Federal Acquisition Institute
Document Sample
This course is sponsored by the
Federal Acquisition Institute
The primary organization providing knowledge and
support to the federal acquisition workforce
Agenda
• Welcome
• Speaker Introduction
• The Basics of Competition and Contract Types
• Hot Topics
• FAI Closing Remarks
Dr Donna McCarthy
FAI Director
Mathew Blum
Associate Administrator
Acquisition Learning Seminar
The Basics of Competition and Contract
Types
David J. Capitano
Director, Acquisition Oversight
Office of the Chief Procurement Officer
January 27, 2010 U.S. Department of Homeland Security
Objectives
Upon completion of this ALS, participants will be able to:
• Describe the benefits of competition in acquisition
• Understand the statutory exemptions from competition
among different contract types
• Identify when each contract type may/should be used
Topics
I. Competition
II. Contract Types
I. Competition
Competition
Competition provides the best assurance that we
have
• Received a fair and reasonable price,
and
• Obtained the most comprehensive input on the
technical aspects of the various methods in
which the work can best be performed.
Competition
Policy
Contracting without providing full and open
competition after exclusion of sources is a violation of
statute, unless permitted by one of the exceptions in
6.302.
FAR Part 6.301
Competition
Policy
Each contract awarded without providing for full and
open competition shall contain a reference to the
specific authority under which it was awarded (FAR
6.301(b)).
FAR Part 6.301
Competition
Policy
The contract file must contain adequate written
documentation (FAR 6.303) and approval (FAR
6.304) to justify the exception.
FAR Part 6.301
Competition
• Contracting without providing full and open
competition is not justified by:
– Lack of advance planning
– Concerns related to the amount of funds available (e.g.,
funds will expire)
Exceptions from Full and Open Competition
Only One Responsible Source
• For other than DoD, NASA, and Coast Guard, only
one source is available, and no other supplies or
services will satisfy agency requirements (FAR
6.302-1)
– Substantial duplication of cost to the Government that is
not expected to be recovered through competition
– Unacceptable delays in fulfilling the agency
requirements
Exceptions from Full and Open Competition
Only One Responsible Source–Brand Name
• J&A required for brand name descriptions
– Any acquisition that uses brand name descriptions or
other purchase description to specify a particular brand
name, product, or feature of a product peculiar to one
manufacturer does not provide full and open
competition regardless of the number of sources
solicited.
Exceptions from Full and Open Competition
• Unusual and Compelling Circumstances (FAR
6.302-2)
– Agency need for the supplies or services is of such an
unusual and compelling urgency that the Government
would be seriously injured unless the agency is
permitted to limit the number of sources.
Exceptions from Full and Open Competition
FAR
Reference
6.302-3 Industrialization mobilization
6.302-4 International agreement
6.302-5 Authorized or required by statute
6.302-6 National Security
6.302-7 Public Interest
Full & Open Competition?
Background
The DDT Program has been extremely satisfied with the
performance of their support contractor, Company XYZ, for the
last 7 years.
The contract is expiring July 31, 2010 and the program
requested that the contracting officer issue a sole source
contract to XYZ for a three year period, effective August 1,
2010.
Full & Open Competition?
Market Research
Market research indicates there are several companies that
could perform the work. But, the program office believes it is
more efficient and effective to continue performance with XYZ.
Program personnel have stated that they know the other
contractors that can perform, and none of them can measure
up to XYZ.
Full & Open Competition?
Question
Should the contracting officer issue a sole source contract to
Contractor XYZ?
Full & Open Competition?
Answer
No, a sole source award is not appropriate. There are several
alternative sources available.
The fact that the program office is satisfied with the past
performance of the incumbent, or that they believe the other
potential offerors won’t measure up to the incumbent, are not
sufficient reasons to issue a sole source contract.
Full & Open Competition?
Answer cont’d
The Contracting Officer should issue a solicitation with full and
open competition. If Contractor XYZ is the highest rated based
on the criteria in the solicitation, then Contractor XYZ will
receive the award. Conversely, if another offeror is the highest
rated, then Contractor XYZ will not receive the award.
Full & Open Competition?
Background
The contract with Beastay, Inc. to provide IT support to the
Polooka office is expiring in August, 2010. The contract
requires security clearances for the fifty contractor employees
that will be performing at the Government site.
