Trends in Government Contracts

Most of the core requirements for contracting with the Federal Government originate in the Federal Acquisition Regulations or FAR.  These series of documents describe in great detail the how and the why of government procurements.  The FAR may reference other regulations and may infer other regulations.  This eventually turns into what we affectionately refer to as a "rat maze" to chase down all the requirements that may be imposed on a contractor. 

Today I just want to concentrate on the different types of contract vehicles that are available to the Contracting Officer (CO).  FAR Part 16 controls this description.  The basic contract types in Part 16 are:

  • Fixed Price Contracts

    • These contracts place more risk on the contractor to perform and relieve the government of much of the financial risk 

    • They are very useful for purchasing a commodity or item that has lots of price competition and/or has a very defined deliverable

  • Cost Reimbursement Contracts

    • These contracts place more risk on the government because the government is reimbursing the contractor for expenses

    • The government requires the contractor to have a specific type of accounting system to help minimize their risk.  This is a "cost of doing business" for the contractor

  • Incentive Contracts

    • Incentive contracts may be either based on fixed price or cost reimbursement

    • Incentive contracts are used usually when the government desires to see if they can improve on delivery and/or cost targets

    • Incentive contracts are used to try to encourage minimization of waste

  • Indefinite Delivery Contracts

    • These contracts are used when the government may not know at the time of order how many or when it needs the products and/or services

    • These contracts normally have a maximum amount over a certain period of time and allows the government to control the quantity and rate of delivery

  • Time and Materials, Labor Hour and Letter Contracts

    • Time & Materials and Labor Hour contracts are similar with the only difference being materials and labor being delivered in the former 

    • This type of contract allows the contractor to establish a "burdened" rate including labor rate, overhead, G&A and profit to charge the government and usually requires a government approved accounting system to accomplish this.  Material may be marked up by an agreed upon material handling cost, again determined by an approved accounting system

    • Letter contracts are a way for the government to begin production by authorizing a limited scope of work prior to completion of negotiation on another type of contract vehicle

  • Agreements

    • Agreements are not contracts but rather a written instrument of understanding

    • Agreements may be used when either there will be a significant number of contracts with the contractor or there may be a number of uncertain requirements at the time of the agreement

We have seen trends over the last several years for the government to try and move as much procurement as possible to the Fixed Price type contracts.  Certainly, much of what the government purchases may not fit easily in that category.  Regardless, it has been a priority of the existing administration to reduce waste in Federal procurements, including trying to use more Fixed Price Contracts.  We have also seen recently an increase in the number of IDIQ contracts (Indefinite Delivery Contracts).  This trend allows the government to control budget a little better and also control the amount and delivery time.  Some of the biggest IDIQ type contract vehicles currently are vehicles such as Seaport-e, LOGCAP IV, SEWP IV, EAGLE, Alliant and Encore II to name a few of the big ones.  Small business may want to investigate these vehicles as they are becoming preferred ways for the government to do business.  Give me a call if you don't know where to start.



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