) make sure you read the clauses that apply either out of FAR Part 32 or FAR Part 12.

So then it sounds like we should have the task order as a LH, which would allow for the contractor to invoice based on actual hours  worked with hours NTE the maximum hours per each of the positions? Rate would be the negotiated FBLR based on the IDIQ and discounted for the TO by the contractor.

If you think so.

DCDOD2020 said:

So then it sounds like we should have the task order as a LH, which would allow for the contractor to invoice based on actual hours  worked with hours NTE the maximum hours per each of the positions? Rate would be the negotiated FBLR based on the IDIQ and discounted for the TO by the contractor.

If you think so.

None of them fit perfectly, but the LH sounds like it would be most appropriate, considering that we aren’t definitely sure how many hours may actually be needed at the end of the day, though as I stated previously we established positions with FTE and PT, but noted that hours may change as conditions warrant.

Are you with Washington Headquarters Services?

One of the things that I include when considering matters such as this is who determines the hours the contractor will work -- for example, if the contractor gets to manage the hours within the ceiling ("use its best efforts to perform the work specified in the Schedule and all obligations under this contract within such ceiling price"), then maybe LH is appropriate.  But if the Government is dictating the hours, well, that isn't a LH construct -- maybe each hour can be FFP and we can order however many hours we want.

In the SOW we included our baseline hours expected hours. 12 positions, 40 hours a week M-F. But we stated in the SOW that that could be subject to change based on conditions and could change and sufficient lead time would be provided for contractor to adjust.   

Right, the government is dictating the hours. The labor rates are fully burdened.   

So I think going back to what I originally said is that “pick whichever, and just specifics how to invoice.”

The base IDIQ states contractors are to invoice actual hours. So that’s partially what drove me to think simplistically. The duties are clear as they have been performed by gov folks up till now.

All the other task orders from the IDIQ are LOE and invoice twice a month based on actual hours worked. The difference between those and this particular Task Order is that hours could change.    

And no. Not WHS.

I don't think of FPLOE as a mechanism to allow a contractor to bill actual hours.  

If the contract requires a level of effort of 80 hours per week, for example, and the contractor performs 79, then the contractor is in default and is entitled to zero payment, not 79/80th payment.  And if the contractor performs 81, it gets only the price agreed for 80.  At least, that is how I see it.

ji20874 said:

If the contract requires a level of effort of 80 hours per week, for example, and the contractor performs 79, then the contractor is in default and is entitled to zero payment, not 79/80th payment.  And if the contractor performs 81, it gets only the price agreed for 80.  At least, that is how I see it.

I have seen FFP-LOE contracts that included a provision which stated that if performance was otherwise acceptable, there would no default and no price adjustment if the actual LOE were within +/- x percent of the specified LOE. The allowable deviation was usually small. No more than 5 percent. In one place that I worked we had a standard local clause to that effect. But those were in the days before automated and real-time accounting systems.

DCDOD2020 said:

My team recently awarded a TO and it was my position that it would be FFP. The SOW stipulated that hours and positions may be trimmed/increased based on conditions related to workload, but the tasks of the contractor is clearly defined.  The SOW established expected hours for the respective positions.

For what kind of work was that task order? What was the job?

ji20874 said:

But if the Government is dictating the hours, well, that isn't a LH construct -- maybe each hour can be FFP and we can order however many hours we want.

Interesting, never read this difference b/w FFP & LH, -  who determines the hours - but it makes sense.  

On 2/21/2021 at 11:04 PM, Vern Edwards said:

promoted to Marshal?

"Field Marshall of the Soviet Union Zhukov" seems a little pompous.

General.Zhukov said:

"Field Marshall of the Soviet Union Zhukov" seems a little pompous.

Maybe not if you recall that the Field Marshal was publicly humiliated by Stalin for being more popular than he was.

General.Zhukov said:

"Field Marshall of the Soviet Union Zhukov" seems a little pompous.

Hey, man, I know the story of how you got that rank. You earned it. Marshal Zhukov it is from now on.

