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  • Question

    What is the best approach when determining the cost of gasoline for a charter bus service that is planned for three days on three separate occasions in the coming year? The purchase request does not breakout the fuel. It is rolled up into the total cost of the order.


    Answer

    1. Based on the Background statement, we assume that this acquisition will be conducted under FAR Part 12. The following references quoted in pertinent part are applicable to this response.

    FAR 12.201 General
    Public Law 103-355 establishes special requirements for the acquisition of commercial items intended to more closely resemble those customarily used in the commercial marketplace.

    FAR 12.207 -- Contract Type
      (a) Except as provided in paragraph (b) of this section, agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items.
      (b) (1) A time-and-materials contract or labor-hour contract (see Subpart 16.6) may be used for the acquisition of commercial services …

    FAR 12.213 Other commercial practices
    …[M]arket research may indicate other commercial practices that are appropriate for the acquisition of the particular item. These practices should be considered for incorporation into the solicitation and contract if the Contracting Officer determines them appropriate in concluding a business arrangement satisfactory to both parties and not otherwise precluded by law or Executive order.

    FAR 12.301 Solicitation provisions and contract clauses for the acquisition of commercial items
    (b) Insert the following provisions in solicitations for the acquisition of commercial items, and clauses in solicitations and contracts for the acquisition of commercial items:
      (3) The clause at 52.212-4, Contract Terms and Conditions—Commercial Items. This clause includes terms and conditions which are, to the maximum extent practicable, consistent with customary commercial practices and is incorporated in the solicitation and contract by reference (see Block 27, SF 1449). Use this clause with its Alternate I when a time-and-materials or labor-hour contract will be awarded. The contracting officer may tailor this clause in accordance with 12.302.

    FAR 16.103 -- Negotiating Contract Type
    (a) … The objective is to negotiate a contract type and price that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance.

    FAR 16.203 Fixed-price contracts with economic price adjustment
    FAR 16.203-4 Contract clauses
      (a) Adjustment based on established prices -- standard supplies.  [clause FAR 52.216-2, Economic Price Adjustment -- Standard Supplies]
      (b) Adjustment based on established prices—semistandard supplies.  [clause FAR 52.216-3, Economic Price Adjustment -- Semistandard Supplies]
      (c) Adjustments based on actual cost of labor or material.  [clause FAR 52.216-4, Economic Price Adjustment -- Labor and Material]
      (d) Adjustments based on cost indexes of labor or material. (2) Any clause using this method shall be prepared and approved under agency procedures. Because of the variations in circumstances and clause wording that may arise, no standard clause is prescribed.

    2. The price of fuel is particularly volatile at the present time. For example, as of 20 March 2011, the price of diesel fuel has been ranging from $3.59 to $4.02 per gallon in the St. Louis area which is substantially higher than the 5% surcharge trigger price mentioned in the Background statement. Under these conditions and without knowing more details, it is very difficult to recommend the best contracting approach that would result in both a reasonable risk to the contractor as contemplated by FAR 16.103(c) and in a fair and reasonable price to the Government, but that can be executed at the least administrative expense. So this response will briefly comment on the three approaches mentioned above that might be used to cover the fuel costs for this acquisition.

    3. First, an economic price adjustment clause could be used. However, the clauses referenced at FAR 16.203-4(a), (b) or (d) would not apply to this case. The use of clause FAR 52.216-4 could be used, but it would need to be significantly tailored to fit this situation (i.e., adjustment for actual fuel prices only). As suggested above, a separate Time and Materials CLIN (materials only) for the fuel could be used to collect the actual costs (no profit) to be reimbursed to the contractor on separate invoices based on fuel receipts submitted by the contractor. In this case, FAR 52-212-4 Alternate I would apply to this "fuel" CLIN. While this approach would result in reasonable contractor risk and a fair price, the administrative effort involved in this approach could be higher. Finally, as contemplated in both FAR 12.201 and FAR 12.213, further evaluation of the current commercial practice as described in the Background statement for covering this contingency may prove to show that it represents the best approach when compared to the other two approaches when taking into account contractor risk, fair price and administrative expense.


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