Contract Type Decision Guide

1. Contract Type Decision Guide TRICARE Acquisition Management and Support Contract Operations Division-Falls Church Start Intro

2. - NOTICE - The Contract Types Decision Guide was created by the TRICARE Acquisition Management and Support (AM&S) Contract Operations Division-Falls Church (COD-FC) Office for the TRICARE Management Activity (TMA) program offices. It is designed to provide a starting point for a dialogue with your AM&S COD-FC Acquisition Manager about a suitable contract type for your procurement. Although the Guide is consistent with federal regulations concerning contract types, it should not be considered the authoritative source for contract type selection. Consult your Acquisition Manager for assistance in finalizing an acquisition strategy. The Contracting Officer for your procurement will make the final decision as to the contract type. Contract type selection is only one part of acquisition planning. To gain the most from this guide, you should already have a clear idea of the requirement, an understanding of the cost to complete the procurement, and funding. If you do not have a clear understanding of the “what” and the “how much”, refer to the AM&S COD-FC Desktop Reference for assistance in these two areas. Next

3. Directions The Contract Types Decision Guide is designed to be informative and easy to use. Just follow these steps: • Click “Next to advance. • Review definitions, rules, or examples by clicking the underlined words and phrases. • Use “Return to Previous Screen” to move back one slide. • Answer a question by clicking on the outlined box that contains your selection in the decision path. The tool will automatically present either the next question or a preliminary recommendation for the contract type. • Click “Print” to print your results for your files. For best results, utilize a color printer when printing from this Guide. Next

4. Start No R&D Commercial Products Services Format The Contract Types Decision Guide is an interactive tool that prompts you to respond to questions. Your responses advance you through a decision path. Orient yourself with the following format so you know where to look on the page for questions, answers and navigation bars. TOPDecision PathMIDDLE Questions that will assist you in determining the best choice in the decision path. BOTTOM Navigation Bar: allows you to back up or start over. Next

5. Start R&D Start Non-R&D Are you purchasing products or services requiring Research and Development (R&D)? Next

6. Contract Types Decision Guide Research and Development “The primary purpose of contracted R&D programs is to advance scientific and technical knowledge and apply that knowledge as necessary to achieve agency and national goals. Unlike contracts for supplies and services, most R&D contracts are directed toward objectives for which the work or methods cannot be precisely described in advance. It is difficult to judge the probability of success or required effort for technical approaches, some of which offer little or no early assurance of full success. The contracting process shall be used to encourage the best sources from the scientific and industrial community to become involved in the program and must provide an environment in which the work can be pursued with reasonable flexibility and minimum administrative burden.” (FAR 35.002) Within TMA, this definition may apply to contracts for system development services. Next Return to Previous Screen Start Over

7. Start End R&D R&D A Cost Reimbursement (CR) contract type is recommended. To acquire Research & Development (R&D) services, you must have R&D funding available. Next

8. Cost Reimbursement contracts require the Government to reimburse the contractor for costs that are reasonable, allocable and allowable. With this contract type, the Government assumes the greatest performance risk since the Contractor is only required to put forth its “best effort” in the performance of the contract. There are five major types of cost reimbursement contracts, as noted below. Click on a button below to learn more or see your AM&S COD-FC Acquisition Manager for assistance in making a final selection. Cost Sharing Cost-Plus Fixed Fee Cost Cost-Plus Incentive Fee Cost-Plus Award Fee Next

9. Start Non-R&D No R&D Commercial Non-Commercial Is the procurement for commercial or non-commercial items? Next

10. Start Non-R&D Commercial No R&D: Commercial Products Services Are you procuring products or services? Next

11. Start End Non-R&D Products Commercial No R&D:Commercial:Products:End A Fixed-Price (FP) contract must be used for commercial products. There are several FP contract types from which to choose. Following the Fixed Price link above will describe the FP contract types available. Next

