Government Contracting Essentials Training & FAQ

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The Federal Acquisition Regulation (FAR) is the primary source of information for government contracting in the United States.  The FAR is essentially the “Bible” for government contracting.  It was first enacted on April 1, 1984, and is managed by the General Services Administration (GSA).  The FAR Council and the FAR Secretariat are authorized to make changes to the FAR.  Changes are accomplished by issuing proposed or interim rules and allowing the public to comment.

Here is a summary of key points about the FAR:

• It contains over 2,000 pages.
• Each government agency that purchases goods and services has its own supplement to the FAR that provides additional detail.
• The FAR is divided into 53 parts.
• Parts 1-51, roughly half of the FAR, are substantive provisions organized by topic.
• Examples include Part 6 on competition, Part 19 on small business contracting, Part 22 on labor law, Part 43 on changes, and Part 49 on terminations.
• Part 52 contains the clauses that enforce the policies of Parts 1-51.
• Only the clauses in Part 52 are inserted into solicitations and government contracts.
• Part 53 contains standard government contract forms and instructions for those forms.
• Each part of the FAR is further subdivided into subparts, sections, and subsections.
• FAR Part 2 contains definitions that are incorporated by reference into every solicitation and contract.

For example, FAR clause 52.202-1, titled “Definitions,” incorporates all the definitions in Part 2 into the contract. Understanding how to read the FAR and understanding the definitions are essential for anyone doing business with the federal government.

The Changes clause in government contracts, dating back to 1818, allows the government flexibility to change its requirements during contract performance. This clause recognizes the government’s sovereign interest and its need to protect taxpayer interests. The contracting officer (CO) holds the sole authority to direct changes.

Here are some key features of the Changes clause:

• Scope: The government can change drawings, designs, specifications, shipment/packing methods, and delivery locations.
• Equitable Adjustment: When changes are ordered, the contractor can seek an “equitable adjustment” for extra costs and time incurred due to the changes.
• Commercial Items Exception: For commercial product/service contracts, the Changes clause states that modifications can only occur through a written agreement between both parties. This restricts the government’s right to unilaterally change a contract involving commercial items.

Unauthorized Changes (Constructive Changes):

A problem arises when someone other than the CO directs changes. While this happens often, it’s crucial to remember that only the CO has the authority to modify a contract. Following instructions from unauthorized personnel can lead to “constructive changes, where the contractor incurs losses but faces an uphill battle to recover them because the changes were not officially directed.

Best Practices:

• Educate the Team: After winning a contract, educate the team on the contract terms, key players, reporting procedures, and the scope of work to avoid performing work outside of the contract.
• Formalize Changes: Always seek written confirmation from the CO for any proposed changes to avoid disputes over unauthorized work.

By understanding the Changes clause and adhering to proper procedures, contractors can mitigate risks and ensure smooth contract execution.

The sources discuss a number of different types of government contracts, which can be divided into two main categories: fixed-price contracts and cost-reimbursement contracts.

Fixed-Price Contracts

Fixed-price contracts specify a firm price, or in some cases, an adjustable price, for the goods or services being procured. They are suitable for acquiring commercial items and services or when costs are predictable. Fixed-price contracts allocate cost risk to the contractor, as the contractor is responsible for any cost overruns. The government prefers fixed-price contracts because they are easy to administer.

Types of Fixed-Price Contracts:

• Firm-Fixed Price (FFP): The contract price is not subject to any adjustment, regardless of changes in the contractor’s costs. The contractor assumes the risk of cost overruns but benefits from any cost savings.
• Fixed-Price with Economic Price Adjustment (FP w/EPA): Provides for upward and downward adjustments to the contract price based on pre-established contingencies, such as changes in material or labor costs. This protects the contractor from unexpected market fluctuations but allows the government to share in cost savings.
• Firm-Fixed-Price, Level-of-Effort: Used for research and development contracts where the scope of work is difficult to define in detail. The contractor is paid a fixed amount to provide a specified level of effort over a stated period of time, typically resulting in a report detailing the achieved results.
• Time-and-Materials: Used when the scope or duration of the work cannot be accurately determined at the time of contract award, making it impossible to predict costs with certainty. The contractor is paid for actual labor hours at predetermined fixed rates and for materials at cost or catalog price.
• Labor-Hour: Similar to time-and-materials contracts, but materials are not supplied by the contractor [9, 10]. Payment is based solely on the labor hours worked at a fixed hourly rate.

