Ch. 6- Contract Structure

Chapter 6

Contract Structure

• Categories and Types of Contracts
  • Categories of Contracts
  • Types of Contracts
    • Fixed-Price Contracts
    • Cost-Reimbursement Contracts
• Contract Structure
  • Part I—The Schedule
  • Part II—Contract Clauses
  • Part III—List of Documents, Exhibits, and Other Attachments
  • Part IV—Representations and Instructions
  • Order of Precedence
  • Contract Language Rules
  • Contract Numbers (For example, F56784-10-C-0098)

Categories and Types of Contracts

As stated in Federal Acquisition Regulation 16.103(a) (Negotiating Contract Type), the objective in federal contracting is to negotiate a contract type and price (or estimated cost and fee) that will result in a reasonable contractor risk and provide the contractor with the greatest incentive to perform efficiently and economically.

Categories of Contracts

CORs deal with contingency contracts for supplies and services, including construction services. In addition to the general duties discussed in Chapter 5, each type of contract adds specifically related duties. The COR's duties vary with the category of contract, as explained below.

• Supplies. DoD contracts for supplies acquire an identifiable end item. The item may be an individual component (paint or lumber) or an entire system (a computer). COR duties tend to be the simplest for these contracts.
• Services. DoD contracts for services directly engage a contractor's time and effort to perform an identifiable task (transportation or latrine cleaning).
• Construction. DoD construction contracts acquire the construction, alteration, improvement, or repair of real property (buildings, airfields, and roads). COR duties tend to be the most complex for construction contracts.

Chapters 9 and 10 address COR duties specific to service and construction contracts.

Types of Contracts

The government uses different types of contracts to acquire the supplies and services needed to support mission objectives. Contract types vary according to:

• The degree and timing of the responsibility assumed by the contractor for the costs of performance, and
• The amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals.

The contracting officer considers these factors along with the statement of objectives, statement of work, performance work statement (SOO/SOW/ PWS), and specifications when deciding which contract type is best suited to a specific procurement. The contracting officer also considers the amount of risk involved in performing the contract work, as well as how much risk the contractor will assume (and the impact of risk on price) and whether it is in the government's best interest to assume part of the risk.

Table 2 highlights the two main types of contracts: fixed-price and cost-reimbursement.

The contract type used depends on requirement to be met.

Fixed-Price Contracts

When the government has a specific, well-defined requirement (such as a requirement for certain office supplies), it uses a fixed-price contract. The price remains fixed throughout the contract life unless the government makes a change. The government's only obligation is to pay the price agreed to at the time of award, regardless of whether the costs to the contractor increase or decrease during performance. When a product has a history of large price increases (such as petroleum), the government may use a fixed-price contract with an economic price adjustment (EPA). The fixed price with EPA is still a fixed-price contract, because the limits and conditions are stated in the contract.

Cost-Reimbursement Contracts

When the government cannot provide sufficient, detailed information about a requirement, it must assume some of the cost risk and use a cost-reimbursement contract. Instead of paying a predefined price, the government reimburses the contractor for all allowable, allocable, and reasonable costs, defined as follows:

Table 2. Contract Types

• Allowable costs—costs that are not prohibited by statute or regulation
• Allocable costs—costs that add value and are directly related to a particular contract
• Reasonable costs—costs that a prudent business person would pay.

Figure 4 compares the risks of firm-fixed-price (FFP) versus cost-reimbursement contracts.

Contract Structure

Government contracts are usually organized in accordance with the Uniform Contract Format, which specifies the distinct sections of a contract and the sequence in which they must be arranged. The table of contents for a contract can be found on Standard Form (SF) 26, Award/Contract; SF 33, Solicitation, Offer, and Award; and SF 1449, Solicitation/Contract/ Order for Commercial Items. As shown in Figure 5, the contract is formatted into Parts I, II, III, and IV.

Part I. The Schedule

Section A, Solicitation/Contract Form, contains basic information such as the issuing office, address, and contract number. The SF 33 is used as solicitation, offer, and award. SF 26 can also be used as the face page of the contract. The SF 1449 is used as the face page of contracts for commercial items or services.

Figure 4. Risks of Firm-Fixed-Price versus Cost-Reimbursable Contracts (above)

Figure 5. Contract Format and Structure (above)

View larger version of this image.

Section B, Supplies or Services and Prices/Costs, contains a brief description of the supplies or services, quantity required, and their prices.

Section C, Description/Specifications/Statement of Work, contains a detailed description of the required supplies or services. In contracts for services, Section C will contain the SOO/SOW/PWS.

Section D, Packaging and Marking, provides packaging, packing, preservation, and marking requirements.

Section E, Inspection and Acceptance, contains inspection, acceptance, quality assurance, and reliability requirements.

Section F, Deliveries or Performance, specifies the time, place, and method of delivery or performance.

Section G, Contract Administration Data, contains any required accounting and appropriation data, required contract administration information, or instructions other than those on the solicitation form.

Section H, Special Contract Requirements, contains a clear statement of any special contract requirements that are not included in Part I, Part II, or any other part of the contract (such as ordering details for task or delivery orders). This section requires very close reading by the COR.