12. A Fixed-Price contract requires that the Government pay the Contractor a fixed amount of money for specific goods or services. Under this contract type, the contractor bears financial risk because the price paid to the contractor will remain the same, regardless of the cost of performing the task by the Contractor unless a formal modification is executed or the cost increases are caused by the Government. The Government’s burden in a fixed price environment is to have a very clear idea of what the requirement is and how much it should cost. Click on a button below to learn more about a contract type, then see your AM&S COD-FC Acquisition Manager for assistance in making a final selection. Fixed Price with Redetermination Firm Fixed Price Fixed Price Incentive Fixed Price with Economic Price Adjustment Fixed Price with Award Fee Firm Fixed Price, Level of Effort Term Next

13. Start Non-R&D Commercial Services No R&D:Commercial:Services Materials Required No Materials Required Will the Contractor be required to provide materials? Next

14. Materials Required Start End Non-R&D Commercial Services No R&D:Commercial:Services:Materials:End A number of contract types including (in order of preference) Fixed-Price or Time & Materials may be appropriate. Each type has unique benefits and risks associated with its usage. It is recommended that your AM&S COD-FC Acquisition Manager be contacted to discuss which contract type is best suited for your requirement. Click here to view a comparison of these contract types. Next

15. No Materials Required Start End Non-R&D Commercial Services No R&D:Commercial:Services:No Materials Required A number of contract types including (listed in order of preference) Fixed-Price or Labor-Hour may be appropriate. Each type has unique benefits and risks associated with its usage. It is recommended that your AM&S COD-FC Acquisition Manager be contacted to discuss which contract type is best suited for your requirement. Click here to view a comparison of these contract types. Next

16. Start Non-R&D Non - Commercial No R&D: Non-Commercial Well-Defined Loosely Defined Part of the consideration in selecting a contract type is the risk associated with your requirement. Is your procurement well-defined or loosely defined? Next

17. Well-Defined Non - Commercial Start Non-R&D No R&D: Non-Commercial: Well-defined Products Services Are you purchasing products or services? Next

18. Well-Defined Non - Commercial Start End Non-R&D Products No R&D: Non-Commercial: Well-defined: Products A Fixed-Price contract is recommended(FAR 16.2). Next

19. Well-Defined Non - Commercial Non- R&D Start Services No R&D: Non-Commercial: Well-defined: Services Materials Required No Materials Required Will the Contractor be required to provide materials? Next

20. Materials Required Well-defined Non - Commercial Start Non- R&D End Services No R&D: Non-Commercial: Well-defined: Services: Materials Required A number of contract types including (listed in order of preference) Fixed-Price or Cost-Reimbursement may be appropriate. Each type has unique benefits and risks associated with its usage. It is recommended that your AM&S COD-FC Acquisition Manager be contacted to discuss which contract type is best suited for your requirement. Click here to view a comparison of these contract types. Next

21. No Materials Required Well-Defined Non - Commercial Non- R&D Start End Services No R&D: Non-Commercial: Well-defined:Services:No materials A number of contract types including (listed in order of preference) Fixed-Price or Cost Reimbursementmay be appropriate. Each type has unique benefits and risks associated with its usage. It is recommended that your AM&S COD-FC Acquisition Manager be contacted to discuss which contract type is best suited for your requirement. Click here to view a comparison of these contract types. Next

22. Acquisition History No Suitable Acquisition History Loosely Defined Non - Commercial Start Non-R&D No R&D: Non-Commercial: Loosely defined Does the procurement have any acquisition history to rely upon? Next

23. Acquisition History Non- R&D Loosely Defined Non - Commercial Start No R&D:Non-Commercial:Loosely Defined: Acquisition History defined Products Services Are you purchasing products or services? Next

24. Acquisition History Non- R&D Loosely Defined Non - Commercial Start End Products No R&D:Non-Commercial:Loosely Defined: Acquisition History:Products A Cost Reimbursement contract is generally recommended for this type of requirement. Next

25. Acquisition History Non- R&D Loosely Defined Non - Commercial Start End Services No R&D:Non-Commercial:Loosely Defined: Acquisition History:Services ACost Reimbursement contract is most appropriate for this requirement. In limited circumstances, a Time & Materials may be appropriate. Each type has unique benefits and risks associated with its usage. It is recommended that your AM&S COD-FC Acquisition Manager be contacted to discuss which contract type is best suited for your requirement. Click here to view a comparison of these contract types. Next

