045 what are indefinite contracts
- 1. Contracting Officer Podcast Slides Knowledge & Insights From Contracting Officers 1
- 2. Episode 045 What is an Indefinite Contract? Original Air Date: September 21, 2015 Hosts: Kevin Jans & Paul Schauer 2
- 3. 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
- 4. Introduction • Purpose of this podcast: To examine and explain Indefinite Contracts • Indefinite contracts • Sound confusing • Can be confusing • If you don’t understand how they work, you can't forecast the cash flow/revenue. 4
- 5. Contract Types that deal with Risk • Listen to Podcast 009 and 040 for more details on cost vs. fixed price • Fixed-price • One extreme is firm-fixed-price, where the contractor has full responsibility for performance costs and resulting profit (or loss) • Cost-reimbursement • The other extreme is cost-plus-fixed-fee, where the contractor has minimal responsibility for performance costs, and negotiated fee (profit) is fixed. 5
- 6. Contract Types that deal with Execution • Exact times and/or exact quantities of future deliveries are not known at the time of contract award • “Estimated” quantities or schedules • Indefinite-delivery contracts (FAR 16.5) • Definite-quantity contracts • Requirements contracts • Indefinite-quantity contracts 6
- 7. Example: Definite-quantity contracts FAR 16.502 -- Definite-Quantity Contracts. (a) Description. A definite-quantity contract provides for delivery of a definite quantity of specific supplies or services for a fixed period, with deliveries or performance to be scheduled at designated locations upon order. (b) Application. A definite-quantity contract may be used when it can be determined in advance that -- (1) A definite quantity of supplies or services will be required during the contract period and 7
- 8. Example: Definite-quantity contracts (2) The supplies or services are regularly available or will be available after a short lead time. • I know I need 5000 medical kits • However, I don’t know exact rate of use (don’t know exactly when needed) • I’ll send you an order when I need them. • I may need 100, 1000, or 1850 at different times during the contract • We’ll have a min order and max order. 8
- 9. Example: Requirements contracts FAR 16.503 -- Requirements Contracts. (a) Description. A requirements contract provides for filling all actual purchase requirements of designated Government activities for supplies or services during a specified contract period (from one contractor), with deliveries or performance to be scheduled by placing orders with the contractor. • I don’t know that I’ll need 5,000, but • When I do buy them, I will buy them all from you for the period (ex: one year) • I’ll send you, and only you, an order when I need them. 9
- 10. Example: Requirements contracts • State reasonable estimate of orders and max quantity • Ceiling is $103 million (or CO must write a Determination & Finding) • Limitation on using for Advisory & Assistance Services: (3 years & $12.5 million) 10
- 11. Example: Indefinite Quantity contracts FAR 16.504 -- Indefinite-Quantity Contracts. • Description. An I-Q contract provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period • Government places orders for individual requirements • Must order a minimum quantity • If more orders placed, contractor must deliver up to a stated maximum • Quantity limits may be stated as number of units or as dollar values • Must state min/max for each order and max over certain time period • "only when a recurring need is anticipated" 11
- 12. Example: Indefinite Quantity contracts • IDIQ – Indefinite Delivery and Indefinite Quantity • We will have a separate podcast for this important topic • See FAR 52.216-18 (Ordering) and 52.216-19 (Order Limitations) 12
- 13. When do Indefinite Contracts happen? • Acquisition Time Zones (from Podcast Episode 003) • Requirements Zone • Market Research Zone • RFP Zone (proposal zone) • Source Selection Zone 13
- 14. Why are Indefinite Contracts important? • Execution • Selecting the right structure can make contract execution a simple job • Improper (or less than optimal) assignment of contract type can endanger program performance regardless of technical risks • Communication between Government and Industry is essential to avoid surprises after award • Government must understand user needs and funds availability • Industry must be capable of delivering per the contract 14
- 15. Why Should Government Care? • Contract type is the structure on which results are built • Goal is less administrative burden for everyone • 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” 15
- 16. Why Should Industry Care? • Did you celebrate the big win? • You now have a $0 contract (or a $1000 meaningless contract) with no promise of any future work/deliveries • Do you understand the user's needs and budget? • First question of RFP Score: “How confident are you the entire contract is funded?” • Definite Quantity: Know end result but not phasing of cash flow/delivery • Requirements: Know min/max but not timing • Indefinite Quantity: Know nothing • Contract does not promise anything 16
- 17. Summary • Mutually review available contract types to assess the best fit between Government needs and Industry capability • Flexibility is nice, unless you’re holding a wet noodle; too much flexibility can make these hard to manage • 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 • Drives the execution process • Industry must understand "indefinite" - don't party too soon 17
- 18. Contact us • We are on LinkedIn, 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