| Can Contracts Be Awarded Without Pricing?
By Alan Chvotkin
Executive Vice President and Counsel
The Professional Services Council
ince the enactment of the Competition in Contracting Act in 1984, price has been an essential element of every contract awarded by the Federal Government under the Federal Acquisition Regulation, along with technical capability and (more recently) past performance. In addition, before making an award, every contracting officer must determine that the price offered by the winning offeror(s) is “fair and reasonable.”
Agencies have wide discretion in establishing the value of the factors and subfactors under each of these three elements, and frequently price is identified as the least important of the factors to be evaluated.
But what if the price on a solicitation was not a factor to be evaluated at all? As part of the Professional Services Council’s long-standing acquisition reform advocacy agenda, we supported just such an experiment and it is now in effect for some agencies.
In Section 825 of the Fiscal Year 2017 National Defense Authorization Act (NDAA), Congress provided that, for multiple-award indefinite delivery/indefinite quantity (ID/IQ) contracts, DoD, NASA and Coast Guard buying activities are not required to evaluate cost or price during the evaluation of the formation of the ID/IQ contract, provided other conditions are met. If cost or price is not evaluated at formation, however, cost or price must be an evaluation factor in conjunction with the issuance of any task or delivery order under such awarded contract. The Professional Services Council strongly supported that legislative proposal.
What all of these ID/IQ solicitations and resulting contracts have in common is that there is actually no work associated with the formation of the base contract. All of the actual work is solicited under task or delivery orders issued once the base contract is in place. As such, we argued that agencies were creating irrelevant price evaluation factors in order to comply with the then-existing statutory requirement to evaluate price at contract formation, and agencies were not making true comparative evaluations of offerors’ pricing since there was no factual basis for doing so. And it didn’t matter whether the ID/IQ contract provided for fixed prices, labor hour pricing, or hybrid pricing.
In fact, on some of the larger and more sophisticated ID/IQ contracts, many of the solicitations for task or delivery orders have requests for proposal that are very detailed and require offeror proposals that are as complex as any.
On December 13, 2017, DoD issued a class deviation to the DFARS to allow the provision to take effect. But it took another ten months, until September 24, 2018, for the FAR Council to issue a proposed rule to implement the provision, with a request for public comments by November 23, 2018. [Note: A FAR rule is required because both NASA and the Coast Guard are also covered by the law, but neither are covered by the DoD FAR Supplement (DFARS).] However, as of May 1, there is no disposition of the public comments and no final rule in sight.
In addition, over the past several years, many federal agencies have increased their use of these multiple-award ID/IQ contracts as their primary method of soliciting offers for goods and services. These awards can range from values in the millions of dollars to values in the tens of billions of dollars. A May 2019 report by Bloomberg Government showed government-wide spending on multiple-award contracts increased from $118 billion in fiscal year 2017 to $132 billion in fiscal year 2018, accounting for almost one-fourth of all government spending on goods and services.
There are numerous examples of DoD buying activities taking advantage of the flexibility provided by the FY17 NDAA to defer requiring pricing considerations until the task or deliver order stage. Both government buying activities and our member companies appear satisfied with the approach. There are obvious advantages to the buying activities in not having to generate a hypothetical pricing scheme and then having to evaluate hypothetical pricing proposals. And there are obvious advantages to the offerors in not having to devote resources to completing a price volume based on mere hypotheticals and that bear no relationship to the price that would be bid when the agency solicits bids for actual work.
But missing from the congressional enactment of Section 825 (and, for that matter, from the DFARS class deviation) was any type of traceability or reporting from the agencies about when the authority was used and what the results of the “experiment” were when pricing was deferred to the solicitation for actual task or delivery activity. While Section 825 is not a temporary provision or a pilot program, it would still be nice to have some real data and some “lessons learned” from the congressional grant of this new authority.
Further, since Section 825 was only made available to the Department of Defense, NASA and the Coast Guard, it is understandable that other the civilian agencies are interested in a legislative change giving them access to the same authority for their multiple-award ID/IQ contracts.
In 2018 there was a legislative proposal requested by the Administration to make this authority available to the civilian agencies, but there was no serious consideration given to it by Congress. Yet any congressional action for the civilian agencies would have to start with consideration by a different set of congressional committees than those with responsibility for the Department of Defense, and those non-defense committee are not even beginning to discuss the issues raised above, or others.
As of the end of April 2019, the Administration’s request has not been resubmitted. We hope it is, accompanied by commentary on where the authority has been used, how successful it has been, and whether there is any downside to the initiative. Notwithstanding the lack of any formal reporting mechanism, we believe the acquisition community would benefit from some basic reporting on the use of this of special authority.