Contracting Officer Podcast Slides Knowledge Insights From Contracting

Contracting Officer Podcast Slides Knowledge & Insights From Contracting Officers 1

Episode 046 What is a Letter Contract? Original Air Date: September 27, 2015 Hosts: Kevin Jans & Paul Schauer 2

Formatting notes • Hyperlinks: Blue font indicates hyperlinks – presentation must be in ‘Slide Show’ mode to activate the link • Red bold font indicates a point of emphasis • Green bold font indicates CO’s personal comment or perspective 3

Introduction • Purpose of this podcast: To examine and discuss Letter Contracts • This is a way for Government to get work started quickly, before agreeing to every detail of the contract • Letter contracts are used when: • In Government’s interest to start work immediately, AND • Negotiating a definitive contract is not possible in sufficient time to meet the requirement 4

Introduction • Should be as complete and definite as possible under the circumstances • Factors: • Sole-source negotiation situation • When based on price competition, must include a ceiling • Performance needs to start NOW! 5

When do Letter Contracts happen? • Acquisition Time Zones (from Podcast Episode 003) • Requirements Zone • Market Research Zone • RFP Zone • Source Selection Zone (or sole source) These interactions occur throughout the entire Pre-Award phase of the process 6

Letter Contract – Definition FAR 16. 603 – A letter contract is a written preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services • Sometimes called an undefinitized contract action (UCA) 7

Three “Shall Nots…” • Letter contracts SHALL NOT: • Commit the Government in excess of funds available at the time the letter contract is executed • Be entered into without competition when it is required (FAR Part 6) • Justification & Approvals (J&As) and letter contracts go hand-in-hand • Be amended to new add requirements unless inseparable from the existing letter contract 8

More Factors of Letter Contracts • Must have a negotiated definitization schedule that includes: • Proposal due date, pricing data requirements, make/buy, & subcontract plans • Negotiation start date • Target date for definitization (stick to this like it is a competitive source selection) 9

More Factors of Letter Contracts • Definitization • Shall be the earliest practicable date • Within 180 days or before 40% of the work is complete (whichever is first) • Can be extended “in extreme cases” 10

More Factors of Letter Contracts • Government’s maximum liability • SHALL NOT exceed 50% of the estimated cost of the definitive contract unless approved in advance (of reaching 50%) by whoever authorized the letter contract • If price/fee agreement can’t be reached, CO can UNILATERALLY determine a reasonable cost or fee (with HCA approval) 11

Three Clauses • One that describes the rules for starting work • One that says Government will only pay up to the max amount stated in the letter contract • One that spells out the definitization schedule 12

Why are Letter Contracts important? • Government contracting process can take a long time • A letter contract allows work to start NOW! 13

Why Should Government Care? • Might be your only chance of meeting a critical schedule requirement • Sometimes perceived as giving away all negotiation power because you’re already committed to the contractor • If allowed to linger, definitized price will be whatever the contractor spends • Contractor ends up defining requirements because work is complete or past the point where changes are feasible • Easy to be lax about schedule once work starts and urgency seems to be over 14

Why Should Government Care? • What usually happens: the CO moves on to other urgent work and ends up negotiating mostly actuals • Not good for Government: no cost control • Not good for Industry: Government assumes a low fee (performance is already or nearly complete, so there is negligible risk) 15

Why Should Industry Care? • Letter contracts are not a free-for-all • Difficult to price when actuals and estimates are combined • Difficult to complete work efficiently if requirements are a moving target 16

Summary • Letter contracts cut through the red tape and get work started NOW • Include a schedule for definitization that should be followed as if it is a source selection • Limit the contractor’s expenditures to an established ceiling • Requires communication and trust • Be mindful of the user/acquisition office line • User needs/requirements must be “officially” passed through the contracting officer • Lots of room for confusion/complication/frustration if communications aren’t clear 17

Contact us • We are on Linked. In, Twitter and Facebook • We also started the Government Contracting Network Group on Facebook. Join us there! • Send your topics to paul@Contractingofficerpodcast. com • For Community support, contact Shelley Hall at shelley. hall@skywayacquisition. com 18