What is a Certificate of Independent Price Determination?

There is certainly no shortage of certifications that accompany Government contracts. We've highlighted some of them on these pages; Certificate of Current Complete and Accurate Cost or Pricing Data, the certification required when submitting a claim and the certification that accompany's annual incurred cost proposals, to name a few. And consider all the representations and certifications you agree to when filing or updating your SAM (System for Award Management).

There is another certification required by FAR 3.103 that go along with fixed-price contracts. It a certificate designed to prevent (or perhaps discourage) collusive bidding and called the "Certificate of Independent Price Determination".

When submitting a firm-fixed price contract, the offeror must certify to the following three things:

1. The prices in its offer have been arrived at independently, without, for the purpose of restricting competition, any consultation, communication, or agreement with any other offeror or competitor relating to those prices, the intention to submit an offer, or the methods or factors used to calculate the prices offered
2. Except as otherwise required by law, the offeror has not and will not knowingly disclose the prices in the offer, directly or indirectly, to any other offeror or competitor before bid opening (for sealed bidding) or contract award (for negotiated procurement). 
3. The offeror has not made and will not make any attempt to induce any other concern to submit or not to submit an offer for the purpose of restricting competition.

Contracting officers are required to reject any offers suspected of being collusive. Not only is the contracting officer required to reject the offer but is also required, by law, to report the suspicion or fact to the Attorney General's office.

Collusive bidding practices have been real concerns for Government procurement in overseas contracting environments.

Costs Associated with Government Compliance

How much extra does it cost Government contractors to comply with acquisition regulations and other requirements unique to Government contracting? Probably a lot. However, if contractors have thought through their cost allocation systems, most of that increased costs are passed right along to the Government. Those costs are not being shared by non-Governmental work nor do those costs come out of contractors' profit or fees. When we were auditors, we often carried the brunt of accusations that we should just go away and the Government would save a bundle of money.

There is no doubt that Government regulations increase the cost of goods and services. Most of these regulations are born out of the necessity to protect the taxpayer. Every time there's a scandal, Congress comes up with a few more regulations. Incidentally, its many of those regulations that prevent serious acquisition reform.

Some of those contractor complaints must have landed on some Senators as the Senate Armed Services Committee has added a provision to the Senate version of  2016 National Defense Authorization Act that calls for a six-month study to determine just how many dollars that Government regulations are adding to the cost of procurement. The provision reads;

The Secretary of Defense shall conduct a survey of the top ten contractors with the highest level of reimbursements for cost type contracts with the Department of Defense during fiscal year 2014 to estimate industry's cost of regulatory compliance (as a percentage of total costs) with government unique acquisition regulations and requirements in the categories of 

• qualify assurance

• accounting and financial management

• contracting and purchasing

• program management

• engineering,

• logistics

• material management

• property administration

• and other unique requirements not imposed on contracts for commercial items.

It will be interesting to see the results of this study. We wonder how they will allocate the occupancy costs associated with various Government agencies in residence. Each one of these top 10 probably have 100 or more auditors and that many representing contract administration (e.g. DCMA). The cost of housing these folks is no small potatoes.

Who Is Your Cognizant Federal Agency?

Part 42 of the Federal Acquisition Regulations (FAR) is all about contract administration - things that happen after a contract is awarded and who in the Government responsible for performing those activities. It includes an ever-expanding list of 71 contract administration functions (up from 69 functions a few years ago).

For DoD contracts, these functions are performed by DCMA (Defense Contract Management Agency). Other agencies have their own contract administration functions - DOE (Department of Energy) and NASA are two such departments having robust contract administration functions.

The administration functions are delegated to contract administrators by the contracting officer. The contracting officer may decide to keep most of the administrative functions and not delegate them. There are a couple of contracting activities within DoD that do just that - they retain most of the ACO functions. However, according to FAR, there are four functions that must be delegated - they cannot be retained by the contracting officer. These are forward pricing rate agreements, final incurred cost settlement, anything to do with CAS (Cost Accounting Standards) and determining the adequacy of contractors' accounting systems.

