“DEFENSE ACQUISITION MAGAZINE” By Jennifer Jones
“For recurring or ongoing requirements—specifically, indefinite delivery type contracts (sometimes called IDCs or IDTCs) when it is not known when the need for the supplies or services will occur. (hence indefinite delivery).”
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“Imagine that you must fill a requirement for a supply or service—snow removal, for example. When it snows, you need roads and parking lots cleared promptly to continue operating safely. So, you award a contract when the snow begins or stops. The contractor already is busy clearing roads and parking lots for other customers and may not get to you quickly. But they agree to get it done when they can.
Now, imagine it is a bad winter and in a few weeks it snows again. You award another very similar contract for snow removal. And then the next month, again. There are a couple of issues with this scenario. Can you see them? First, you must do repetitive work. Second, you are a low priority for the contractor.
What can we do to mitigate these two concerns? You could establish a contract in advance to cover all your snow removal needs for the entire year, and perhaps include options years. But how often will it snow? How many times will you need the contractor to perform? It does not make sense to award a contract for snow removal at a flat price. Either you will pay too much (if it does not snow) or too little (if it snows a lot) and the contractor will incur a loss. But to prevent that, the company may build in a buffer or price based on a worst-case scenario. So, you may end up paying too much, no matter what. How can we reduce these recurring contracts but still not end up paying too much?
Three Types of IDTCs
The answer is you could issue an IDTC. An IDTC allows for just this type of flexibility. You would estimate how many snow events you expect in a year based on historical data and the best weather predictions you can find, compete the requirement, and place a contract (or more than one—often called multiple award contracts, or MACs) for snow removal. In that case, you only place an order and pay when you actually need the snow removed. Genius, right?
FAR 16.501-1 defines these as contracts for supplies (delivery order contracts) or services (task order contracts) that do not procure or specify a firm quantity (other than a possible minimum) and that provide for issuing orders for the delivery of supplies or performance of services during the performance period.
These IDTCs allow the government to maintain minimal stocking levels and stipulate the contractor ship directly to users. Some also permit flexible quantities and scheduling and allow us to order services or supplies as the need arises (e.g., when it snows). They may also reduce lead times (e.g., you may be assigned a higher priority for services if you have an existing contract). As a point of interest, these are often called “D Contracts” because the ninth character in the alphanumeric identifier is a “D” (e.g., N68171- 25-D-1234) per the table at FAR 4.1603.
Before we continue, a brief refresher on contract law is in order. You may recall that for any contract to be binding, it must contain several elements, such as mutual assent (offer and acceptance), capacity, legal purpose, and consideration
Most pertinent to this discussion is consideration. Consideration means that something of value passes between the parties. The government may receive snow removal, and the company may receive money. But what if there is no snow? Is there consideration? Are these contracts binding? The answer is yes. There are three types of IDTCs, and each one addresses the consideration issue differently.
The first, which is the easiest to understand, is a definite quantity IDTC contract. FAR 16.502 defines this as one that “provides for delivery of a definite quantity of specific supplies or services for a fixed period, with deliveries or performance to be scheduled at designated locations upon order.” In this case, you know exactly how many you need; you just do not know when or perhaps where. I have used this contract type just once, when I worked for the Defense Logistics Agency and was buying gloves to put in the supply system. We knew we would buy 10,000 pairs of gloves. We did not know specifically when we would buy them, but sometime during the period of performance. The consideration was our promise to order exactly 10,000 pairs of gloves, the vendor’s promise to deliver the gloves, and our promise to pay for them.
The second type of IDTC is a requirements contract. FAR 16.503 describes these as providing “for filling all actual purchase requirements of designated Government activities for supplies or services during a specified contract period (from one contractor), with deliveries or performance to be scheduled by placing orders with the contractor.”
That description includes several concepts to note. First, the contract will apply to designated government activities during a specified contract period, usually a year or a season (e.g., snow removal season). But the defining characteristic is the phrase “all actual purchase requirements.” That means that, for that customer, for that commodity or service, during that time, all the work that arises will be done by this one contractor; they have an exclusive with us.
Ideally, you would compete this requirement upfront among multiple vendors, awarding to the one that provides the best value to the government. But after the initial competition, we would be obligated to use that one company for all our requirements. We would place orders only with that company.
