The "Order Limitation Clause"

FAR (Federal Acquisition Regulation) 52.216-19, Order Limitations, is found in solicitations and contracts when a definite-quantity contract, a requirements contract, or an indefinite-quantity contract is contemplated. The clause provides for minimum orders, maximum orders and procedures when the Government exceeds its maximum order limitation.

Concerning minimum orders, if the Government places an order less than the minimum order, the contractor is not obligated to furnish those supplies or services under the contract.

For maximum order, the contractor is not obligated to honor (i) any order for a single item in excess of (dollar figure or quantity), (ii) any order for a combination of items in excess of (dollar figure or quantity) or (iii) a series of orders from the same ordering office within a specified number of days that together call for quantities exceeding the limitation specified above.

Notwithstanding the maximum order limitation, contractors must honor any order exceeding the maximum order limitations  unless that order (or orders) is returned to the ordering office within a set number of days (usually three days) after issuance with written notice stating its intent not to ship the item called for and the reasons. At that point, the Government may acquire the supplies or services from another source.

In a recent Board case (Armed Services Board of Contract Appeals), WIT Associates files a claim with the Navy for additional costs related to orders that exceeded the maximum quantity specified in the Order Limitation clause, presumably because WIT incurred additional costs to honor the Navy's order.

The Board threw out the appeal, noting that WIT could have (and should have) denied the order within three days according to the contract terms - especially if honoring the order would cause it to incur costs it would not have otherwise incurred. There are a lot of reasons why a company might incur extra costs. Suppose the Government wanted some extra lawn-cutting services performed but to provide those extra services, required the contractor to incur overtime costs that were not factored into its contract price. Or suppose the Government's orders were for supplies that the contractor did not have in inventory and to meet the delivery date, the contractor was required to pay expedited fees to its vendor.

Remember, you don't have to honor orders in excess of the maximum quantities specified in the contract. You can and its often to your benefit but if the order(s) put you in a situation where you wold lose money, it might be better to return the order.

What is a Certificate of Independent Price Determination?

The Government requires that offerors bidding on firm-fixed-price contracts to submit a Certificate of Independent Price Determination (see FAR 3.103-1). If you're a Government contractor or have bid on a Government contract, you've no doubt had to submit them.

In submitting the certificate, bidders are certifying that the prices in their offer have been arrived at independently, without, or the purpsoe of restricting competition, any consultation, communication, or agreement with any other offeror or competitor relating to:

1. those prices
2. the intention to submit an offer, or
3. the methods or factors used to calculate the prices offered

Offerors are also certifying that the offered prices have not been and will not be knowingly disclosed by the offeror, directly or indirectly, to any other offeror or competitor before bid opening or contract award and no attempt was made or will be made to induce any other concern to submit or not to submit an offer for the purpose of restricting competition.

The purpose of this certification is, of course, to prevent collusion, bid rigging, or other violations of antitrust laws. This is the first step in assuring that Government contracts are not awarded to firms violating antitrust laws.

An offer where the certification has been deleted or modified will be eliminated from competition. These certifications do not apply to commercial items.

The Government estimates that 721,200 of these are prepared and submitted each year taking 15 minutes each or 180,300 hours or about 100 staff years. That's a lot of time.

Disclosing Political Contributions

The administration is circulating a draft Executive Order that will require all entities submitting offers for federal contracts to disclose political contributions and expenditures that they have made within the two years prior to submission of their offer. Additionally, a formal "certification" process as to the accuracy of the data submitted will be a condition of award. This draft Executive Order directs the FAR councils to amend the the acquisition regulations by year end (presumably 2011) with rules and regulations and issue such orders as are deemed necessary and appropriate to carry out this order
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The U.S. Chamber of Commerce has strongly opposed the order, stating;

The obvious danger of this is that it will lead prospective businessmen and businesswomen to a choice no American should ever be forced to make: ‘Do I support the party in power in the hopes I can continue my livelihood, or do I support the candidate I believe will do the best job?’ This applies not only to large contractors. It also includes everyone from the zipper maker for military uniforms to the daycare facility operator for federal workplaces and landscapers who service a National Park. The implication is clear – pony up for the good guys or risk paying the price. As Senator Mitch McConnell aptly said yesterday “No White House should be able to review your political party affiliation before deciding if you’re worthy of a government contract. And no one should have to worry about whether their political support will determine their ability to get or keep a federal contract or keep their job.”

According to the draft order, this requirement is all in the name of transparency. All disclosed data is to be made publicly available in a centralized, searchable, sortable, downloadable and machine readable format on http://www.data.gov/ as soon as practicable upon submission.

