FAR 12.101 states that Agencies shall...Acquire commercial items or nondevelopmental items when they are available to meet the needs of the agency...; and FAR 12.208 states [contracts for commercial items shall rely on contractors' existing quality assurance systems as a substitute for Government inspection and testing before tender for acceptance unless customary market practices for the commercial item being acquired include in-process inspection. Any in-process inspection by the Government shall be conducted in a manner consistent with commercial practice.]

The question at hand is whether a janitorial service contract falls into this category and if so, does this langauge mean that the PWS shall NOT include a Government sampling, AQLs, and deducts?

By MikeW on Monday, July 16, 2001 - 08:48 am:

Several agencies have determined that janitorial services qualify as "commercial items." However, this doesn't necessarily prohibit sampling and deducts (I'm not sure what AQLs are).

Mike

By Anonymous on Monday, July 16, 2001 - 11:58 am:

I was recently taught at an ESI/GWU commercial item course that Janitorial Services are commercial if prices at a rate of $ per Square Foot or some other measure. You cannot use commercial item contracts for labor hour services so you cannot pay janitors by the $ per hour criteria. Per FAR 12.207, commercial service contracts can only be firm fixed price and firm fixed price with economic price adjustment.

The PWS would spell out the inspection criteria to be used using commercial practice as much as possible.

By Anonymous on Monday, July 16, 2001 - 05:57 pm:

Question in response to Anonymous 16 July 2001 - 11:58 am posting:

DO you consider a contract to be firm-fixed price given the requirement to increase contract costs with each Davis-Bacon Wage Rate change?

By CMERCY on Tuesday, July 17, 2001 - 07:59 am:

The answer to anon 557 is yes. One might think of it as a Firm Fixed Price with EPA.

By Anon on Tuesday, July 17, 2001 - 08:58 am:

Mike,

AQL is Acceptable Quality Level.  I agree that a Wage increase is still within the FFP arena. Just one note. Davis Bacon applies to construction contracts. Service Contract Act(SCA)  Wage Determinations apply to janitorial contracts.

By John Ford on Tuesday, July 17, 2001 - 11:09 am:

Anon 7-16: What you were taught is probably correct based upon the FAR Council's misinterpretation of the commercial item provision in FASA. Based upon that misinterpretation, commercial services have been severely curtailed because of the requirement that service contracts be of the FP type. However, that mistake has been recognized and there is a proposed FAR rule out that would allow for the acquisition of commercial items using any type of contract except a cost type. This should greatly expand the services that are considered commercial and provide agencies with greater flexibility in acquiring services.

By Anonymous on Tuesday, July 17, 2001 - 01:53 pm:

In my mind, a labor hour contract is nothing more than a simple cost contract. We have set prices per hour but cannot always control the number of hours a job will take.

By joel hoffman on Tuesday, July 17, 2001 - 08:38 pm:

This has been a hotly debated topic, here. Refer to earlier threads for details. Suffice to say that, for FAR purposes, do not consider time and materials or labor hour contracts as cost reimbursement contract types. Happy sails! joel hoffman

By joel hoffman on Tuesday, July 17, 2001 - 11:15 pm:

I found the below thread "Any Difference?" in the archives. No need to renew the debate. This link is provided for for 17 July Anonymous...

http://www.radix.net/~ambrose/forumANYDIF.htm

happy sails! joel

By Vern Edwards on Wednesday, July 18, 2001 - 05:57 am:

Anonymous 0153:

Labor-hour contracts are not simple cost contracts. Labor-hour contracts are not any kind of cost contract. Labor-hour contracts are labor-hour contracts.

By Eric Ottinger on Thursday, July 19, 2001 - 06:47 am:

All,

Eleanor Spector, at that time the Director of Defense Procurement, signed a memo “SUBJECT: Payment and Withholding of Funds under Time-and-Materials Contracts” dated February 28, 1991.

“The Inspector General has recently completed a review of time-and materials contracts and found some misunderstanding of the payment and withholding provisions of the clause at FAR 52.232-7, Payments under Time-and-Material and Labor-Hour Contracts. These contracts are a form of cost-reimbursement contract. Thus, billings for labor hours must be made by public vouchers and the cognizant Defense Contract Audit Agency auditor must review and approve vouchers. Contracts shall not provide for any other arrangement.”

The reader can check the FAR Matrix and note that the following cost type clauses are required for both cost type and Time and Materials/ Labor Hour contracts.

FAR 52.216-7 Allowable Cost and Payment,
FAR 52.244-2 Subcontracts (Cost Reimbursement and Letter Contracts),
FAR 52.249-6 Termination (Cost-Reimbursement)

The long thread referenced by Joel was a discussion regarding the character of FP LOE contracts. I would recommend that the best policy is in the FAR as it is written. Vern was advocating some “creative contracting” uses of the FP LOE type.

I believe that the argument came to closure when someone in another thread cited an IG or an audit report regarding egregious abuses under FP LOE service contracts. (I can’t find the post. I suspect it was one of the one-post threads that Bob has deleted.)

We did agree that if you locate a FFP contract at the left side of the risk spectrum and locate a cost type contract over at the right side, the FP LOE is closer to the cost type than it is to the FFP. A FFP contract puts almost all of the risk on the contractor. A FP LOE puts most of the risk on the government.

