New
Use of a Fixed-Price Contract
Lastly, Fluor challenges the agency’s decision to solicit
for a fixed-price contract, arguing that “the agency asks
offerors to take on an unreasonably high level of risk,”
which will unduly restrict competition. Protest at 11. The
protester contends that the compensation structure of the
contract should change if we do not recommend the release
of Fluor’s proprietary data, OEM specifications and
component-level information, in order to shift the
financial risk back to the agency. Id. We find no merit to
this argument.
The mere presence of risk in a solicitation does not make
the solicitation inappropriate or improper. CWTSatoTravel,
supra, at 9; Pacific Consol. Indus., B‑250136.5, Mar. 22,
1994, 94-1 CPD ¶ 206 at 6 (an agency may properly impose
substantial risk on the contractor and minimal risk on
itself). Risk is inherent in most type of contracts,
especially fixed-price contracts, and firms must use their
professional expertise and business judgment in
anticipating a variety of influences affecting performance
costs. JRS Mgmt., supra; AirTrak Travel et al., B-292101
et al., June 30, 2003, 2003 CPD ¶ 117 at 14.
For example, in CWTSatoTravel, the protester challenged
the fixed-price nature of the contract, alleging that it
was required to perform “an unlimited number of unknown
updates and refreshments to the [subject software system]
at a fixed price” over a 15-year period. CWTSatoTravel,
supra, at 7. We explained that offerors were not exposed
to unacceptable or undue risk because there were methods
of reducing the risk and there were limitations on the
risk to be assumed. Id. at 10.
Here, the solicitation obligates the contractor to assume
the base costs of labor and material for maintenance,
repairs, and investment, and places significant financial
obligation on the contractor. However, in terms of risk,
as the Navy notes, offerors can mitigate their risk. For
example, “if the offeror estimated maximum labor [32
hours] and material costs [$2500] for every service order,
it would have no risk at all.” Navy Supp. Briefing, Feb.
15, 2017, at 2. The same principle applies to preventative
maintenance and integrated maintenance. Offerors may
choose to shoulder additional risk and propose lower
prices, based on their own risk tolerance, but that choice
is the contractor’s. Id. There is no prohibition on
shifting risk to the contractor in this manner. See
CWTSatoTravel, supra.
Fluor also alleges that the limitations of liability for
this contract are illusory and that the agency could
improperly obtain wholesale replacement of an entire
system by piecemeal service order on its component parts.
Protest at 23-24 (“[T]he Contractor could be forced to
replace, at its own expense, each and every air
conditioning unit for over 2000 barracks residents” or
“Pensacola’s entire underground pipe system, 100 feet at a
time.”). We see no evidence that the agency intends to use
the contract in this manner. Furthermore, an awardee
remains free to dispute this should it occurring during
the course of the contract. (Fluor
Federal Solutions, LLC B-414223: Mar 29, 2017)
URS raises various challenges to the solicitation. URS
claims that, notwithstanding the agency’s
characterization, the [fair opportunity notice] FON
actually creates an improper fixed-price, level-of-effort
CLIN. The protester also argues that the Air Force failed
to reasonably consider the risk allocation in its
selection of a fixed-price, level-of-effort CLIN. URS also
claims that the FON does not provide for competition on an
equal basis and is contrary to the task orders
contemplated by the CFT contract. We have fully considered
all of URS’s arguments and, although we do not address
them all, we find no basis on which to sustain the
protest.
Contracting agencies have broad discretion to determine
their needs and the best way to meet them. Crewzers Fire
Crew Transport, Inc., B-402530, B-402530.2, May 17, 2010,
2010 CPD ¶ 117 at 3; USA Fabrics, Inc., B-295737,
B-295737.2, Apr. 19, 2005, 2005 CPD ¶ 82 at 4.
Additionally, the selection of a contract type is the
responsibility of the contracting agency; our role is not
to substitute our judgment for the contracting agency’s,
but instead to review whether the agency’s exercise of
discretion was reasonable and consistent with applicable
statutes and regulations. See Diversified Tech. & Servs.
of VA, Inc., B-282497, July 19, 1999, 99-2 CPD ¶ 16 at 5;
Hadson Def. Sys., Inc.--Recon., B-244522.3, Sept. 24,
1992, 92-2 CPD ¶ 201 at 2.