On 2/22/2021 at 12:33 PM, DCDOD2020 said:

In the SOW we included our baseline hours expected hours. 12 positions, 40 hours a week M-F. But we stated in the SOW that that could be subject to change based on conditions and could change and sufficient lead time would be provided for contractor to adjust.   

Right, the government is dictating the hours. The labor rates are fully burdened.   

So I think going back to what I originally said is that “pick whichever, and just specifics how to invoice.”

The base IDIQ states contractors are to invoice actual hours. So that’s partially what drove me to think simplistically. The duties are clear as they have been performed by gov folks up till now.

All the other task orders from the IDIQ are LOE and invoice twice a month based on actual hours worked. The difference between those and this particular Task Order is that hours could change.

The problem appears to be that you cannot forecast your demand, and so you're paying by the hour at "fully" burdened labor rates.

Your agency is a gold mine. I'll bet your contractor is investing in Bitcoin.

Ha. The powers that be have said we will go with FFP-LOE. The PMO is interpreting FAR 16.207-1(b) to mean the hourly labor rate not a “lump sum.” Further since we outlined specific hours that they must work while reserving the right to reduce them as conditions warrant. Further, the PMO is interpreting that FAR 16.207-1(a) “general terms” to mean general duties-answer phone, handle data collection, coordinate with xyz” which is what the SOW   vice “80 percent of calls need to be answered within 50 seconds” to meet the definition of “general terms.” “Fixed dollar amount” and “general terms” aren’t defined in the FAR and thus per the FAR unless it says otherwise you can do please within reason. I’m not sure I’m fully onboard with his opinion, but it’s above my pay grade. I intend to have conversations with the PM on the next generation of the IDIQ and the types of contracts that will be used for the subsequent TO’s.

Whatever.

Every year there are millions of stories in the world of contracting.

This has been one of them.

DCDOD2020 said:

The powers that be have said we will go with FFP-LOE.

Educated guess.  The powers to be are too afraid to step up and justify a Labor Hour approach so they shoe horn something into what it is not!

In my opinion, LOE doesn’t fit your scenario. You anticipate a variable effort, not “level effort”. Unless you issue formal changes, you will pay the fixed amount even if you reduce the hours needed. If you increase the total hours or conditions you’d need a mod.

Lump sum FFP doesn’t fit.

A unit priced Contract seems to fit. Therefore  labor Hour pricing scheme appears to me to be the most appropriate choice amongst available choices.

.

I think the acquisition in question is for some kind of support service. What follows is based on that assumption.

We all (should) know that a contract may be of any type or combination of types. The issue in this case seems to be the buyer's inability to forecast demand and the decision to pay for services performed at fixed and burdened hourly rates. It can be hard to establish "burdened" labor rates (unit prices) when demand is uncertain, because "burden" is generally allocated on the basis of expected demand. Burden includes fixed costs, variable costs, and semi-variable costs. The fixed and semi-variable costs are the problem.

If the parties underestimate demand, the contractor may overly absorb fixed and semi-variable costs, which become additional profit past the break-even point. If the parties overestimate demand, the contractor may not fully absorb those costs, and might make less profit or even lose money. If you are going to pay a contractor at fixed rates for hours worked, then the problem is the same whether you call the contract L-H or FFP-LOE.

In my experience, the government usually (but not always) underestimates demand for support services.

Vern Edwards said:

I think the acquisition in question is for some kind of support service. What follows is based on that assumption.

We all (should) know that a contract may be of any type or combination of types. The issue in this case seems to be the buyer's inability to forecast demand and the decision to pay for services performed at fixed and burdened hourly rates. It can be hard to establish "burdened" labor rates (unit prices) when demand is uncertain, because "burden" is generally allocated on the basis of expected demand. Burden includes fixed costs, variable costs, and semi-variable costs. The fixed and semi-variable costs are the problem.

If the parties underestimate demand, the contractor may overly absorb fixed and semi-variable costs, which become additional profit past the break-even point. If the parties overestimate demand, the contractor may not fully absorb those costs, and might make less profit or even lose money. If you are going to pay a contractor at fixed rates for hours worked, then the problem is the same whether you call the contract L-H or FFP-LOE.

In my experience, the government usually (but not always) underestimates demand for support services.

Can one incorporate a form of variation in estimated quantity term or clause in a unit priced (e.g., L-H) service contract, if variation in workload is anticipated? I’m thinking of something that would address the over and under risks you mentioned.

I don't know of any reason why the parties could not negotiate a clause that provides for adjustment based on actual demand.

Thanks, Vern.  It reinforces my thinking that LOE is not appropriate here when the anticipated workload is variable.

They could write an "LOE" contract that includes an option for periodic incremental increases in the LOE. It wouldn't be a "traditional" LOE contract, but it might work.

Vern Edwards said:

They could write an "LOE" contract that includes an option for periodic incremental increases in the LOE. It wouldn't be a "traditional" LOE contract, but it might work.

But what about decreases?

My early experience using a form of LOE was back in the early 80’s where the Corps of Engineers’ Mobile District Procurement and Supply Office issued LOEs for x months of materials testing of concrete and soil densities, etc. on civil type construction programs. “Procurement and Supply” or “P&S” was the term for the Contracting Office back then. The demand for testing services was overestimated and we had to pay one contractor a huge balance at the end of the contract period.

Another testing lab voluntarily billed us only for the actual tests performed or labor hours (don’t remember which, as it was almost 40 years ago)  and offered to extend the period of services to use up the remaining balance on their contract. They were really great to work with. 

I remember my Resident Engineer and the Area Engineer were very angry with the P&S Office for issuing a level of effort type contract.

joel hoffman said:

But what about decreases?

You could easily make provision for that. If the parties can think of and agree to a solution, they can implement it contractually.

None of this is hard, if the parties are willing to put their brains to it. Once you understand the core problem, uncertain demand, you can fashion a contractual solution.

It ain't rocket science.

Basically. It’d be a bilateral de-scope to the effect of reducing the hours for positions A/b/c/d from xx hours to yy hours.” Contractor could propose price increase in that instance.

Cumbersome. Unimaginative. But, whatever.

Or, perhaps, the contract could be awarded as a cost-reimbursement type, in which case labor costs, as well as indirect burden costs, would automatically true-up.

@here_2_helphelp, you're gonna ruin the fun. 😂

This is a type of usage-based contract, which is a thing I do.  I am writing this relatively lengthy example here, but will use it outside of Wifcon.  

Background

Contract is for a new call center.  Pricing is $1/call - or some FFP measure of actual usage.  We expect to get somewhere between 3,000 - 36,000 calls over a year, with point estimate of 12,000.  Call volume may fluctuate a lot from month to month.  The funding office is unwilling to obligate $12,000 (let alone $36,000), wait a year, and maybe get some back. You want to avoid this call: "Oh no, the ceiling will be hit in a few days, we missed that email, and we must get additional quantity immediately.  No, we don't yet have the funds, but please start exercising the option now, we promise we'll get you the money before the lights turn off."  

Plan for periodic reconciliation and modification of contract to account for uncertain usage/demand

Contract has a pre-planned agreed-to schedule of periodic bilat modifications, to account for actual usage and changes to expected future usage. Set up these periodic reviews like options, even though they aren't options.  So they have dates, and quantities, and the rest.  Otherwise, it gets confusing.  Start with low end of usage estimate, since its easier to increase quantity and $ over time.

Line Items

1. Licenses.  [Quantity 3,000] [Call]  [$1]  [$3,000 FFP]  This is enough licenses for 3,000 calls.  Covers low end of usage estimate.   Only obligates $3,000 at time of award.

2. Option 2nd Quarter.  Q 3,000

3) Option 3rd Quarter.  Q 3,000 

4) Option 4th Quarter.  Q 3,000 

5) Option Reserve.  Q 24,000 

Optional line 2-4 are for additional quantity, and are planned to be 'exercised' quarterly.  These aren't options, but set up as-if they were.

Option line 5 is for an additional 24,000 calls, a sort of strategic reserve in event that demand is high, and so that the contract incl. options total value = $36,000.