The penultimate post in the thread referenced by Joel was by tb on Tuesday, October 03, 2000 - 09:18 am:

“Mrs. Spector never stated FP LOE contracts were cost reimburseable. However, in her 28 Feb 1991 memorandum, Payment and Withholding of Funds under Time-and-Materias Contracts, she stated T&M and LH contracts were "a form of cost reimbursement contract".”

It isn’t clear to me why tb’s excellent input has been disregarded. That should have been the final word.

Eric

By Vern Edwards on Thursday, July 19, 2001 - 10:14 am:

Eleanor Spector's statement that T&M and labor-hour contracts are "a form of cost-reimbursement contract" was true only of T&M contracts, and only to the extent that the contractor is reimbursed for materials at cost. Her statement was otherwise untrue.

Under T&M and labor-hour contracts the Government pays contractors for labor based upon stipulated hourly rates for hours delivered. The hourly rates are not necessarily commensurate with the contractors' incurred costs. Under cost-reimbursement contracts the Government reimburses contractors for their allowable incurred costs up to the contract estimated cost or the funds allotted to the contract. If for any given task performed you computed the contractor's entitlement under each arrangement, it is possible for the results to be different, and it is likely that they would be different. Thus, the contract types are not the same.

It's neat to be able to quote memos from a Government official to support an assertion. I do it when it works for me. However, it only works when the official is right. In this case, Ms Spector was not right.

What she should have said was that T&M and labor-hour contracts are similar to cost-reimbursement contracts in that at the time of contract award the Government does not know the specific amount that it will have to pay a contractor to complete a task. If she had said that, and stopped at that, her statement would have been true.

By joel hoffman on Thursday, July 19, 2001 - 11:08 am:

Sorry if I ignited a new debate over labor-hour or T&M contracts. My question is, can we use such an animal for a commercial service contract?

Such arrangements are common in industry. If your washing machine breaks or you toilet leaks, there is a service call charge, whereby they will come, investigate and provide you an estimate, utilizing an hourly charge for service. If your car needs servicing, there is an estimated charge and a max authorization. And so on and so on.

Did the proposed FAR change, loosening up the definition of commercial services, go into effect? I couldn't find the proposed rule change, though I admit I quickly tired of searching for it. happy sails! joel

By Vern Edwards on Thursday, July 19, 2001 - 12:36 pm:

Joel, et al.:

The proposed rule was published on Dec 29, 2000 (65 FR 83292). It would change FAR 12.207 to read as follows:

"12.207-1 Authorized contract types.

(a) Agencies must use, to the maximum extent practicable, firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items. These contract types may be used in conjunction with an award fee incentive and performance or delivery incentives when the award fee or incentive is based solely on factors other than cost (see 16.202-1 and 16.203-1).

(b) Agencies may use indefinite-delivery contracts (see 16.5) when the task or delivery orders are issued under one of the authorized contract types in paragraph (a) of this subsection. Contracting officers must follow the procedures in 16.505 when placing orders.

(c) Use of cost-type contracts or contracts with incentives based on cost is prohibited.

12.207-2 Commercial services available on a time-and-material or labor-hour basis.

Some services are available in the commercial market on a time-and-material or labor-hour basis. Contracting officers may acquire these types of services under part 12 by using the following pricing strategies when cost-effective and consistent with commercial practice:

(a) An indefinite-delivery contract with established fixed hourly rates that permit negotiating orders (including any required material) under one of the authorized contract types in 12.207-1.

(b) Sequential contract actions that acquire the requirement in modular components using the authorized contract types in 12.207-1 (e.g., a preliminary firm-fixed-price ``diagnostic'' effort allowing the contractor to understand the scope of work sufficiently to propose the large requirement on a firm-fixed-price basis)."

The DAR Council sent a final draft of this rule to the Civilian Agency Acquisition Council on May 9, 2001. As of July 19, the two councils were still working to "resolve open issues."

This proposed rule is very poorly worded, especially 12.207-2(a). That paragraph clearly dodges the question of whether or not T&M and labor-hour contracts are among "the authorized contract types in 12.207-1." I suspect that the members of the councils can't agree among themselves about whether or not T&M and labor-hour contracts are "cost-type" contracts, and so they've written the rule to let each agency do what it likes.

What a way to run a procurement system!

By Eric Ottinger on Thursday, July 19, 2001 - 02:51 pm:

All,

Here is the language in FASA. I would construe “catalog prices for specific tasks performed” to mean exactly what it says, no more and no less.

“(F) Services offered and sold competitively, in substantial quantities, in the commercial marketplace based on established catalog prices for specific tasks performed and under standard commercial terms and conditions.”

This is an anomalous definition of commercial services, since many commercial services are priced by the hour, as you can easily verify by visiting your local auto repair or hi-fi repair shop. One the other hand, many commercial services are priced by the task (e.g. haircuts). Clearly Congress intends to limit Part 12 to services priced by the task.

If you read the proposed language carefully, it doesn’t change the approved contract types. It merely suggests a common sense workaround to get from priced labor hours to a priced task.

In my view, the FAR Council is reading the statutory language in the only correct way possible. The aspersions cast earlier in this thread are way off target.

Eric

By Vern Edwards on Thursday, July 19, 2001 - 04:54 pm:

Here's what FASA § 8002 says about contract types for commercial items:

"(d) USE OF FIRM, FIXED PRICE CONTRACTS. The Federal Acquisition Regulation shall include, for acquisitions of commercial items—

(1) a requirement that firm, fixed price contracts or fixed price with economic price adjustment contracts be used to the maximum extent practicable; and

(2) a prohibition on use of cost type contracts."

