contracts

Contract type: Here’s the best one…

by DerekHuether

Psych!

Unfortunately, there is no ONE best type of contract because the risk the vendor and customer share is determined by the contract type.  The best thing you can do is understand who bares the risks or benefits of each.  Being I don’t know if you are a vendor, a customer, or a project manager, this objective description of each contract type should help shed some light on the subject.

There are three categories of contracts: Fixed-Price, Cost-Reimbursable, and Time and Material (T&M).

Fixed-Price is a contract category involving setting a fixed total price for a defined scope of work to be provided.  Fixed-price may also incorporate financial incentives for achieving or exceeding selected project objectives, such as schedule delivery dates, cost and technical performance, or anything that can be quantified and subsequently measured.   Vendors under fixed-price contracts are legally obligated to complete these contracts, with possible financial damages if they do not.  Under the fixed-price arrangement, vendors must precisely specify the products or services being offered.  Changes in scope can be accommodated, but generally at an increase in contact price.  The three common types of fixed-price contracts are Firm Fixed Price Contracts (FFP), Fixed Price Incentive Fee Contracts (FPIF), and Fixed Price with Economic Price Adjustment Contracts (FP-EPA). [risk is on the vendor]

Cost-reimbursable is a contract category involving payments (cost reimbursements) to the vendor for all legitimate actual costs incurred for completed work, plus a fee representing vendor profit.  Cost-reimbursable contracts may also include financial incentive clauses whenever the seller exceeds, or falls below, defined objectives such as costs, schedule, or technical performance targets.  Why would anyone ever use this contract vehicle?  Assume the customer doesn’t know what they want.  By absolving the vendor of risk, they may actually get something delivered.  Three of the more common types of cost-reimbursable contracts in use are Cost Plus Fixed Fee (CPFF), Cost Plus Incentive Fee (CPIF), and Cost Plus Award Fee (CPAF). [risk is on the customer]

Time and Materials (T&M) is a hybrid type of contractual arrangement that contains aspects of both fixed-price and cost-reimbursable contracts.  They are often used for staff changes, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed. [blended risk]

So there you have it, the three categories of contracts.  Some people make it their job to know these inside and out.  I wouldn’t recommend getting too far into the weeds unless this topic really interests you.  If there is one takeaway from this post, I would say remember which party is at risk and which party will benefit. It’s not fun being on the short end of that stick.

Image courtesy of: Shutterstock

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A Question of Ethics

by Josh

Official congressional portrait of former cong...
Image via Wikipedia

Craig over at Better Projects posted something interesting. It deals with ethical implications raised by a scenario in which you are a contractor bidding on a government project with ITAR sensitivity. Some of your people are not US persons per the ITAR guidelines. I have some limited experience with this one that I would like to share.

ITAR applies not only to DOD agencies, but all companies and agencies in the United States where the type of work may pose security concerns per the ITAR regulation with the people involved.

In your stated example, I am fairly certain that your company would not be able to bid on the contract period, regardless of the status of Sara and Johnny. This is a foreign company, so pretty much anyone who is not a US Citizen is going to be unable to work on this. Presumably, the rest of your team are also non-US persons, since you are based out of Australia or wherever.

That said, let’s assume you are a US company with the majority of your staff being US-persons and fine to work ITAR projects. I work with a different agency (not the DOD) and we are having to deal with this as well. Sometimes we don’t like or agree with policies, but if we want to play their game, they are the rule makers.

To your specific question, here are my preferred approaches in order of best to worst.

  1. Find other non-ITAR projects for Sara and Johnny, and use other staff for the ITAR project.
  2. See if Sara and Johnny can be utilized in such a way that ITAR-sensitive information can be shielded from them. If this is possible and the controls are demonstrable, the agency’s contracting officer may allow it.
  3. If you have no other prospects for other contracts and Sara and Johnny have no work, declining this contract is only going to hurt the rest of the team too. If this is your only option, the last resort is to enter into contract, get it staffed with people who do not have any ITAR difficulties.  Then, I would keep Johnny and Sara in the loop and let them know I will keep them on staff and paid for as long as I can doing internal work for the company as I go out and try like hell to get another contract they can work on. I would let them know right away how valuable they are to the company and how much I would like to keep them. At the same time, I would immediately offer to give recommendations for any potential employers should they choose to start looking around.

This is a time when your team members need you the most.  The most ethical approach is to do the right thing as well as you can within the constraints and situation at hand.

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