Government to Increase its use of Fixed Price Incentive Contracts

The Department of Defense is proposing changes to its procurement regulations to encourage contracting officers to increase the use fixed price incentive (FPI) contracts in the hope of reducing contract costs. DoD uses the phrase "...to incentivize productivity and innovation in industry"). Under FPI contracts, the price is not truly fixed. Instead, a target price is negotiated and this target price consists of a target cost and a target fee. If the final negotiated cost of the contract is above or below the target cost, then the contractor's profit will be adjusted downward or upward using a negotiated share ratio. The final price consists of the final negotiated cost plus the profit computed at that final cost using the share ratio. However, there's also a ceiling price above which the contractor will not be paid.

Under an FPI contract, profit is inversely related to cost; as costs go down, profit goes up (and vice versa). Therefore, it is believed that this contract type provides a positive incentive to the contractor to control costs. The necessary elements for a FPI contract are:

• Target Cost - best estimate of expected cost
• Target Profit - fair profit at target cost
• Share Ratio(s) - to adjust profit after actual costs are documented (defaults to 50/50)
• Ceiling Price - to limit the maximum the government may pay (defaults to 120%)

There is a significant downside to FPI contracts from a contractor's perspective. These contracts have to be tracked like cost-reimbursable contracts and included in contractors annual incurred cost submissions. Given that DCAA is hopelessly delinquent in auditing contractor incurred costs, the probability of negotiating a final contract price for purposes of calculating the final profit amount, in a reasonable amount of time, is slim. By comparison, contractors do not need to wait for a final audit before receiving final payment for fixed-price contracts.

 

 

 

FAPIIS Information Set to Go Public

Last April, the Government launched its contractor responsibility database called FAPIIS (Federal Awardee Performance and Integrity System). The purpose of this database is to enhance the government's ability to evaluate the business ethics and quality of prospective contractors competing for Federal contracts. Access has been limited to Government acquisition personnel for use in making responsibility determinations prior to award of a contract. 

The FAPIIS data base tracks five years worth of contractor misconduct and performance data. It includes criminal, civil, and administrative proceedings (input by contractors and prospective contractors through the CCR system), past performance evaluations, records of suspensions and debarments, administrative agreements issued in lieu of suspension or debarment, nonresponsibility determinations, terminations for default, defective pricing determinations, and instances where a contractor's behavior "might" have put its employees in harm's way. Also, cases where procurement officials denied or reduced contractor's award fees because of reckless or negligent behavior must now be disclosed. For contracts above the simplified acquisition threshold (currently $150 thousand), contracting officers must check the FAPIIS data base and document (in writing) its responsibility determination.

On January 24, 2011, the FAR Councils published an interim rule that will make all information in the FAPIIS database, except for past performance data, publicly available on April 15, 2011. The actual wording states that all information posted by contractors, offerors, and the Government after April 15, 2011 will be made publicly available which presumably means that data already in the database will not be made available to the public. There is a 60 day public comment period however since this new regulation is required by statute (section 3010 of the Supplemental Appropriations Act of 2010), don't count on significant revisions.

As expected, Government watchdog groups are enthusiastic about the increased transparency available through this new regulation while contractors and industry groups are not. A PSC (Professional Services Council) representative stated that "Making this data public opens the door to all kinds of misperceptions, misunderstandings and even mischief.” The Government is aware of these concerns and is emphasizing the importance of ensuring the integrity of the data base, cautioning procurement officials to redact company proprietary data, avoid information related to pending litigation, and give "thought and consideration" to the information they enter.

If you would like more information on FAPIIS, watch this short Federal Acquisition Institute trailer.

FAR Now Says You Can't Text While Driving - Good Grief

The FAR Councils just released FAC (Federal Acquisition Circular) No. 2005-46 which contains a number of changes that will be of general interest to Government contractors. We will report on a select few in due course but we wanted to alert everyone right away to a change that is certain to have a ground shaking impact on companies who want to do business with the U.S. Government.

This all started about a year, October 1, 2009, when the President issued an Executive Order 13513 requiring every Federal agency in procurement contracts, grants, and cooperative agreements, and other grants to encourage contractors and subcontractors to adopt and enforce policies that ban text messaging while driving company-owned or rented vehicles, or while driving POV when performing any work on behalf of the Government. It took a year but the Government finally got the directive incorporated into the FAR. Good thing, too. The FAR needs more girth.

The contract clause now required in contracts and subcocntracts states that contractors (and subcontractors) should adopt and enforce policies than ban text messaging while driving company-owned or rented vehicles or Government-owned or privately owned vehicles when performing any work on or behalf of the Government. Further, the contractor should conduct initiatives such as establishing new rules and programs or re-evaluations of existing programs to prohibit text messaging while driving, and conduct education awareness and other outreach to employees about the safety risks associated with texting while driving.

The clause has no teeth. It states that contractors "should" adopt and enforce policies. It does not require that contractors adopt and enforce policies. Nevertheless, it will probably show up in some kind of self-certification some day (like drug-free workplace) and some auditor, thinking he/she is doing something useful, will ask you for your policies and procedures that ban texting while driving and check on your enforcement procedures.

By the way, if you are ever need to find the definition of "driving", you can now look it up in FAR 52.223-18. Take that, Mr. Webster.