Quarterly Reconciliation based on Usage

Each quarter, actual usage of current period and forecast usage next period are reconciled to produce a Net Quantity.   The Q on the 'option' for that quarter is changed from 3,000 to this Net Quantity, which may be more than or less than 3,000.  Then the option is 'exercised' via bilat mod.  Net Quantity calculated like this:    

• Net Quantity = [3,000] - [Unused $ from prior quarter, which roll forward] + [forecast increase in demand over and above 3,000/period]
• If Net Quantity > 3,000, then the excess quantity is deducted from CLIN 5 so total contract value does not exceed $36,000.
• Net Quantity should not be less than zero, except at end of PoP maybe.

Annual Reconciliation

At end of the year long PoP, the government very likely will have paid for un-used services that will expire (if the call center is considered a severable service, and the funds are annual, and no trickery).   For example, the GVT paid for total of 13,500 calls, but on December 31, has only gotten 13,100.  So $400 over. If the contract has another PoP, the contractor 'credits' the GVT at the start of the next PoP (which is common, if not necessarily compliant with federal regs), so at the start of the new PoP the GVT pays $2,600 but gets 3,000.  Otherwise, deob.

I’m going to have a talk with the PM, esp re contract types for the next gen IDIQ program. Industry seems to prefer FFP LOE. Other than this task order, which is a outlier, the rest have predictable hours 8 hours a day. The task orders lay out all the positions job description and duties, some of which are very technical. There’s also optional positions that can be exercised. So I think, FFP may be more appropriate, and have the invoice terms reflect invoicing based on actual hours using the negotiated FBLR from the IDIQ that’s discounted on the TO further. Like I surmised previously it comes down to the terms and how you tell them to invoice. A lot of what many of us do in the 1102 field is kind of maintain the status quo and repeat what others have done-even though it’s not actually right.   

I don’t think I agree with the PM’s view  that unless you get into gnarly details of duties  that “general terms” is represented by duties such as “take detailed notes in meetings, conduct analysis of x, monitor y etc.”   

“General terms” I would take to reflect no specificity of what you intend them to do.

DCDOD2020 said:

Industry seems to prefer FFP LOE

Of course!

The way I see it, @DCDOD2020 has a requirement for temporary staffing. Shouldn't he conduct market research to see how staffing agencies price their services for temporary employees and then use a pricing arrangement that is consistent with customary commercial practice?

This is through a IDIQ task order and as I had mentioned it’s being filled through a labor category that aligns with the requirement. We released a draft RFP and made revisions based on the feedback received. As I stated it’s not merely a call center position, as I used that descriptor to illustrate the sort of work that will be performed. Really, it doesn’t matter, as the question comes down to more of a philosophical question of how you want to interpret the FAR with respect to the unique circumstances of this requirement. The way I described it was “call center with lipstick.” There’s coordination responsibilities, some data work, etc.

DCDOD2020 said:

This is through a IDIQ task order and as I had mentioned it’s being filled through a labor category that aligns with the requirement. We released a draft RFP and made revisions based on the feedback received. As I stated it’s not merely a call center position, as I used that descriptor to illustrate the sort of work that will be performed. Really, it doesn’t matter, as the question comes down to more of a philosophical question of how you want to interpret the FAR with respect to the unique circumstances of this requirement. The way I described it was “call center with lipstick.” There’s coordination responsibilities, some data work, etc.

Is it a Government call center staffed with contractor employees (or a mix of government/contractor employees)? Or is it a contractor call center?

FAR Part 16 is not well-adapted to the kinds of contracts, especially service contracts, being awarded today. Agencies are jury-rigging pricing arrangements that suit their needs, call them what they will. But some of those arrangements are ill-devised, because people at the working level don't get the pricing education that they need.

It is fruitless to look in FAR Part 16 for solutions to all of today's contract pricing needs, and it is silly to insist that agencies squeeze their practical adaptations into Part 16's ancient "type" descriptions,  which have changed little since my first days in contracting, almost 50 years ago. Unfortunately, we will get no solutions from OFPP and the FAR councils.

What we need is a critical study of the pricing arrangements that agencies are actually using and a catalog of the modern pricing problems encountered in the field, developed by people who understand, which means people other than the go-to usual suspects (Rand).

