Contract Management 101: A FFP contract is not T&M

One thing that I have seen a lot of is the misapplication of performance-based contracting tenets, especially when it comes to requirements. Basically, some requirement offices slap “Performance Work Statement” as the title, delete “Statement of Work,” and maybe add some metrics and measures. Voila, a “performance-based contract” is born.

However, the contract line item numbers (CLINs) is really where I see performance-based acquisition (PBA) fall off the tracks. This text is straight out of a recent solicitation for a services contract on Federal Business Opportunities, commonly referred to as “fedbizopps” or FBO:

The Offeror shall provide their proposed firm-fixed price for this project by completing the CLIN Listing, in its entirety, as provided in the RFP. Additionally, the Offeror shall also provide a basis for the price, identifying all prospective labor categories, showing labor rates for all labor categories and discounts offered. (The Offerors shall also show profit, and any overhead costs if not included in the labor rate). Lack of detail may result in a rating of a higher risk by the Selection Authority in the selection process.

Significant discounts are considered highly desirable. Discounts offered must be explicit. (There is no page limit for this factor, however Offerors are encouraged to only provide that cost and pricing data mandatory to a comprehensive review and that data which would allow the evaluation team to determine price reasonableness.)

Certainly great material to include in my classes when I teach PBA, Contracting Officer Representative (COR), or FAC P/PM courses on how not to structure CLINS under a PBA, or for a Firm Fixed Price (FFP) contract.

For starters, why do you care about this information? You shouldn’t. As a project manager (PM) or COR, you care about performance. Period. The other contract management efforts that will be expended on managing labor rates, labor categories, expenditures, etc. is inappropriate for this contract type, it adds extra administration and complexity into the contract management function, and takes the focus away on what you really care about; performance.

Further, the main objective of a FFP contract is to transfer risk to industry, with the assumption on a FFP contract type that the requirements are clearly defined and baselined. This model wants to eliminate that risk premium, and further drive prices down by threatening to add risk if these factors, which you shouldn’t care about, are not deemed “reasonable?” Protest anyone?

This model is creating a culture of “buying in,” deemed an improper business practice per FAR Subpart 3.5, but now a necessity as a result of budget cuts and the pressure to cut contracts.

PBA is about performance, and incentivizing industry to exceed requirements through a strategic partnership of trust and communication for both parties to excel. Let’s focus on that, and leave the administrative burdens where they belong.

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