Full & Open Competition?
The requirements office has requested that the contracting
officer enter into a sole source award because Beastay, Inc.
already has the security clearances, while award to any other
contractor could cause significant delay in performance.
Full & Open Competition?
Question
Should the contracting officer issue a sole source award to
Beastay, Inc.?
Full & Open Competition?
Answer
No, a sole source award is not appropriate.
To assure that there is no break in service, the Contracting
Officer and the requirements office need to work together to
assure that the procurement is conducted with enough
adequate advance time to permit obtaining the necessary
clearances.
Full & Open Competition?
Answer cont’d
In addition, if necessary, a bridge contract can be negotiated
with the incumbent to assure there is no break in service.
Q&A
FAR Part 16.602
II. Contract Types
Major Contract Types
Fixed Price
Cost Type
Time and Materials/Labor Hour
FAR Part 16
Firm Fixed Price Versus
Cost Reimbursement Contracts
Cost Reimbursement
• Government pays the contractor’s actual, allowable costs
Firm Fixed Price
• Government pays the Contractor the agreed to price**
**Contractor absorbs losses if the costs are greater than price
Key Accounting System Consideration
• Anytime payment will be based on actual costs
incurred, the contractor’s accounting system has to
be “adequate” for accumulating actual costs
incurred.
Contract Types - Incentives
• Both cost type and fixed price contracts can also
include:
– Cost Incentives
– Schedule Incentives
– Performance Incentives
Contract Types - Incentives
• Incentives can be:
– Objective; and/or
– Subjective (Award Fees)
Cost Incentives
• Cost incentives:
– Fixed price incentive contracts (FAR 16.204)
– Cost reimbursement incentive contracts (FAR 16.304)
Cost Incentives
• Adjustment formula
– Fixed Price: Adjusts profit and final contract price
– Cost Reimbursement: Adjusts fee
• Intended to motivate the contractor to effectively
manage costs
Schedule/Performance Incentives
• Objective measures to maximum extent possible
• Designed to relate profit/fee to results achieved by
the contractor
Award Fee
• Subjective measures (include incentives with
objective measures to maximum extent practical)
• Establish award fee pool/base fee
• Provide process for periodic evaluation of the
contractor’s performance against the award fee
plan
• Require HCA approval that contract is in best
interest of the Government
– Cost-benefit analysis
Contract-Type Risk
High Contractor Low
Degree of Risk
Low Government High
Key Selection Criteria --
Requirements Definition
• Requirements are the key to selecting the correct
contract type.
• Well defined requirements facilitate use of fixed
price contracts.
Key Selection Criteria --
Requirements Definition
• Contracts are not well defined because:
– Acceptable: Research indicates that desired outcome
does not lend itself to well-defined requirements; or
– Unacceptable: Adequate research has not been
expended to develop well-defined requirements.
Fixed Price Contract Types
• In general
– The Government pays the contractor for the agreed-to-
price ……. regardless of the costs incurred by the
contractor to perform the contract.
– Profit is in the agreed-to-price.
• Interim financing available for Fixed Price Contracts
– Performance based payments
– Progress payments based on cost
Fixed Price Contract Types
Firm Fixed Price
• Definition
• Use when
• Highest risk to the contractor
• Lowest risk to the Government
FAR Part 16.202
Fixed Price Contract Types
Fixed Price/Economic Price Adjustment
• Definition
• Use when
• Adjustments
– Indexes
– Established Prices
– Actual Cost Incurred
FAR Part 16.203
Fixed Price Contract Types
Fixed Price Incentive Fee
• Definition
• Use when
• Objective cost incentive
FAR Part 16.205
Fixed Price Contract Types
Fixed Price Award Fee (Subjective)
• Definition
• Use when
• Combine with objective incentives to maximum
extent practical
FAR Part 16.404
Cost Type Contracts
• Government reimburses contractor for all actual,
allowable costs
• Fixed Fee (if applicable) is negotiated
• Interim reimbursement on public vouchers
Cost Type Contracts
Cost Reimbursable
• Definition
• Use when
• No fee
FAR Part 16.302
Cost Type Contracts
Cost Sharing
• Definition
• Use when
• Contractor and government share costs
– Agreement with Cognizant Federal Agency Official and
contractor that contractor share will not be charged to
any other Government cost-based contracts
FAR Part 16.303
Cost Type Contracts
Cost Plus Incentive Fee*
• Definition
• Use when
• Incentives for:
– Cost
– Schedule
– Performance
FAR Part 16.304 & 16.405-1
Cost Type Contracts
Cost Plus Award Fee
• Definition
• Use When
• Combine with objective incentives to maximum
extent practical
FAR Part 16.305 & 16.405-2
Cost Type Contracts
Cost Plus Fixed Fee
• Definition
• Use when
• Fixed fee
FAR Part 16.306
Ceiling Rates
• May be appropriate when:
– There are significant concerns regarding indirect rate
fluctuations impacting limited budgets (e.g. Fee-For-
Service operations)
– Low contractor-proposed rates
Ceiling Rates
•Example:
– The contract has an ceiling rate of 40% for overhead and
10% for General & Administrative (G&A).
