Other than "Getting the work started right now" what is the benefit to the Govt? I also keep hearing that "there is minimal risk" but minimal risk to whom?
Please begin by looking at DFARS 217.7401
Undefinitized Contract Action (UCA) are those actions for which the contract terms, specifications, or price are not agreed upon before performance commences. Examples are letter contracts, orders under basic ordering agreements, and provisioned item orders, for which the price has not been agreed upon before performance has begun. Further guidance for Letter Contracts and UCAs is provided for in FAR 16.603 and DFARS 217.7403.
DoD policy is that undefinitized contract actions shall—
(a) Be used only when—
(1) The negotiation of a definitive contract action is not possible in sufficient time to meet the Government's requirements; and
(2) The Government's interest demands that the contractor be given a binding commitment so that contract performance can begin immediately.
(b) Be as complete and definite as practicable under the particular circumstances.
Restrictions on Use: Subject to the limitations set forth in DFARS 217.7404, DoD policy per DFARS 217.7403 is that undefinitized contract actions shall be used only when:
- The negotiation of a definitive contract action is not possible in sufficient time to meet the Government’s requirements; and
- The Government’s interest demands that the Contractor be given a binding commitment so that contract performance can begin immediately, and shall be as complete and definite as practicable under the particular circumstances.
217.7404-3 Definitization schedule. - You must definitize within 180 days after issuance of the action
If you do issue the Letter Contract make sure you follow the procedures at FAR 16.603-2(a)
Risk - The majority of the risk is on the Government because we are allowing the contractor to begin work first and then we figure out pricing. The longer the contractor works under a UCA the more risk the Government incurs. It would similar to working under a cost reimbursement contract, which presents lower risk to the contractor. However the government will usually decreaase teh contractors profit objective to account for this lower cost risk. We would want to avoid the use of a UCA if possible, since they draw scrutiny from inspectors and the GAO.
You must prepare a request for UCA approval package in accordance with DFARS PGI 217.7404-1
(a) The limitations in 217.7404-2, 217.7404-3, and 217.7404-4 do not apply to UCAs for the purchase of initial spares.
(b) The head of an agency may waive the limitations in 217.7404-2, 217.7404-3, and 217.7404-4 for UCAs if the head of the agency determines that the waiver is necessary to support—
(1) A contingency operation as defined in 10 U.S.C. 101(a)(13); or
(2) A humanitarian or peacekeeping operation as defined in 10 U.S.C. 2302(7).
You also have AFARS requirements see Subpart 5117.74
I hope that helps.