Contract Types and Recurring
Requirements
Categories of Contract Types
•Fixed-Price contracts
•Cost-Reimbursement contracts
LowRisk
HighRisk
GovernmentGovernmentFFP CPFF
ContractorContractor FFPCPFF
Transition of Contract Types Through the Maturity of a
ProgramCost
Studies/Research/ Concept Refinement
Technology Development
SysDev
SYS Demo
LRIPProductionDeployment
Follow -OnProduction
CPFFCPIF
CPIF/FPIFFPIF/FFP
VERY BROAD REQUIREMENT…………WELL DEFINED REQUIREMENT
The Contracting Officer shall insert FAR 52.216-1, Type of Contract, into the solicitation unless it is for:
•a fixed-price acquisition made under simplified acquisition procedure
• information or planning purposes
"The Government contemplates award of a ___________________ (Contracting Officer insert specific type of contract) contract resulting from this solicitation." (Provision)
The Contracting Process, FFPVs. Cost Reimbursement
FIXED PRICEFIXED PRICE Ktr req’d to deliver Ktr req’d to deliver
product/perform serviceproduct/perform service Provides for a firm price Provides for a firm price
or in some cases an or in some cases an adjustable priceadjustable price
Contract represents full Contract represents full payment for the work; kr payment for the work; kr exceeds at own riskexceeds at own risk
COST REIMBURSEMENTCOST REIMBURSEMENT Ktr req’d to deliver Ktr req’d to deliver
“best effort”“best effort” Reasonable, allowable, Reasonable, allowable,
allocable costs will be allocable costs will be reimbursed reimbursed
Contract amount Contract amount represents an estimate represents an estimate of total cost; cannot be of total cost; cannot be exceeded without CO exceeded without CO approvalapproval
The Contracting Process, Firm Fixed Price Vs. Cost Reimbursement Contract Types
FIXED PRICE Use when technical
and cost uncertainties involved in contract performance can be estimated with sufficient accuracy
Use when work can be clearly defined
COST REIMBURSEMENT Use when
technical/cost uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy
Use only when:
The Contracting Process, Firm Fixed Price Vs. Cost Reimbursement Contract Types
FIXED PRICE Kr bears more
responsibility for performance costs and resulting profit (or loss)
Use FFP or FP/EPA when• acquiring
commercial items• using sealed
bidding, and • negotiated
procurements
COST REIMBURSEMENT• Kr has adequate
accounting system• Govt monitoring
ensures efficient methods and effective cost controls
Kr bears less responsibility
Prohibited for commercial items
Use with negotiated procedures
Contract Types - Characteristics
CostFixed Price
Promise Best Effort Deliverable
Risk to Contractor Low High
Risk to Government High ?
Cash Flow Cost Incurred On Delivery
Progress Payments ---- Yes
Performance Based Payments ----Preferred
Administration High Low
Fee/Profit Periodic On Delivery
Types of Firm Fixed PRICE Contracts
• Firm Fixed Price (FFP)
• Fixed Price with Economic Price Adjustment (FPEPA)
• Firm Fixed Price Incentive Fee (FPIF)
• Firm Fixed Price Award Fee (FPAF)
• Firm Fixed Price Level of Effort (FPLOE)
• Firm Fixed Price Redeterminable (FPR) - Prospective or Retroactive
Features of the FFP Contract•Price not subject to adjustment
regardless of contract performance
•100% of financial risk is on the contractor
•Least amount of administrative burden on the contracting officer
•Preferred over all other contract types
•Used with FAR Parts 13, 14 and 15
•Used in acquiring commercial items
Features of the FP/EPA Contract
•Preferred over cost-reimbursement type contracts
•Reduces contract’s fixed-price risk for government & contractor
