Navy BD Part 8: Contracting Strategies

Another important topic to understand in Navy Business Development is the various Contracting Strategies.

Contract Strategies

Source: Defense Acquisition University

Contracting is divided into “FAR based” and “Non-FAR.” FAR, or Federal Acquisition Regulations, are the better-known authorities for Department of Defense (DoD) contracts and solicitations. When a Contracting Officer references a “FAR-based contract,” they mean a contract under one of these authorities, subject to a plethora of regulations and pre-written, often pre-determined clauses.

FAR Based Strategies Include:

• Federal Supply Schedules (FAR 8.4)

• Commercial Items (FAR 12)

• Simplified Acquisitions (FAR 15)

• Indefinite Delivery, Indefinite Quantity (IDIQs) (FAR 16.5)

• Letter Contracts (FAR 16.603)

• Agreements (FAR 16.7)

• Small Businesses (FAR 19)

• Broad Agency Announcements (BAA) (FAR 35.016)

• Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR)

• Defense Commercial Solutions Opening (CSO) Pilot Program

Source: Defense Acquisition Solutions Group

“Non-FAR” points to statutory, rather than regulatory authorities. Non-FAR-based contracts, or statutory agreements such as Other Transactions, are less familiar but may be a better deal for a small business or startup because they do not contain standard clauses and can be more freely structured. These agreements are generally simpler, more like business-to-business agreements, and less “bureaucratic” than contracts regulated by the FAR. They may have been around for decades, but they have been relatively unknown and seldom used until around 2016-2018 when the DoD became more aggressive in awarding contracts for new technology initiatives in a more rapid fashion.

Non-FAR Based Strategies Include:

• Other Transactions (OT)

• Procurement for Experimental

• Research and Development Agreements

Firm-Fixed-Price Cost vs Cost-Plus-Fixed-Fee

Source: Thinkstock

Both FAR-based contracts and statutory-based agreements can be cost-type or fixed-priced-type. Though there are variations of each, the ones you’ll most likely see on your early contracts with the DoD are Firm-Fixed-Price (FFP) and Cost-Plus-Fixed-Fee (CPFF).

In an FFP contract, the contractor agrees to provide a specific product or service for a predetermined fixed price. The price remains constant, regardless of whether the actual costs incurred by the contractor are higher or lower than initially estimated. FFP contracts place more risk on the contractor. If the actual costs of performing the contract are higher than expected, the contractor bears the financial burden. FFP contracts incentivize contractors to control costs because they don't receive additional compensation for cost overruns. If the contractor can complete the work more efficiently than anticipated, they can increase their profit. FFP contracts are also suitable for well-defined projects where the scope and requirements are clear and changes are minimal and typically involve less detailed cost monitoring and auditing.

In a CPFF contract, the government reimburses the contractor for their allowable costs, and in addition to these costs, a fixed fee is paid to the contractor. The fixed fee is a negotiated amount intended to cover the contractor's overhead and profit. CPFF contracts place more risk on the government. If costs escalate, the government will bear a higher cost and they may not provide the same level of cost control incentive. CPFF contracts are often used for projects with evolving or uncertain requirements because they allow for more flexibility which allows the government to better accommodate changes by adjusting the scope and funding based on actual costs.