Italics added.

Now here's what the FAR says at 12.207:

"Agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items. Indefinite-delivery contracts (see Subpart 16.5) may be used where the prices are established based on a firm-fixed-price or fixed-price with economic price adjustment. Use of any other contract type to acquire commercial items is prohibited."

The statute says to use FFP and FP-EPA "to the maximum extent practicable." The FAR says to use them exclusively. The statute prohibits the use of "cost type" contracts. The FAR prohibits the use of "any other contract type" than FFP or FP-EPA.

The FAR goes too far, and for no good reason. Everybody knows, and even the FAR Council acknowledges, that many commercial services are sold on a T&M or labor-hour basis. FAR 12.207 should say nothing more or less than the statute requires.

Moreover, I don't see any reason why the term "catalog or market price" should be read to preclude the use of a T&M or labor-hour contract. "Plumbing services at $100 per hour" can be a catalog or market price for a specific task.

By Anonymous on Friday, July 20, 2001 - 10:29 am:

Vern is correct that a labor hour contract should not be confused with a cost reimbursement contract. Although the contractor will have to provide the Govt. with substantiation of his incurred hours prior to getting paid, the hourly rate of compensation was fixed in the contract and is not subject to any cost-based substantiation or revision. I do not believe this is what Eric did, but all too often I hear COs use the words "price" and "cost" as if they were synonymous, which they of course are not.

Commercial contracts based on fixed hourly rates are currently being issued throughout the Govt. The FFP requirement is being honored in the breach on this, pending the revised FAR language everyone keeps expecting.

By John Ford on Friday, July 20, 2001 - 10:49 am:

Anon 10:29, I agree with you and Vern over what FASA says about commercial items and the overly restrictive language of the FAR. As regards price and cost being used interchangably, some of the confusion may be attributed to the FAR Part 15 rewrite. If we look at the definition of "price" in FAR 15.401, we see that it includes cost.

By Vern Edwards on Friday, July 20, 2001 - 11:39 am:

Anon 10:29 and John:

The use of the term "price" has caused confusion in many ways. I suspect that most people use the word "price" to refer to a dollar amount that represents a specific and total payment obligation. In that sense, cost-reimbursement, T&M, and labor-hour contracts do not include a "price," other than the ceiling price in T&M and labor-hour contracts. I think that's why Eric referred to the fact that the definition of commercial items mentions catalog or market "prices." He appears to suggest that agencies cannot use T&M and labor-hour contracts to acquire commercial services because those contract types do not include "prices" in the ordinary sense, and so services thus procured could not be based on catalog or market prices.

However, that interpretation, assuming that's what Eric meant, is too narrow. The GAO held long ago that the adequate price competition exemption applies to all contract types, including cost-reimbursement contracts, which do not include a "price." See Serv-Air, Inc.- Reconsideration, 58 Comp. Gen. 362 (1979). Thus, the term "price" must be construed more broadly than common usage would suggest.

By Eric Ottinger on Friday, July 20, 2001 - 11:54 am:

Gentlemen,

This is absurd.

“Price” isn’t the issue.

Congress clearly intends that we buy commercial services by the task and not by the hour.

“(F) Services offered and sold competitively, in substantial quantities, in the commercial marketplace based on established CATALOG PRICES FOR SPECIFIC TASKS performed and under standard commercial terms and conditions.

Eric

By Vern Edwards on Friday, July 20, 2001 - 12:32 pm:

Eric:

You have just raised a different issue than the one that we have been discussing. The issue has been whether or not FASA permits agencies to use T&M and labor-hour contracts to acquire commercial items. That's a pricing issue.

Are you saying that T&M or labor-hour contracts are not used to acquire services to perform a specific task, like "Fix my car"? I hope not, because you would be wrong. Even the FAR Council knows that's not true.

And by the way, you have been misquoting the statutory definition of commercial item. It says "catalog or market prices," not just "catalog prices." See 41 U.S.C. §403(12)(F)

By joel hoffman on Friday, July 20, 2001 - 12:34 pm:

Eric, are you saying, in general, that unit-priced contracts with estimated quantities are not FFP contracts? happy sails! joel

By Eric Ottinger on Friday, July 20, 2001 - 12:51 pm:

Joel,

I am saying that Congress intends that we buy "commercial" (as defined in the Act) services by the task and not in any other fashion.

Everything else is irrelevant.

I think we have had the discussion about whether a unit priced contract can be considered FFP

Even if we don't agree on that point, we should be able to agree that a FFP normally puts all of the risk on the contractor and a unit priced, labor hour contract puts most of the risk on the customer.

This is a muddled discussion because, we keep asking what we believe "commercial" ought to mean, when the only relevant question is the intent of Congress.

I don't find "catalog prices for specific tasks" to be the least bit ambiguous.

Eric

By joel hoffman on Friday, July 20, 2001 - 12:59 pm:

Life's too short for these type of philosophical arguments on a Friday. I'm going waterskiing. Y'have a good weekend - try not to ruin it with arguments. happy sails! joel

By Anonymous on Friday, July 20, 2001 - 02:02 pm:

Firm-fixed-price means the bottom line contract price is fixed at time of award, not subject to adjustment based on cost. Ref. FAR 16.202. So contracts with a fixed unit price but a NTE # of hours are not FFP contracts.

