The Three Faces of IDIQ contracting: B Y g r e g o r Y a. g a r r e T T 52 Contract Management December 2012

Transcription

1 The Three Faces of IDIQ Contracting: BY GREGORY A. GARRETT 52 Contract Management December 2012

2 My Thoughts on IDIQ Contracting from the Perspectives of the Government, Prime Contractors, and Subcontractors The pros and cons of IDIQ contracting from the viewpoints of each contracting party. Contract Management December

3 U.S. government spending has risen to unprecedented levels during the past four years, including the American Recovery and Reinvestment Act non-baseline spending. In addition, the number of government business transactions both contracts and grants have risen dramatically in the past four years. While the government has increased its hiring of civil service employees, including GS-1102 contract specialists, it has not been able to keep up with the increased workload resulting from the tremendous increase in both spending levels and number of business transactions. According to the most recent studies by the Government Accountability Office, the U.S. federal acquisition workforce continues to struggle with a shortage of experienced and adequately trained critical acquisition personnel, including program managers, system engineers, contracting officers, contracting officer s representatives, logistics managers, cost/ price analysts, and others. As a direct result of the federal government s increased level of spending, increased number of business transactions, and shortage of experienced and adequately trained critical acquisition personnel, federal departments and agencies have fundamentally changed the manner in which they purchase products, services, and systems from definitized contracts to an increased use of indefinite delivery/indefinite quantity (IDIQ) contracting vehicles. In this article, I shall discuss the fundamentals of IDIQ contracting and then address what I believe to be the pros and cons of IDIQ contracting from three different viewpoints: The U.S. government, Prime contractors, and Subcontractors. Further, I will ask the most important question: Is the U.S. taxpayers money being spent wisely, cost effectively, and efficiently? Finally, I will provide some common-sense recommendations to improve the efficiency and costeffectiveness of government acquisition management. IDIQ Contracting Fundamentals IDIQ contracting vehicles have been used in federal government contracting for decades. IDIQ is not a type of contract; rather, it is a contracting vehicle, which is sometimes called a frame contract because it includes most of the basic requirements 54 Contract Management December 2012

4 and standard terms and conditions without specific quantities, exact delivery dates, or specified pricing. IDIQ contracting vehicles come in many forms within the government, including: Governmentwide acquisition contracts, Multiple Award Schedule, Federal Supply Schedule, and Agency specific IDIQ contracting vehicles. An IDIQ contracting vehicle does not really become a contract until a task order for services or a delivery order for products is awarded pursuant to the IDIQ. Federal departments and agencies like to use IDIQ contracting vehicles primarily because IDIQ contracting vehicles are relatively easy to form, allow for flexibility in purchasing quantities and delivery dates, and only require a minimum and maximum purchase amount. According to the Federal Procurement Data System-Next Generation (FPDS-NG), between 2008 and 2011, the following spending occurred: Number of transactions for dollar ranges: y Approximately 95 percent of all federal government contract transactions were for $150,000 or less, y About four percent of all federal government contract transactions were valued between $150,000 and $1 million, and y Less than one percent of all federal government contract transactions were valued above $1 million. Sum of dollars for transactions dollar ranges: y Roughly 80 percent of all federal government procurement dollars were spent acquiring products and services via contracts valued above $1 million, y About 12 percent of all federal government procurement dollars were spent acquiring products and services via contracts valued between $150,000 and $1 million, and y About eight percent of all federal government procurement dollars were spent acquiring products and services via contracts valued at less than $150,000. Types of transactions and sum of dollars percentage: y Roughly 60 percent of all federal government procurement dollars are awarded via some form of IDIQ contracting, y About 30 percent of all federal government procurement dollars are awarded via some form of purchase order, y Approximately six percent of all federal government procurement dollars are awarded via contract modifications, y About two percent of all federal government procurement dollars are awarded via blanket purchase agreements, y Approximately one percent of all federal government procurement dollars are awarded via definitive contracts, and y Less than one percent of all federal government procurement dollars were awarded via micropurchases (purchases at $3,000 or below). Thus, the information from the FPDS-NG tells us the following three key takeaways: Most federal procurement dollars are spent on IDIQ contracting vehicles valued at more than $1 million; The vast majority of federal procurement transactions are awarded on contracts less than $150,000, but this represents a very small amount of total federal procurement spending; and The most preferred method for federal government departments and agencies to acquire large complex federal systems and services via definitive contracts is done on only one percent of transactions. The Federal Government s Viewpoint Pros Most federal government agencies use IDIQ contracting vehicles because IDIQs are fast to form and easy for government contracting personnel to award. In addition, many government acquisition personnel appreciate and value the flexibility of IDIQ contracting vehicles, including: Use of lowest price technically acceptable terms for source selection; Use of the best value method for source selection; Contract Management December