26. No Acquisition History Non- R&D Loosely Defined Non - Commercial Start End No R&D:Non-Commercial:Loosely Defined:No Acquisition History A Cost Reimbursementcontract is the most suitable contract type because the services you are purchasing are loosely defined and the requirements have no acquisition history. Next

27. AM&S COD-FC Contract Types Decision Guide Time & Materials (Labor Hour) • Where it is impossible to accurately define the effort, time, or cost required to provide a service or product, the Government may use a Time and Materials (Labor Hour) contract type. A labor hour contract has the same look and feel as a time and materials contract. However, it does not include materials. • A Time and Materials contract has two price components: • Fixed hourly rates for direct labor hours (includes overhead, general and administrative expenses, profit, and wages) ; and • Materials at cost (includes material handling costs if appropriate). • Since T&M contracts provide no incentive to the Contractor to control costs or improve labor efficiency, increased surveillance of the Contractor’s performance by the Government is required to ensure that the Contractor is employing effective, cost-efficient methods. FAR 16.601 Routine provision of expert services Return to Previous Screen Start Over Next

28. AM&S COD-FC Contract Types Decision Guide Defining Tasks Complex requirements, particularly those unique to the Government, usually result in greater risk assumption by the Government. This is especially true for complex research and development contracts, when performance uncertainties or the likelihood of changes make it difficult to estimate performance costs in advance. A loosely defined task has no foreseeable milestones or deliverables. When the level of effort to complete a task is unknown, the desired end product cannot be clearly defined, or there is no reasonable certainty that a task can be completed successfully, the task is considered loosely defined. As a requirement recurs or as quantity production begins, the cost risk should shift to the Contractor, and a fixed-price contract should be considered. A well defined task will have a clear vision of the desired end product, measurable milestones and deliverables. Return to Previous Screen Start Over Next

29. AM&S COD-FC Contract Types Decision Guide Acquisition History • Contractor risk usually decreases as the requirement is repeatedly acquired and product descriptions or service descriptions are more clearly defined. • A complete understanding of a product or service acquisition history includes: • any lessons learned from past procurements; • contract type used; • degree of competition; • actual cost for previous procurements; • and, prime contractors and subcontractors used for previous contracts. Return to Previous Screen Start Over Next

30. AM&S COD-FC Contract Types Decision Guide Materials Materials or “commodities” are supplies or equipment such as hardware, software, or supplies purchased through pre-negotiated supply schedules or open market pricing. Time & Materials type contracts provide for acquiring supplies at cost, including, if appropriate, material handling costs as part of material costs. When included as part of the material costs, material handling costs shall only include costs clearly excluded from the labor-hour rate. Material handling costs may include all appropriate indirect costs allocated to direct materials. FAR 16.601 Purchase of materials in Time & Materials type contracts Return to Previous Screen Start Over Next

31. AM&S COD-FC Contract Types Decision Guide Cost In a simple cost contract, the Contractor is reimbursed for allowable costs, and receives no fee. A cost contract is suitable when the Contractor receives some benefit other than profit, or is barred for some reason from receiving a profit, as is the case for a nonprofit organization. For instance, a Contractor may perform research and development work that benefits both itself and the Government, and is willing to perform the contract without profit. FAR 16.302 No commercial items; research and development work, advisory services. Return to Previous Screen Start Over Next

32. AM&S COD-FC Contract Types Decision Guide Products vs. Services The primary purpose of a service contract is to directly engage the time and effort of a contractor to perform an identifiable task rather than to furnish an end item of supply. There are two types of service contracts: personal services and non-personal services. A non-personal services contract exists when the Contractor’s employees perform services under the direct supervision of a supervisor employed by the Contractor. A personal services contract is characterized by the employer-employee relationship it creates where the Contractor’s employees are under the direct supervision and perform at the direction of Government personnel. Personal services are only awarded when authorized by statute. Typically, TMA uses non-purchased care contracts for non-personal services. FAR 37.1 Service Contracts Return to Previous Screen Start Over Next

33. AM&S COD-FC Contract Types Decision Guide Cost Sharing In a cost sharing contract, the Contractor is reimbursed for only some of its allowable costs and agrees to absorb the rest of its cost. The Contractor receives no fee in this arrangement. Instead, it anticipates other benefits for performing the contract. FAR 16.303 Research and development work Return to Previous Screen Start Over Next