Cost-Reimbursement Contracts

Cost-reimbursement contracts provide for payment of allowable costs incurred by the contractor in performing the contract. They are used when the scope of work is uncertain or costs are difficult to predict, such as research and development projects. Cost-reimbursement contracts shift cost risk to the government, as the government is responsible for reimbursing the contractor’s allowable costs.

Types of Cost-Reimbursement Contracts:

• Cost Contract: The contractor receives reimbursement for allowable costs but does not receive a fee. These contracts are rare and typically used for research and development projects with non-profit organizations or for travel reimbursements.
• Cost-Sharing Contracts: The contractor receives reimbursement for an agreed-upon portion of its allowable costs, sharing the costs with the government. This is used when the contractor expects benefits beyond the contract, such as the development of a commercially viable product.
• Cost-Plus-Fixed-Fee (CPFF) Contracts: The contractor is reimbursed for all allowable costs incurred plus a fixed fee negotiated at the time of award. The fixed fee does not vary with actual costs but can be adjusted for changes in the scope of work. This is considered the least risky type of contract for the contractor.
• Cost-Plus-Incentive Fee (CPIF): The contractor is reimbursed for allowable costs and receives an incentive fee based on achieving performance targets related to cost, schedule, or technical performance.
• Cost-Plus Award-Fee (CPAF): The contractor receives reimbursement for allowable costs and an award fee based on a subjective evaluation by the government of the contractor’s performance. The award fee amount can be adjusted throughout the contract period based on performance.

Indefinite-Delivery Indefinite-Quantity (IDIQ) Contracts

IDIQ contracts provide for an indefinite quantity of supplies or services to be delivered or performed within a fixed period of time. The government issues orders for individual requirements as they arise, up to a stated maximum order amount. These are often used for recurring requirements, such as grass cutting at military installations.

Types of IDIQ Contracts:

• Single-Award IDIQ: Awarded to a single contractor who is guaranteed a minimum amount of work but may receive orders up to the stated maximum.
• Multiple-Award IDIQ: Awarded to multiple contractors, each of whom is guaranteed a minimum order amount but competes for orders beyond that minimum.

Other Contract Types

• Other Transaction Authority Agreements (OTAs): These are not procurement contracts, and are not government by the FAR.  They are used by certain agencies for research and prototyping activities. They offer flexibility to incorporate commercial practices and are generally not subject to the same regulations as traditional government contracts.
• Letter Contracts: Used in urgent situations to authorize a contractor to begin work before a definitive contract is finalized. These contracts must be definitized within a specified timeframe or become void.
• Basic Ordering Agreements (BOAs) or Blanket Purchase Agreements (BPAs): Not contracts but agreements establishing terms and conditions for future purchases. They do not include a minimum order amount and are often used for routine, low-dollar purchases.

Considerations in Selecting a Contract Type

The choice of contract type depends on various factors, including price competition, the complexity and urgency of the requirements, the contractor’s technical capabilities, and the allocation of risk between the government and the contractor. The contracting officer is responsible for selecting the contract type but can be influenced by market research and feedback from potential offerors.

Sealed bidding is a government procurement method where price is the only evaluation criteria.  Sealed bidding is found in FAR Part 14.  The government issues a solicitation called an Invitation for Bids (IFB), and bidders submit sealed bids that are kept confidential until bid opening.

Bid Opening

At bid opening, all bids are publicly opened, and the government determines:

• Responsiveness: Whether the bid complies with the solicitation’s material requirements
• Responsibility: Whether the bidder has the financial, managerial, and technical ability to perform the contract

The government awards the contract to the lowest priced, responsive, and responsible bidder.