5 The ability to use different types of contracts on the same contracting vehicle (i.e., fixed-price, cost-reimbursement, and/or time-and-materials); A variable quantity of products and/or services; Variable delivery dates; Minimum purchase amounts; Maximum purchase amounts; Use of multiyear contracts; and Use of standard terms and conditions. Further, many government contracting officers appreciate the use of competition for the basis of award for IDIQ contracting vehicles. After the competitive award of the IDIQ contracting vehicle, many government contracting officers choose to use the faster and easier noncompetitive award of task orders and delivery orders pursuant to the IDIQ contracting vehicle for a wide range of goods and services potentially for many years. Cons Many government budget and financial managers do not like the fact that IDIQ contracting is not a definitive contract, thus the contract vehicle may present potential open financial liabilities over multiple years. Likewise, many government program managers are concerned about the use of IDIQ contracting because of the following issues: Contractors may not fulfill contract requirements for a variety of reasons, such as unclear contract requirements, government-caused delays, etc., resulting in negative cost, schedule, and quality impacts to end customers; and The government may not have adequate acquisition resources to properly manage the post-contract-award activities required, such as project management, contract changes management, contract monitoring, quality assurance, inspection, acceptance, and contract closeout. As viewed by the government, other significant potential negative consequences of the use of IDIQs include the following: Contractors may submit a bid protest to the government delaying IDIQ contracting vehicle award; Prime contractor(s) and the government may get involved in contract disputes and claims, negatively impacting contract performance results; Unit prices and/or life cycle cost may vary significantly with government-requested changes in contract requirements; Changes in government contract requirements may result in costly schedule delays; Failures in government-furnished equipment or government-furnished property may adversely impact performance results; Contractors may not deliver quality products, services, and systems on time and on budget as a result of government funding delays; and The Government Accountability Office, department inspector general offices, congressional committees, and the press may publish reports and articles on how the government personnel mismanaged the contract and project resulting in late deliveries, cost overruns, and performance failures. Prime Contractors Viewpoint Pros Prime contractors often have mixed emotions about competing for and winning IDIQ contracting vehicles from federal departments and agencies. The following is a brief list of some of the typical positive aspects of IDIQ contracting from the viewpoint of some government prime contractors: IDIQ contracting provides the prime contractor with the opportunity to form a strong team of business partners and compete for a lot of work and money; IDIQs may not have a firm delivery schedule for products, services, and systems, resulting in late deliveries; IDIQs may not be fully funded, thus the government may not be able to award future task orders or delivery orders to obtain needed products and services; IDIQs require minimum and maximum purchase amounts, but may only have adequate funding to cover the minimum purchase amount; 56 Contract Management December 2012

6 IDIQ contracting allows government prime contractors to provide quality products, services, and systems to the federal government; IDIQ contracting allows the government prime contractor to perform some work and potentially subcontract work to other companies of its choosing; When properly managed by the government prime contractor, IDIQ contracting may allow the contractor to earn a significant profit/fee; By winning multiple IDIQ contracting vehicles, a government prime contractor may be able to capture a significant market share of business from its competitors; and By successfully executing the work on the IDIQ contracting vehicle(s), a government prime contractor may be able to create a positive business brand Membership 101 What s your plan for professional development next year? Resolve to get certified with NCMA. Learn more on the NCMA website. Members have access to study guides, practice exams, local study groups, and discounts on online preparatory courses. Contract Management December

