Contracts & Legal

Undefinitized Contract Actions (UCA)

Undefinitized Contract Actions (UCA) (DFARS 217.7401), also called Letter Contracts, are those contract actions for which the contract terms, specifications, or price are not agreed upon before performance commences. Examples are letter contracts, Basic Ordering Agreements (BOA), and provisioned item orders, for which the price has not been agreed upon before performance has begun.

Definition: An Undefinitized Contract Action (UCA) is any contract action for which the contract terms, specifications, or price are not agreed upon before performance is begun under the action.

Undefinitized Contract Actions (UCA) Requirements

The requirements for utilizing a UCA are listed below. Further guidance for Letter Contracts and UCAs is provided in FAR 16.603 and DFARS 217.7403.

  • Restrictions on Use: Subject to the limitations set forth in DFARS 217.7404, DoD policy per DFARS 217.7403 is that undefinitized contract actions shall be used only when:
    • The negotiation of definitive contract action is not possible in sufficient time to meet the Government’s requirements; and
    • The Government’s interest demands that the Contractor be given a binding commitment so that contract performance can begin immediately, and shall be as complete and definite as practicable under the particular circumstances.

Letter Contract for Undefinitized Contract Actions (UCA)

A Letter Contract (FAR 16.603-1)/UCA is a written preliminary contractual instrument that authorizes the Contractor to begin immediately manufacturing supplies or performing services. A Letter Contract/UCA should be as complete and definitive as possible under the circumstances.

  1. Applicability. Per FAR 16.603-2(a), a Letter Contract may be used when (i) the Government’s interests demand that the Contractor be given a binding commitment so that work can start immediately, and (ii) negotiating a definitive contract is not possible insufficient time to meet the requirement. However, a Letter Contract should be as complete and definite as feasible under the circumstances.
  2. Limitations. Per FAR 16.603-3, a Letter Contract may be used only after the Head of the Contracting activity or a designee determines in writing that no other contract is suitable. A Letter Contract may not do any of the following:
    1. Commit the Government to a definitive contract in excess of the funds available at the time the letter contract is executed;
    2. Be entered into without competition when the competition is required by FAR Part 6;
    3. Be amended to satisfy a new requirement unless that requirement is inseparable from the existing letter contract. Any such amendment is subject to the same requirements and limitations as a new letter contract; or
    4. Per DFARS 217.7404-4 obligate more than 50% of the not-to-exceed (NTE) price before definitization. However, if the Contractor submits a qualifying proposal before 50 percent of the NTE price has been obligated by the Govt., then the limitation on obligations before definitization may be increased to no more than 75%.
  3. Documentation Requirements. The documentation described below must be submitted to the Contract Review Board prior to issuance of a Letter contract:
    1. A request for UCA approval package prepared in accordance with DFARS PGI 217.7404-1.
    2. A Letter Contract may be used only after the Head of the Contracting Activity or a designee determines in writing that no other contract is suitable.
    3. A Statement of Urgency from the requiring organization is required to support the need of issuing a Letter Contract.
    4. A Funding Document is required.
    5. The issuance of a Letter Contract does not excuse the requirement for a Business Clearance Memorandum (BCM). The BCM for a Letter Contract award authorization should include at a minimum:
      1. BCM Cover Page;
      2. Why you need to award a Letter Contract vice a conventional contract (urgency impact statement);
      3. How you selected the particular firm for the award (competitive bids or proposals, or approved Justification and Approval (J&A);
      4. A responsibility determination in accordance with FAR Subpart 9.1 for the proposed awardee;
      5. Basis (analysis) for establishing the not-to-exceed (NTE) dollar amount(s) for the Letter Contract; and
      6. What the planned definitization schedule is and how it was established. (Relationship between dollars and schedule).
  4. Contents of a Letter Contract. Per FAR 16.603-2(c) and as required by the clause at FAR 52.216-25, a Letter Contract must include a Definitization Schedule (accomplished by inclusion of the clause at DFARS 252.217-7027) as well as a Qualifying Proposal in accordance with the definitization schedule. Clauses for the type of definitive contract contemplated must also be included, and appropriate clauses, as well as further details, are listed in the SCPPM document  UCA.

Basic Ordering Agreement for Undefinitized Contract Actions (UCA)

A Basic Ordering Agreement (BOA) (FAR 16.703) is a written instrument of understanding, negotiated between an agency or contracting activity and a contractor, that:

  • Contains contract clauses applying to future contracts between the parties during its term
  • Contemplates separate future contracts that will incorporate by reference or attachment the required and applicable clauses agreed upon in the basic ordering agreement.
  • Contains methods for pricing, issuing, and delivering future orders
  • Contains a description of supplies and services to be provided

This agreement may be used to expedite contracting for uncertain supplies or services when specific items, quantities, and prices are not known at the time of agreement is executed, but a substantial number of requirements are anticipated to be purchased from the contractor.

Unpriced Change Order for Undefinitized Contract Actions (UCA)

An Unpriced Change Order (DFARS 243.204-70) describes the definitization of unpriced change orders with an estimated value exceeding $5,000,000. Exceptions are described at DFARS 243.204-70-5.

Undefinitized Contract Actions (UCA) Exceptions

The following exceptions apply to UCAs . However, the DFARS 217.7402 says the contracting officer shall apply the policy and procedures to them to the maximum extent practicable:

Risks Associated with Undefinitized Contract Actions (UCA)

While UCAs can be useful in certain circumstances, they also carry specific risks that government contracting officers and program managers should be aware of. Some of the main risks associated with Undefinitized Contract Actions include:

  1. Lack of clear requirements: Since the scope of work is not fully defined initially, it can lead to uncertainty and ambiguity regarding the specific deliverables and performance requirements. This can make it challenging to manage the contractor’s performance effectively.
  2. Cost growth and cost control: Without clear requirements, there is a risk of cost growth as the contract progresses. The contractor may encounter unforeseen challenges or take advantage of the lack of specificity to request additional funds. Program managers need to carefully manage costs to prevent cost overruns.
  3. Schedule delays: The absence of a well-defined scope can lead to delays in the completion of the contract. The contractor might not be able to proceed efficiently if they encounter unforeseen issues or are waiting for the government to provide additional information.
  4. Limited government control: UCAs can limit the government’s ability to influence the contractor’s execution of the work. The contractor may proceed in a manner that does not align with the government’s priorities or ultimate needs.
  5. Inadequate performance: Without a clear understanding of what is required, there is a possibility that the contractor delivers a product or service that does not meet the government’s needs or expectations.
  6. Cost reasonableness challenges: When the scope is not well-defined, it becomes challenging to determine whether the proposed costs are reasonable. This can result in disputes over cost reasonableness and may require extensive negotiations.
  7. Legal and contractual challenges: Undefinitized Contract Actions may raise legal and regulatory issues, and the contracts must comply with specific acquisition regulations to ensure they are properly executed.
  8. Lack of competition: In some cases, UCAs may be awarded on a sole-source basis due to the urgency of the requirement, limiting the government’s ability to obtain competitive pricing.

To mitigate these risks, government contracting officers and program managers should implement robust contract management practices, maintain open communication with the contractor, and work to definitize the contract as soon as feasible. Definitization involves finalizing the terms, conditions, and pricing, thus providing clearer direction for both parties. Timely definitization is essential to control costs and minimize risks associated with Undefinitized Contract Actions.

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Updated: 2/19/2024

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