Long-term Firm Fixed Price (FFP) Contracts with incentives are the preferred logistics contracting approach for logistics and sustainment contracts. The incentives of these contracts must be tied to outcome performance to fulfill the product support and integrated sustainment chain management responsibilities. The contract should provide support over a specific period of time for a predetermined fixed cost per operating measure. Sustainment contracts should require the delivery of a capability to the user using a Statement of Work (SOW). [1]
A sustainment contract may take many forms and the degree to which the outcome is defined varies. It should purchase support as an integrated performance package designed to optimize system readiness and should cover the procurement of a capability to support the user versus the individual parts or repair actions and provide the ability to manage support providers. The contract must specify: [1]
- Performance requirements
- Clearly delineate roles and responsibilities on both sides
- Metrics and their definitions
- Appropriate incentives
- How performance will be assessed
Award term contracts should be used where possible to incentivize the industry to provide optimal support. Incentives should be tied to metrics tailored to reflect the DoD Component’s specific definitions and reporting processes. Award and incentive contracts should include tailored cost reporting to enable appropriate contract management and to facilitate future cost estimating and price analysis. Sustainment contracts should strive to specify a fixed cost per outcome (e.g., operating hour (e.g., hour, mile, cycle) or event (e.g., launch)) vice a cost-plus contract. However, lack of data on systems performance or maintenance costs or other pricing risk factors may necessitate cost type contracts until sufficient data is collected to understand the risks. Full access to DoD demand data should be incorporated into any contracts. The contracts should be competitively sourced wherever possible and should make maximum use of small and disadvantaged businesses. [1]
Contracts must follow Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) guidance, (see Logistics Laws and Regulations), for the acquisition of logistics services and support throughout the program life cycle. In addition, competition over the entire life cycle can be a valuable tool for achieving affordable sustainment. Early in the program the Program Manager (PM) should consider the cost versus benefit of the data and other support elements required to achieve competitive versus sole source contracting for sustainment functions (e.g. parts, repairs and other supply chain processes). [1]
AcqTips:
- Level of effort or labor hour type contracts are not preferred because they limit the contractor’s ability to make necessary trade-offs to meet and/or exceed the threshold performance outcomes within the funding profile.
AcqLinks and References:
- [1] Defense Acquisition Guidebook (DAG) – Chapter 5
- DoD Product Support Manager Guidebook, – April 2011
Updated: 7/19/2017