Advantages

• Encourages price competition and reduces costs
• Reduces opportunities for bribery and corruption due to limited face-to-face communication
• Faster process than negotiated procurements
• Suitable for acquiring off-the-shelf products with well-defined specifications

Disadvantages

• Limited to evaluating price only; tradeoffs between cost and quality are not permitted
• Not suitable for developmental products

Contract Types

Only two contract types are permitted in sealed bidding:

• Firm-Fixed-Price (FFP)
• Fixed-Price with Economic Price Adjustment (FP w/ EPA)

Publicizing Requirements

• FedBizOpps (now SAM.gov) is used if the solicitation exceeds $25,000
• Public posting is required for solicitations under $25,000

Decline in Use

Sealed bidding was once the preferred method but is now rarely used because it is too restrictive.  Negotiated procurements are now used more frequently as they allow for consideration of factors beyond price.

Negotiated procurement, also called competitive negotiations, is a procurement method used by government agencies when sealed bidding is not appropriate. This method, covered in FAR Part 15, is used in about 95% of government procurements.

Here are some characteristics of negotiated procurements:

• Maximizes Competition: Unlike sealed bidding, where price is the only evaluation factor, negotiated procurements allow for the consideration of other factors besides price.
• Similar to Commercial Buying: Negotiated procurement mirrors practices in the commercial sector, where factors such as quality, technical approach, and past performance are also considered. This allows the government to make tradeoffs between cost and quality and obtain the best value.
• Flexible: This method allows for more flexibility than sealed bidding, enabling the government to obtain a product or service that best meets its needs, even if it is not the lowest priced option.

Here are some situations in which sealed bidding would not be appropriate, making negotiated procurements the preferred procurement method:

• Specifications are not well defined.
• Price is not the only important factor.

The government uses a Request for Proposals (RFP) to solicit offers in a negotiated procurement. The RFP must disclose significant factors and subfactors that will be used to make the award decision. The RFP must also disclose whether the award will be based on Lowest Price Technically Acceptable (LPTA) or Cost-Technical Tradeoff, also called Best Value.

In LPTA, all non-price factors are rated as either acceptable or unacceptable. The government awards the contract to the lowest priced offeror whose proposal meets the minimum technical requirements. In a best-value tradeoff, the government can make tradeoffs between cost and quality, meaning they do not have to choose the lowest priced offer.

The government may conduct discussions with offerors to inform them of the strengths and weaknesses of their proposals. These discussions allow offerors to submit revised proposals. At the conclusion of discussions, offerors submit their Final Proposal Revisions (FPRs). The government then evaluates the FPRs and makes an award decision.

Commercial item procedures resemble those of the commercial marketplace to make the government more like a private consumer.  Many certifications and regulations do not apply to commercial products and services.  For example, changes must be bilateral and technical data is presumed to be developed at private expense.

Here is some additional information about commercial item procedures. Note that this information is not from the sources you provided and you may want to verify it independently.

• Commercial item procedures are governed by FAR Part 12.
• The government is required to perform market research to determine if a commercial item can meet its needs.
• Commercial item contracts use streamlined clauses.

There are several benefits to buying commercial products and services:

• Proven Products (Quality Goods)
• Cheaper – No R&D (Reasonable Price)
• Faster (Acquisition Lead-time) (Delivered timely)

Commercial items are defined as:

1. Any item customarily used by the general public for non-government purposes that has been sold, leased, or licensed to the general public, or offered for sale, lease, or license to the general public.
2. Any item not yet for sale in the commercial marketplace that evolved from a commercial item through advances in technology or performance and will be available in the commercial marketplace in time to satisfy government delivery requirements.  For example, a new model car or upgraded software.
3. Any item that would meet the first two criteria, except it has modifications that are customarily available in the commercial marketplace, or minor modifications made to meet Federal Government requirements even though not customarily available in the commercial marketplace.  These minor modifications must retain the item’s non-governmental functions and characteristics.

Commercial services are defined as:

• Installation, maintenance, repair, training, and other services procured in support of a commercial item, as long as the source of services provides similar services to the public under similar terms and conditions.
• Services “of a type offered and sold competitively in substantial quantities in the commercial marketplace,” based on established catalog or market prices for specific tasks or specific outcomes, under standard commercial terms and conditions.  This definition does not include services sold at hourly rates without established catalog or market prices.

Simplified acquisition procedures (SAP) are allowed when buying commercial products or services for up to $7 million.  When supporting contingency operations, SAP is allowed up to $15 million.  This was previously a temporary rule, but is now permanent.

