ARMY AL&T Converting T&M Contracts Requires:
Contract cost assessment Market research
Solid performance requirements A collaborative strategy
A primary initiative in Carter’s memo focuses on phasing out T&M contracts for services, a contract type widely recognized as having led to cost growth over time. In a T&M arrangement, the contractor has no incentive to contain costs because all of them are passed on to the government and, ultimately, the tax- payer. A shift in focus is called for, from the spending program to the correct contract formation.
The question is, what are some of the key considerations for converting T&M contracts to either firm-fixed-priced or cost-plus-incentive-fee?
Contract Cost Assessment Independent cost estimates and adequate market research are important tools in contract formation. They are equally impor- tant in converting from a T&M contract during resolicitation or before exercising an option. We should assess the cost of a program, line item by line item, and determine if the service or goods are really necessary.
Early acquisition decisions should identify the major mission drivers and how they can be made less expensive while still meeting mission needs. In gathering as much information as possible about a previous acquisition, what was effective or ineffective in managing contract performance? When asking for proposals, it is important to understand how industry typically builds pricing for its commercial business. With enough market research and good cost estimates, we can determine the best marketing strategy for our acquisitions.
Market Research Start by identifying the goals of the research, and then take the time to fully understand how private industry prices the same or similar goods and services. This isn’t just about advertis- ing the acquisition on the FedBizOpps website (https://www.
fbo.gov); it’s an opportunity to use trade journals, marketing magazines, government reports, and Chamber of Commerce market profiles, as well as to travel to site plants, to determine the demographics of the specific market. Collect information from existing customers by using questionnaires and conducting
personal interviews and focus groups for feedback on the spe- cific products and services. Observe contractors in various locations to see how they are actually performing.
Organize the collected research data, determine or reevalu- ate the marketing strategy based on the results, and develop a truly independent government cost estimate. Start looking at the cost drivers of an acquisition and the trade-off between capability and costs, and then decide where to obtain the most capacity without paying the highest cost. Develop a fixed-price or cost-plus-incentive contracting arrangement that is in line with the cost drivers, so that cost risk is minimized or miti- gated. Requirements should be developed correctly from the beginning, so that changes are not needed later in the acquisition process.
Performance Requirements Focus adequate time and energy on developing performance requirements. The PWS is the most critical piece of the acquisi- tion process; it is the foundation for the Request for Proposals and the resultant contract. It explains concisely what is to be accomplished in terms of results, so that the government can effectively monitor and evaluate the progress and final result of the project. The PWS should state requirements in general terms of what is to be done, rather than how it is to be done.
The goal of the PWS is to give the contractor maximum flex- ibility to devise the most efficient and effective method to accomplish the mission. It must be written to ensure that all offerors compete equally, and any requirements that could restrict a potential offeror should be removed. At the same time, the PWS must be descriptive and specific enough to protect the interests of the government and promote competition. The clarity and explicitness of the requirements in the PWS will invariably enhance the quality of the proposals submitted. A well-written, definitive PWS is more likely to produce definitive proposals, thus reducing the time required for evaluation. At a minimum, every PWS should:
• Give a precise statement of objectives or outcomes. • Identify the tasks, but not specify how they should be performed or approached.
• Use measurable performance standards in terms of quality, timeliness, quantity, etc.
• Develop a quality assurance surveillance plan (QASP) for each PWS requirement.
A good PWS and QASP should always promote productivity and innovation by eliminating unnecessary process require- ments and focusing on the outputs and outcomes. Most of all, they must maximize contractor accountability by making the contractor, instead of the government, responsible for the PWS and QASP.
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