Sealed Bidding vs. Negotiation, Contract types
Sealed bidding employs competitive bids, public bid opening (in the case of Government), and awards based on price when bidder is “responsive” and “responsible”, meaning it responds to the requirement without taking exception, and has a documented history of responsible business conduct.
Normally considered for use when five conditions are met:
In Government procurements, sealed bidding was once considered the preferred method; however, negotiation is now sometimes encouraged, especially for complex procurements and when contracting officer determines it to be in the Government's best interests.
Major objectives of Negotiation:
Any others suggested by the class?
Negotiation is normally indicated when:
When using negotiated procurement process:
For each term and condition to be negotiated, negotiator should develop an objective position (negotiator's expectation of seller's actual cost plus a fair profit). Furthermore, the negotiator should:
CONTRACT TYPES (Refer to reference materials for more information about K types)
Classified by method of contractor compensation or reimbursement:
(Fixed price or Cost)
Firm fixed price
Fixed-price with economic price adjustment
Fixed-price with redetermination
Fixed-price with incentive
Provide for reimbursement of costs (allowable and allocable) incurred by contractor.
Cost plus fixed-fee
Fixed-fee is profit (since fee is fixed, little cost saving incentives exist.)
A questionable way to contract for anything and specifically prohibited In Federal Government contracting although allegedly used in some commercial and state/local construction contracts.
Cost plus incentive-fee
Award-fee contract (may be used in either fixed-price or cost reimbursement contracts)
Award fee, when properly used, is a valuable tool. Its application is intended to motivate the contractor’s performance in those areas critical to program success (e.g., technical, logistics support, cost, and schedule) that are susceptible to judgmental/qualitative measurement and evaluation. This subjective evaluation of contractor performance can be supported, however, by objective measurement as well. Award fee provides for a pool of dollars that can be earned based upon the Government’s evaluation of the contractor’s performance in those critical areas.
The award term concept is an adaptation of the commercial industry practice of establishing long-term relationships with quality contractors. The appeal to the Government of this business arrangement incentive is a continued relationship with a proven and reliable producer of quality goods or services. For the contractor, the motivation is the possibility of maintaining a stable, partnering relationship in their business base.
Award term can be best described as a derivative of award fee. The difference is that the contractor earns additional periods of performance instead of award fee. The process for rewarding the contractor with the additional contract term is identical to award fee. An Award Term Review Board (ATRB) uses an Award Term Plan (ATP) to evaluate contractor performance and makes a recommendation to a Term Determining Official (TDO). The TDO is responsible for making the final decision on the contractor’s score for that period. Based on the contractor’s cumulative score the contract’s performance period can be extended or reduced. Due to the additional administrative and management effort and cost of maintaining the award term process, an analysis should be performed before implementing a contract with an award term clause. The analysis should show that the additional effort and cost to administer and evaluate performance associated with the award term process is justified by the expected benefits.
Award term benefits both the customer and the contractor. It rewards quality contractors. It facilitates process improvements and capital investments, which in turn should result in lower contract prices. It communicates the "health" of contract performance to the contractor through continuous and in-depth performance assessments. A successful, long-term contractual relationship provides the added benefit of reducing the manpower intensive effort of frequently reacquiring the services or supplies provided.
Performance-Based contracting is intended to allow the contracting activity to take advantage of industry’s ability to bring innovative solutions to meet the activities needs. In performance-based contracts, the SOW (called a “Performance-based Statement of Work or PBSOW) contains performance requirements (WHAT) and eliminates process-oriented requirements (HOW) and includes only minimally essential reporting requirements. If the level-of-effort, staffing levels or skill mix of workers are specified, then the contract is NOT performance based. Other attributes of performance based contracts (be they for services or products), include:
Time and Materials Contract
Time and Materials contracts are used extensively by the Federal Government for consulting and other professional services contracts where an indeterminate “level of effort” is desired.
Ruhling Manufacturing Company
Contract type’s exercise included with Class 5 materials (below)
Federal Acquisition Regulations, Part 16
CONTRACT TYPE SCENARIOS
Based on your experience, reading, and our discussion of Contract Types, what type(s) of contract could or should be applicable to the six situations below: