Welcome to the wonderful world of government contracting. I am your host Nancy, and we are on episode number 81. Today’s topic is on Government Contracting Terms. Knowledge of the government lingo is necessary as one acronym can have multiple meanings. Also, a term used in the commercial market may not make any sense to the government. After all, the government speaks in its own language. If you were selling a product or service to Italy for example. You would ensure that your product or service information was translated into Italian. The same thing applies to the government. But before we get started, we need to have a solid foundation.
If you remember from our last video, we were discussing contracts with the Defense Supply Centers. Many Defense Supply Centers have long-term contracts that are more than just fixed-price, fixed-quantity awards. Small businesses wanting to bid on proposals from the Defense Supply Centers will need to understand the terms used on these contracts.
Remember that your proposal must be written using the government terminology. This may or may not be the same language used in the commercial world. So pay attention to the terms used on the solicitations. Don’t assume that the government will understand the terminology that you use. Make sure that you use their terminology. Now, let’s learn about annual estimated quantities and what it means.
Annual Estimated Quantities.
Many Defense Supply Center contracts contain a range of annual estimated quantities. Also, the government will separate the ordering amount and a small amount guaranteed on the document. Generally, these quantities are for a set time frame. Contract periods (set time frame) are usually for one year with multiple options years. The most common type of contract is the Indefinite Quantity Contract (IQC). These contracts are long term contracts valued above $100,000. For contracts under $100,000, the government uses Indefinite Delivery Purchase Orders (IDPOs). Next we will learn about the products that the government buys.
What Does the Government Buy?
Examples of items purchased using these contracts are nuts, bolts, filters, and screws. We could not list every item purchased by the government in this video as it would be too long. However, we included only a small sampling of items purchased using these contracts from the Defense Supply Center. For more information on the items purchased by the Defense Supply Center, please visit their website at https://www.dla.mil/SmallBusiness/.
Indefinite Quantity Contracts (IQC)
This type of contract estimates the number of supplies needed. By utilizing delivery order system, the government can meet end-user needs faster than regular purchases. Generally, these type of contracts has option periods available for five years. Long term contracting is the government’s preferred method. An award contract to include all option years cannot exceed $100,000. What are the limiting factors on this type of agreement? A limiting factor is the maximum estimated annual demand quantity. Typically, contracts are for a base year and no more than four option years.
Finally, we have a tip for you. It is up next so let’s go on.
Important Point to Remember
In other words, the contract period has set limits. It will not exceed a five-year term. Remember that each option year requires contract modification. The contract will end unless the contracting officer elects to issue an option year. Failure to exercise the option year will result in the agreement ends either at the end of the contract period or exceeding the maximum quantity. It is up to the government to exercise the option.
Indefinite Delivery Purchase Order (IDPO)
It is important to remember that a purchase order IS NOT a contract. A Purchase Order is an agreement between your business and the government to supply items, quantities, and guaranteed pricing between the parties.
This Indefinite Delivery Purchase Order is for an estimated but indefinite quantity of items ordered through delivery orders for a specific time frame. Typically, this type of agreement sets a minimum and maximum delivery order sizes and estimated annual demand. Remember the award has a maximum value of $100,000. How long does this agreement last? The deal ends when the cost of items purchase exceeds the maximum amount of $100,000 or when the award years on the contract end. How many years is a typical award? Well, that is limited to five years.
Long-Term Contract Clauses
When competing on long-term contracts, you must understand the unique feature specific to these contracts. Make sure that you know these features before winning a project. Remember, the worst mistake you can make in government contracting is to bid on a job, win it, and not be able to fulfill the contract. There are three little words that contracting officers and government contracts hate. Termination for Default. For any business, this is the fastest way for a small business to end their arrangement and their business. Being prepared for government contracting is a necessary step. Next let’s learn about the Guaranteed minimum and the affect it has on a contract.
Does the government ensure a minimum quantity to be purchased on the contract? The guaranteed minimum is the minimum quantity the government will buy during the contract period. Will the government buy supplies or services above the minimum guaranteed? It depends on what is needed. However, the government will not be obligated to purchase any quantity above the guaranteed minimum quantity. Also, the government may (if justified) buy the same items elsewhere. The government may not purchase above the minimum requirements. What the guaranteed minimum does do is provide the contractor with a promise of some sales and where a vendor risk in pricing begins.
Next we will learn about the estimated annual demand/quantity term.