•More administrative burden for the contracting officer
•Used with sealed bidding or negotiated procurements
•Used in acquiring commercial items
FIXED-PRICE INCENTIVE (FIRM TARGET)
– Incentivizes Contractor to Control Costs• Greater Profit when Final Cost is less than
Target• Less Profit when Final Cost is more than Target
– Retains the characteristics of the fixed-price contract in that there is a Ceiling Price
– Mitigates Contractor Risk in that the government assumes a share of the cost risk
– Benefits Government as the Government also shares in cost savings
Y
X
PTA
PT 100
PP 50
1000CT
1500CP
PO 150
800CO
1550KC
When final cost is $800;Final price is $950
When final cost exceeds KC;Final price is KC
FIXED PRICE INCENTIVE (FIRM TARGET)
Optimistic Profit
Target Profit
Pessimistic Profit
OPTIMISTIC TARGET PESSIMISTIC
CEILINGCOSTS:
75/25 - Under Target Share Ratio
90/10 - Over Target Share Ratio
FPPR - Fixed Price w/ Prospective Price Redetermination
• Should be used for acquisitions of quantity production or services where it is possible to negotiate a fair and reasonable FFP for an initial period, but not for subsequent periods of performance
• Contracting officer must determine that a FFP or FPI contract will not satisfy the requirement
• Contractor must have an adequate accounting system
• Price must be redetermined promptly at time(s) specified for subsequent periods of performance
FPRR - Fixed Price Retroactive Price Redetermination• Appropriate for research and development
contracts estimated at $100,000 or less when established at outset that a fair and reasonable FFP cannot be negotiated
• Amount involved and short performance period make the use of any other Fixed Price contract impracticable
• Ceiling price negotiated w/shared risk• Not used unless:
– Ktr's accounting system is adequate– There is reasonable assurance that the price
redetermination will take place promptly at the specified time
– The head of contracting activity (or higher official) approves its use in writing.
FPLOE - Fixed Price Level of Effort• Suitable for investigation or study in a
specific research and development arena
• Has a contract product that is usually a report showing the result(s) achieved by application of the required level of effort
• Payment is based on the negotiated level of effort expended and not on results achieved
• Ktr required specified level of effort, over a stated period of time, on work that can be stated only in general terms
Features of FPLOE Contract• The work required cannot be clearly
defined, otherwise, a FFP contract would be more practical
• The required level of effort is identified and agreed upon in advance of contract award
• There is a reasonable assurance that the intended result cannot be achieved by expending less than the stipulated effort
• Contract Price is $100,000 or less, unless approved by the Chief of the Contracting Office
FPAF - Fixed Price Award Fee
Can evaluate a contractor’s performance in:
•cost (effective needs)
•timeliness
•quality of work
•cooperation
Cost Contract• Cost reimbursement contract in which
the contractor receives no fee
• Normally applies only to nonprofit institutions and organizations willing to perform research for which there is no fee or other tangible benefits
• Most suitable for research and development
• Used only in negotiated procurements
CPFF -Cost Plus Fixed Fee• Cost reimbursement contract that provides
for payment of allowable, allocable, reasonable costs & a negotiated fee that is fixed at inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes to the work to be performed.
