CLASS 5: Sealed Bidding vs. Negotiation,
Contract types
Sealed bidding employs competitive bids,
public bid opening (in the case of Government), and awards based on price when bidder
is “responsive” and “responsible”, meaning it responds to the requirement
without taking exception, and has a documented history of responsible business
conduct.
Normally
considered for use when four conditions are met:
1
- Time permits solicitation, submission, evaluation
and
possible resolution of bids
2
- Award will be made on the basis of price
3
- Discussions with offerors not necessary
4
- Reasonable expectation of receiving more than one
sealed
bid exists (in other words, competition will occur)
In Government procurements, sealed bidding
was once considered the preferred method, however, negotiation is now sometimes
encouraged, especially for complex procurements and when contracting officer
determines it to be in the Government's best interests.
Major
objectives of Negotiation:
1
- Obtain fair and reasonable price (need cost/price
analysis)
2
- Obtain required delivery schedule
3
- Include controls over supplier performance:
·
Man-hours
of effort
·
levels
of technical talent
·
Special
equipment, testing requirements
·
Nature
of sub-contracted effort (may require a special sub or may wish to limit
subcontractors)
(Supplier
performance includes compliance with quality,
quantity, delivery, and service
terms.)
4
- Obtain supplier cooperation (two way street: supplier
expects
timely payment, fair treatment, contract com-
pliance,
future orders)
5
- Develop a sound and continuing
relationship between buyer and seller
6
- Any others suggested by the class?
Negotiation
is normally indicated when:
·
Acquisition
is complex or vague
·
Risks
cannot be accurately determined (ie. first time effort)
·
Protracted
production time
·
Sole-source
of supply is required
·
When
contracting for production effort, not a specifically delivered item
When
using negotiated procurement process:
·
Evaluation
criteria should be clear, stated, and rank ordered by importance
·
Evaluation
must be based upon stated criteria
·
Discussions
may be conducted with all or selected offerors
For each term and condition to be
negotiated, negotiator should develop an objective position (negotiator's
expectation of seller's actual cost plus a fair profit).
Negotiator
should:
·
Organize
the issues to be on the agenda
·
Rank
in order of importance
·
Verify
opponent's authority
·
Negotiate
on home grounds
·
Determine
concessions and compromises
·
Keep
the initiative
·
Be
positive
·
Listen
well
·
Be
considerate, preserve opponent's dignity.
·
Never
give anything away
·
Seek
mutual, not equal benefit
CONTRACT TYPES (Refer to reference
materials for more information about K types)
Classified by method of contractor
compensation or reimbursement:
(Fixed price or Cost )
Fixed
price:
Firm
fixed price
·
Specific
sum paid for specific performance
·
Maximum
risk on contractor
Fixed-price
with economic price adjustment
·
Adjusted
up or down based upon predetermined contingencies
·
Used
to minimize concerns about risk (i.e. incentivize vendors to do business)when market
conditions are unstable
Fixed-price
with redetermination
·
Adjustments
made based upon Quantity variation in labor or materials (as opposed to costs
as in EPA, above)
·
Adjustments may
be limited to either upward, downward,
or flexible movement of price
Fixed-price
with incentive
·
Used
to incentivize a specific outcome (i.e. cost savings, delivery, MTBF, etc.)
·
May
simply be an agreement to share savings
Cost Contracts:
Cost
plus fixed-fee
Fixed-fee is profit (since fee is fixed, little cost saving
incentives exist.)
A questionable way to contract for
anything and specifically prohibited In Federal Government contracting although
allegedly used in some commercial, and state/local construction contracts.
Cost plus incentive-fee
·
Used
to incentivize a particular outcome (same as discussed above)
·
Target,
minimum, maximum fees are negotiated
Award-fee contract (may
be used in either fixed-price or cost reimbursement contracts)
Award fee, when properly used,
is a valuable tool. Its application is intended to motivate the contractor’s
performance in those areas critical to program success (e.g., technical,
logistics support, cost, and schedule) that are susceptible to
judgmental/qualitative measurement and evaluation. This subjective evaluation
of contractor performance can be supported, however, by objective measurement
as well. Award fee provides for a pool of dollars that can be earned based upon
the Government’s evaluation of the contractor’s performance in those critical
areas.
