Hypothetical DOD solicitation to result in a negotiated contract. Presume adequate competition. Solicitation details as follows:

-- Section B -- All CLINs are contract type J - Firm fixed-price

-- Contains clause stating that contract type is FFP -- applies to all CLINs

-- Contains Indefinite Quantity clause as well as 52.216-22 clause

-- Contains tailored ordering procedures calling for individual task order proposals

-- 52.216-19 Ordering clause specifies Minimum of $3 million and maximum of $10 million

-- Ordering period is 60 months

-- No Cost Accounting Standards clauses (52.230-x) to be found in the solicitation

-- Section K includes standard CAS Certifications (52.230-1 & 52.230-7)

Okay, somebody looks at the CAS exemptions in 9903.201-1 and sees that FFP contracts awarded based on adequate price competition are exempt from CAS. Declines to complete Section K CAS Representations because contract is not subject to CAS.

Hypothetical military service contracting Officer replies that although the contract type is FFP, the individual task orders will contain negotiated amounts of ODCs (based on the contractor's task order proposal). Examples of variable negotiated costs may include: subcontractor costs, travel-related costs, and other direct costs. Thus: the CAS exemption is not applicable and the hypothetical offeror's position is wrong.

My take on this hypothetical situation is that CAS coverage is determined at the contract level not the task order level, and because the contract type is FFP and there is adequate competition, the CAS exemption applies. By insisting on CAS coverage, the CO may be driving away potential offerors as well as increasing costs (due to increased compliance costs).

Other thoughts?

govtacct02:   Posted on Wednesday, November 07, 2007 - 02:56 pm:

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Look at CAS Working Group Interim Guidance, 76-2, especially the section identified as "Guidance". This may answer your question. It seems to agree with your position.

don_acquisition:  Posted on Wednesday, November 07, 2007 - 03:08 pm:

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here2help,

CAS clauses don't go in solicitations. They go in contracts, if necessary, based on the offeror's response to FAR 52.230-1.

govtacct02,

Would you please post a link to the document you referred to? Thank you.

govtacct02:   Posted on Wednesday, November 07, 2007 - 03:21 pm:

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The DAU ACC website has this at

https://acc.dau.mil/CommunityBrowser.aspx?id=22617

It was posted in response to an "Ask a Professor" question.

here_2_help:  Posted on Wednesday, November 07, 2007 - 03:49 pm:

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Don,

Thanks for the clarification. I cannot post a link to the document because it was a hypothetical solicitation.

govtacct02:   Posted on Wednesday, November 07, 2007 - 03:55 pm:

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Here,,
I think Don was asking me to post the source of the CAS Working Group Papers which I cited in my original reply to your post. That was the DAU website

Okay, thanks to you both for the clarification(s). I'm glad you think that the DOD Working Group guidance helps support my position.

Too bad it doesn't have any statutory or regulatory significance, though -- agreed?

I'm not an attorney...perhaps we have one on WIFCON who can weigh in on that.

Vern??

I see in the DCAA CAM, Chapter 8 at 8-102.2 that it states "The Interim Guidance Papers were approved by the Office of the Secretary of Defense (R&E) and given wide distribution."

Can anyone comment on the significance of the approval of OSD of these papers when it comes to interpretation/application of CAS as regulation?

Don -- good question. In this hypothetical situation, the offeror will have to propose labor rates. Quantity of labor hours will be fixed by the SOW, so the parties will negotiate FFP values based on the offeror's labor rates. ODCs will be negotiated to FFP values as well.

This thread raises an interesting issue concerning IDIQ contracts that has never been resolved.

According to here_2_help, all CLINs of the hypothetical IDIQ contract are to be firm-fixed-price. Presumably, the offerors are to propose labor rates (presumably "loaded"). The total amount for labor and for other direct costs applicable to each task order will be negotiated on a task order by task order basis. Here_2_help has not said whether the contract would be multiple award or single award.

If I understand the situation correctly, and I'm not sure that I do, the hypothetical contracting officer has taken the position that CAS will/might apply to individual task orders because amounts for other direct costs will be negotiated on a task order by task order basis, without adequate price competition. Is that right, here_2_help?

If that's the situation, see FAR 16.505(b)(3), which reads as follows:

"Pricing orders. If the contract did not establish the price for the supply or service, the contracting officer must establish prices for each order using the policies and methods in Subpart 15.4."

I maintain that the hypothetical contract will not establish the price for the services to be acquired thereunder. It will merely establish an advance agreement on the amount that the contractor may include in its proposed task order price for an hour of labor, including cost and profit. The price for the service described in each work statement will be the total amount agreed upon for each task order, which will be negotiated prior to issuance of the task order. That being the case, and depending whether the contract would be multiple award and on how the task orders would be awarded, there may not be adequate price competition for task order pricing. That being the case, TINA and CAS may apply on a task order by task order basis.

This has been a long-standing, lurking issue that no one has wanted to face because of the unpleasant implicatioins. I feel very comfortable with my position. Some will argue that price has been established because the parties have agreed upon fixed labor rates, but that position is an insult to the intelligence of a knowledgeable and competent contracting professional. That argument may be valid if orders would be priced on a T&M or L-H basis, but not if they will be priced on a firm-fixed-price basis, under which the contractor will not be paid by the hour, but for task completion.

I think the hypothetical contracting officer is right, assuming that the contract meets other CAS criteria. But I'd wager that he/she thinks that TINA would not apply on an order-by-order basis, a position which would be inconsistent with his/her position on CAS.

As for the legal status of the working group guidance, no one has cited a specific statement within that 60 page document. I have not read it in more than 20 years, I have no intention of reading it to find out what you are all referring to, and, in any case, I'm not a lawyer so you probably don't care about my opinion as to its legal standing.

If the procured supply or service meets the commercial item definition, wouldn't sole source fixed-price contracts/orders still be exempt from both TINA and CAS?

All,

sorry for my absence -- TDY travel.

Vern, I understand your point(s). Not sure if my hypothetical CO is issuing multiple awards or not. Certainly competition is anticipated.

My big concern is that everything I thought I knew about CAS emphasizes that CAS coverage is determined at the time of contract award and, once determined, does not change over the life of the contract.

In this hypothetical (as in many if not all ID/IQ contract awards), the price is apparently unknown or unsettled at the time of award, even though the parties have, by express contract language, entered into a FFP type arrangement.

Vern is right, this issue has been lurking for at least a decade and the CAS Board's failure to address it squarely has led to much angst.

Vern and Don, thanks for your input.

Getting back to Don's Post 16. This brings up something that has me puzzled. FAR 52.230-1 assumes that CAS will apply and asks questions accordingly. But it seems to me that certain questions have to be asked and answered before getting to 52.230-1. Why is the offeror never asked if CAS applies, and if not why not? Why is there no solicitation provision covering these questions? Any thoughts?

Don.
The CO's decision must be based, at least sometimes, on information provided by the offeror. For example, without asking how does the CO know if the offeror qualifies for the $7.5 mil exemption from CAS [48 CFR 9903.201-1(b) (7)]? Of course if the offeror knows about an exemption s/he can always say so in the proposal. The first of the CAS-related question in Table 15-2 provides a minimum of help ["Whether your organization is subject to cost accounting standards"].
Not a big issue; just seems to be a gap in the process.