FAR 12.207 explicitly limits acquistion of commercial items procedures to FFP or fixed price with EPA. I am not arguing with that. However, as I noted in my earlier post today, many or most agencies are ignoring this and, where there are hourly rates that can be established as commercial, are awarding commercial items contracts with fixed hourly rates and a NTE # of hours, (i.e, labor hour contracts) using FAR Part 12 clauses and procedures.

We first did this after receiving appropriate authority to deviate from the FAR, that is, from FAR 12.207. Soon thereafter, I attended a Contract Law course and brought this up. The instructor, an attorney, advised I was technically correct, but that as a matter of practice it was generally understood that the FAR writers had inadvetantly "gotten the language wrong," that of course labor hour contracts using established commercial hourly rates were commercial contracts, and other agencies were proceeding with the same type of contract without getting authorization for a FAR deviation. Curiously, this was about two years ago and the FAR language has not changed. But we have not been bothering with FAR deviations since and no one has objected. (No doubt some one in this forum will, and will be technically correct). No one seems to care about this blurring in practice of the 12.207 prescription. Is this a good or bad thing? Is it blatant circumvention of the intent of the law or intelligent and practical recognition of what is consistent with the rest of the commercial item acquisiton rules and the commercial marketplace?

Separately, if I pay 50 cents at the store for a candy bar, that is its price. The price I paid minus the seller's cost to produce and sell the item, both direct and indirect cost, is the seller's profit (or loss). A FFP proposal is based on estimated costs plus hoped for profit. That is the price. The difference between the actual costs in performance of the contract and the price paid is the actual profit. Just as a lot of COs incorectly use the words "cost" and "price" synonymously, they use the terms "fee" and "profit" as if they were synonomous, and on a FFP price contract they seldom are, even with an informed and honest estimate of price. That 8% profit you agreed to when you awarded your FFP could be anything in actuality, and that is OK unless the seller misled you as to his costs and you as a result end up paying more than the market value for a commercial item or the true cost plus a "reasonable" profit for a unique item or service.

By Vern Edwards on Friday, July 20, 2001 - 06:48 pm:

The following are clear to me:

1. FAR 12.207 prohibits the use of T&M and labor-hour contracts to buy commercial services, but FASA does not.

2. Hourly rates on a T&M or labor-hour contract can qualify as catalog or market prices.

3. T&M and labor-hour contracts can be used to acquire the performance of specific tasks.

4. FAR 12.207 ought to be changed without further delay in order to expressly permit agencies to acquire commercial services under T&M and labor-hour contracts, so that they can do what other buyers of commercial services can do.

By Vern Edwards on Monday, July 23, 2001 - 09:26 am:

All:

There is an interesting article in the July 17 issue of Federal Contracts Report about buying services under FAR Part 12. It includes a good discussion about the catalog or market price requirement and the controversy about the use of T&M contracts.

See: "Contracting for Professional and Technical Services: The Federal Acquisition Streamlining Act's Unfinished Business," by Robert J. Wall and Christopher B. Pockney of Ernst & Young Government Contracting Services.

By Eric Ottinger on Wednesday, August 01, 2001 - 08:27 pm:

All,

I read the Ernst and Young article. On the whole I thought it was thorough and professional. However, I thought it was oriented to advocacy as well as analysis.

The FASA coverage for commercial services appears to have been a last minute, rushed afterthought. In this light, Ernst and Young provide a lot of background in regard to commercial supplies, without demonstrating that this background information is relevant to commercial services.

(For instance, “The commercial item’s ‘sold or traded’ criterion tended to exclude items that were leased or licensed, modified, old or discontinued, and newly introduced into the commercial marketplace.”

OK. Makes sense. What does this have to do with the committee report definition of commercial services?)


Somebody, explain to me please, how the FAR Council has supposedly misinterpreted the conference report. When I compare the two, it appears that the FAR Council has loosened things up a little bit in the direction of being more permissive. Other than that, everything is verbatim identical.

Conference Report: “This definition would cover only those commercial services that are sold based ON ESTABLISHED CATALOG PRICES FOR SPECIFIC TASKS PERFORMED. It would NOT INCLUDE SERVICES THAT ARE SOLD BASED ON HOURLY RATES WITHOUT a fixed CATALOG PRICE FOR A SPECIFIC SERVICE PERFORMED.”

FAR: “Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based ON ESTABLISHED CATALOG or market PRICES FOR SPECIFIC TASKS PERFORMED under standard commercial terms and conditions. This does NOT INCLUDE SERVICES THAT ARE SOLD BASED ON HOURLY RATES WITHOUT an established CATALOG or market PRICE FOR A SPECIFIC SERVICE PERFORMED.”


This story, in which the FAR Council misinterprets the conference report, keeps popping up in the discussion. Like hearsay generally, the story seems to be clearer and less ambiguous, the farther off you get from the actual facts. To be exact, nobody, including Ernst & Young, has provided any credible details to back up the story.


It is clear to me that FASA does require a price for “a specific service performed.” And, “this [definition of commercial services] does NOT include services that are sold based on hourly rates.”


