Selecting Contract Types & Incentives - PowerPoint Presentation

1. Selecting Contract Types & IncentivesUnder ProTech

2. OBJECTIVEFAR 16.103(a) states, “The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contract risk and provide the contractor with the greatest incentive for efficient and economical performance. “ 2

3. FACTORS IN SELECTING CONTRACT TYPES Price competition. Price analysis. Cost analysis. Type and complexity of the requirement. Combining contract types. Urgency of the requirement. Period of performance or length of production run.Contractor's technical capability and financial responsibility.Adequacy of the contractor's accounting system. Concurrent contracts. Extent and nature of proposed subcontracting. Acquisition history. 3

4. CONTRACT TYPES4 – a term used to signify differences in contract structure or form, including compensation arrangements and amount of risk (either to the government or to the contractor).Contract types fall into two broad categories: FIXED-PRICE CONTRACTSCOST-REIMBURSEMENT CONTRACTS

5. THE SPECTRUM5LESSMORECONTRACTOR RESPONSIBILITYCOST-PLUS-FIXED-FEEFIRM-FIXED-PRICECONTRACT TYPE SPECTRUM

6. FPFIXED-PRICE6A fixed-price contract is a type of contract where the payment amount does not depend on resources used or time expended. This is opposed to a cost-plus contract, which is intended to cover the costs with additional profit made.Includes:Firm-Fixed-Price (FFP)Fixed-Price with Economic Price Adjustment (FPEPA)Fixed-Price Award Fee (FPAF)Fixed-Price Incentive Fee (FPIF)Fixed-Price Level of Effort (FPLOE)

7. COST REIMBURSABLE7In general, a cost-reimbursement contract (CR) provides for payment to the contractor of allowable costs incurred during performance; that is, the final amount payable by the Government is determined by the contractor's actual cost experience.Includes: Cost Plus Award Fee (CPAF)Cost Plus Fixed Fee (CPFF)Cost Plus Incentive Fee (CPIF)

8. INCENTIVES8– a portion of profit, fee, or the term of the contract that is dependent upon criteria that further enhance Government and contractor interests.

9. CONTRACT TYPES DEFINE9The expectations, obligations, incentives and rewards for both the government and the contractorDegree and timing of the responsibility assumed by the contractor for the costs of performance The amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals

10. PROTECH CONTRACT TYPES10ProTech offers multiple pricing arrangements to allow the contracting office to select the pricing arrangement or arrangements most appropriate to the circumstances for the Task Order (TO): Fixed-Price (FP)Cost Reimbursable (CR)Time and Materials/Labor Hour (TM/LH)Note: Hybrid orders (multiple pricing arrangements) may be placed under ProTech.

11. FFPFIRM-FIXED PRICE11Price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contractMaximum risk and full responsibility for all costs and resulting profit or loss placed on the contractorUsed when – acquiring commercial items or for acquiring other supplies or services on the basis of reasonably definite functional or detailed specifications Contracting officer must establish fair and reasonable prices at the outset

12. FPEPAFIXED PRICE W. ECONOMIC PRICE ADJUSTMENT12Provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies based on:established pricesactual costs of labor or materialcost indexes of labor or materialUsed when – there is serious doubt concerning the stability of market or labor conditionscontingencies that would otherwise be included in the contract price can be identified and covered separately in the contract

13. FPAFFIXED-PRICE AWARD FEE13Award-fee provisions may be used in fixed-price contracts when the Government wishes to motivate a contractor and other incentives cannot be used because contractor performance cannot be measured objectively.Fixed price (including normal profit) paid for satisfactory contract performanceAward fee earned (if any) will be paid in addition to that fixed price

14. FPIFFIXED PRICE INCENTIVE FEE14Provides for adjusting profit and establishing the final contract price by application of a formula based on the relationship of total final negotiated cost to total target cost The final price is subject to a price ceiling, negotiated at the outsetUse when – A firm-fixed-price contract is not suitableThe contractor’s assumption of a degree of cost responsibility will provide a positive profit incentive for effective cost control and performanceA reasonable opportunity for the incentives to have a meaningful impact on the contractor’s management of the work

15. FPLOEFIXED-PRICE LEVEL OF EFFORT15Provides a specified level of effort, over a stated period of timework that can be stated only in general terms; andGovernment pays the contractor a fixed dollar amountpayment is based on the effort expended rather than on the results achievedUsed when – Requiring investigation or study in a specific research and development areaDeliverable usually a report showing the results achieved through application of the required level of effort

16. CPAFCOST PLUS AWARD FEE16Fee consists of - a base amount fixed at inception of the contract, at the discretion of the contracting officer, and an award amount that the contractor may earn in whole or in part during performance Use when – It is desirable to provide motivation for excellence in the areas of cost, schedule, and technical performanceMeeting acquisition objectives will be enhanced with the flexibility to evaluate both actual performance and the conditions under which it was achievedAdditional administrative effort can be justified

17. CPFFCOST PLUS FIXED FEE17Provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract does not vary with actual costmay be adjusted as a result of changes in work to be performed under the contractUse when – Performance of research or preliminary exploration or study is required, and the level of effort required is unknownThe contract is for development and test, and using a cost-plus- incentive-fee contract is not practical

18. CPIFCOST PLUS INCENTIVE FEE18Provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costsspecifies a target cost, a target fee, minimum and maximum fees, and a fee adjustment formulaThe formula provides, within limits, for increases in fee above target fee when total allowable costs are less than target costs, and decreases in fee below target fee when total allowable costs exceed target costsUse when – appropriate for services or development and test programs both cost and technical performance incentives is desirable and administratively practical

19. TIME & MATERIALS/LABOR HOUR19TM contracts are a hybrid of fixed-price and cost-reimbursement contracts Presents the highest risk to the government and lowest risk to the contractor Least desirable contract type for the governmentDoes not encourage effective cost controlRequires extraordinary surveillance Allows COs to buy supplies or services on the basis of: Direct labor hours at specified fixed hourly rates Actual material costsUse when – it’s not possible to accurately estimate the extent or duration of the work, or to anticipate costs with any reasonable degree of confidence

20. TIME & MATERIALS/LABOR HOUR20Time and Material (TM) and Labor Hour (LH)Determinations and Findings (D & F) required by FAR 16.601(c) and CAM 1316.1 PMs will assist TO COs, when necessary, verifyingthe work is of a T & M nature, and the facts and rationale justify that no other contract-type is suitableThe LH contract is a type of TM contract that excludes materials.Used only for services

21. For additional questions contact protech.services@noaa.govFor POC information visit http://www.protechservices.noaa.gov/contacts.php