Under a fixed-price contract, the price is not subject to
any adjustments on the basis of the contractor’s cost
experience in performing the required work. Under this
contract type, maximum risk and full responsibility for
all costs and resulting profit and loss associated with
performing the required work is placed on the contractor.
FAR §§ 16.202-1, 16.202-2. By contrast, under a
fixed-price, level-of-effort contract, the government pays
a fixed price for, and the contractor is obligated to
provide, only a specified level of effort, identified and
agreed upon in advance, over a specified time. FAR §
16.207-1. A fixed-price, level-of-effort contract is
generally intended for use in contracts for studies in
research and development areas where the work required
cannot be clearly defined. The FAR explains that the
product of a fixed-price, level-of-effort contract is
usually a report showing the results achieved through
application of the required level of effort; payment,
however, is based on the effort expended by the contractor
rather than the results achieved. FAR §§ 16.207-2,
16.207-3; Multi Servs. Assistance, Inc., B-232082, Oct.
28, 1988, 88-2 CPD ¶ 407 at 2.
As set forth above, the PWS requires the contractor to
provide augmentation labor to support the [Tobyhanna Army
Depot] TYAD maintenance mission. In addition to certain
performance metrics, the PWS includes minimum staffing
levels--the minimum team complement--that the contractor
is to both propose and provide during task order
performance. Quite simply, the Air Force has decided to
define its requirements here in both performance and
staffing terms. We find this to be reasonably within the
broad discretion afforded contracting agencies, and to the
extent URS challenges how the Air Force has defined its
needs, we find this challenge to be without merit.
With regard to URS’s disagreement with the agency’s choice
of contract type, we note that the decision as to the
appropriate pricing format was also within the discretion
of the agency, and we believe that the agency’s exercise
of that discretion here was reasonable. As detailed above,
the Air Force is essentially buying qualified staffing,
with the base/minimum level of at least 107 FTEs being
procured in lump-sum format under the fixed-price CLIN and
the balance of the required staffing being procured under
the T&M CLIN. The FON, however, also allows offerors to
propose more than the minimum team complement under the
fixed-price CLIN. As the required level of effort is not
identified and agreed upon in advance, but left up to the
discretion of each offeror, we find that the CLIN here
does not represent a fixed-price, level-of-effort contract
as the protester claims. See FAR § 16.207-3(b). In
addition, as the agency explains, the work required is
clearly defined insofar as it describes the types of tasks
that the contractor’s personnel are to perform. See FAR §
16.207-3(a). In short, we see nothing in the FAR guidance
about permissible contract types that suggests that the
agency is acting improperly here.
URS also claims that once the TYAD task order is awarded,
“performance will be based on a ‘hybrid’ of [fixed-price]
and T&M work,” and “[t]his type of ‘hybrid’ task order is
not contemplated by the underlying CFT contract.” Protest,
Oct. 5, 2012, at 17. We disagree. The CFT contracts permit
the issuance of fixed-price, T&M, and CR-type task orders.
We find no merit in URS’s assertion that different types
of CLINs cannot be employed in the same task order, or its
assertion that the task orders must be “all or nothing” in
their approach.
Lastly, URS alleges that the FON’s PWS does not provide a
definitized scope of work upon which to propose, or the
basis on which offerors can determine the hours required
to perform the scope of work and, as a result, offerors
will not be competing on an equal basis. Protest, Oct. 5,
2012, at 1720. The protester’s argument here reflects a
fundamental misunderstanding of the PWS requirements. The
PWS simply does not require the CFT contractor to perform
a defined number and type of tasks (nor does the FON
establish pricing by task completion). Rather, the scope
of work on which all offerors are to propose (and on which
the fixed-pricing is based) is staffing levels. Although,
as the protester states, the fixed-price CLIN is based
here on input rather than output, we find no merit in
URS’s assertion that offerors will thus be competing on
different scopes of work and an unequal basis.
The protest is denied. (URS
Federal Support Services, Inc., B-407573, Jan 14,
2013) (pdf) |