It is very common for contractors have a mix of contracts from various Federal agencies. We were just reading about one contractor with significant contracts from DoD (Defense) and DOE.(Energy) and AID (Agency for International Development). Each one of those agencies have their own contract administration functions but it would not be necessary, desirable or even workable if each one were trying to perform their contact administration functions independent of the other. For example, why would you want two different agencies to independently review a contractor's accounting system and determine whether the system was adequate for Government contracting purposes. What would happen, for example, if DoD declared the accounting system adequate but DOE came along and declared it inadequate?

To prevent inefficiencies and duplication, FAR came up with the concept of "Cognizant Federal Agency". FAR states that only one federal agency will assume contract administrative functions at a given contractor and that agency will be called the Cognizant Federal Agency. The Cognizant Federal Agency is normally the agency with the largest dollar amount of negotiated contracts, including options (see FAR 42.003). What happens then is that the various agencies get together and tally up their negotiated contracts and the winner becomes the Cognizant Federal Agency.

Contracting is not static and sometimes, the contract mix changes so that the assigned Cognizant Federal Agency no longer has the preponderance  of the contracts at a particular contractor. So, if the responsibility for contract administration flips from one year to the next and then back again, a significant loss of continuity and efficiency might occur. FAR has this one figured out.

Once a Federal agency assumes cognizance for a contractor, it should remain cognizant for at least five years to ensure continuity and ease of administration. If, at the end of the five year period, another agency has the largest dollar amount of negotiated contracts, including options, the two agencies shall coordinate and determine which will assume cognizance. However, if circumstances warrant it and the affected agencies agree, cognizance may transfer prior to the expiration of the five-year period.

So, if you don't like your contract administrator, go out and get a bunch of contracts from a different Federal agency and in five years, you'll have a new one.

What are Novation Agreements?

Contractors are precluded by law from selling off, transferring, or otherwise disposing of their Government contracts. Every once in awhile however, Government contractors are acquired by another company through acquisition or merger or a Government contractor decides to divest itself of a division that is performing a Government contract.  In those situations, the Government may, but is not required to, recognize a third party as a "successor in interest" to a Government contract. These situations are generally limited to cases where there has been a transfer of all of the original contractor's assets (or the entire portion of the contractor's operations involved in the performance of the contract) to a third party.

When the Government recognizes a successor in interest, there must be a novation agreement. Novation agreements are generally discussed in FAR (Federal Acquisition Regulations) 42.12 and is defined in FAR 2.101 as follows:

Novation agreement” means a legal instrument
    (1) Executed by the--
        (i) Contractor (transferor);
        (ii) Successor in interest (transferee); and
        (iii) Government; and
    (2) By which, among other things, the transferor guarantees performance of the contract, the transferee assumes all obligations under the contract, and the Government recognizes the transfer of the contract and related assets.

To begin the process of novating a contract, the contractor must submit a written request to the contracting officer. The request must include the following information:

1. Three signed copies of the novation agreement (sample wording for such an agreement is contained in FAR 42.1204(i)).
2. A description of the proposed transaction.
3. A detailed listing of all affected contracts.
4. Evidence of the transferee's capability to perform the contract (sometimes this can be a stumbling block).
5. Any other relevant information requested by the contracting officer.

Additional, as the following information becomes available, the contractor must supplement the initial request with the following:

1. An authenticated copy of the instrument effecting the transfer of assets.
2. A certified copy of each resolution of the corporate parties' boards of directors authorizing the transfer of assets.
3. A certified copy of the minutes of each corporate party's stockholder meeting necessary to approve the transfer of assets.
4. An authenticated copy of the new entity's certificate and articles of incorporation.
5. Opinions of legal counsel for the transferor and transferee stating that the transfer was properly effected under applicable law and the effective date of transfer.
6. Balance sheets for the transferor and the transferee as of the dates immediately before and after the transfer of assets.

If the Government does not accept the novation agreement, the original contracting party is still on the hook for performance. Failure to do so will most likely lead to a termination for default.

What Does the ACO (Administrative Contracting Officer) Do?

