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Unpriced Modifications - Negotiations
By scott G on Thursday, February 27, 2003 - 09:38 am:

I am a contractor who was issued an unpriced modification for $130,000 on a project and we were directed to continue performance by the corps and negotiate at a later date. At this later date negotiation, 4 weeks later, while we are now in the middle of the changed work we are told that they do not want to negotiate a reasonable price for the work that has already been performed just "show us your costs to date" and we will negotiate the remaining work with you. Is it appropriate for this type of negotiation technique to be used by the corps?


By Anonymous on Thursday, February 27, 2003 - 11:30 am:

My guess is that the "unpriced modification" was issued by the ACO in the field? If this is the case, I'd contact the district contracting office division chief and see if the way the mod was issued was appropriate. I just ended my time with the Corps and from what I saw while I worked with them the engineers in the field with ACO warrants tend to have an "ends justify the means" mentality. I know they just want their project completed on time, but sometimes it gets the Corps into trouble. And nine times out of ten the contracting office who has perview over the ACOs doesn't know what the field ACOs are doing until things go bad.


By ji20874 on Thursday, February 27, 2003 - 12:17 pm:

Or, you could presume that the contracting officer has decided to accept the costs for work already performed as de facto reasonable, and wants to focus the negotiation only on the remaining work. This sounds reasonable to me. There is no need to negotiate $100 for work already performed, when the facts show the actual costs were $75. Here, the contractor will get its $75, and a reasonable price will be negotiated for the remaining work. However, the contractor might make a case for using industry standard prices for work if these standards exist and if the contractor routinely uses these standards. NOTE: The foregoing only discusses cost, not profit -- negotiations can also be done on a price (cost + profit) basis.


By Anonymous on Thursday, February 27, 2003 - 12:36 pm:

I'm sure, though, that the contracting officer would consider that this is (probably) a fixed price contract where the risk is supposed to be on the contractor, and negotiating the total effort is the most reasonable approach for the contractor and the government. Doing things the way it sounds like they're trying to do them puts the contract (at least this effort) in a de facto cost reimbursement arrangement, and for a construction contract you cannot have both types of contract on one contract without HCA approval. And if I hadn't spent the last 4 years as a contracting officer for the Corps of Engineers, I might give this situation the benefit of the doubt like you suggest, but this is SOP to the Corps, at least in the field.


By Vern Edwards on Thursday, February 27, 2003 - 04:37 pm:

Three questions:

1. How can you have an "unpriced" modification "for $130,000"?

2. What is the contract type? Fixed-price or cost-reimbursement?

3. What did the modification do? Add work? Delete work? Substitute some work for other work?


By scottG on Thursday, February 27, 2003 - 06:58 pm:

Vern - what the corps did was direct us to proceed with added work for concrete foundations and increased the funding of the governments contract by $130,000 to be negotiated downward.

This was a Fixed price construction contract.

I liked JI2074's suggestion of standard industry pricing since this is work we do all the time and lots of industry data for the work.


By Vern Edwards on Thursday, February 27, 2003 - 07:46 pm:

scott G:

I cannot tell exactly what the Corps is trying to do based on your description, but ji20874 might be right.

Your fixed-price construction contract should contain the clause at FAR § 52,243-4, Changes. That clause says that when the government changes a fixed-price construction contract the contracting officer must make an "equitable adjustment." See paragraph (d) of the clause. The amount of the equitable adjustment should be equal to the amount by which the cost of performance was increased or decreased by the change, plus a reasonable allowance for profit.

Technically, the standard way to calculate the amount of an equitable adjustment is to: (1) estimate the cost of all the work deleted by the change and then (2) delete from that amount the estimated cost of the deleted work that you have already done, which gives you the net cost of the deleted work. Next, (3) estimate the cost of any work added by the change and then (4) deduct the net cost of the deleted work from the cost of the added work.

See FAR § 15.408, Table 15-1, Section III.B.

