Acquisition of Services

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Step 5: Acquisition Strategy

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Each page in this pathway presents a wealth of curated knowledge from acquisition policies, guides, templates, training, reports, websites, case studies, and other resources. It also provides a framework for functional experts and practitioners across DoD to contribute to the collective knowledge base. This site aggregates official DoD policies, guides, references, and more.

DoD and Service policy is indicated by a BLUE vertical line.

Directly quoted material is preceeded with a link to the Reference Source.

Reference Source: Based on DAG Chapter 10, Section 3.2.2 content, Jan 2020

The acquisition strategy describes the FSM’s plan to achieve the execution of goals set within the service acquisition life cycle. The MFT summarizes the overall approach to acquiring services (to include the schedule, structure, risks, funding, and business strategy). The acquisition strategy document contains sufficient detail to allow senior leadership and the Service Category Decision Authority to assess whether the strategy makes good business sense, effectively implements laws and policies, and reflects management’s priorities, including affordability. The strategy could evolve over time and should always reflect the current status and desired mission outcome.  The MFT will review Step Five under the Service Acquisition Mall.  The following are key outcomes of the Acquisition Strategy:

  • Competition
  • Small Business
  • Select the appropriate contract type
  • Determine a performance incentive approach
  • Determine a method for selecting a contractor (Source selection approach)
  • Develop appropriate planning documents
  • Nominate a Contracting Officer’s Representative (COR) Post a draft RFP (recommend posting for industry comments)

5.1 Develop Preliminary Business Case and Acquisition Strategy

Reference Source: DAU Service Acquisition Mall, Step 5

At this point in the process you should have a well defined PWS and QASP. Now it’s time to start developing your business strategy to determine the type of contract vehicle, incentive arrangement if any, and how you will acquire a contract service provider.

Review your market research results, how competitive is the market, what are small business opportunities, can this service be acquired using FAR Part 12, Acquisition of Commercial Items, how are other organizations acquiring this type of service?

Is this requirement part of your agency’s strategic acquisition initiative?

During market research did you find another agency’s existing contract suitable for use in supporting this requirement?

When reviewing external acquisition options, you should examine your agencies external acquisition policies to make sure there are no potential conflicts. Another important consideration when using another agency’s contract is to clearly determine who will provide the performance oversight of the resulting contract to ensure it delivers the required performance results.

If no other viable option is available you will need to develop an effective business case that supports the most effective way to achieve your mission requirements. The business strategy involves selecting the right contract type, incentive structure and contractor selection process that will best deliver mission results.

5.2 Finalize Acquisition Strategy

Reference Source: DAU Service Acquisition Mall, Step 5

Your acquisition strategy involves several key components:

(1) what type of contract type is best suited for your requirement;

(2) what incentive strategy, if any, to use; and

(3) what method you will use to select a contractor. Developing your strategy must be a thoughtful, integrated team effort defined by the specifics of your mission requirement.

5.3 Allocate Workload Within the Acquisition Team

Reference Source: DAU Service Acquisition Mall, Step 5

Either best value selection process involves a significant investment in manpower to develop the selection criteria and conduct the technical and cost evaluations. Make sure you have resource commitments in both people and facilities to conduct your proposal evaluations. People involved in the technical evaluations should have good technical backgrounds, yet be open to new approaches they may see in contractor proposals. DAU’s continuous learning course CLC007 , Contract Source Selection, can provide more information on conducting source selections.

5.4 Prepare Acquisition Planning Documents

Reference Source: DAU Service Acquisition Mall, Step 5

The key documents are the Acquisition Plan, the Acquisition Strategy, and the Source Selection Plan. The acquisition plan is prescribed by the FAR and it spells out the business case for the selected acquisition approach. It utilizes all the information generated from the planning phase such as the nature of the requirement, risk areas, customer concerns, and market analysis to support the plan.

Acquisition plans for services must also describe strategies for implementing PBA methods or provide a rationale for not using them and provide a rationale if contract type is other than firm-fixed price (FFP). The acquisition plan also communicates the requiring activity’s approach to higher approval levels. These authorities will likely ask the following questions:

  • Is the plan consistent with current DoD priority and/or policies? (For example, providing for full and open competition, small business set-aside competition and the appropriate use of fixed-price type contracts)
  • Is the plan executable?
  • Are the top-level objectives appropriate and in the best interest of the Government?

 

The acquisition plan and the acquisition strategy serve as a permanent record of decisions made regarding the acquisition strategy for future reference.  The source selection plan outlines the membership, evaluation factors, and provides a description of the evaluation process, including specific procedures and techniques to be used in evaluating contractor proposals. Both documents require approvals in accordance with agency procedures.