34. AM&S COD-FC Contract Types Decision Guide Labor Hour When it is impossible to accurately define the effort, time or cost required to provide a service or product, the Government may use a labor hour contract type. A labor hour contract provides fixed hourly rates (includes overhead, general and administrative expenses, profit, and wages) for direct labor hours worked. Labor hour contracts do not provide incentive to the Contractor to control costs or labor efficiency. Thus, Government surveillance of Contractor performance is required to ensure that the Contractor is employing effective, cost-efficient methods. FAR 16.601 Routine provision of expert services, no materials required Return to Previous Screen Start Over Next

35. AM&S COD-FC Contract Types Decision Guide Firm-Fixed-Price • With a firm-fixed-price (FFP) contract, the Government and the Contractor agree on a set price prior to award. The set price may be a single payment paid at the end of the contract, payments paid on a payment schedule, or a payment per deliverable. • FFP contracts are best suited to requirements that are clearly defined such as those for commercial items or for requirements when the Contracting Officer can establish fair and reasonable prices such as when, according to FAR 16.202-2 – • There is adequate price competition; • There are reasonable price comparisons with prior purchases of the same or similar supplies or services made on a competitive basis or supported by valid cost or pricing data; • Available cost or pricing information permits realistic estimates of the probable costs of performance; or • Performance uncertainties can be identified and reasonable estimates of their cost impact can be made. • . Return to Previous Screen Start Over Next

36. AM&S COD-FC Contract Types Decision Guide Fixed-Price with Economic Price Adjustment • A fixed-price contract with economic price adjustment (FP/EPA) is similar to an FFP contract. However, in an FP/EPA contract, the Government may adjust the price of the contract based on established prices, actual costs of labor or material, or cost indexes of labor or material. • An FP/EPA contract may, according to FAR 16.203-2, be used when: • doubt exists concerning the stability of market or labor conditions; and • contingencies that would otherwise be included in the contract price can be identified and covered separately in the contract. These price adjustments should be restricted to labor and material cost changes beyond the Contractor’s control. The Contracting Officer must determine that this contract type is necessary for it to be used. FAR 16.203 Routine goods with unusual components or unstable market conditions, e.g. custom-built PCs Return to Previous Screen Start Over Next

37. AM&S COD-FC Contract Types Decision Guide Fixed-Price Incentive A fixed-price incentive contract enables a Contractor to earn higher profit for meeting Government driven performance targets. The FPI contract provides for adjusting profit and establishing the final contract price by a formula based on the relationship of final negotiated total cost to total target cost (FAR 16.204). The final price may not exceed the price ceiling negotiated for the contract. FPI contracts can be further described as either firm target or successive target contracts. With FPI contracts, the incentives used should be meaningful to the Contractor, and the metrics supporting any incentives should be clearly defined and easily linked to the incentives. Requiring activities should be aware that incentive contracts are administratively labor intensive, and require additional advance planning to be successfully managed. FAR 16.204 Routine tasks where performance can be measured objectively; for example, a help desk Return to Previous Screen Start Over Next

38. AM&S COD-FC Contract Types Decision Guide Fixed-Price with Award Fee The use of a fixed-price contract with award fee (FPAF) is suitable when Contractor performance cannot be measured objectively and it is in the Government’s best interest to motivate the Contractor to exceed minimum satisfactory performance. The award fee provisions of an FPAF contract should supplement an established fixed price for satisfactory performance, outline an award fee plan, and schedule periodic evaluation against the award fee plan. Requiring activities should be aware that FPAF contracts are administratively labor intensive, and require additional advance planning to be successfully managed. FAR 16.404 Development of a desktop application Return to Previous Screen Start Over Next