What is the controversy? I can’t tell you who is in favor and who is against, or why. I see a lot of “gimme” and “I wanna” from the commercial side. It doesn’t surprise me that big name consulting outfits (e.g. Ernst and Young) want to contract with the government on an open-ended basis. It doesn’t surprise me that many commercial organizations regard their discounts and their actual prices to be highly sensitive proprietary information. Is this really a controversy, or is it, as usual, special pleading.


It is true that on the commercial side many services are bought by the hour (e.g. legal services, accounting, consulting, etc.). However, it should be noted that commercial firms are usually in a better position to demand good performance in this type of relationship. On the commercial side, there is usually a long-term relationship to protect. Also, the bottom line motivated customer will demand results.

Just for the sake of argument, let’s admit that there are government managers who are just as careful with the public’s money and just as demanding in the role of a customer. On the other hand, don’t we know a few in the government who have the attitude, “As long as the money is in the budget, we ought to spend it.” Don’t we know a few projects that just eat money and never come to conclusion. Isn’t that the kind of situation that Congress would wish to discourage.

What I don’t see is a good reason why I, as a contracting person or a taxpayer, would consider T&M a good way to buy “commercial” services. T&M has always been regarded as a least preferred contract type. Any arrangement in which we are “just buying hours” puts the contractor in a strong position, and puts the government in a weak position.

It is no secret that Defense contractors are generally motivated to maximize revenue, while commercial firms are generally motivated to maximize profit. . Mightn’t there be good reasons to think open-ended contracting arrangements are more of a problem in government contracting that such would be on the private side.

Most lawyers have a very good understanding of the concept of “billable hours.” Most law firms do their best to maximize billable hours, particularly if the customer has deep pockets. Many of the people in Congress are lawyers. This might be a more than satisfactory explanation for why a congressperson might see a hazard if the government is allowed to contract for commercial services on a “billable hour” basis.

Getting back to our janitorial contract. It is axiomatic that T&M requires close, on-site government oversight. Does the government want to be responsible for checking time cards. Does the government want to deal with the kind of petty time card fraud that will inevitably occur. Isn’t it simpler just to verify that the bathrooms have been cleaned and the wastebaskets have been emptied.

Eric

By Anonymous on Wednesday, August 01, 2001 - 11:03 pm:

In my opinion, many "commercial services" could be fixed priced on a basis other than per hour. I would think a janitorial service should have a really good idea how much an office building costs to clean per square foot. Landscaping, office moving, court reporting, etc are priced by the job frequently. Inventory services are usually priced by the quantity inventoried not the hour. As contracting officers we should use T&M as a last resort.

What I see a lot of is program offices using contractors as their office staff. In reality many should be personal service contractors. The contracts have to be priced by the hour if the contract employee is expected to obey every desire of the COR/COTR who believes he is their supervisor. When asked many contract personnel point our a government employee as their supervisor and have to be reminded that he can not be under federal law.

I hate to say but we have several like this in our own contracting office. It is so widespread now that the law should just be changed.

By Vern Edwards on Thursday, August 02, 2001 - 10:14 am:

Neither the law, nor the conference report, nor the FAR excludes services based on hourly rates. They exclude services based on hourly rates "without an established catalog or market price for a specific service performed."

$50.00 per hour for repair of Item X is a catalog price if published or a market price if it verifiable in the marketplace. "Repair of Item X" is a specific service.

T&M contracts would be okay for commercial services if it weren't for FAR 12.207. It should be changed.

By Anonymous on Thursday, August 02, 2001 - 11:51 am:

Legal yes, but only as a last resort. We come back to that "Good Business Sense".

By Philip Griggs on Thursday, August 02, 2001 - 12:04 pm:

Does anyone know what the status of the proposed FAR rule, published Dec 29, 2000 (65 FR 83292)is that will make the change to 12.207?

By Vern Edwards on Thursday, August 02, 2001 - 03:52 pm:

Anonymous 11:51,

Do you think buying services at hourly rates doesn't make good business sense? Many services are commonly purchased on an hourly rate basis. The FAR Council has acknowledged that much. In fact, that may be the most common way to buy services.

Are you fundamentally opposed to buying services on an hourly rate basis, or are you merely saying that sometimes it's not the best way?

By Anonymous on Friday, August 03, 2001 - 08:36 am:

Don't many of the FSS schedules issued under Part 12 permit T/M orders? Is this a problem?

By Eric Ottinger on Friday, August 03, 2001 - 09:32 am:

Vern

If I try real hard, I can equate “specific service performed” with a dollars per hour rate for a category of labor.

However, I can’t equate “specific tasks” with labor hours or rates, no matter how hard I try.

The language that you quote is from the conference report, not the statute.

In any case, the most significant word in that text is “not.” Congress clearly intends to prohibit something.

Evidently, you think the FAR Council has the wrong idea about what Congress intended to prohibit with that “not.”

What do you think Congress intended to prohibit?

Eric

By Vern Edwards on Saturday, August 04, 2001 - 07:51 pm:

Eric:

The language that I quoted, "without a catalog or market price for a specific service performed," is from paragraph (f) of the definition of commercial items that appears in FAR 2.101. That definition says "specific service," not "specific task."

I don't know why the language in the conference report and in FAR differs from the language in the statute. Perhaps the FAR Council thought the language in the conference report was better than the language in the statute. Maybe they didn't think "task" or "service" makes any difference, which means that they think the same way that I do about it.