People that are new to Government contracting (and we were there once) are often perplexed by similar sounding, yet very different roles and responsibilities among Government contracting professionals; contracting officer (CO), procurement contracting officer (PCO), administrative contracting officer (ACO), termination contracting officer (TCO), contracting officer's representative (COR), contracting officer technical representative (COTR), for example.

The contracting officer is the main person with authority to enter into, administer, and/or terminate contracts and make related determinations and findings. That person then, may or may not delegate some of their authority to authorized representatives to assist in certain matters. Usually, but not always, the contracting officer will delegate contract administration functions to an ACO (Administrative Contracting Officer). The ACO function within DoD is the Defense Contract Management Agency (DCMA).

The administrative functions that are normally delegated to an ACO are listed in FAR 42.302. There are 81 of them so we're not going to list them all. You can refer to the complete listing here. Of the 81 administrative tasks, 78 are optional in that the CO may delegate the functions or, in a rare case, choose to retain the functions in-house. The three administrative functions that are reserved for the ACO specifically are:

1. Negotiating forward pricing rate agreements
2. Establishing final indirect cost rates and billing rates
3. Anything dealing with Cost Accounting Standards (CAS)

The ACO's organization (sometimes referred to as CAO, Contract Administration Office) are the ones responsible for CIPRs (Contractor Insurance/Pension Reviews), CPSR (Contractor Purchasing System Reviews), and EVMS (Earned-Value Management Systems) oversight.

The ACO is the person contractors usually start with when there are any billing issues (though DCAA plays a role in that process as well). The ACO can negotiate advance agreements applicable to the treatment of costs, issue notices of intent to disallow costs, and levy penalties for unallowable costs.

For contractors, the ACO is arguably your most important contact, once your contract has been negotiated. Get to know him or her.

Don't know who your ACO is? Just click here and enter a Contract Number (or your CAGE Code)

If You're Going After a Government Contract, You'd Better Pay Your Back Taxes First

The Department of Defense just posted a new regulation that prevents any of its contracting officers from using Fiscal Year 2013 funds to award contracts to any corporation that owes Federal taxes. Specifically, the prohibition applies to firms that;

Has any unpaid Federal tax liability that has been assessed, for which all judicial and administrative remedies have been exhausted or have lapsed, and that is not being paid in a timely manner pursuant to an agreement with the authority responsible for collecting the tax liability, where the awarding agency is aware of the unpaid tax liability, unless the agency has considered suspension or debarment of the corporation and made a determination that this further action is not necessary to protect the interests of the Government.

This is almost identical to a January 2013 directive that applied to the use of continuing resolution funding that we reported on here. That one applied to funds made available by the 2013 Continuing Appropriations Resolution (Public Law 112-175) whereas this one applies to funds made available by the Consolidated and Further Continuing Appropriations Act (Public Law 113-6).

Here's where Government contractors and prospective Government contractors must be careful. It's unlikely that a contracting officer will know one way or another whether offerors owes back taxes. Therefore, DoD will require that any corporation pursuing contracts make an affirmative representation to the effect that it does not owe back taxes. Contracting officers will be including a provision in all solicitations that will require offerors to represent that they do or do not owe back taxes and this "representation" must be included in the proposal package.

DoD Rolls Out Centralized Depository of Contractor Business Information

The Defense Contract Management Agency (DCMA) released a new application for use by the Department of Defense procurement community. They call it the Contract Business Analysis Repository (CBAR) and is mandatory for all contracts greater than $25 million.

Currently, the CBAR provides the following information

• Indirect and direct cost information (forward pricing rates)
• Status of Contractor Business Systems (e.g. accounting, estimating, purchasing, etc)
• Information about costs and financial condition of the parent entity of major corporations.
• Status of compliance with Cost Accounting Standards (including CAS Disclosure Statement)

CBAR will also capture PCO (Procuring Contracting Officer) business clearance data prepared to support the negotiation and award of a contract pricing action. The purpose of the business clearance information, according to the Government, is to enable contracting officers to share negotiating experiences with other negotiators. Sharing experiences should result in better preparation for negotiating subsequent contracts and realizing a better deal for the Government.

