An Unpriced Purchase Order (UPO) is one for supplies or services for which a firm price cannot be established at the time the order is placed. Use of UPOs is discretionary on the part of the Contracting Officer; he/she should exercise care and judgment in the selection of Contractors to receive UPOs. Prior to the utilization of a UPO, the Contracting Officer should determine the impracticability of soliciting firm prices and reliability of any information supporting the price reasonableness determination of the monetary Not-to-Exceed (NTE) limitation established for the UPO. See Purchase Order
A UPO may only be used when the Contracting Officer has determined that one of the following conditions apply:
- The UPO will not exceed the SAT.
- It is impractical to obtain pricing in advance.
- An unpriced item is available from only one source and the cost cannot be readily established.
- Prices are known to be competitive but exact prices are unknown (e.g., miscellaneous repair parts, maintenance agreements).
- The requirement is for repairs requiring disassembly to determine the nature and extent of repairs
UPOs are most commonly used for repairs. In some cases, it may be necessary to issue a PO for a Vendor to tear down and inspect equipment before a quote can be given for repair (commonly referred to as “tear down and quote”).
It is imperative that a realistic monetary limitation or NTE dollar amount be established at order issuance by the Contracting Officer through correspondence with the Customer and Contractor. The NTE may be placed on the total UPO or for each unpriced line item where the order holds both priced and unpriced line items. The NTE shall not be exceeded by the Contractor and shall be subject to adjustment (downward unless Contracting Officer determines otherwise) when the firm price is established. In order to determine a realistic monetary limitation, the Contracting Officer should ascertain as much information as possible from the Customer and Contractor on possible costs that will be included in the final price. The contract file should be documented with the basis for the established NTE price.
Clause requirements. FAR 52.213-3, Notice to Supplier (APR 1984), must be included in all UPOs. This clause notifies the Contractor that a firm order exists only if the price does not exceed the maximum line item or total price in the Schedule. It advises the Contractor that if performance cannot be accomplished per the order, to withhold performance and notify the Contracting Officer immediately. Therefore, the Contractor cannot exceed the established NTE price in a UPO without first notifying and obtaining approval from the issuing Contracting Officer.
Modification. If the Contractor advises that performance per the specifications of the order is impossible (e.g., it will cost more money to complete repairs), the Contracting Officer has the option of canceling the order or modifying it to increase the price. If the UPO is canceled, the Government may be responsible for costs incurred prior to the date of order cancellation. If the UPO is modified, the Contracting Officer must determine that any additional cost above the initially estimated NTE amount is fair and reasonable; and he/she must document the determination in the contract file, based on information provided by both the Contractor and the Requiring Activity. When modifying the order, the Contracting Officer should attempt to negotiate a firm fixed price and incorporate the fixed-price in the modification. UPOs need not be modified to establish a fixed price that is less than the original NTE price of the order.
Alternative to UPOs. An alternative method to using UPOs is issuing one firm-fixed PO for tear down, which should include that the Contractor provides a firm fixed quotation for final repair. The Contracting Officer can then issue a firm fixed priced PO for the repair based on the Contractor’s quotation.
- UPOs typically do not fit the requirements for commercial item procedures.
- Monitoring of UPOs. All activities issuing UPOs should develop a process to monitor these orders. This process should include procedures to ensure timely pricing of orders and that prices paid are fair and reasonable. Procedures that will assist activities in this area include:
- Follow-up/Record of Status. The Contracting Officer should follow up on each UPO to ensure timely pricing. To accomplish this, a suitable local record of UPOs should be maintained to identify any outstanding UPOs not processed for payment. The record should show the order number and date, name of the Contractor, the estimated NTE amount, and date follow-up was performed, as appropriate. A log or other type of filing method that would include issued copies of UPOs are acceptable methods of maintaining these records.
- Review of Billing Prices. The Contracting Officer should review billing prices semiannually to provide assurance that billed prices to represent the fair value of the items purchased.
AcqLinks and References:
- Website: FAR Part 13 – Simplified Acquisition Procedures
- Website: FAR Part 14.408-3 “Opening of Bids and Award of Contract”
- Website: FAR Part 46 “Quality Assurance”
- DD Form 1155 – Purchase Order
- Standard Form 18 – Request for Quotation