I don't care if you use the word "service" or "task." "Repair of item X" is both a "specific task," and a "specific service," and if it's priced on the basis of an hourly rate, and if the hourly rate is in a catalog or if it can be verified in the marketplace, then the statute permits you to use commercial items procedures to buy it. The only roadblock is FAR 12.207, which needlessly prohibits the use of T&M and labor-hour contracts.

What do I think that Congress was trying to prohibit? I think they were trying to prohibit the use of commercial items procedures to award catch-all contracts for government-unique advisory and assistance services based on non-commercial prices.

By Eric Ottinger on Wednesday, August 15, 2001 - 09:19 pm:

Vern,

I think most of us can distinguish the terms “service” and “task.” I have been using the term “task” for many years (e.g. task assignment, task order, sample task). Not once in all of those years did I think that the terms “task” and “labor category rate” (e.g. $50/HR for a fully qualified repairman) could be used interchangeably. (Although, I must admit that this opens up wide vistas for creative contracting.)

I also don’t know why the conference report used the term “task” in place of the term “service.” Since I don’t have that inside knowledge, I have to assume that when they said “task” they meant “task.”

Let’s get one thing clear-- When I first encountered this rule, I didn’t believe it. If I remember correctly, this was a training session presented by a contractor, shortly after FASA came out. I know that my first response was, “This is nuts. Law firms and accounting firms usually do price by the hour, not to mention auto mechanics, hi-fi repairmen, plumbers, etc., etc.”

If I have modified my point of view, it is because (1) Ottinger’s personal opinion about commercial services is not as important as the intentions of Congress, and (2) Congress may have had a perfectly cogent reason for prohibiting the use of Part 12, commercial items procedures, to buy services by the hour.

Vern, I think you ducked my question, although you ducked in a most graceful manner.

I also believe that Congress may have wished to prohibit the use of Part 12 “commercial items procedures to award catch-all contracts for government-unique advisory and assistance services based on non-commercial prices.” But, how would I, or anyone else, know that the prohibition was specifically targeted to “government-unique” and advisory and assistance services. The conference report doesn’t use either of these terms.

I know this was done in some haste, which would leave some room for confusion. But, ordinarily, if the people who wrote the conference report had intended “government-unique” and advisory and assistance services, you would expect that they would have said so.

If I may rephrase the question-- What do we have in the written record (or even in the realm of authoritative hearsay) to support the idea that the prohibition should be construed very narrowly as merely a prohibition against buying “government-unique” advisory and assistance services, priced by the hour?

Eric

By Vern Edwards on Thursday, August 16, 2001 - 09:17 am:

Eric:

In answer to the question in your last paragraph, I don't see anything in the written record that would support the idea. You asked me what I thought and I speculated in response.

As to the rest of it, I guess we'll just have to agree to disagree.

Vern

By Eric Ottinger on Tuesday, August 21, 2001 - 07:45 am:

Vern,

I think you have agreed that we “don't see anything in the written record” that would support your arguments.

If that’s true, I don’t think we need to agree or disagree about much else.

We agree that Congress intended to prohibit something.

We agree that your narrow interpretation of the prohibition is entirely speculation.

I think we agree that the assertion that the FAR Council somehow misread the conference report is pure and (so far) unsupported speculation.

I should note that the Ernst and Young article doesn’t make this assertion.

Ernst and Young characterize the FAR Council reading of the conference report language as an “interpretation,” suggesting that there might be other equally valid interpretations. However, Ernst and Young doesn’t provide, or advocate, another interpretation.

I think the simplest and most likely explanation is that a smart staffer knew enough about procurement to know that T&M is a least preferred contract type, which we normally use only after we have determined that no other type is suitable. Presumably, somebody suggested that Part 12 contracting shouldn’t include an approach, which the FAR characterizes as a dubious last resort, requiring direct government oversight, to be used only if nothing else will work.

FAR 16.601 Time-and-materials contracts.

“(b) Application. A time-and-materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.

(1) Government surveillance. A time-and-materials contract provides no positive profit incentive to the contractor for cost control or labor efficiency. Therefore, appropriate Government surveillance of contractor performance is required to give reasonable assurance that efficient methods and effective cost controls are being used.

…

(c) Limitations. A time-and-materials contract may be used

(1) only after the contracting officer executes a determination and findings that no other contract type is suitable;”

Like a lot of issues in our supposedly “arcane” and esoteric” career field. I think we are getting ourselves wrapped into a pretzel, taking something very simple and making it complicated.

Most of us do know what a “task” is. We use the term frequently. If Congress says that we should buy the task and not the hours under Part 12, the correct answer is to salute and move out smartly.

(Vern knows the difference between inputs (i.e. hours) and outputs (i.e. tasks). He used to teach that in his Task Order course.)

For whatever it is worth, I think the argument that T&M contracts “mitigate the government’s risk” is the weakest part of the Ernst and Young analysis. I don’t doubt that commercial side controls “come in the form of project estimates and phased budgets, close review of submitted billings, and price ceilings.” But the biggest control is the fact that the customer is spending his/her own money. This makes the customer cautious. The government customer is spending someone else’s money (i.e. the taxpayer). That is a different situation, and some common sense limitations are in order. Government contracting is always going to require more structure and more oversight. That is just the way it is. The current brouhaha about credit cards should demonstrate the point.