– Contractor actual rates are 45% for overhead and 8% for
G&A.
– Government reimburses based on:
•40% for overhead (actual rate exceeded ceiling rate)
•8% for G&A (actual rate was less than ceiling rate)
Cost Plus % of Cost Contract
Examples
• Occurs whenever any cost element or profit is
structured such that the contractor receives a fixed
percentage based on actual costs incurred
• This is an ILLEGAL Contract
Cost Plus % of Cost Contract
Examples
• Contract establishes amount of total fee to be paid
based on 10% of actual cost incurred:
$100 Actual Costs X 10% = $10 Fee
$200 Actual Costs X 10% = $20 Fee
• Contract includes fixed overhead rate of 50% of
actual direct labor costs:
$1,000 Actual Direct Labor X 50% = $500 Overhead
$1,800 Actual Direct Labor X 50% = $900 Overhead
Ceiling Rates
• Ceiling rates are not fixed indirect rates
• Ceiling Rates are permitted
– Based on actual indirect rates
• Fixed Indirect Rates are not permitted:
– Fixed rates are “fixed” and are not adjusted based on
actual rates
Time & Materials/Labor Hour
Time and Materials
• Hybrid contract
– FP + Cost Reimbursement
– Highest risk to the Government
– Lowest risk to Contractor
– Least desirable contract for Government
FAR Part 16.601
Time & Materials/Labor Hour
Time and Materials
• Elements of a Time & Materials Contract
– Labor
• Labor Categories
• Fixed Hourly Rate (per Labor Category)
• Actual Hours (per Labor Category)
– Materials
• Broad definition – Anything that is not part of the
fixed hourly rate
Time & Materials/Labor Hour
Time & Materials
• Contractor is reimbursed at the fixed hourly rate
for each labor category for actual hours worked
Plus
• Actual costs incurred for “Materials”
– No profit/fee allowed on materials
• T&M/LH contracts are NOT fixed price contracts
Cost Control -- Cost-Type vs. T&M
Cost Contract T&M Contract
$10 per hour $11 per hour
X 10 hours X 10 hours
$100 Costs $110 Contract Price
10 Fixed Fee
$110 Contract Price
Cost Control -- Cost-Type vs. T&M
Cost Contract T&M Contract
$10 per hour $11 per hour
X 12 10 hours X 12 10 hours
$120 100 Costs $132 Contract Price
10 Fixed Fee
$130 Contract Price
Time & Materials/Labor Hour
Time & Materials
• Risk
• Administrative costs
• Determination and Finding
• Plan to move to FP
Time & Materials/Labor Hour
•Stable requirement •Unstable requirement
•Mitigation for anomalies •Unable to mitigate anomalies
•Low risk in moving to FP •High risk in moving to FP
Time & Materials/Labor Hour
Labor Hour
• Same as a T&M but NO MATERIALS
• A labor hour contract is NOT a fixed price contract
FAR Part 16.602
Lessons Learned
• Document the files
• Establish Approval levels
• Availability of up-front consultation
• Adequate back-end oversight
• Employee accountability
Q&A
FAR Part 16.602
Thank you
David Capitano
FAR Part 16.602
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• Interest-Based Negotiation Course – Mar 24-25
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