We would like to propose a commercial item in response to a government Negotiated RFP solicitation issued on Standard Form 33. We asked the government Contract Specialist whether an award issued in response to our proposal of a commercial item would be in accordance with FAR Part 12 and DFARS part 212 and would be based on only the solicitation provisions, contract clauses and procedures for the acquisition of commercial items as prescribed therein. Her answer was "No. This acquisition will be negotiated in accordance with the Procedures at FAR Part 15."

I would appreciate hearing from anyone who has had a similar experience or who can give some useful advice. Thanks in advance.

By Vern Edwards on Wednesday, June 14, 2000 - 12:29 pm:

Bob:

The concepts are similar but not the same. In the award purchase contract the incentive is explicit in the contract, the performance evaluation criteria are established by mutual agreement, and the payoff is not optional--if the contractor performs well, then the government must order the additional supplies. (I believe that the non-optional aspect gives the incentive more force.)

Further, the contract makes future purchases contingent upon requirements and there is no need to set and buy a minimum quantity. Thus, it is more like a requirements contract than an IDIQ contract and you don't have to bother with multiple awards.

Vern

Vern,

Isn't your method the same as an IDIQ contract? If he performs excellant on the basic amount, we give him more orders. If not, he does not receive any more orders. Thats certainly an incentive.

BobM

By Vern Edwards on Wednesday, June 14, 2000 - 09:36 am:

Dave:

How does your quantity discount work as an incentive to the contractor? I have always thought of a quantity discount as something that a seller uses to motivate the buyer to purchase more. What am I missing? Please explain.

Vern

By Vern Edwards on Wednesday, June 14, 2000 - 09:31 am:

P Frechette:

The very nature of incentives is that they are contingent promises. I don't understand how making a non-contingent promise to pay a contractor a higher price at the outset of performance can be an incentive during performance. Have I misunderstood you? Please explain.

Vern

THERE IS ONE METHOD WHEREBY A PART 12 ACQUISITION CAN BE INCENTIVIZED. IT WILL ONLY WORK IF PROPOSALS ARE EVALUATED THROIUGH SOURCE SELECTION. SINCE THE FAR PERMITS AWARD TO OTHER THAN THE LOW OFFEROR,IT IS THROUGH THE SOURCE SELECTION EVALUATION PROCEDURE,(ASSUMIMG IT IS CARRIED OUT PROPERLY) THAT AWARD MAY BE PLACED AT A HIGHER PRICE.THUS THE CONTRACTOR IS INCENTIVIZED AT THE BEGINING OF THE CONTRACT BY DINT OF HIGHER PRICING AND AS LONG AS HIS PERFORMANCE IS EQUAL TO WHAT HE PROPOSED, HE HAS IN FACT BEEN REWARDED.

By David Berkey on Wednesday, June 14, 2000 - 08:22 am:

Diane, Scott and Vern:

Although I don't quite have an award term incentive, my competitive $18M GSA MOBIS order contains a quantity discount clause the contractor and I ginned up. The more labor hours applied, the higher the discount from the published GSA schedule contract rates.

Dave, C.O., US Dept. of Energy, Morgantown, WV
304.285.4990 tele

By Vern Edwards on Tuesday, June 13, 2000 - 08:18 pm:

Diane & Steve:

Well, an agency could use an "award purchase" or "award term" incentive, in which the government would promise to purchase its requirements for additional supplies or services during specified future periods exclusively from the contractor in return for excellent performance, as judged by the agency. The incentive would be a firm commitment to buy subject only to need and availability of funds, and not an option. Think of it as a promise to award a requirements contract in the future that is conditioned upon the quality of the contractor's performance under an existing contract. Since such incentives would not entail profit adjustments based on the contractor's cost performance, they would still be FFP or FFP with EPA.

For example, an agency could award a commercial items FFP contract for supplies or services that says: if the contractor's performance is "excellent," as determined by the agency, then the agency will reward the contractor by giving it the contract for any future requirements (or requirements up to some limit) that it has for those supplies or services within a specified period of time. The contract would include firm-fixed prices for both the initial quantity or term and for the prospective award purchase or term, with the prices for the award purchase or term subject to economic price adjustment. This arrangement would be compliant with both CICA and FAR Part 12.

Guaranteed business is a significant incentive in the commercial sector. While an "award purchase" or "award term" incentive would not be a guarantee, the promise to purchase requirements from the contractor in the future would be the incentive to excellent performance. The contract will still be firm-fixed-price.

Voila! A commercial items contract with an incentive. Try it, you'll like it.

By Scott Stermer on Tuesday, June 13, 2000 - 06:51 pm:

I am a non-DoD type and very interested in any responses to this question.

Currently, I am reviewing, for OFPP, several agnecies guidance on the use of performance-based methods. A lot of agencies are mixing commerical item acquisition with PBSC. I see no problem with that, as long as incentives are not used.

Part 37 only requires incentives when appropriate.

Part 12 says "Contracts for the acquisition of commercial items are subject to the policies in other parts of this chapter. When a policy in another part of this chapter is inconsistent with a policy in this part, this Part 12 shall take precedence for the acquisition of commercial items."

Even if Part 37 mandated the use of incentives, I would say a fixed-price incentive contract can not be used, when using Part 12.

Have I missed something?

Scott

Can anyone clarify something for me. Dr. Gansler's Memo, PBSA, 5 Apr 2000, encourages the use of FAR Part 12 and at the same time encourages providing contract incentives. I'm curious how this will be accomplished since FAR Part 12 limits contract type to firm-fixed price or fixed-price with EPA. It doesn't go on to say use of a fixed-price incentive is also allowed. Any thoughts???