FAR Part 16 needs a rethink (not a rewrite), and we need a policy brain trust of creative adapters and forward thinkers to take the point.

Good idea. In the interim, let's change the last sentence in FAR 16.102(b) to say:

"Contract types not described in this regulation shall not be used, except as a deviation under subpart  1.4, unless market research demonstrates a different contract type is consistent with customary commercial practice."

@Don Mansfield Think about this, from FAR 16.102(b), which consists of two sentences:

1. "Contracts negotiated under Part 15 may be of any type or combination of types that will promote the Government's interest, except as restricted in this part (see 10 USC 2306(a) and 41 USC 3901)."

Then, in the very next sentence:

2. "Contract types not described in this regulation shall not be used, except as a deviation under Subpart 1.4"

Now, is a combination of contract types itself a contract type?

If so, does the FAR describe every possible combination of contract types?

If not, does that mean that a contracting officer may not use any combination of contract type that is not already described in the FAR without a deviation?

If so, what combinations of contract types does the FAR describe?

Are there any combinations of contract types that we can use without a deviation?

@Don Mansfield Here's something to think about---a quote from the Armed Services Procurement Regulation (ASPR) of 1974, the year I entered the contracting world. Citation: 32 CFR 3.401(b):

Quote

Pursuant to the authority of 10 U.S.C. 2306, a contract negotiated under this part may be of any type or combination of types described herein which will promote the best interests of the Government, subject to the restrictions described below. Types of contracts not described herein shall not be used, unless pursuant to a deviation under § 1.109 of this chapter.

Haven't we made progress!

Vern Edwards said:

@Don Mansfield Think about this, from FAR 16.102(b), which consists of two sentences:

1. "Contracts negotiated under Part 15 may be of any type or combination of types that will promote the Government's interest, except as restricted in this part (see 10 USC 2306(a) and 41 USC 3901)."

Then, in the very next sentence:

2. "Contract types not described in this regulation shall not be used, except as a deviation under Subpart 1.4"

Now, is a combination of contract types itself a contract type?

If so, does the FAR describe every possible combination of contract types?

If not, does that mean that a contracting officer may not use any combination of contract type that is not already described in the FAR without a deviation?

If so, what combinations of contract types does the FAR describe?

Are there any combinations of contract types that we can use without a deviation?

Since the language isn't very clear, I would interpret it in a way that creates the least amount of work for the contracting officer. Old habit.

So, I would not interpret a combination of contract types as a distinct contract type. I think "combination" in this context means that some line items are one permissible contract type and other line items are another permissible contract type. I also think that "contract type" in this context is referring to cost or pricing arrangement.

Vern Edwards said:

@Don Mansfield Here's something to think about---a quote from the Armed Services Procurement Regulation (ASPR) of 1974, the year I entered the contracting world. Citation: 32 CFR 3.401(b):

Haven't we made progress!

Max Planck suggested that science progresses one funeral at a time. In other words, much faster than procurement policy.

Quote

A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it. -Max Planck

Twenty years ago, I really thought the Courts had recognized that the FAR did not prescribe the universe of possible transactions between those acquiring goods/services and those providing them. Unfortunately my optimism was short-lived, as the Federal Circuit reversed. It would have been interesting to see how the rule-makers dealt with the situation, had the ASBCA decision been affirmed.

Don Mansfield said:

So, I would not interpret a combination of contract types as a distinct contract type. I think "combination" in this context means that some line items are one permissible contract type and other line items are another permissible contract type. I also think that "contract type" in this context is referring to cost or pricing arrangement.

My point was that the wording of FAR 16.102(b) is logically absurd.

Vern Edwards said:

My point was that the wording of FAR 16.102(b) is logically absurd.

The ASPR at 32 CFR 3.401(b)  was much clearer.

“41 U.S. Code § 3901 - Contracts awarded using procedures other than sealed-bid procedures 

(a)Authorized Types.—

Except as provided in section 3905* of this title, contracts awarded after using procedures other than sealed-bid procedures may be of any type which in the opinion of the agency head will promote the best interests of the Federal Government.”