Among the data collected in CBAR's business clearance module is a comparison of proposed and negotiated costs as well as several comment fields to describe experiences. Since this is a new requirement tacked on to the already overworked contracting officer corps, it seems unlikely if contracting officers take the time to write up any narrative description of their negotiation experience. Most likely, data entry will be limited to only the most basic of information.

The CBAR is not public information but we recommend that contractors periodically consult with their contracting officers to review the information pertaining the them. Data in these kinds of databases tend to get stale and it is important to ensure that the information is accurate.

Economic Price Adjustments in Contracts

Most readers of this blog will be familiar with the different types of contracts the Government uses to procure goods and services; fixed price, cost-reimbursable, and time-and-materials, to name three. Within each major contract type, there are variations available, depending upon circumstances. One of the variations available under fixed priced contracts is the economic price adjustment (EPA) provision.

The use of EPA clauses is somewhat rare but they are available and useful under the right set of circumstances. A fixed-price contract with EPA will provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies. EPA typically fall under one of three general types.

• Adjustment based on established prices. These price adjustments are based on increases or decreases from an agree-upon level in published or otherwise established prices of specific items or the contract end items.
• Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified of labor or material that the contractor actually experiences during contract performance.
• Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract.

An EPA clause is typically used where there is serious doubt concerning the stability of market or labor conditions that will exist during an extended period of contract performance and contingencies that would otherwise be included in the contract price can be identified and covered separately in the contract. EPA clauses are normally used to cover events that are beyond a contractor's control.

Before an EPA provision can be included in a contract, the contracting officer must determine that it is necessary either to protect the contractor and the Government against significant fluctuations in labor or material costs. Usually contracting officers do not initiate such a process so contractors must be proactive in helping contracting officer understand the desirability of such a clause.

Typically, EPA clauses are used in contracts where the period of performance is several years and there is a significant component of raw materials where the price is subject to market forces, well beyond the control of the contractor. For example, if a construction contract requires steel to be purchased three years from the date of the award, an EPA could be fashioned to adjust the steel prices from the amount negotiated to the price on the date purchased. Or, if the contract is subject to the Service Contracting Act or Davis-Bacon Act, the contractor has no control over prevailing wage determinations.

The EPA provision specifically prohibits EPA be used for overhead or G&A but it does make allowances for fringe benefits. For example, a fringe benefit rate that includes a defined benefit pension plan may be impacted by stock market performance.

If this sounds like something that would be useful for your company, bring it up during contract negotiations.

Post-Award Briefings - Ask Lots of Questions

Yesterday we discussed the regulations that require the Government to conduct post-award briefings when requested by one or more offerors to a solicitation. These briefings are great opportunities for contractors and potential contractors to find out the strengths and weaknesses in their bid and how well the bid stacked up against the competition. Contractors can learn a lot from these briefings and become better prepared for the next time.

Not all post-award briefings are the same in detail and candidness. There are good ones and some where the presenter, usually the contracting officer, is inexperienced, or seems to be reticent about sharing certain information. Either way, offerors should be prepared to ask lots of penetrating questions. The questions may not be answered for some reason, perhaps the contracting officer is concerned about sharing proprietary data. But, it doesn't hurt to ask. Here are some sample questions offerors might consider, if the topic has not already been discussed.

