By Anonymous on Wednesday, April 25, 2001 - 04:02 am:

Has anyone done a solicitation using FAR Part 12 for services which includes the use of labor hours in the schedule of services? Our legal staff is stating that this is inconsistent with the definition of commercial items in Part 2. We believe that the small percentage of labor hours versus each and other units of issue, do not make it an issue, but unfortunately, our Contracting Officer will not let us release the solicitation without Office of Counsel approval. Can anyone assist me here?

By Anonymous 2 on Wednesday, April 25, 2001 - 07:23 am:

Anonymous:

Your lawyer's position is probably based on the sentence in paragraph (f) of the definition of commercial items which says: "This does not include services that are sold based on hourly rates without an established catalog or market price for a specific service performed."

One interpretation of that sentence is that it prohibits the use of FAR Part 12 procedures to award task order type contracts that include hourly rates for labor categories but that don't describe a specific service. Under this interpretation you can use Part 12 procedures to award contracts that include hourly rates for specific services such as "web site design." That seems to be a reasonable interpretation.

Some people say that the sentence prohibits all hourly rate pricing in commercial items contracts. That seems unreasonable.

I don't know of any authoritative interpretation of the sentence in the definition. Perhaps someone out there knows of an agency FAR supplement or GAO decision. (I don't consider agency contracting officer or lawyer opinions to be authoritative in the way that a regulation or GAO decision is authoritative.)

Which of the two interpretations is your lawyer taking, or is he/she taking yet another?

By PWG on Wednesday, April 25, 2001 - 08:04 am:

Anon 2:

I understand how you could interpret the FAR Part 2 definition of commercial items as permitting hourly rate pricing but how do you reconcile that interpretation with FAR 12.207 which basically says that only Firm Fixed Price contracts may be used? My understanding is that there are circumstances where hourly rates may serve to establish the commerciality of the service, but that a FFP contract must ultimately result in order to use FAR Part 12 procedures. As I read the question posed by Anon 1, it seems to suggest that he/she wants to include some hourly rate line items on an otherwise, FFP commercial contract. Even if this isn't what Anon 1 meant let me ask: Is it OK to (using FAR Part 12 procedures) include a nominal amount of non-commercial items on a commercial item contract? For the sake of dicsussion lets say $5000 of non-commercial services under a $5 Million commercial contract.

By Roston on Wednesday, April 25, 2001 - 11:23 am:

Can someone explain why there would be the prohibition of considering "services sold on the basis of hourly rates" not commercial services?
What is the risk?

We are attempting the same type of action, for what would normally be considered commercial services, yet, under the Government's definition of commercial services, they are not.

By John Ford on Wednesday, April 25, 2001 - 08:23 pm:

Four points come to mind concerning this discussion. First, there is a FAR case to change the definition of commercial items to include services that are sold on an hourly basis. Closely related to this is the fact that the FAR definition already includes services that are not based on a catalog price for a specific task ($15 to change the oil in my car). I don't have my FAr with me now but reread the definition and you will see that services are mentioned in two different contexts. The third point is that there is another FAR case pending to allow commercial items to be acquired using any type of contract except a cost type contract. This is based on the language of FASA which brought us commercial items. FASA only requires the use of FFP contracts to the maximum extent feasible. It does not bar other types except cost type contracts. Finally, we had a discussion on mixing contract types some time ago. Specifically, the issue was whether noncommercial items could be acquired on a cost type basis under the same contract that contained commercial items acquired under FAR Part 12. I maintained then and I still maintain today, that there is no prohibition against issuing a contract that is in effect two contracts in one so long as you make the proper clauses applicable to each separate CLIN.

By Anonymous 2 on Thursday, April 26, 2001 - 02:48 am:

PMG:

If you buy 50 hours of web design services at $100.00 per hour, that is a firm-fixed-price contract. It's no different than buying 50 widgets at $100.00 each.

The "nominal amount" issue is potentially tricky, however I agree with John Ford that a contract can include both a commercial line item and a non-commercial line item. However, you probably cannot use the streamlined procedures in FAR Part 12 and FAR Subpart 13.5 to award that contract.

By Anonymous on Thursday, April 26, 2001 - 05:32 am:

Anon 2:

To answer you question regarding interpretation, I will have to expand on the issue.

The contract is for maintenance of family housing. We are proposing a hybrid which consists of fixed price line items for management and other services that are required all the time. Then we have the other portion which is IDIQ and will be done by task order. This includes each, square meter and the hourly rate (examples: plumber, electrician, etc.).

There is a market price per say, since plumbers charge one rate and electricians another, however, they may not all charge the same rate under their catagory.

This is where our legal is holding the line.

The contract will be firm-fixed price for all line items, so that is not the issue. I agree that labor hour can be firm-fixed price.

By Anonymous 2 on Thursday, April 26, 2001 - 09:08 am:

Anonymous:

I'm afraid that I don't understand what you want to do. With regard to the task order rates, what kind of rate do you want to establish --a single rate per square meter of work, an hourly rate by labor category, or something else?

By anon3 on Thursday, April 26, 2001 - 09:38 am:

Anonymous, just curious - what are the advantages of using FAR 12 solicitation over another method?

