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Tidewater Government Industry Council
Basic Contract Types
Tidewater Government Industry Council
Training Program
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TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Overview
• Fundamental principles surrounding
Government contracts
• Selection/negotiation of contract type
• Contract types and contract forms
• Fixed-Price contracts
• Cost-Reimbursement contracts
• Time & Material, Labor-Hour contracts
• Indefinite Delivery, Indefinite Quantity (IDIQ)
contracts
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Fundamentals
• Offer + Acceptance + (Adequate) Exchange of
Consideration = (Binding) Contract
• Consideration = Something of Value
• Contract = Risk Sharing Arrangement
• Technical, Cost, Schedule Risks
• Government contracts attempt to shift maximum risk to
the contractor
• Risk reflected in type of contract
• Contract pricing arrangement reflects risk sharing
• Contract type is negotiable
• Federal Acquisition Regulation (FAR) Part 16
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Factors to Consider in Selecting Contract Type
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Price competition
Price analysis
Cost analysis
Type and complexity of requirement
Urgency of the requirement
Period of performance
Contractor’s technical capability and financial responsibility
Adequacy of the contractor’s accounting system
Concurrent contracts
Extent and nature of any proposed subcontracting
Acquisition history
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Level-of-Effort/Term Form vs. Completion Form
• Contract Types and Contract Forms
• Contract Type refers to pricing arrangement
• Contract Form
– Level-of-Effort or Term
• Buying best effort within a stated ceiling of
hours
– Completion
• Buying completed products or services
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Fixed-Price Contracts
• Fixed-price contracts can be firm or adjustable
– Firm-fixed price
– Fixed price with economic price adjustment
– Fixed-price incentive
– Fixed-price with prospective price
redetermination
– Fixed-ceiling-price with retroactive price
redetermination
– Firm-fixed-price, level-of-effort term
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Firm-Fixed-Price (FFP)
• Price not adjustable based on contractor’s cost experience
• Maximum risk on contractor for all costs and resulting profit or loss
• Maximum incentive for contractor to control costs and perform
effectively
• Best used:
– Commercial items or services
– Adequate price competition
– Good pricing history
– Realistic cost estimates
– Any performance uncertainties identified and cost impacts
estimated
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
FFP Contract Risks to Government
• Question----– With maximum performance and cost
risks shifted to Contractor, what risks, if
any, does the Government have or
encounter?
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Cost-Reimbursement Contracts
• Cost-reimbursement contracts may or may
not include fee
– Cost
– Cost-sharing
– Cost-plus-incentive-fee
– Cost-plus-award-fee
– Cost-plus-fixed-fee
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Cost-Plus-Fixed-Fee (CPFF)
• Payment of actual, allowable, and allocable costs up to a negotiated,
estimated cost ceiling
• Payment of negotiated fee that is fixed at the inception of the
contract
• Minimum incentive for contractor to control costs
• Best used:
– Performance uncertainties/risks, e.g., research and development
• Reality:
– Often times CPFF is used as a result of funding non-availability
(need to incrementally fund) rather than performance
uncertainties
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
CPFF Completion and Term Forms
• Completion Form
– Definite goal and end product (could be a report)
– Within the estimated cost to receive full fee
– If work cannot be completed within the estimated cost
• Additional effort, increased estimated cost, no additional fee
• Term or Level-of-Effort Form
– Work is described in more general terms
– Contractor obligated to devote a specified level of effort (hours)
for a stated period of time (period of performance)
– Best effort exerted, level-of-effort delivered, fixed fee paid
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Labor Hour and Time & Materials Contracts
• Labor Hour
– Fully burdened fixed hourly billing rates that-• Include direct labor (wages), overhead, general &
administrative expense (G&A), and profit
• For labor that meets contract labor category qualifications
• Time and Materials (T&M)
– Time for Labor paid as described above
– Materials including supplies, subcontracts, other direct costs,
e.g., travel
• Indirect costs associated with “materials, ” e.g., material
handling, G&A
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
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Labor Hour and Time &Materials Contracts
Are Labor Hour contracts also fixed price
contracts?
Are Labor Hour contracts of the completion or
term type?
What is the contractor’s incentive to control labor
hours?
How could the contractor approach labor
category qualifications and direct labor costs?
How can the contractor maximize contract
revenue and profit?
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Delivery Order and Task Order Contracts
• Indefinite Delivery Contracts
– Can be either “Definite Quantity” or “Indefinite Quantity”
• Delivery Order and Task Order Contracts
– Delivery order contract…does not procure or specify a firm
quantity of supplies (other than a minimum or maximum
quantity)…provides for issuance of orders for the delivery of
supplies during the period of the contract.
– Task order contract…does not procure or specify a firm quantity
of services (other than a minimum or maximum
quantity)…provides for issuance of orders for the delivery of
services during the period of the contract.
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Indefinite Quantity Contracts
• Indefinite quantity of supplies or services (hours) within
stated limits (minimum guarantee to full LOE) during a
fixed period (lot)
– Estimate lot period requirements sufficiently
• Minimum guarantee is “adequate consideration” that
makes the contract binding
• Minimum and maximum task order sizes and aggregate
order limits during a period of time
• Each delivery or task order is considered an individual
contract
– Task Order contract type(s) determined by
overarching contract
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Indefinite Quantity Contracts
• May be single-award contract (SAC) or multipleaward contract (MAC)
• Sec 843 of the FY2008 NDAA mandated use of
MACs unless special approval is granted for
SAC
– Only one capable contractor for unique or
highly specialized services
– All projected task orders are so integrally
related that only a single contractor can
perform the work
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Task Orders Under Multiple-Award Contracts
• Most task orders result from a competitive, best-value,
source selection.
– There can be sole source orders justified by a
Justification and Approval (J&A) or as a “minimum
guarantee” order
• Increased PALT (45-60 days) compared to SAC task
orders (30 days or less)
• Task orders can include options
• Options should be based on essential continuity of
services and products and not defeat the
competitive purposes of the MAC
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
NAVSEA and FLC IDIQ Contracts
• NAVSEA’s Seaport-e contract is an extensive
Multiple-Award Contract that allows for
competitive task orders of all contract types
except Labor Hour and T&M
• FLC IDIQ contracts are increasingly becoming
Multiple-Award vice Single-Award and usually
permit CPFF or FFP orders
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Cost-Plus-A-Percentage-of-Cost
• The cost-plus-a-percentage-of-cost system of
contracting shall not be used.
• Prime contracts other than firm-fixed-price
contracts shall, by an appropriate clause,
prohibit cost-plus-a-percentage-of-cost
subcontracts.
• Are there any situations where a Government
customer pays fee on this otherwise prohibited
basis?
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TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
Today’s Closing Thought
A verbal contract isn’t worth
the paper it’s printed on!
Samuel Goldwyn
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TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS
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TIDEWATER GOVERNMENT INDUSTRY COUNCIL
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Tidewater Government Industry Council
The Tidewater Government Industry Council
• Meets 0800-0900 the 2nd Thursday of each month
– SAIC, 2877 Guardian Lane, Virginia Beach
• Standing committees report
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Small Business Affairs
Legislative Affairs
Acquisition Workforce
Contracting Approaches and Techniques
Social Networking/Networking
• TGIC Exchange Briefing Program
• www.tasc-tgic.org
TASC
TIDEWATER ASSOCIATI0N OF SERVICE CONTRACTORS