5.5 Consider use of Draft Request for Proposal (RFP)

Reference Source: DAU Service Acquisition Mall, Step 5

Issuing a draft RFP is an effective way to get industry feedback. The draft RFP contains both the requirement and the proposed business strategy that you are contemplating. You can request feedback on both. Drafts provide any interested party with an opportunity to provide comments before the actual acquisition process starts. The government can benefit from this process by considering the industry feedback and how it could improve the acquisition. It also gives potential contractors an opportunity to get an early start on planning and proposal development since we often give contractors the minimum “30” days to prepare a proposal once we issue the formal RFP.  The primary disadvantage is the time required to issue the draft and evaluate industry comments, so plan accordingly if you anticipate using this very effective technique.

Contract Arrangements

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

Types of Contracts

The FAR does not make any recommendation on the type of contract to be used when contracting for services. However, the selection of contract type must be reflective of the nature of the service requirement and risks associated with performance. Selection of a contract type should motivate the contractor to deliver optimum performance. Your observations during market research provide a good basis for analyzing commercial practices, level of competition, maturity level of the service, to guide the selection of contract type. There are two basic types of contract types, fixed price types and cost reimbursable types.

Fixed-Price Contract Types

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

As a general rule, contracts for routine services, or efforts involving stable requirements, manageable performance risk, are normally a fixed-price type. Work must meet minimum stated performance standards. Service must be delivered within a specified time and meet the performance standards in the contract.

Price should be supported by robust competition or recent competitive pricing history. The contract price represents full payment for the work. Exceeding this amount is at the contractor’s own risk and expense.

This type of contract is used when technical and cost can be accurately estimated (i.e., low or predictable risk). It is also the most appropriate type of contract to use when work can be clearly defined (or when the requirement is constant with no need for flexibility).

The contractor bears full responsibility for the performance costs and resulting profit (or loss).

Cost Reimbursement Contract Types

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

Cost type contracts are used when requirements cannot be accurately defined and performance risk is not easily quantified or managed. These types of contracts require the contractor to deliver their “best effort” to provide the specified service. Reasonable, allowable, allocable costs will be reimbursed, up to the total estimated amount specified in the contract. This amount represents an estimate of total costs, including fee, as a not-to-exceed ceiling that cannot be exceeded without contracting officer approval.

When using a cost type contract ensure that the contractor has an adequate accounting system and the government monitoring during performance provides assurance of efficient methods and effective cost controls. Cost contracts place more risk on the government because the contractor bears less responsibility for completing the performance requirement within the established cost ceiling.

Two common types of Cost Plus Fixed Fee (CPFF) contracts for services are either completion or term.

  • CPFF Completion : If the contractor fails to complete the contract within time or budget, then the government pays only additional costs, but no additional fee to complete the effort. This is an incentive since contractors are in business to earn fees. This type of CPFF contract is applicable when there is a clearly defined result at the outset, but there are considerable unknowns with risks that need to be shared.
  • CPFF Term : This form of CPFF contract allows you to describe the scope of work in general terms and the contractor will be required to perform a specified level of effort in a given period of time.

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

Incentives – Recognize the Power of Profit as a Motivator

Incentives will drive behavior so one of the keys to effective incentives involves recognizing that the actions of the private sector are motivated by profit. The government relies on industry to provide customers with products and services. We have regulations, policies, and procedures that allow industry to be compensated for these efforts. One contractor was heard to say, “You give us the incentive, we will earn every available dollar.”

It is important to understand the cause and effect relationship between contractor performance and the type of  incentive used. In another words, whatever your team decides to incentivize, that is the area in which the contractor will focus or concentrate on, so your team needs to assure that you are creating a behavior that will deliver the right mission results.  For example, link the incentive program to high priority or high risk performance requirements with measureable metrics. Then, incorporate share-in-savings strategies that reward the contractor for suggesting innovations that improve performance and reduce total overall cost.

Develop an acquisition approach that aligns the interests of both parties. In other words develop a strategy in which both the contractor and the government benefit from economies, efficiencies, and innovations delivered during contract performance. If the incentives are right, and if the contractor and the agency share the same goals, risk is largely controlled and effective performance is almost the inevitable outcome.

The key to incentives is to make them work for both parties.

Performance Incentives

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

These are incentives designed to relate profit or fee to results achieved by the contractor in relation to identified cost-based, performance or schedule based targets. For example, a large Cost Plus Incentive Fee, Base Operating Support contract, contained an incentive provision for sharing cost savings generated by the contractor, on a 50/50 basis, when actual costs came in under target cost. In each year of a five-year contract the contractor delivered cost savings earning additional fee for the contractor and cost savings for the installation.

This incentive structure also put the contactors base fee at risk if performance suffered as a result of cost cutting. Schedule incentives focus on getting a contractor to exceed delivery expectations with either quality, or timeliness. These can be important on construction or maintenance requirements. They can be defined in terms of calendar days or months, attaining or exceeding milestones, or meeting urgent requirements.