Eric

By Anonymous on Tuesday, August 21, 2001 - 10:20 am:

Eric:

Isn't it true, however, that your interpretation, though very reasonable, leads to not including the most appropriate clauses from a practical standpoint? When you read the commercial items clauses themselves, don't they make more sense for use in contracting for hourly services than some of the Part 15 clauses? The commercial item clauses themselves fit the professional services by the hour model pretty well, it's only the FAR prescription that either does not fit, or is the kind of uncomfortable, but in practice sensible, fit Vern advocated. So why not stretch the interpretation of the prescription liberally in a case like this, isn't that something an effective CO does, as long as he doesn't lose a protest as a result? And no one has yet lost a protest for using the commercial clauses for T&M services, have they, even though we know it is happening all the time? So although the interpretation of the prescription is being stretched all the time, it appears not to have been broken.

I respect the way you presented your reasoning, but are you maybe being too textbookish in this case? I'm not sure where I stand on this intellectually, but as practical matter I'm going to keep using commercial clauses and procedures for some of my professional services hourly contracts until some deciding body somewhere cracks down or otherwise explicitly forbids it. (In part because my management wants it done that way, using the type of logic Vern presented, another very practical consideration for the working stiff CO. As a practical matter,what's so bad about using a somewhat semantic logic to get over a FAR hurdle and obtain good results, when there is no protest decision saying you can't?) Food for thought, I hope.

By Eric Ottinger on Tuesday, August 21, 2001 - 11:41 am:

Anon,

Thanks for the thoughtful reply. A bit of dialogue with a sane, moderate tone is refreshing.

-- I have a problem with really open-ended arrangements. I don’t want to give anyone a blank check when we are buying high priced, professional services. (This seems to be a point where Vern and I are in agreement.)

-- There is a big push from the top to buy performance based services. Even if I think this is a little more difficult to accomplish than some people think, I agree with the principle. We should never be “just buying hours.”

-- I think both the conference report and the FAR are plain enough. There is more than a shade of difference between stretching “the interpretation of the prescription liberally” and simply refusing to comply with the plain language in the regulation.

-- If some folks are going to stretch the rules in ways that they feel they can justify with a bit of “liberal interpretation,” the Sergeant Bilko’s in our line of work are going to stretch the rules in directions that are just plain stupid and abusive. Somebody is going to buy a lot of high-priced hours; nothing will be delivered. And the whole mess will be aired on 60 minutes or in a Congressional hearing. It is just a matter of time.

As far as I can tell, the “liberal interpretation” is the policy, as some of us would rewrite it, if they were the conference committee and the FAR Council. If there really is a coherent alternative interpretation, I would expect to see it in the Ernst and Young article.

I really don’t know whether there really is a significant barrier to buying truly commercial services. I expect that it would depend a lot on what kind of services you are buying.

Intuitively, if it isn’t practical to price the service in terms of dollars per unit of output, I would consider that a red flag indicating that the service is probably not really commercial.

I don’t doubt you are right about what your management is doing. I fear that after ten years of blather about acq. reform “revolution” etc. etc. it has got the point where some people are comfortable rewriting the FAR to do whatever they think they want to do. For a lot of reasons, I am not comfortable with that trend. For one thing, it will be extra opportunity for the audit and IG community to obtain media exposure at our expense (e.g. the credit card flap).

Eric

By joel hoffman on Tuesday, August 21, 2001 - 03:30 pm:

Eric, there is a vast difference between the credit card flap and liberal interpretation of the FAR, if consistent with the spirit and intent of the Legislation and implementing CFR's.

The credit card flap involved an abuse of discretion and virtual abandonment of sound business practice. Private businesses would risk great loss if they handed out credit cards, willy nilly, with no internal controls. happy sails! joel

By Eric Ottinger on Tuesday, August 21, 2001 - 05:27 pm:

FAR 12.207 Contract type.

“Agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items. Indefinite-delivery contracts (see Subpart 16.5) may be used where the prices are established based on a firm-fixed-price or fixed-price with economic price adjustment. Use of any other contract type to acquire commercial items is prohibited.”

Joel,

Explain to me please what “liberal interpretation” leads you to believe that FAR 12.207 permits the use of labor hour contracts?

If we have so little respect for our regulations that we routinely encourage our contracting people to ignore the regulations, we will have many instances of “virtual abandonment of sound business practice.”

I believe it would be a very unsound business practice if we start buying purportedly commercial services by the hour, without metrics, milestones or deliverables to assure that we are getting value for our money.

As for the hearsay to the effect that the FAR Council somehow misinterpreted the statute or the conference report, Ernst and Young wrote a highly authoritative nine page analysis without ever making that argument. I don’t think there is anything to it, other than hearsay.

I believe a task is a task. A task is not a labor category. This isn’t complicated. We make it difficult by changing the subject and going off on tangents.

Eric

By Vern Edwards on Tuesday, August 21, 2001 - 09:15 pm:

Eric:

The only thing that I agree with you about in this thread is that we disagree. In my opinion, Congress did not prohibit the use of hourly rate pricing based on catalog or market prices. I do not agree with your notion of that there is a difference between "service" and "task." To me, a specific service and a specific task are the same thing.

By joel hoffman on Tuesday, August 21, 2001 - 10:14 pm:

Eric, I made a simple statement that I felt you were overreaching by equating the potential for adverse media coverage of those who look for a liberal interpretation of the FAR, when used judiciously and consistent with the spirit and intent of the Legislation and CFR's, to the recent credit card fiasco.

