Contracting Officer Podcast Slides Knowledge Insights From Contracting

Contracting Officer Podcast Slides Knowledge & Insights From Contracting Officers 1

Episode 040 Why Contract Type Matters Original Air Date: August 17, 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: “Why contract type matters? ” • There are many different ‘types’ of contracts • Each has advantages and disadvantages, for specific purposes • Combined, they provide a wide range of flexible, effective contracting tools for US Government contracting officers 4

When does the Contract Type happen? • Acquisition Time Zones (from Podcast Episode 003) • Execution Time Zones (from Podcast Episode 084) • Requirements Zone • Kick Off Zone • Market Research Zone • Performance Zone • RFP Zone (proposal zone) • Re-compete Zone • Source Selection Zone • Wrap-up Zone 5

Contract Types That Deal with RISK • See Episode 009 for more on Cost vs. Fixed-Price contracts • Fixed-Price Contracts • Low risk to Government • The extreme example is Firm, Fixed-Price (FFP) • Contractor fully responsible for performance costs, and resulting profit or loss 6

Contract Types That Deal with RISK • Cost-Reimbursement • High risk to Government • The extreme example is Cost-Plus Fixed Fee (CPFF) • Contractor has minimal responsibility for performance costs, and the negotiated fee (aka profit) is fixed • Features payments of “allowable costs” per the contract and FAR • Must establish an estimate of Total Cost and a Ceiling 7

Fixed-Price vs. Cost Contracts • Firm, Fixed-Price Contract • Best use of ‘basic profit motive’ • “Shall” be used when risk is minimal or predictable • Cost-type Contract (Government shares risk in order to invite and sustain contractor interest) • When firm pricing does not exit • When there are many “unknowns” 8

Use Fixed-Price Contracts • When acquiring Commercial Items (FAR Part 12) • When the requirement is ‘defined’ • When the need, or the industry, are mature • As often as practicable 9

Use Cost-Reimbursable Contracts • When acquiring Commercial Items (FAR Part 12) • When the requirement is not ‘clear enough’ to allow for FFP • Contract performance uncertainties do not allow enough accuracy in cost estimates to use FFP • At certain levels, the CO must document the rationale for the type used (FAR 7. 1 – Acquisition Planning) 10

Some Factors in Deciding Contract Type • The job of Contracting Officer requires CRITICAL THINKING • FAR 16. 103(a) – Negotiating Contract Type • Selecting the contract type is generally a matter for negotiation and requires the exercise of sound judgment • Negotiating contract type and contract prices are closely related • Looking for reasonable risk and greatest incentive for efficient and economical performance 11

Why is Contract Type important? • Contract Type is • how risk is distributed • how execution is managed • Improper (or less than optimal) assignment of contract type can endanger program performance regardless of technical risks • Basically, Contract Type provides flexibility for the Government to procure what it needs 12

Why Should Government Care? • Contract type is the structure on which results are built • If done poorly, the “shadow of the past” sucks… a LOT • Contract closeout takes MUCH longer • The best COs examine the options, then craft the perfect fit among the contract types available • This is the “thinking” part of the job • And get feedback from industry – they can “discuss” 13

Why Should Industry Care? • It’s how you know the risks and rewards • Defines how you execute • Tracking, delivering, billing, etc. • Remember that different CLINs can be different contract types! (See Episode 035 - What is a CLIN? ) • If you don’t understand the contract type, you aren’t going to understand the job • It impacts how (and if) you win the contract 14

Why Should Industry Care? • It’s how you perform • It’s how you factor risk into your price • When the @#$% hits the fan, “I didn’t know the contract type” is NOT an answer 15

Summary • This should be mutual (Government and industry) • Know the available contract types • Know why Government chose the contract type (and influence it if you can) • If you don’t spend some time picking the right contract type, it will haunt you… • It’s how Government and Industry get the best solution • It drives the execution process 16

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 17