How can this be accomplished? The FPIF had negotiated targets, ceiling prices etc. And based upon FAR 52.216-16 final prices are to be established. But the ACOs supervisor indicated that final overhead rates had to be finalized before final prices could be established / negotiated. And, the contractor and DCMA were still negotiating 2008 rates and quick closeout rates were out of the question (do to high value). What should have occurred here? It seems logical that the FPIF clin would ultimately have a final price.
1. The FAR references quoted below in pertinent part are applicable to this response.
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FAR 16.307 -- Contract Clauses
(a)(1) The contracting officer shall insert the clause at 52.216-7, Allowable Cost and Payment, in solicitations and contracts when a cost-reimbursement contract or a time-and-materials contract (other than a contract for a commercial item) is contemplated.
FAR 52.216-7 -- Allowable Cost and Payment
(d) Final indirect cost rates.
(1) Final annual indirect cost rates and the appropriate bases shall be established in accordance with Subpart 42.7 of the Federal Acquisition Regulation (FAR) in effect for the period covered by the indirect cost rate proposal.
(3) The Contractor and the appropriate Government representative shall execute a written understanding setting forth the final indirect cost rates.
(5) Within 120 days (or longer period if approved in writing by the Contracting Officer) after settlement of the final annual indirect cost rates for all years of a physically complete contract, Contractor shall submit a completion invoice or voucher to reflect the settled amounts and rates.
FAR 52.216-16 -- Incentive Price Revision -- Firm Target
(a) General. The supplies or services identified in the Schedule as Items ____ [Contracting Officer insert Schedule line item numbers] are subject to price revision in accordance with this clause; provided, that in no event shall the total final price of these items exceed the ceiling price of _____ dollars ($ _____).
(c) Data submission. (1) Within ______ [Contracting Officer insert number of days] days after the end of the month in which the Contractor has delivered the last unit of supplies and completed the services specified by item number in paragraph (a) of this clause, the Contractor shall submit in the format of Table 15-2, FAR 15.408, or in any other form on which the parties agree:
(i) A detailed statement of all costs incurred up to the end of that month in performing all work under the items;
(ii) An estimate of costs of further performance, if any, that may be necessary to complete performance of all work under the items;
(iii) A list of all residual inventory and an estimate of its value; and
(iv) Any other relevant data that the Contracting Officer may reasonably require.
(d) Price revision. Upon the Contracting Officer’s receipt of the data required by paragraph (c) of this clause, the Contracting Officer and the Contractor shall promptly establish the total final price of the items specified in (a) of this clause by applying to final negotiated cost an adjustment for profit or loss, as follows:
(1) On the basis of the information required by paragraph (c) of this clause, together with any other pertinent information, the parties shall negotiate the total final cost incurred or to be incurred for supplies delivered (or services performed) and accepted by the Government and which are subject to price revision under this clause.
(2) The total final price shall be established by applying to the total final negotiated cost an adjustment for profit or loss, as follows:
(i) If the total final negotiated cost is equal to the total target cost, the adjustment is the total target profit.
(ii) If the total final negotiated cost is greater than the total target cost, the adjustment is the total target profit, less ______ [Contracting Officer insert percent] percent of the amount by which the total final negotiated cost exceeds the total target cost.
(iii) If the final negotiated cost is less than the total target cost, the adjustment is the total target profit plus _____ [Contracting Officer insert percent] percent of the amount by which the total final negotiated cost is less than the total target cost.
(e) Contract modification. The total final price of the items specified in paragraph (a) of this clause shall be evidenced by a modification to this contract, signed by the Contractor and the Contracting Officer. This price shall not be subject to revision, notwithstanding any changes in the cost of performing the contract, except … .
2. First, as indicated above, it should be noted that the requirement to negotiate final indirect cost rates only appears in paragraph (d) of clause FAR 52.216-7, such clause being applicable only to cost-reimbursement and T&M contracts pursuant to FAR 16.307(a)(1). There is no such requirement in clause FAR 52.216-16 to negotiate final indirect cost rates before the total final price of a Fixed Price Incentive, Firm Target (FPI(F)) CLIN can be established. In fact, as indicated in FAR 52.216-16(d)(1), the total final price negotiated can include costs “to be incurred”, for which there would be no negotiated indirect cost rates. Based on the above, the ACO’s position that final overhead rates must be finalized before the final FPI(F) CLIN price can be negotiated is incorrect pursuant to the plain language of the FPI(F) contract terms and conditions.
3. The process for finalizing an FPI(F) contract price, or CLIN price in this case, is set forth in clause FAR 52.216-16(a), (c), (d) & (e) as described above. In summary, the contractor prepares a final cost proposal supported by certified cost or pricing data as required by Table 15-2, FAR 15.408. Upon receipt and evaluation of this proposal by the Contracting Officer, the parties negotiate the total final cost incurred or to be incurred for supplies delivered and accepted by the Government under the CLINs that are subject to price revision. By the way, because there is no requirement to use pre-negotiated final indirect cost rates for this final FPI(F) cost negotiation, then applicable quick-closeout indirect cost rates could be used if the parties agree that the use of such rates will result in an overall fair and reasonable price.
4. After the final cost is negotiated, then the parties apply the profit adjustment formulas specified in FAR 52.216-16(d) to determine the final profit based on the difference between the target cost and the final negotiated cost. Then the total final price is the sum of the negotiated cost dollars and the calculated profit dollars, except that if the resulting value exceeds the ceiling price specified in paragraph (a) for the CLIN, then the CLIN ceiling price will be the total final price. Finally, pursuant to FAR 52.216-16(e), the parties execute a bilateral contract modification that establishes a single, total final price of the CLIN that shall not be subject to revision, notwithstanding any changes in the cost of performing the work, except for narrow exceptions as specified in FAR 52.216-16(e)(1) & (e)(2). As a result of this contract modification, this negotiated, single, final total price replaces the previous FPI(F) CLIN Target Cost, Target Profit, Target Price and Ceiling Price, and the CLIN essentially becomes a Firm-Fixed-Price (FFP) CLIN.