• Contractor has minimum incentive to control costs
• It is costly to administer• Contractor must have an adequate
accounting system• Least preferred type of contract because
the contractor assumes no financial risk for the performance of the contract
• Used only with negotiated procurements
COST PLUS FIXED FEE (CONT)
• SUITABLE FOR:– Research or preliminary exploration or
study and the LOE required is unknown– Development and test & using CPIF is not
practical• Normally should not be used
– Development of major systems once preliminary exploration, studies & risk reduction have indicated development is achievable and Government has established reasonably firm performance objectives and schedules
COST-PLUS-INCENTIVE-FEE• Appropriate for services or development and
test programs when:– Cost-reimbursement contract is necessary– Target cost and fee adjustment formula
can be negotiated that are likely to motivate the contractor to manage effectively
• Excellent to "wean" contractor from Cost Plus Fixed Fee Contract
2323
Cost-Plus-Incentive-Fee (CPIF)
•
•
•
$70
800 900 1,000 1,100 1,400
Target Fee at Target CostTarget Fee at Target Cost
COST ($)
Min
Max
$0
Min Fee atMin Fee atPessimistic CostPessimistic Cost
Max Fee at Optimistic CostMax Fee at Optimistic Cost
Range of Incentive Effectiveness (RIE)
$120
$20
75/2575/25
87.5/12.587.5/12.5
FEE
Optimistic Cost
Target Cost Pessimistic Cost COST
Indefinite Delivery Contracts
Ordering Vehicles• Flexibility
Quantity Times Places
Benefits Types
• Definite Quantity• Requirements• Indefinite Delivery
Benefits of Indefinite-delivery Contracts
• Government stocks can be maintained at minimum levels
• Direct shipment to users• Flexibility in both quantities and
delivery scheduling• Allows ordering of supplies or
services after minimum quantity specified in the contract
• Faster deliveries
Indefinite Delivery Contract
Indefinite Quantity Contract• Exact quantity unknown above the
minimum• Times/places unknown• Guaranteed minimum• Funds for min obligated on contract;
above min obligated on delivery order Multiple award preference
• Multiple award contracts
Requirements Contract
• Exact quantity unknown/realistic estimate• Exact times/places unknown• No guarantee/but promises to buy from
awardee• Funds obligated by each delivery order
Definite Delivery Contracts
Definite Quantity Contract• Exact quantity known• Exact times/places unknown• Funds obligated on contract at
time of award
Time and Materials Contracts
Provide for contracting for supplies or services on the basis of:
• direct labor hours at specified fixed hourly rates
• material at cost, which may include a material handling cost as part of the material cost
NOT A CONTRACTNOT A CONTRACT Types of AgreementsTypes of Agreements
• Basic AgreementBasic Agreement• Basic Ordering AgreementBasic Ordering Agreement• Blanket Purchase AgreementBlanket Purchase Agreement
Types of Agreements
Basic Ordering AgreementThe agreement contains:
• terms and clauses applying to future contracts between the parties during its term
• a description, as specific as practicable, of supplies or services to be provided
• methods for pricing, issuing, and delivering future orders under the basic ordering agreement
Simplified method of filling anticipated Simplified method of filling anticipated
repetitive needs for supplies or services repetitive needs for supplies or services by establishing "charge accounts" with by establishing "charge accounts" with qualified sources of supply. (FAR 13.303)qualified sources of supply. (FAR 13.303)
Establishing BPAsEstablishing BPAs• Usually a local supplierUsually a local supplier• Place calls for suppliesPlace calls for supplies• Pay monthlyPay monthly• Establish more than one BPA to maintain Establish more than one BPA to maintain
competitive prices unless:competitive prices unless:
Blanket Purchase Agreements
7-21/22
Multiple Awards should not be made when:
• Only one contractor is capable of providing performance at the level of quality required
• Based on the contracting officer’s knowledge of the market, more favorable terms and conditions, including pricing, will be provided if a single award is made
• Administrative costs outweigh any potential benefits
• Tasks are so integrally related that only a single contractor can reasonably perform the work
• The total estimated value of the contract is less than the simplified acquisition threshold
• The contracting officer determines that multiple awards would not be in the best interest of the Government
Multiple Awards should not be made when (Cont’d):
Market Conditions for Using Options
• likely to be stable enough to preclude putting the contractor at undue risk
•not likely to change substantially during the option period
Use of Multiyear Contracts
• No-year or multiyear funds are available
• Funds are likely to be available throughout the contract period at levels above the cancellation ceiling
• You expect no substantial change in the minimum need during the contemplated contract period
• You plan to award a FFP, FP/EPA or FPIF contract
• A multiyear contract would probably cost less than a string of 1-year contracts
SUMMARY
•There are two major categories of contract types: Fixed-Price and Cost Reimbursement
•To choose the appropriate contract type, the contracting officer must consider: – performance risk– market risk