Award Fee Contract Arrangements

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

This type of incentive uses an award fee plan that contains the criteria for earning the incentive. Generally, award fee contracts should only be used when objective incentive targets are not feasible for critical aspects of performance, judgmental standards can be fairly applied, and potential award fees would provide a meaningful incentive to motivate the service provider to perform.

Past Performance

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

Past performance documentation and reporting is a no cost incentive for the government. Maintaining a record of good past performance always motivates contractors. This information affects decisions to exercise options and future contract awards.

Past performance assessments are a quick way for motivating improved performance or to reinforce exceptional performance. Keep in mind that the integrity of a past performance evaluation is essential.

Small Business Participation Incentives

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

There will be times when the nature or value of an acquisition exceeds the ability for small business to be the prime contractor.

Large primes, in accordance with FAR 19.702 shall develop subcontracting plans where the use of small business provides value to the government.

Since there is no mandatory requirement to meet negotiated subcontracting goals, use of performance incentives for attaining these goals helps support a healthy industrial base for future competition.

Positive and Negative Incentive Examples

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

The government can incentivize the contractor’s performance on just about any contractual aspect, so long as that performance incentive provides ultimate benefit to the government. Ultimately, whatever incentives you prescribe must be based on predetermined, objective performance standards that you can quantify, measure, and perform surveillance as needed. The list below provides examples of positive and negative ways to use incentives:

Positive:

  • When performance exceeds standard, pay x% of monthly payment into pool. At the end of y months, pay contractor amount accrued in pool.
  • When performance exceeds standard, pay x% of monthly payment into pool. When pool has reached y dollars, pay contractor amount accrued in pool.
  • When performance has exceeded the standard for x consecutive months, reduce government oversight or contractor reporting, as appropriate.
  • Document past-performance report card, paying particular attention to performance that exceeded the standard.

Negative:

    • When performance is below standard for a given time period, require the contractor to re-perform the service at no additional cost to the government.
    • When performance is below standard for a given time period, x% of the period’s payment will be withheld or deducted.
    • When performance is below standard for x consecutive months, increase surveillance or contractor reporting.
    • Document past-performance report card, paying particular attention to performance that failed to meet the standard.

Considerations When Contemplating Incentives

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

Make sure incentives are realistic and attainable. They must focus on achieving the service acquisition objectives, taking into account the mission, the key characteristics, and other unique features of the service. The acquisition team may jointly develop and negotiate these incentive criteria with contractor(s) and all potential stakeholders so that all parties “buy in” to the merits of this approach. Additionally, soliciting stakeholders input and feedback will help identify what the customer feels are most important. Understand that a contractor will not spend a dime to earn a nickel. Here are some “best practice” questions the team should address when developing an incentive strategy:

  • Is the incentive consistent with the mission, goals, and operational requirements?
  • Will it deliver additional value to the mission?
  • Which areas of the requirement would benefit most from enhanced performance?
  • Which areas do not need added incentives (or which areas can do without)?
  • Is your agency willing to pay more to achieve a level of performance beyond the performance standard? Is the incentive affordable?
  • Is what we want to incentivize measurable?
  • How accurately can we capture and record performance data?
  • Is there potential for using cost-sharing?
  • Will it affect timelines or schedules in a positive way?
  • Does the strategy work to benefit both parties?
  • Does the contractor have complete control of performance?

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

Determine How You Will Select a Contractor

There are two primary best value methods of selecting a contractor. One of the goals of PBA is to achieve the highest degree of quality and efficiency at a reasonable price. Best-value source selections allow the government to establish factors used to evaluate contractor proposal submissions. These two types of selection methods are Low Price Technically Acceptable (LPTA) and the Trade-off Method.

Both methods enable the acquisition team to define evaluation factors to be used in selecting the successful offeror. The key to successful use of any evaluation factor is to establish a clear relationship between the PWS, Section L of the solicitation ( either FAR Part 12 Acquisition of Commercial Item or Part 15 Contracting by Negotiation ), and Section M of the solicitation ( Evaluation Factors for Award ).

The evaluation factors selected should link clearly with the PWS and represent those areas that are important to stakeholders or have been identified as high risk during risk analysis. A good rule of thumb is to look at the roadmap you have completed and make an assessment as to which HLOs and tasks are the highest risk, highest priority or most critical and should carry the most weight.

Low Price Technically Acceptable (LPTA)

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

The government establishes minimum technical criteria and standards for determining which offerors are technically acceptable.

Among those that are determined to be technically acceptable, the contract is awarded to the offeror with the lowest price.

One limitation with this approach is that there is no consideration for “better” technical solutions; the award is based primarily on price.

Trade-off Method

Reference Source: Guidebook for the Acquisition of Services, Step Five Develop an Acquisition Strategy

This process allows for consideration of technical, past performance and cost factors.

The contract is awarded to the offeror that represents the best value in accordance with the evaluation criteria contained in the RFP.

This process provides for tradeoffs between technical factors and price.

Using this method allows the source selection authority (SSA) to select a contractor that represents the best value versus low cost.