*Section 3905 prohibits cost plus percentage of costs contracts.

“10 USC 2306. Kinds of contracts

(a) The cost-plus-a-percentage-of-cost system of contracting may not be used. Subject to the limitation in the preceding sentence, the other provisions of this section, and other applicable provisions of law, the head of an agency, in awarding contracts under this chapter after using procedures other than sealed-bid procedures, may enter into any kind of contract that he considers will promote the best interests of the United States.”

It seems that both the ASPR and current FAR language are more restrictive than the current applicable (Titles 10 and 41). Statutory language. .

joel hoffman said:

The ASPR at 32 CFR 3.401(b)  was much clearer.

Clearer than the FAR? Joel, I don't think so. They were almost identical.

Vern, the ASPR is clearer than the FAR. The ASPR said: 

“Pursuant to the authority of 10 U.S.C. 2306, a contract negotiated under this part may be of any type or combination of types described herein which will promote the best interests of the Government, subject to the restrictions described below.” 

(The “restrictions” refers to the cost plus percentage of cost method.) 

Then it goes on to reinforce that by saying types other than those described herein can’t be used without a waiver. There is no contradiction.

On the other hand, FAR 16.102 (b)  leads off, teasing us with the seeming promise of allowing any type or combination that promotes the government s interest:

“Contracts negotiated under Part 15 may be of any type or combination of types that will promote the Government's interest, except as restricted* in this part (see 10 USC 2306(a) and 41 USC 3901)."

*(Again, the “restriction” refers to the cost plus percentage of cost method.)

Then, FAR 16.102 (b) contradicts itself in the very next sentence, as you stated above, by limiting contract types to those specifically described.

The slight difference in wording  between the two leads to some confusion in the FAR but is clear and consistent in the ASPR.

My other point was that the FAR (and the old ASPR) limit contract types to those described therein. The Statutes don’t.

joel hoffman said:

current FAR language are more restrictive than the current applicable (Titles 10 and 41). Statutory language. .

Ah but are "we" sure.   I stated the inclusive for a reason.   I did not spend a couple of hours looking at FAR part 16 in detail to sort it out rather my comment is based on FAR 16.000 that seems to provide the permissive and is followed by detail of each contract type with imperative limitations.   But as noted in part of this thread the imperative in some cases allows wiggle room.

@Don Mansfield Imagine a contract that would work as follows:

The agency will specify a service task. The parties will negotiate an estimated number of hours, a fixed performance fee, and a ceiling price. The agency will pay the contractor only upon successful completion of the work. The contract is for completion, not best efforts.

The amount to be paid for acceptable performance will be the lesser of (a) allowable incurred costs plus the performance fee or (b) the ceiling price.

The clause at FAR 52.232-1 will apply if the total of allowable incurred costs and fee equals or exceeds the ceiling price. The clauses at FAR 52.216-7 and -8 will apply below the ceiling price. The contract will not include the limitation of cost clause at FAR 52.232-20.

Questions:

(1) Do you think such a contract is among the types already described in FAR Part 16?

(2) If your answer is yes, which type?

(3) If the answer to the first question is no, do you think the CO must seek an approved FAR deviation in order to enter into a contract of that type?

I'm not trying to set you up for an argument. I just want to understand your interpretation of FAR 16.102(b).

Vern Edwards said:

(1) Do you think such a contract is among the types already described in FAR Part 16?

No

Vern Edwards said:

(3) If the answer to the first question is no, do you think the CO must seek an approved FAR deviation in order to enter into a contract of that type?

Yes

Thanks, Don!

I suspect that many if not most COs would agree with you. I don't know the "correct" answers. I think that what I described is a "hybrid" combination of types described in FAR---FFP and CPFF. I don't think a deviation is needed. But I think the possibility that many would believe they need approval to deviate is an example of what Mike Wooten (former Administrator of Federal Procurement Policy) called "friction" in the acquisition system.

On reflection, I think that some hybrid combinations will not work with the standard FAR payment clauses, and in such cases a deviation would be needed.