• Please identify the strengths, weaknesses, or deficiencies in our proposal for each evaluation factor and sub-factor?
• What were the most significant weaknesses?
• Were there any solicitation requirements that we failed to address? If so, what were they? 
• Were any significant deficiencies identified by the Government during discussions not adequately addressed in our response to your Evaluation Notices? If so, did the evaluation of the deficiencies change during the evaluation of our final proposal revision?
• Were there any specific considerations that precluded us from being selectied as the awardee? If so, what were those considerations?
• What if anything did you want that was missing from our proposal?
• Please explain how past performance was evaluated. What was our rating? How was that rating applied to the source selection process?
• Was experience evaluated? If so, what was our rating and how was that information used in the source selection process?
• Please explain the procedure for the evaluation of risk? What risks were identified in our proposal? How did they impact the ration of our proposal?
• Please provide evaluated cost/price and technical, management, and past performance ratings for our proposal and all other offerors.
• Please provide the overall ranking for all offerors.
• In what areas was our proposal considered overpriced?
• Were we compliant with all technical requirements?
• In the proposal risk portion of the technical/management area, what criteria did the Government use to determine the final evaluation ratings?
• Please explain in detail the methodology used to determine which proposal offered the greatest overall value to the Government, especially with respect to any comparisons/trade-offs made between technical factors and costs proposed.
• Was a cost realism analysis used? If so, please describe what process was used.
• Please identify any information not contained in our proposal that was used by the evaluators in assessing our offer.

We could go on but you get the idea. Many times, as a result of these debriefs, unsuccessful offerors come away with a basis for appealing the award. Sometimes, contractors will bring legal counsel to these briefings. Contracting officers don't usually appreciate and will expect that an appeal is right around the corner. As a result, they will be very guarded in what they say and are willing to discuss.

Post-Award Debriefings - Better Hurry

You got the letter, or phone call, telling you that the bid you submitted didn't make it. The contract was awarded to someone else. This notification usually invokes a range of emotions, but at the core, you wonder what your competitor had that you didn't.

You don't need to sit and wonder. The Government is required by regulation (see FAR 15.506) to debrief and furnish the basis for the selection decision to any offeror that requests a debriefing - as long as that request is received within three days of receiving notification.

The debriefing serves to assure offerors that the Government properly evaluated their proposals and made the award determination in accordance with the RFP terms and conditions. The debriefing also provides feedback to offerors to assist in improving future proposal submissions. The Government hopes that, effective debriefings will deter a protest by demonstrating that the Government conducted a thorough, fair evaluation and made a sound decision according to the established source selection methodology.

During a debrief, offerors can expect to see a comparison of their ratings at the factor level (or sub-factor level) with the winning offeror and, at the discretion of the contracting officer, all offerors, both winning and losing. This comparison should also be accompanied with the rationale for award. What you will not receive in a debrief is a discussion on the validity of requirements, validity and integrity of evaluation process, and prohibited information including any information that might be considered proprietary to other offerors.

Other information typically disseminated at a debrief include:

• The Government's evaluation of the significant weaknesses or deficiencies in the offeror's proposal.
• The overall evaluated cost or price and technical ratings.
• The overall ranking of all offerors.
• A summary of the rationale for award.
• Responses to relevant questions about whether source selection procedures contained in the solicitation, applicable regulations, and other applicable authorities were followed.

Some offerors don't bother with the debrief opportunity. We believe that is a mistake. Tomorrow we'll explain and offer some questions you might consider asking during the debrief process.

Difference Between Statutory, Regulatory, and Contract Requirements

We often throw around terms like "statutory requirements", "regulatory requirements", and "contract requirements". Often times, these terms are used interchangeably and sometimes imprecisely.

The fundamental difference is that statutes are enacted by Congress and signed into law by the President whereas regulations are issued by executive agencies in order to implement statutes enacted by Congress. An example of a statute would be Public Law 87-653, The Truth in Negotiations Act. An example of a regulation would be FAR Part 31 Cost Principles. Regulations must be consistent with the enabling statute and the agency must follow the rule making process of the Administrative Procedures Act (i.e. publication of proposed regulation, public comment, final regulation). Regulations have the "force and effect of law" meaning they are just as enforceable as statutes.

From a practical matter then, it makes no difference to a Government contractor whether a requirement flows directly from a statute or whether it flows from a regulation implementing a statute. The contractor must comply either way.

"Contract Requirements" can be statutory, regulatory, or something else. Government contracts are full of regulatory and statutory requirements as well as requirements that are specific or unique to the particular contract. For example, a contract might require contractors to advise the contracting officer when making key personnel moves. Such a requirement has no basis in statute or regulation but is no less enforceable under the contract.