I cannot say whether the Corps' approach is "appropriate" in your situation, but it doesn't sound illegal or anything like that. Is there something about it which raises a question in your mind?


By joel hoffman on Friday, February 28, 2003 - 12:18 am:

KO's and ACO's alike issue undefinitized modifications when the delays in pre-pricing a change will impact the cost and schedule. It's a fact of life. Not to defend what they did, because I don't know.

For work that has been done, if the matter became a claim, the most appropriate measure (according to the Boards) is the actual cost if it can be reasonably ascertained plus a reasonable allowance for profit. For unperformed work, the estimated cost plus a profit allownce is the preferred measure. The boards generally accept this method over a "should cost" estimate for completed work. See Nash and Cibinic's Administration of Government Contracts or any of the other N&C books for pricing of changes.

That and the likelihood that your proposal probably exceeds what the Corps office thinks it really cost for the portion of the work already performed may be why the ACO told you they want to definitize the partial scope of the change using your actual cost. Yes, I'm aware of the cost plus percentage of cost prohibition and that's why the change is supposed to be definitized before all or most of the work (any work, if possible)is complete. happy sails! joel hoffman


By scott G on Monday, March 03, 2003 - 10:37 am:

Joel -

The governments method of negotiations puts us in a position of now tracking our actual cost to date and pricing the work as it is being performed simultaniously, which is like hitting a moving target.

To definitize the work to date I would need to wait until next month to provide actual invoices which they are requesting. Then the rest of the work would have been completed and we are in the same situation.

The only good thing for us as the contractor is that we know we will be reimbursed for the actual cost of the work plus a reasonable mark-up. The bad thing for the government is it does not provide any motivation to support the changed effort expeditiously.

Unfortunately this issue has happened in the past were they keep stringing us along in negotiations until the work is completed and then request us to provide actual cost data which makes our efforts at negotiating a fair and reasonable price futile. One of the last modifications took 9 months to complete due to this corps tactic and our initial proposal of a $600K modification became an accepted $700K modification due to this issue.

Your help is appreciated.

Another question is if out of all the modifications we have had the only issue we have is the negotiator that is doing this one and the nine month one last time is the same.

Not that he acts inappropriately but he seems unreasonable on every issue typically only offering 50% of every submission. Our experience has been more reasonable with other negotiators and led to win - win outcomes.

Is it possible to request another negotiator? or would this be out of line.


By joel hoffman on Monday, March 03, 2003 - 11:25 am:

Scott, I understand and appreciate your your point of view. Unfortunately, there are good and "not-so-good" negotiators.

I recommend that you speak with the ACO (who probably is the Area or Resident Engineer) about your concerns. Perhaps the ACO can re-assign the change to someone else or at least discuss your concerns with the negotiator. It shouldn't hurt to talk to the chief of the office about the situation. You could complain to the KO, as a last resort, if you can't improve the situation with the Resident Office. However, for political reasons, it would be better if you try working with the Resident or Area Engineer/ACO, first. If I were the ACO, I'd be listening and trying to correct valid problems. GOOD LUCK! happy sails! joel


By joel hoffman on Monday, March 03, 2003 - 11:43 am:

Scott, as a practical matter, if the change is just underway, I normally wouldn't force the issue of splitting the settlement into actual and forward pricing, unless there was some valid reason, like a huge difference in our negotiating positions. That's how I'd instruct my negotiators to proceed, also. happy sails! joel


By Vern Edwards on Monday, March 03, 2003 - 12:01 pm:

Scott:

Think long and hard before you ask the government to replace its negotiator. If the government refuses to do it and the negotiator learns that you complained about him it may make things worse. I would not ask the government to replace a negotiator unless I thought the negotiator was dishonest and I could back up my complaint with evidence.

My advice: just deal with it.