Thanks.

By Eric Ottinger on Thursday, April 26, 2001 - 12:06 pm:

Anon and All,

Take a look at Title 41, Sec. 403. Definitions


"(12) The term ''commercial item'' means any of the following:
…
(F) Services offered and sold competitively, in substantial quantities, in the commercial marketplace based on established catalog or market prices FOR SPECIFIC TASKS PERFORMED and under standard commercial terms and conditions."

And, yes, we have all been scratching our heads. Services are often priced by the labor hour, rather than by the task, in the commercial world.

Evidently, someone in Congress wished to specifically exclude fixed labor rate contracts from this definition of "commercial" services.

Eric

By Kennedy How on Thursday, April 26, 2001 - 12:42 pm:

We've done task order contracting with fixed labor hours rates depending on type of task, and we set the number of hours to do the task (ending with a deliverable). This is on a GSA contract, so it isn't exactly a Commercial Part 12 deal.

It sounds to me you're trying to contract with commercial real estate management companies to manage your housing complex. Sorta like companies who manage condo's, apartment complexes, senior citizen housing, etc. You want to use the commercial expertise in doing this, because those companies are in business for exactly that reason.

The problem with services is defining exactly what is meant by a "Specific Task". If you look hard enough, you can find certain types of tasks that cover more than one job series, each under some sort of union rule that prohibits cross-tasking. Or, you can say "Plumbing", and that takes care of all of the tasks under it. Or, you can list all of the tasks that a plumber performs, and price it all the same. I think the latter is the easiest way; every dinky task is $20/hr, whether it's to unclog a toilet, or repair piping to the kitchen, or add a new bathroom. Same with electricians.

Kennedy

By Anonymous 2 on Thursday, April 26, 2001 - 12:42 pm:

The definition of commercial item goes to the question of what kinds of services are commercial services, it does not regulate the ways in which commercial items contracts can be priced. I know of no evidence that Congress intended to prohibit the use of FAR Part 12 to purchase services on an hourly basis. The only contract types that Congress said that you can't use to buy commercial items are cost type contracts.

The only rule about how commercial item contracts can be priced is in FAR 12.207, which states that they must be firm-fixed-price or fixed-price with economic price adjustment. Nothing in statute or in FAR forbids the purchase of hours devoted to the performance of specific tasks as long as the hourly rates are fixed. There is no statutory or regulatory reason why you cannot use FAR Part 12 to buy 100 hours of website design at $100 per hour.

FAR 12.207 says that commercial items contracts may be IDIQ contracts, and nothing in statute or regulation forbids using fixed hourly rates as the basis for issuing firm-fixed-price task orders under IDIQ contracts for commercial items.

By Anonymous on Tuesday, May 01, 2001 - 09:19 am:

Anon 2 and all:

Kennedy How hit the nail on the head. We are looking for someone who does condo or apartment complex managing.

The tasks are based on both square meter or per task, and labor hour. Labor hour categories include those items for which we cannot determine the time necessary to complete a job. That is where the task order comes into play.

Thanks for the feedback. The discussion has been very positive. I will keep you posted on our success or failure.

By anon4 on Wednesday, May 02, 2001 - 08:17 am:

Anonymous,

Kennedy is talking about issuing orders on a GSA Schedule contract (FAR Part 8) vice commercial acquisition (FAR Part 12). I don't know if you considered this in your response?

By Kennedy How on Wednesday, May 02, 2001 - 01:10 pm:

Anon4, I only mentioned our GSA Contract tie-in to differentiate it from a FAR Part 12 action, so there wouldn't be any confusion. Regulatory guidance aside, my purpose was to point out how our task orders worked.

I think you can set up the same type of contract provisions under Part 12, provided the legal folks concur. I thought the discussion was getting away from what Anon wanted to accomplish.

Kennedy

By anon4 on Thursday, May 03, 2001 - 07:56 am:

Kennedy,

I thought the discussion was getting away from the original intent of the posting. I wasn't sure that you were differentiating between your Part 8 Labor Hours requirement and what many agencies do when interpreting LH/T&M as "prohibited" under FAR Part 12. Many, many folks stick to the FFP or FP w/EPA on commercial contracts and do not interpret that as meaning that you can used a fixed price LH or TM.

By Kennedy How on Thursday, May 03, 2001 - 01:40 pm:

Anon 4,

The contract we use is a T&M contract, we buy hours via Task Orders that we fund via MIPR.

The thing that bothered me somewhat in all of this is that deep down, I think that the Government really shouldn't be in the Housing Management business, in the sense we are contracting for it like we do an Aircraft Carrier. I think, deep down, Housing Management is one of those services that the commercial sector is heads and shoulders above us. You look at any city, and there are many apartment complexes and condos that are managed by private companies. How many Government housing complexes are there in comparison? I can look in the phone book and find a dozen pages of plumbers. My guess would be most companies would have a list of plumbers they call on an "as required" basis. Same with electricians and general contractors. I don't see them putting those guys on a retainer, or paying them a salary to sit around.

I guess what I'm really trying to say is that if there was ever a service that would fit a FAR Part 12 commerciality designation, Housing Management would be it.

Kennedy