·
Incentivizes
contractor performance in predetermined area(s) as discussed above
·
Fee
is subjectively determined based upon specified criteria to be evaluated
(quality, cost control, etc.)
·
Consists
of base fee and award amount (limits imposed upon government contracts (i.e.
3%, 7%?)
Award-term Contract
The award term concept is an adaptation of the commercial
industry practice of establishing long-term relationships with quality
contractors. The appeal to the Government of this business arrangement
incentive is a continued relationship with a proven and reliable producer of
quality goods or services. For the contractor, the motivation is the
possibility of maintaining a stable, partnering relationship in their business
base.
Award term can be best described as a derivative of award
fee. The difference is that the contractor earns additional periods of
performance instead of award fee. The process for rewarding the contractor with
the additional contract term is identical to award fee. An Award Term Review
Board (ATRB) uses an Award Term Plan (ATP) to evaluate contractor performance
and makes a recommendation to a Term Determining Official (TDO). The TDO is
responsible for making the final decision on the contractor’s score for that
period. Based on the contractor’s cumulative score the contract’s performance
period can be extended or reduced. Due to the additional administrative and
management effort and cost of maintaining the award term process, an analysis
should be performed before implementing a contract with an award term clause.
The analysis should show that the additional effort and cost to administer and
evaluate performance associated with the award term process is justified by the
expected benefits.
Award term benefits both the customer and the contractor. It
rewards quality contractors. It facilitates process improvements and capital
investments, which in turn should result in lower contract prices. It
communicates the "health" of contract performance to the contractor
through continuous and in-depth performance assessments. A successful, long-term
contractual relationship provides the added benefit of reducing the manpower
intensive effort of frequently reacquiring the services or supplies provided.
Performance-Based Contract
Performance-Based
contracting is intended to allow the contracting activity to take advantage of
industry’s ability to bring innovative solutions to meet the activities
needs. In performance-based contracts,
the SOW (called a “Performance-based Statement of Work or PBSOW) contains performance
requirements (WHAT) and eliminates process-oriented requirements (HOW) and
includes only minimally essential reporting requirements. If the
level-of-effort, staffing levels or skill mix of workers are specified, then
the contract is NOT performance based.
Other attributes of performance based contracts (be they for services or
products), include:
Time
and Materials Contract
Time and
Materials contracts are used extensively by the Federal Government for
consulting and other professional services contracts where an indeterminate
“level of effort” is desired.
·
Used
for indeterminate effort (repair of equipment, general consulting services)
·
Consists
of hourly charge which includes all labor, overhead, profit
·
Materials
supplied at cost plus handling
----------------------
Case:
Ruhling Manufacturing Company
(Student CD)
Additional Reading:
Contract types exercise
included with Class 5 materials (below)
Federal Acquisition
Regulations, Part 16
CONTRACT TYPE
SCENARIOS
Based on your experience, reading, and our discussion of Contract Types, what type(s) of contract could or should be applicable to the six situations below:
1. The roof has blown off the Commissary Warehouse and $3,000,000 in merchandise could be at risk.
2. The AH-64 Apache Helicopter is ready to start the Initial Production Phase. As the program is a political football, it is essential that the contractor perform within the $2.5 billion project budget.
3. It has been determined that a contract will be placed for Military Family Housing maintenance. The activity head is particularly concerned with compliance with a 4-hour response to emergency work and a 48-hour response time on routine, non-emergency work.
4. 20 each AN/MLQ-40 Prophet Ground communications intelligence and electronic warfare systems have been deployed to Iraq. Contractor calibration and maintenance must be performed semiannually and emergency maintenance, repairs beyond the capability of the Army technicians must be performed within 6-hours of a system going down.
5. A contract is needed for maintenance and repair of 500 hand-held portable radios at Andrews Air Force Base. Historical data indicates that between 15% and 20% of the radios will require some type of repair during any given year.
6. A requirement exists for portable toilets to be placed at ball fields, visitor’s gates, and other locations on a military base. An additional 100 are needed on a one-time basis for the Armed Forces Day Open House.