By joel hoffman on Monday, March 03, 2003 - 01:47 pm:

Vern and Scott, I don't think you will shoot yourself in the foot in describing the problem to the chief of the RE/AE office for some relief. It's not unusal for contractors to complain about how the process is going. Vern is right that you probably won't get far politically if you ask that the negotiator be replaced, but something can be done about his/her techniques, if done tactfully. The RE/AE can't always fully assess a negotiator's performance without some feedback. Of course, there are always two sides to the story. happy sails! joel


By Smokey on Monday, March 03, 2003 - 02:09 pm:

Boy Vern...give us a little bit of credit. You are suggesting this negotiator may hold it against the contractor for requesting a change.

Geeze, we are all professionals. If a change results in a "win-win" for both parties, then my advice would be to ask for it. I, for one, would certainly not take the request personally.


By Eric Ottinger on Monday, March 03, 2003 - 02:20 pm:

Scott,

If this negotiator never reaches a handshake until all of the work is done, I doubt this is unknown to his management.

Either of two cases apply. (1) They may be rating him as a poor performer because he never completes his negotiations on time. Or (2) they may consider him an outstanding performer because he is super cautious and conservative and he can always justify the price, right to the penny. In any case, I have never seen a contracting office that didn’t carefully track the status of overage negotiations. Either way, I doubt they are really unaware.

If the contractor did this, we would call it “not bargaining in good faith” and take some action. I see no particular harm in going to higher management and asking what the parties can do to get these negotiations wrapped up earlier.

I would treat this as an issue between the contractor and the contracting office, be tactful and avoid personalizing it. In short, I agree with Joel.

Eric


By Vern Edwards on Monday, March 03, 2003 - 03:08 pm:

Smokey:

There are about 20,000 GS-1102s in government and I bet I've met a lot more of them than you have. Can you claim to speak on the basis of personal knowledge when you say "We are all professionals"?

I know you personally and I know that you are a professional, but I wouldn't be so quick to speak for "all" the others if I were you.

Scott had better think twice. Life is long and full of negotiations and he might have to work with that negotiator again. What is being suggested to Scott is that he escalate the negotiation. As someone who taught negotiation for many, many years, I can tell you that escalation is a risky tactic and not to be used without very good reason.

Scott's only complaint about that negotiator is that he has been "unreasonable on every issue." One person's "unreasonable" is another's tough and demanding.

A word to the wise...


By Smokey on Monday, March 03, 2003 - 04:49 pm:

Vern...

Of course I don't speak for 20,000, and yes, you have met a lot more of them than I.

I guess I just have more faith in my colleagues that you have. I am very sensitive to comments about my profession and tend to take them personally. Remember, I "grew-up" with the toilet seat/hammer nightmares...

Still, if the Scott thought a change in the negotiator would improve things, I would still advise him to pursue it.

But as Joel stated...there are always two sides to the story.


By Vern Edwards on Monday, March 03, 2003 - 05:35 pm:

Smokey:

I understand and appreciate your feelings.

However, I don't consider this to be a matter of faith. I have faith in particular persons, but not in "people" generally. I don't know the negotiator that Scott is dealing with and I don't know what he would do if Scott unsuccessfully complained about him to his boss. But people being what they are, and they are many things, Steve should ponder the possibilities. I personally know and have known plenty of 1102s who would greet Scott with steely-eyes and a grim smile the next time they met if he escalated to their supervisor without success.

What I am saying is nothing more than Negotiating 101. Virtually every book you will ever read on negotiation tactics will tell you to be cautious about escalating. I consider it to be a last resort, and I have negotiated with plenty of tough people.

And by the way, it is much riskier for the contractor's negotiator to escalate than it is for the government negotiator to do so. It is also riskier while the contract is still underway than it is after completion of the work.

If Scott does decide to escalate, he should do it carefully, keeping in mind the prospect that his attempt will fail. It would be better for him to say, "Joe and I are not the best mix," thereby shouldering some of the blame, than to say, "Joe has been unreasonable." Also, if it has come to the point where escalation seems to be the only course of action, then he should tell the other negotiator what he is going to do. He can say, "Joe, I don't think that you and I are getting anywhere and it may be time let other people try to settle things." Then he can step behind the scenes and let someone else in his company take over as the front man. In this way he won't come across as a weasel, going behind Joe's back and trying to make Joe out to be the sole cause for the breakdown in negotiations.

