Understanding Contract Types and Incentives Under ProTech

Explore the factors influencing contract types selection, including price competition, cost analysis, and technical capability. Learn about different contract types like fixed-price and cost-reimbursable, each with unique characteristics and risks. Discover the spectrum of contract types and incentives to ensure efficient and economical performance in government contracts.

• Contract types
• Incentives
• ProTech
• Price competition
• Cost analysis

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1. Selecting Contract Types & Incentives Under ProTech

2. OBJECTIVE OBJECTIVE FAR 16.103(a) FAR 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 FACTORS IN SELECTING CONTRACT TYPES IN SELECTING CONTRACT TYPES a) Price competition. b) Price analysis. c) Cost analysis. d) Type and complexity of the requirement. e) Combining contract types. f) Urgency of the requirement. g) Period of performance or length of production run. h) Contractor's technical capability and financial responsibility. i) Adequacy of the contractor's accounting system. j) Concurrent contracts. k) Extent and nature of proposed subcontracting. l) Acquisition history. 3

4. CONTRACT TYPES CONTRACT TYPES 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 FIXED- -PRICE CONTRACTS PRICE CONTRACTS COST COST- -REIMBURSEMENT CONTRACTS REIMBURSEMENT CONTRACTS 4

5. THE SPECTRUM THE SPECTRUM COST COST- -PLUS FIXED FIXED- -FEE PLUS- - FEE FIRM FIRM- -FIXED FIXED- - PRICE PRICE LESS LESS CONTRACTOR RESPONSIBILITY CONTRACTOR RESPONSIBILITY MORE MORE CONTRACT TYPE SPECTRUM CONTRACT TYPE SPECTRUM 5

6. FIXED FIXED- -PRICE PRICE A 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: o Firm-Fixed-Price (FFP) o Fixed-Price with Economic Price Adjustment (FPEPA) o Fixed-Price Award Fee (FPAF) o Fixed-Price Incentive Fee (FPIF) o Fixed-Price Level of Effort (FPLOE) 6

7. COST REIMBURSABLE COST REIMBURSABLE In 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: o Cost Plus Award Fee (CPAF) o Cost Plus Fixed Fee (CPFF) o Cost Plus Incentive Fee (CPIF) 7

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

9. CONTRACT TYPES DEFINE CONTRACT TYPES DEFINE The expectations, obligations, incentives and rewards for both the government and the contractor Degree 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 9

10. PROTECH CONTRACT TYPES PROTECH CONTRACT TYPES ProTech 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 Fixed- -Price (FP) Price (FP) Cost Reimbursable (CR) Cost Reimbursable (CR) Time and Materials/Labor Hour (TM/LH) Time and Materials/Labor Hour (TM/LH) Note: Hybrid orders (multiple pricing arrangements) may be placed under ProTech. 10

11. FIRM FIRM- -FIXED PRICE FIXED PRICE Price that is not subject to any adjustment on the basis of the contractor s cost experience in performing the contract Maximum risk and full responsibility for all costs and resulting profit or loss placed on the contractor Used 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 11

12. FIXED PRICE W. ECONOMIC PRICE FIXED PRICE W. ECONOMIC PRICE ADJUSTMENT ADJUSTMENT Provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies based on: o established prices o actual costs of labor or material o cost indexes of labor or material Used when there is serious doubt concerning the stability of market or labor conditions contingencies that would otherwise be included in the contract price can be identified and covered separately in the contract 12

13. FIXED FIXED- -PRICE AWARD FEE PRICE AWARD FEE Award-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. o Fixed price (including normal profit) paid for satisfactory contract performance o Award fee earned (if any) will be paid in addition to that fixed price 13

14. FIXED PRICE INCENTIVE FEE FIXED PRICE INCENTIVE FEE Provides 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 outset Use when o A firm-fixed-price contract is not suitable o The contractor s assumption of a degree of cost responsibility will provide a positive profit incentive for effective cost control and performance o A reasonable opportunity for the incentives to have a meaningful impact on the contractor s management of the work 14

15. FIXED FIXED- -PRICE LEVEL OF EFFORT PRICE LEVEL OF EFFORT Provides a specified level of effort, over a stated period of time o work that can be stated only in general terms; and o Government pays the contractor a fixed dollar amount payment is based on the effort expended rather than on the results achieved Used when o Requiring investigation or study in a specific research and development area o Deliverable usually a report showing the results achieved through application of the required level of effort 15

16. COST PLUS AWARD FEE COST PLUS AWARD FEE Fee consists of - 1. a base amount fixed at inception of the contract, at the discretion of the contracting officer, and 2. an award amount that the contractor may earn in whole or in part during performance Use when o It is desirable to provide motivation for excellence in the areas of cost, schedule, and technical performance o Meeting acquisition objectives will be enhanced with the flexibility to evaluate both actual performance and the conditions under which it was achieved o Additional administrative effort can be justified 16

17. COST PLUS FIXED FEE COST PLUS FIXED FEE Provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract o does not vary with actual cost o may be adjusted as a result of changes in work to be performed under the contract Use when o Performance of research or preliminary exploration or study is required, and the level of effort required is unknown o The contract is for development and test, and using a cost-plus- incentive- fee contract is not practical 17

18. COST PLUS INCENTIVE FEE COST PLUS INCENTIVE FEE Provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs o specifies a target cost, a target fee, minimum and maximum fees, and a fee adjustment formula o The 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 costs Use when o appropriate for services or development and test programs o both cost and technical performance incentives is desirable and administratively practical 18

19. TIME & MATERIALS/LABOR HOUR TIME & MATERIALS/LABOR HOUR TM contracts are a hybrid of fixed-price and cost-reimbursement contracts o Presents the highest risk to the government and lowest risk to the contractor o Least desirable contract type for the government Does not encourage effective cost control Requires extraordinary surveillance o Allows COs to buy supplies or services on the basis of: Direct labor hours at specified fixed hourly rates Actual material costs Use 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 19

20. TIME & MATERIALS/LABOR HOUR TIME & MATERIALS/LABOR HOUR Time and Material (TM) and Labor Hour (LH) o Determinations and Findings (D & F) required by FAR 16.601(c) and CAM 1316.1 o PMs will assist TO COs, when necessary, verifying 1. the work is of a T & M nature, and 2. the facts and rationale justify that no other contract-type is suitable The LH contract is a type of TM contract that excludes materials. o Used only for services 20

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