The sources define “price” as the cost plus any fee or profit applicable to the contract type.  “Pricing” is defined as the process of establishing a reasonable amount to be paid for supplies or services.  The objective of proposal analysis is to ensure that the final agreed-to price is fair and reasonable.  The government must purchase supplies and services at fair and reasonable prices and obtain necessary information in the least burdensome manner possible, given the circumstances of each procurement.

Simplified acquisition procedures (SAP) are a streamlined contracting method used by government agencies for purchases of supplies or services that do not exceed the simplified acquisition threshold (SAT). The general SAT is $250,000.  Agencies are required to use simplified acquisition procedures to the maximum extent practicable for all purchases below the SAT.  SAP offers advantages such as:

• Decreased competition requirements 
• Decreased publicizing time
• Inapplicability of certain laws
• Flexibility in procedures

The micro-purchase threshold is generally $10,000 and below.  Purchases under the micro-purchase threshold can be made using a government credit card and do not require a written solicitation or contract.  For procurements above the micro-purchase threshold but below the SAT, the process generally involves the following steps:

• The agency issues a request for quotations (RFQ) through SAM.gov 
• Vendors submit quotes
• The agency evaluates quotes and issues a purchase order to the selected vendor 
• The vendor accepts or rejects the offer 

Upon acceptance, the purchase order becomes the contract. 

Key features that distinguish SAP from other procurement methods:

• Competition: The Competition in Contracting Act (CICA) requirement for full and open competition does not apply.  Instead, the standard is “maximum extent practicable.” This means agencies have more flexibility in soliciting quotes and do not have to follow strict timelines. 
• Evaluation Criteria: Contracting officers have broad discretion in determining evaluation criteria, but the RFQ must state how the agency will make its award decision.  The evaluation process is intended to be simple.
• Contract Type: Most SAP procurements result in fixed-price contracts.  Cost reimbursement contracts are not prohibited, but are less common. 

There are exceptions to the general SAT:

• For procurements in support of a contingency operation or defense against nuclear, biological, or chemical attack, the SAT is raised to $750,000 inside the US and $1.5 million outside the US. 
• For commercial products and services, the SAT is $7 million.  If the procurement is in support of a contingency operation, the SAT for commercial items is raised to $13 million. 

Simplified acquisition procedures are closely related to FAR Part 12, Commercial Items. When procuring commercial items using SAP, both FAR Part 12 and FAR Part 13 must be considered.  Simplified acquisition procedures provide a streamlined and flexible approach for government agencies to purchase goods and services under certain thresholds, allowing for faster procurement cycles and reduced administrative burden. 

Conflicts of interest in government contracting occur when a company or individual has a personal or financial interest that could compromise their objectivity in performing government work.  The government is especially sensitive to these conflicts because of the public trust involved in spending taxpayer money. 

Here are some key things to understand about conflicts of interest in government contracting:

• The government has a strong interest in ensuring a level playing field and avoiding corruption in its contracting processes. Activities acceptable in commercial settings may be illegal in government contracting.  For example, contingent fee arrangements, where a third party is paid based on winning a contract, are illegal because they incentivize potentially unethical behavior. 
• The Procurement Integrity Act (PIA) aims to prevent improper disclosure or receipt of procurement information. [8-11] This helps maintain a fair and transparent process. Violations of the PIA can have serious consequences. 
• Organizational conflicts of interest (OCIs) occur when a contractor’s other business activities or relationships could compromise its objectivity in performing government work.  For example, a contractor might have an unfair advantage if it helped the government write the specifications for a contract it later bids on. 
• There are three main types of OCIs:Unequal access to information: A contractor gains access to non-public information that could give it an unfair advantage. 
• Impaired objectivity: A contractor’s ability to provide impartial advice is compromised. 
• Biased ground rules: A contractor can influence the procurement process to favor its own interests.
• Mitigating OCIs is crucial and often involves limiting the scope of work or disclosing potential conflicts early on. Contractors should be proactive in identifying and addressing potential OCIs to avoid problems. 
• Personal conflicts of interest involve government or contractor employees whose personal interests could conflict with their duties.  This is especially concerning for contractor employees performing “inherently governmental functions” like evaluating proposals.