7 and a strong business relationship with key government personnel, potentially leading to increased follow-on contracts and contract modifications. Cons Conversely, IDIQ contracting vehicles may have some negative impacts on government prime contractors both large and small businesses including, but not limited to, the following: IDIQs may require the prime contractor to make a large investment of time and money to compete and win; IDIQs are often viewed as just a hunting license for the government prime contractor to sell its products and services and then compete for task orders and delivery orders; IDIQs may require the prime contractor to form contractor teaming arrangements with companies that might otherwise be business competitors; Successfully managing subcontractors may prove very challenging; The government may not fully fund the IDIQ contracting vehicle; Government customers may become dissatisfied with the quality of the products, services, and systems provided by the prime contractor; Prime contractors may invest a great deal of time, effort, and money in competing for a large IDIQ contracting vehicle, only to lose to a competitor; Prime contractors may win an IDIQ contracting vehicle(s), but be awarded very little work, resulting in a financial loss (as compared to the bid and proposal investment); Depending on the government prime contractor s performance on the IDIQ task orders and delivery orders, the prime contractor may earn little to no profit/fee; Dealing with government-caused delays can be frustrating, time consuming, and expensive; Government budgets may be reduced, resulting in an IDIQ contract termination for convenience by the government contracting officer; and Government acquisition laws, regulations, reviews, and audits may result in company financial loss, civil fines and penalties, and criminal prosecution for both individuals and the company. Subcontractors Viewpoint Pros Government subcontractors, especially small businesses, are often very pleased to establish a partnership with a large government prime contractor and have the opportunity to provide products and services to the government. IDIQ contracting vehicles can prove to result in numerous positive impacts for subcontractors, including: The opportunity to establish a strong and successful partnership with an incumbent government prime contractor; Acting as a subcontractor (verses serving as the prime contractor) lowers overall business risk; 58 Contract Management December 2012

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9 The use of commercial contract terms and conditions between the subcontractor and the prime contractor; The opportunity to increase the subcontractor s company brand and reputation in the government marketplace; and The opportunity to expand customer business base, increase revenues, enhance timely payments, and increase profits. Cons Unfortunately, negative impacts tend to run down the hill very quickly, from the government to prime contractors to subcontractors. These negative impacts include, but are not limited to, the following: The prime contractor may not adhere to the terms and conditions of the teaming agreement with the subcontractor; The prime contractor may not provide timely work authorizations, approvals, and/or payments to the subcontractor; The prime contractor may compete the work it wins and award subcontracts to other companies who are the subcontractor s competitors; The prime contractor may not receive the volume and/or scope of work anticipated, resulting in far less work to be awarded to the subcontractor; The prime contractor may issue a stop work order, show cause notice, and/or a termination notice to the subcontractor; Government budget reductions may result in little to no work (i.e., revenue); The prime contractor may become a nightmare for subcontractors by performing any of the following actions: y Stealing subcontractor intellectual property; y Violating the prime/subcontractor contract; y Failing to pay the subcontractor in a timely manner, if at all; y Blaming the subcontractor for the prime contractor s failures; y Making false statements to the government about the subcontractor s capabilities, performance, and management; and/or y Wrongly terminating subcontracts. Summary and Recommendations This article presents the use of IDIQ contracting vehicles from the viewpoints of government, prime contractors, and subcontractors. Ultimately, one must ask the important question: Are the U.S. taxpayers receiving quality products, services, and systems they require on time and at fair and reasonable prices via the increased use of IDIQ contracting vehicles? Clearly, the answer is it depends. With some IDIQ contracting vehicles, the U.S. taxpayers are getting a good deal. However, with many IDIQ contracting vehicles, especially for large complex systems and services, the answer is no. Thus, I offer the following six commonsense recommendations for the improve- 60 Contract Management December 2012

10 ment of federal government acquisition management: Increase the use of definitive contracts by at least 10 percent and reduce the use of IDIQ contracting vehicles by at least 10 percent; Improve the application of performancebased acquisition for both products and services on IDIQ contracting vehicles, including the appropriate use of: y Performance work statements, y Quality assurance surveillance plans, y Performance-based metrics, and y Balanced use of positive and negative contract incentives; Reduce the number of contract changes or modifications on all contracts; Ensure adequate funding before the award of future IDIQ contracting vehicles; Enhance the source selection process for all government contracts; and Empower the federal acquisition workforce to make informed business decisions in regards to source selection methods, source selection criteria, contracting methods, contract type(s), contracting vehicles, contract negotiations, contract administration, and project management. I hope these six common-sense recommendations will serve as some food for thought for government acquisition policymakers, government prime contractors, and subcontractors so that they will work together to improve contract performance results and spend our money wisely and costeffectively! CM About the Author GREGORY A. GARRETT, CPCM, Fellow, C.P.M., PMP, currently serves as president and CEO of Garrett Consulting Services. He is an international educator, best-selling author, respected business consultant, and highly decorated former military officer for the U.S. Air Force. He has received numerous national and international business awards for his writing, teaching, consulting, and leadership. Send comments about this article to cm@ncmahq.org. YOU DEMAND CONVENIENCE... and here it is, all wrapped up and ready to go! NCMA s Education on Demand program is the most convenient and comprehensive approach to staying acclimated in your ever-changing career. Tune in to the recordings of past NCMA webinars, virtual conferences, and World Congress sessions as your schedule permits. Contract Management December