I seriously doubt that the media would give a flip whether or not someone purchased commercial services, where it makes sense, using labor hour or T&M methods, based on catalog or established market pricing.

As for abuses of T&M, good grief, poor business practices can be and are often found, using any contract method. Eric, happy sails! Joel

By Anonymous on Wednesday, August 22, 2001 - 08:54 am:

When we used hourly rate commercial type contracts, the fixed price was the unit price and we did receive deliverables. We had specific work for the vendor to do, with a resulting deliverable in the form of a report, but we could not predict in advance how many hours the work would take. We required detailed invoices linking hours to tasks, which the COTR was responsible for approving.

By John Ford on Wednesday, August 22, 2001 - 11:40 am:

I think the posts in this thread are getting two concepts confused. First, there is the question of what types of contracts are permitted and prohibited for commercial items. Second, what qualifies for a commercial item.  In regard to the first, Vern set out the statutory language from FASA as to what types of contracts are permitted and what are prohibited. In short, any type of contract is permitted except a cost type contract. Clearly, the FAR Council either misinterpreted this language or intentionally deprived contracting activities of the flexibility Congress intended for them to have when the FARC permitted only FFP or FPEPA contracts to be used to procure commercial items. The law is clear on this point and references to Conference Reports are irrelevant in this circumstance. The Conference Report is not the law.  As for what service qualifies for a commercial item, Eric set out one of the definitions of a commercial service. The debate in this thread has centered around that definition. However, there is a second provision in FASA dealing with services. That provision was codified at 41 U.S.C. 403(12)(E) and allows the Government to acquire services in regard to commercial items if "the source of the services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government." Based on this provision, if a contractor is in the business of repairing commercial items and does so on a T&M basis for its commercial customers, it could provide the same service to the Government on a T&M basis.
Question, based upon the prohibition on the use of cost type contracts to acquire commercial items, what would the result be if a contractor repaired commercial items for its commercial customers on a cost plus basis?

By Anonymous on Wednesday, August 22, 2001 - 02:54 pm:

If I may, I think the debate suffers from free use of terms. If a contract was an IDIQ with a schedule of prices..for specific labor catagories...and that delivery or task orders were to be negotiated prior to issuance,I think such a procedure constitutes the test for FFP that was intended. I also think ANON 854 is wrong. Perhaps if we clearly define our terms we might be able to settle this issue.

By Eric Ottinger on Wednesday, August 22, 2001 - 03:36 pm:

Anon 2:54,

I believe I made the same point on July 19.

Regards,

Eric

By Anon2U on Wednesday, August 22, 2001 - 08:25 pm:

Anon 2:54

I consider your method FFP because a FFP is negotiated prior to the task order being written. I consider Anon 8:54's scenario to a be an example of a prohibited (at least by the FAR)task order. If they can work as many hours as necessary, it isn't fixed price.

And most body shop contracts are written exactly that way. You hire the help for your office by writing a task order for 2080 hours with another 80 hours or so of overtime rates in case he/she has to work overtime. Oh and the technical eval board makes sure that the awardee has placed as many fringe benefits into the billing rates to put the worker on par with the government workers.

I think the whole practice is wrong but regardless, it is not for me to decide when the Procurement Executives (definitely more than one)know about such practices and do nothing about them.

By Kennedy How on Thursday, August 23, 2001 - 11:57 am:

I don't know if it's a commercial contract or not, be we have a T&M contract where we issue task orders with a set number of hours in it. The contractor performs based on the rates previously negotiated into the basic contract (GSA rates, actually). Contractor bills monthly, and when the task is done, the task order is closed. If there aren't enough hours, then we add more.

Some of our projects are kinda open ended, in that we are relying on some other Government entity to either make a decision, or to provide access/hardware specs. If somebody outside of us decides to make a change, we might have to add more time, since the original Govt data is obsolete.

The interesting thing about this entire discussion from Day One is that the Government is spending a lot of time going out to private industry to hire consultants and outside people to do certain things because those people are the experts at it. Since they do this commercially, it seems pretty dumb to have to have them not contract with us the same way they do real world business.

Kennedy

By Eric Ottinger on Wednesday, August 29, 2001 - 06:41 am:

John,

The other authority that you cite is strictly for ancillary services. This topic is covered more than adequately in the Ernst and Young article.

I would read the statutory language the same way, with or without the conference report. As Gertrude Stein might say, “A task is a task is a task.”

As for your suggestion that the conference report should be ignored, I would be curious to see if any of our juris doctor participants would like to endorse that idea.

Ernst and Young belabor the perceived deficiencies in the “catalog or market” price concept, but they don’t pursue the other strained and tenuous arguments that we see in this thread.

Regarding contract types, it should be pointed out that the FAR explicitly characterizes T&M as a contract type worse than a CPFF, and the Director of Defense Procurement has explicitly indicated that T&M is a cost type. In this context the FAR Council was not unreasonable or illogical.

Eric

By joel hoffman on Friday, September 07, 2001 - 11:32 am:

FAR CASE "2000-013, Contract Types for Commercial Item Acquisitions, that clarifies what types of contracts are authorized for commercial item acquisitions. Awaiting FAC. On the FAR Council Agenda for their meeting on 19 September 2001 to determine whether the FAR should enable the use of Commercial Time and Materials and Labor-Hour Contracts." Happy Sails! Joel Hoffman