If Scott decides to escalate and doesn't do it right, it can cost him and his company a lot, whether he succeeds or fails. People have long memories.

Best to you,

Vern


By FormerCO4AF on Monday, March 03, 2003 - 06:28 pm:

Scott,

A means for your firm to raise the issue without doing it directly is to walk away from the negotiation.

Being a Government person, I would never walk into a negotiation if my technical support could not show me evidence supporting their position on prices.

If, as you say, this negotiator walks in with everything basically halved, he has to be able to support his position. If he can't, tell him to call you when he's ready and then leave. He'll have to explain to his superiors why negotiations failed and have to be rescheduled.

Just as the Government should not have to deal with an unreasonable contractor, contractor's should not have to deal with an unreasonable Government person.

Good luck and I hope it works out.


By joel hoffman on Monday, March 03, 2003 - 08:01 pm:

Vern, it appears that there might be more problems with the negotiator than being "unreasonable on every issue." Nine months to negotiate a medium size modification looks unreasonable to me, assuming that it doesn't include the time to prepare and submit a proposal. No, we don't have both sides of the story.

Scott, I work for the Corps. You don't have to simply "deal with it", if a negotiator is been totally unreasonable and I disagree with such advice. Perhaps that's the way it is with "1102's" in "certain" organizations, as was suggested, but it isn't supposed to work that way, from my experience in four different Corps Divisions.

Up until recently, a dozen negotiators worked directly for me at Corps Division level. I also oversaw contract administration at 3 large RE Offices until the projects were completed. The three RE's and I were always willing to listen to a contractor who says they were having problems. We'd also listen to the negotiator. If he or she were in fact unreasonable, the R.E. or the office's chief of contract administration worked out solutions with the negotiator, while avoiding taking over or taking the job away from him or her.

From 1989-1997, I oversaw the contract administration at 4 Area Offices and about 25 RE offices in Mobile District. Before that, I was an R.E. in Europe and a negotiator in Mobile District and in Saudi Arabia. I can't speak for the entire Corps, but the supervisory people I know in our field offices are willing to listen to both sides. The people I work with don't "retaliate" for tactfully discussing a problem with the negotiator's supervisor or a peer. A negotiator wouldn't get away with such tactics for very long.

I consider it "escalating" when the K.O. or a Colonel or someone else higher in the chain than the negotiator decides to personally intervene, taking over the negotiations. If that happens, I have a bigger problem in-house than I do with the contractor. My position is that the negotiator should fix the problems and move on.

If tactfully discussing problems with the negotiator's supervisor is considered risky "escalating", there is no apparent relief for incompetence or worse and I feel sorry for the contractors those organizations deal with.

If you want, we can discuss this off-line. happy sails! joel hoffman


By Vern Edwards on Monday, March 03, 2003 - 08:21 pm:

Joel:

You and Smokey are top-notch pros, but there are many 1102s who are not. I agree that nine months is too long to definitize a change order, but I'll bet that more than a few contractors have waited nine months to definitize a $700K mod, especially under a construction contract with a moderate to high volume of mod activity.

All that Scott has accused this negotiator of being is "unreasonable" in negotiating a price adjustment. We have very few facts here.

Scott: Think hard and think twice. Once you pull that trigger you can't get the bullet back.

Vern


By Smokey on Tuesday, March 04, 2003 - 11:21 am:

As always, Vern gives great advice and should definately be listened too. He knows this business better than anyone I have ever met.

And yes, not all 1102's are equal, but we know who they are. My experience has been management will not let the less-than-top-notch 1102's strangle a contractor. Heck, reality is..we end up doing the job for the less-than-top-notch 1102 to ensure the mission is met. The real problem is...we can't get rid of them, but that is another thread.

Scott...Vern is right, you can't get the bullet back. Your call....

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