Part II. Contract Clauses

Although it is commonly referred to as boilerplate, Part II, Section I, of the contract cannot be overlooked, because it contains standard clauses defining the rights and responsibilities of the contracting parties. Part II also contains clauses required by procurement regulations or laws that pertain to the procurement. Some of the more prominent clauses in Part II are listed below.

• Termination for Convenience clause (FAR 52.249-1 through -7). Permits the government to terminate the contract without cause (in part or total) at any time when doing so is in "the government's best interest." When this clause is exercised, the contractor is entitled to recover certain costs associated with performance to date and the timely and orderly ending of the terminated portion of the contract.
• Changes clause (FAR 52.243-1 through -4). Enables the government to make changes to the contract during performance, as long as those changes fall within the contract's scope. The contractor is entitled to an "equitable adjustment" to the contract if the change results in increased contract costs or performance time. This clause is probably the most powerful clause in the government's arsenal of standard terms and conditions.
• Default clause (FAR 52.249-8 and -9). Permits the government to terminate a contract if the contractor breaches the contract by failing to (1) deliver the supplies or perform the services within the time specified in the contract, (2) make progress, thereby endangering performance of the contract, or (3) perform any other material provision in the contract. If the government intends to exercise its right to terminate the contract under the second or third circumstances, the government must first notify the contractor in writing and allow the contractor to cure its deficient performance within 10 days. If the performance deficiencies are not corrected, the contracting officer may terminate the contract for default. Under fixed-price contracts, the Default clause entitles the government to reprocure the supplies or services required under the terminated contract and charge the excess costs to the terminated contractor.
• Contract Terms and Conditions. Commercial Items clause (FAR 52.212-4) incorporates all the major contract administration topics: changes, disputes, invoicing, payment, and termination.

Part III. List of Documents, Exhibits, and Other Attachments

In Part III, which consists of Section J, List of Documents, Exhibits, and Other Attachments, the contracting officer lists the titles of each exhibit or attachment in Part III. The following are the most common attachments.

• SOO/SOW/PWS, if not under Section C
• Government-furnished inventory
• Security requirements
• Award or incentive fee plan

Part IV. Representations and Instructions

Part IV—which appears only in the solicitation and is not transferred to the contract—comprises Sections K, L, and M.

• Section K, Representations, Certifications, and Other Statements of Bidders. Includes solicitation provisions that require representations, certifications, or submission of other information by bidders, offerors, or quoters.
• Section L, Instructions, Conditions, and Notices to Bidders, Offerors, or Quoters. Contains information to guide bidders, offerors, or quoters in the preparation of bids, offers, and quotations, respectively.
• Section M, Evaluation Factors for Award. Contains the evaluation factors and significant subfactors by which offers will be evaluated. It also specifies the relative importance that the government places on these evaluation factors and subfactors.

  Order of Precedence

  In the event of an inconsistency in the contract, FAR 52.215-8 (Order of Precedence—Uniform Contract Format) gives precedence in the following order.

  0. Schedule (excluding the specifications)—Sections A through H
  0. Representations and other instructions—Sections K through M
  0. Contract clauses—Section I
  0. Other documents, exhibits, and attachments—Section J
  0. Specifications

  Contract Language Rules

  Some terms used in contracts have specific meanings.

  • "Includes" means "including but not limited to."
  • "May" means "is permitted to" or "is authorized to."
  • "May not" means "is not permitted to" or "is not authorized to."
  • "Shall," used in the mandatory and imperative sense, means the "contractor must perform the specified action."

  Contract Numbers (For Example: FA56784-10-C-0098)

  Because the COR will be referencing the contract, it is important to be familiar with the structure of a contract number (also called a Procurement Instrument Identification Number [PIIN]). A contract number consists of 13 alphanumeric characters grouped to convey certain information:

  • Positions 1 through 6. The first six positions constitute the DoD Activity Address Code (DoDAAC) that identifies the department/ agency and office issuing the contract. DoDAACs can be found at https://www.daas.dla.mil/daasinq/.
  • Positions 7 through 8. The seventh and eighth positions are the last two digits of the fiscal year in which the PIIN was assigned.
  • Position 9. Position 9 is a letter indicating the type of instrument: "A"—blanket purchase agreement, "C"—contracts of all types, "D"— indefinite-delivery contract, "F"—purchase from UNICOR [Federal Prison Systems, Inc), and "P"—purchase order.¹
  • Positions 10 through 13. Four-digit serial number assigned by the contracting activity. Numbers are assigned sequentially.
  • Supplementary Numbers. Numbers that follow the basic PIIN to identify (1) amendments to solicitations; (2) modifications to contracts and agreements, including provisioned item orders; and (3) calls or orders under contracts, basic ordering agreements, or blanket purchase agreements, issued by the contracting office or by a Department of Defense (DoD) activity other than the contracting office, including DoD orders against federal supply schedules. See Defense Federal Acquisition Supplement (DFARS) 204.7003, Basic PII Number, for a more complete explanation of Supplementary Numbers.

  Notes

  0. See DFARS 204.7003, Basic PII Number, for additional codes if needed. Top

  Chapter Acronyms

  COR – Contracting Officer's Representative

  DoDAAC – Department of Defense Activity Address Code

  EPA – Economic Price Adjustment

  FFP – Firm-Fixed Price

  PIIN – Procurement Instrument Identification Number

  SF – Standard Form

  SOO – Statement of Objectives

  SOW – Statement of Work