New Representation Required for DoD Contracts

There are a number of statutory restrictions concerning post-Government employment for DoD officials after leaving Government employment. Mostly, these restrictions deal with improper business practices and personal conflicts of interest (see FAR 3.104, DFARS 203.104, and DFARS 203.171-3 for example).


DoD has just amended ifs FAR supplement to require companies submitting bids (including commercial items) to "represent" whether former DoD officials who are employees of the offeror are in compliance with these post-employment restrictions. The exact representation reads:

By submission of this offer, the offeror represents, to the best of its knowledge and belief, that all covered DoD officials employed by or otherwise receiving compensation from the offeror, and who are expected to undertake activities on behalf of the offeror for any resulting contract, are presently in compliance with all post-employment restrictions covered by .....

This rule implements a recommendation from GAO and requires offerors to complete and provide as part of each proposal, including proposals for commercial items, this representation. DoD elected to employ a "representation" rather than a "certification". The representation will be required one time (for each proposal) rather than continuously throughout contract performance. The provision will not be included in the annual representations and certifications.

Contract Line Item Pricing

The Department of Defense has issued instructions to its acquisition personnel regarding the integrity of contract line item pricing. This was prompted by a recent review that found during the first five months of fiscal year 2011, about 38 percent (1.7 million out of 4.4 million line items) of contract line items contracted for, had no unit of measure or used "lump sum" as the unit of measure. According to DoD, contracts must define clear requirements that reflect supplies and services acquired in order to enable accurate contract completion and payment. Historically, analysis of what the Government is actually buying has been hampered because too many supplies and services lack any unit of measure that corresponds to the quantity required.

DoD has now mandated that no contract action can be issued using "lump sum" or "dollars" as a unit of measure. Contract pricing arrangements should ensure prices are proportional to work performed and that actual deliveries can be traced to the prices.

This change could affect the timing and frequency of contractor reimbursements (e.g. public vouchers and progress payments). Contracting officers (and contractors) often use "lump sum" pricing as a means of aligning reimbursement/payments with work performed. In the futures, reimbursements will need to be more closely aligned with deliverables.

DoD to Increase Usage of Fixed-Price Incentive Contracts

DoD updated their acquisition regulations to increase the used of fixed-price incentive contracts, especially for acquisitions moving from development to production. The theory is that contracts with incentives will increase productivity and innovation in industry and ultimately reduce costs to the Government.

Under the new provision at DFARS 216.403-1, contracting officers are instructed to "give particular attention" to the use of fixed-price incentive contracts. The default ceiling is 120 percent and the default share ratio is 50/50. Both the ceiling and share ratio can be adjusted when properly justified and documented by the contracting activity.

Contractors who agree to fixed-price incentive contracting must be extremely confident of their estimated costs, including indirect expenses/rates. Volatility and uncertainty of costs can adversely affect a contract's profitability.

Contract Administration Office Functions

After a contract is awarded, it its usually, but not always, assigned for administration to a contract administration office (CAO). For DoD, the CAO is the Defense Contract Management Agency (DCMA).
DCMA maintains the Federal Directory of Contract Administration Services on its website.   If you are unsure as to the organization that administers your contract, you can search this site for that information.

FAR 42.302 contains a listing of 71 functions that the contracting officer (CO) normally delegates to the CAO. (The current versions of FAR list only 70 functions. The 71st fuction is the oversight of contract ethics programs that was added yesterday, May 31st.) The contracting officer may from time to time, retain some of the 71 functions based on different factors. However, three of the 71 functions must be delegated including,

1. negotiating forward pricing indirect expense rates
2. establish final indirect expense rates, and
3. administering Cost Accounting Standards (CAS)

It is beyond the scope of this posting to list the 71 delegable functions however it should be worth your while to peruse it. It would be hard to imagine any contract related matter that is not covered by these duties and responsibilities. It is becasue of the extensiveness of this listing that we usually advise clients to initiate discussions with the CAO (a.k.a. the ACO or Administrative Contracting Officer) for any contract matter.