This would be a good contract type to use for our snow removal. If it never snowed during that period at that facility, we would never place an order, nor would we be obligated to pay the company any money. But every time it did snow, we would place an order only with this company. We would be contractually obligated to go to this firm, and they would be contractually obligated to perform.
You may be wondering, “How is this contractually binding since the basic contract does not provide any apparent consideration?” We are not promising to order. They are not promising to perform. The answer is exclusivity. The consideration offered by the government is that we will forgo our right to go to any company we want and will only use this company during the contract period. In return for that promise, the company promises to perform. (And if we do order from someone else during the period for that requirement, we are in breach of contract!)
The third type is an indefinite quantity contract—sometimes abbreviated IDIQ for indefinite delivery indefinite quantity. FAR 16.504 describes this as a “contract that provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period. The Government places orders for individual requirements. Quantity limits may be stated as number of units or as dollar values. The contract must require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services. In addition, if ordered, the contractor must furnish any additional quantities, not to exceed the stated maximum.”
In this case, we know neither how many we need nor when we might need them. And we do not give the vendor an “exclusive.” If we are not promising to buy a specific quantity and the vendor is not promising to deliver or perform, what is the consideration? In this case, we establish a guaranteed minimum. No matter what happens (even if we do not need the product or service), we must order or pay the guaranteed minimum.
As you can imagine, this is not ideal for our snow removal contract because there may be no snow that year. But we use these types of contracts for myriad other supplies and services for which we have a history of use. A key factor in using this contract type is ensuring the minimum amount is realistic and not nominal and that the funding is reserved to pay for the guaranteed minimum. We also need to include a realistic maximum amount we may order.
Rather than these IDTCs, we can use similar vehicles called agreements. These include Basic Ordering Agreements, Basic Agreements, and Blanket Purchase Agreements. None of these are contracts because they all lack consideration in the basic document. No promise to buy or to perform is specified. They are merely terms and conditions set up in advance that will pertain if and when we elect to award a contract or place an order. They are beyond the scope of this article. Also, the General Services Administration issues multiple award contracts called Federal Supply Schedules. Using these schedules involves special rules that, again, are beyond the scope of this article.
To summarize, when we have recurring requirements, we can award three diverse types of IDTCs. Unless a justification exists for other than full and open competition, we compete the initial contracts and then place orders as needs arise. Sometimes the orders are very straightforward. Let’s assume that our contract provides that we will pay $50 for a pair of gloves; if we order 1,000 pairs, we will pay $50,000.
But other types of orders are more complex due to the details of the specific requirement, especially for services. We may have a contract for logistical services that includes 50 labor categories all priced by the hour. When we need to place an order, we provide a performance work statement, and the contractor prepares a quote identifying the labor mix and hours it intends to use on the task. Conceivably, at this point different contractors could have different solutions and drastically different prices. But if we had awarded only one contract, we would not have access to those alternative solutions and prices.
Multiple Award IDIQs
To address this concern, and to include competition further in the process, FAR 16.504(c) established a preference for multiple award IDIQs. It states, with some exceptions, that “the contracting officer must, to the maximum extent practicable, give preference to making multiple awards of indefinite-quantity contracts under a single solicitation for the same or similar supplies or services to two or more sources.” As you can imagine, this is rare with requirements contracts, as they have an “exclusive.” (If you have multiple locations, or no one contractor can perform all of the work, you might conceivably award multiple requirements contracts. But each will have specific scopes.) For this article, we will limit our discussion to multiple award IDIQs.
Given a preference for multiple award IDIQs, there are several factors to consider in making this decision. These include the requirement itself, its scope and complexity, the length of the contract, frequency of orders, mix of resources contractors would require, and ability to maintain competition during the ordering process. In some cases, we do not elect to use multiple award contracts. Examples include when only one qualified source exists, when the services are so integrated that awarding multiple contracts is not reasonable, when better terms are available using a single contract or when, for other reasons, it is not in the government’s best interest. These decisions are part of the acquisition planning process.
After we have awarded our multiple award IDIQs, we must follow specific rules when placing orders under them. That topic will be covered in the next article in this series.”
ABOUT THE AUTHOR:
Jennifer Jones is a professor of Contract Management at DAU. She has been working in the defense contracting field for 45 years and holds a B.S. degree from William and Mary.The author may be contacted at jennifer.jones@dau.edu
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