FPLOE Contract Type – Innovatively Used or Abused?

When does innovation end and abuse begin?

Federal Acquisition Regulation (FAR) Part 16 describes types of contracts that may be used in federal government acquisitions. One little-known and potentially misunderstood contract type is the firm-fixed-price, level-of-effort (FPLOE) contract, defined in FAR subsection 16.207. The definition specifies when FPLOE applies and when limitations on it are allowable.

An FPLOE contract is suitable for an investigation or study in a specific research and development (R&D) area and generally results in a report of achievements. Payment is based on the expenditure of the agreed-upon effort vs. achieved results. The key limitation that leads to the question in the title of this article — about innovative use or abuse — is summed up in the following FAR provision:

• (4)  The contract price is the simplified acquisition threshold (SAT) or less, unless approved by the chief of the contracting office. 

(NOTE: The SAT is $250,000 except in special circumstances not relevant to this discussion.)

If we review USASpending.gov data for FY22 and FY23 (below), we see some remarkable insights on the size and scope of reported FPLOE contract awards. For instance, the average value of such contracts in each year was roughly $9 million.

But what also is evident from the table above, even allowing for a reasonable amount of misreporting, is that most awards reported as FPLOE were not for R&D study-type requirements resulting in a report. In addition, they were contracts and task orders for values far above the simplified acquisition threshold of $250,000. 

Also, I am aware of more than a few instances — some of which are captured in the data — in which the procurement was for staffing the organization’s regular day-to-day operations. These are misuses of an FPLOE contract and bear no relationship to an R&D study. 

But wait, Pat? Aren’t you always touting the FAR Guiding Principles in which the Acquisition Team is encouraged to adopt practices in the best interest of the government when they are not specifically addressed in the FAR, nor prohibited by law?

Yes, however, FAR does specifically limit using the FPLOE contract type for anything other than an R&D study. Extension misusages are not permissible, and truly innovative practices within organizationally imposed constraints are not occurring. 

Personally, I would be happy for the FAR council to sensibly broaden the permissible usage of the FPLOE contract type. But in the meantime, I fear this kind of broad-based misuse could threaten the flexibility that exists in the Guiding Principles.

As the Seventh Sense Consulting LLC (SSC) Director of Acquisition Practice, Mr. Patrick Shields has over 45 years of experience as an acquisition/contracting professional and innovative leader. As a Navy Department civilian, he was a major weapons systems contracting officer and manager. Since his civil service retirement, with 2 firms he has provided subject matter expertise support to numerous Federal civilian and DoD organizations, including acquisition strategy/documentation support for key acquisitions, policy development, and personnel training. He also managed a subscription “ask the expert” response team and authored numerous topical publications for over 25,000 professional employees of subscribing agencies.

Image by Arek Socha from Pixabay