39. AM&S COD-FC Contract Types Decision Guide Firm-Fixed-Price, Level-of-Effort Term • (FAR 16.207) A firm-fixed-price, level-of-effort term (FFP-LOE) contract requires- • The Contractor to provide a specified level of effort, over a stated period of time on work that can only be stated in general terms; and • The Government to pay the Contractor a fixed dollar amount. • A firm-fixed-price, level-of-effort term contract is suitable for investigation or study in a specific research and development area. The product of the contract is usually a report showing the results achieved through application of the required level of effort. However, payment is based on the effort expended rather than on the results achieved. • Specific restrictions exist regarding the use of FFP-LOE contract. If this contract type is being considered, contact your AM&S COD-FC Acquisition Manager early in acquisition planning to assist in determining the suitability of this contract type for your requirement. FAR 16.207 Investigations or studies in specific research and development area, under $100,000 Return to Previous Screen Start Over Next

40. AM&S COD-FC Contract Types Decision Guide Fixed Price with Redetermination • Fixed Price with Redetermination (FPR) contracts address tasks that cover several periods of performance, and allow price redeterminations- • For subsequent periods of performance at predetermined times during the contract (also called prospective redetermination); or • After contract completion (also called retroactive redetermination). • A fixed-price contract with prospective price redetermination determines a firm fixed price for the base period of performance, and schedules price redetermination during the initial period for option periods of performance. • A fixed-ceiling-price contract with retroactive price redetermination states a fixed ceiling price; and schedules retroactive price redetermination within the ceiling after the contract has been completed. • Specific restrictions exist regarding the use of FPR contracts. If this contract type is being considered, contact your AM&S COD-FC Acquisition Manager early in acquisition planning to assist in determining the suitability of this contract type for your requirement. Return to Previous Screen Start Over Next

41. AM&S COD-FC Contract Types Decision Guide Cost-Plus-Incentive-Fee A cost-plus-incentive-fee (CPIF) contract is a cost-reimbursement contract that provides for an initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs. Under a CPIF contract, the Contractor has the opportunity to increase its fee (profit) for meeting Government cost targets. Cost-plus-incentive-fee contracts are covered in FAR Subpart 16.4, Incentive Contracts. Incentive contracts are administratively labor intensive, and require additional advance planning to be successfully managed. Specific restrictions exist regarding the use of CPIF contracts. If this contract type is being considered, contact your AM&S COD-FC Acquisition Manager early in acquisition planning to assist in determining the suitability of this contract type for your requirement. FAR 16.304 Research and development contracts where performance can be measured objectively Return to Previous Screen Start Over Next

42. AM&S COD-FC Contract Types Decision Guide Cost-Plus-Fixed-Fee • A cost-plus-fixed-fee (CPFF) contract is a cost-reimbursement contract that pays the Contractor a negotiated fee that is fixed at the inception of the contract. Although the fixed fee does not vary with actual cost, it may be adjusted as a result of changes in the work to be performed under the contract. This contract type permits contracting for efforts that might otherwise present too great a risk to Contractors, but it provides the Contractor minimal incentive to control costs. • CPFF contracts can be one of two basic forms – completion form or term form. The completion form states a definite goal or target and specifies an end product. The term form obligates the Contractor to devote a specified level of effort for a stated time period. FAR 16.306 Development and Testing where the level of effort required is unknown Return to Previous Screen Start Over Next

43. AM&S COD-FC Contract Types Decision Guide Cost-Plus-Award-Fee A cost-plus-award-fee (CPAF) contract is a cost-reimbursement contract that provides for a fee that consists of a base fee amount (which may be zero) that is negotiated prior to award, and an award fee amount, which is based on the Government's subjective evaluation of contract performance. The award fee is designed to motivate excellent contract performance. CPAF contracts are administratively labor intensive, and require additional advanced planning to be successfully managed. Specific restrictions exist regarding the use of CPAF contracts. If this contract type is being considered, contact your AM&S COD-FC Acquisition Manager early in acquisition planning to assist in determining the suitability of this contract type for your requirement. FAR 16.305 Research and development contracts where performance can be measured subjectively Return to Previous Screen Start Over Next

44. AM&S COD-FC Contract Types Decision Guide Commercial vs. Non-commercial A good or service is considered to be “commercial” when the good or service is customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and has been sold, leased, or licensed to the general public; or has been offered for sale, lease, or license to the general public. Goods or services not meeting the definition of being commercial are considered to be “non-commercial”. FAR 12.1 Contracting for Commercial Items Return to Previous Screen Start Over Next