Estimated Annual Demand/Quantity
Annual Demand/Quantity tells the vendor the actual quantity the government estimates that it will order during the contract period. The government used prior demand history to compute future demands. A check with contract history will reflect the consistent pattern of prior demand history. You can verify for contract dollar and purchase quantities yourself by using the public database. All you need is the previous contract number. Go to USASpending.gov and research the previous contract.
Contract Maximum Quantity
This is the maximum cumulative quantity the government can order during the contract. So if the government orders the maximum amount before the completion of the award time frame, they cannot order any more items until the government exercises the option year.
Minimum Order Quantity
The minimum order quantity shows the minimum amount that will order at one time in delivery order. The quantity is based on the average demand quantity ordered by requisitions. Considerations of this quantity are essential in pricing and essential when considering a size for your production run.
Maximum Order Quantity
To find the maximum amount of supplies, order review your delivery order. Go line by line through this document and make sure you understand what each line says. For example, the Government may order a larger quantity, but vendors have a right to decline the order or request a modification to the delivery schedule to meet the increased demand. Remember that the order quantity cannot exceed the accumulated maximum contract quantity.
This is a contract clause that allows the government to exercise an option earlier than the expiration of the contract term. It is useful when the government has purchased the maximum quantity for the year. Instead of waiting months for the contract period to end the government can exercise an option term, thus allowing them to order more product. However, the negative side of this is that the contract period will be shorter.
Paperless Order Processing System (POPS)
The government requires the use of special software and a Value-Added Network (VAN) when sending delivery orders electronically. This system is not optional. A VAN system must be installed and working within 30 days after the award of a contract. You will need to contact a local VAN to obtain the software. To find your nearest VAN contact your local Procurement Technical Assistance Center.
Blanket Purchase Agreements (BPAs)
Purchase Agreements is a negotiated set of terms under which the government may elect to purchase supplies. Generally, BPAs are for awards under $25,000. However, the General Services Administration, known as GSA, can have much higher dollar limits. Once a firm qualifies for the BPA program, the firm can compete for solicitations with delivery orders issued against the terms in the BPA. Here are some of the features:
- BPA’s provide a wide variety of items. The government purchases supplies from a broad class of supplies or services. However, the exact amounts, quantities, and delivery requirements are unknown.
- Generally, the government will obtain Commercial supplies for a limited area or a specific agency.
- As a result, the government reduces the number of purchase orders.
- There is not a current contract in place for the required items or services.
Want to Qualify for a Blanket Purchase Agreement?
The following are factors used to evaluate businesses:
- Do you have a dependable past performance?
- How about a history of quality services or supplies at lower prices?
- Have you had many purchases at or below the simplified acquisition threshold? Remember the Government raised the SAT threshold to $250k.
- Do you have a letter certifying your status as an authorized distributor for a manufacturer?
- What about access to electronic commerce or electronic data exchange?
Well, that covers the Blanket Purchase Agreements. Now let’s move on to the last two items.
Surge Requirements In Contract
You never know when an emergency is going to happen. As a result, the government has planned for these situations by implementing surge requirements. Surge requirements are excess requirements that exceed the primary quantity that must be available with an accelerated delivery. They are prevalent during times of war or unexpected surges in demand.
Surge items will have a separate line item allowing vendors to reflect a premium price if needed to compensate for any overtime shifts, stock rotations, storage, equipment, and shipping costs. The government will determine the delivery schedule and quantity required. You, the vendor, will supply the items and pricing.
Besides, you may have to provide the government with a surge plan. A surge plans details how you will meet the demand requirements. Section I of the solicitation will contain surge clauses. As you can tell, there are several things that you must pay attention to when you are involved in government contracting.
Market basket Contract
The last item we will talk about today is the market basket. These are long-term contracts for broad groupings of multiple objects with National Stock Numbers (NSN). Usually, items lumped together based on manufacturing processes. Due to the variety and size of these government buys, they evaluate on a line-item basis, thus enabling the vendor to respond to one, a couple, or all the items needed. Most of these buys are contain competitive item descriptions and set-asides.
It is wise for vendors to pay attention to the volume of items they quote, the impact on production, and the ability to meet the delivery schedules. You need to pay attention to the solicitation. Mark it up if needed. We will discuss this topic in greater detail in our next episode.
Now let’s move on the the conclusion of this vlog.
I hope you enjoyed today’s topic on government contracting language. It is crucial to fully understand what the government is asking for so that you can respond with your best pricing. A small business can quickly get in over their head. Inexperienced contractors are vulnerable.
Remember to read the solicitation carefully making notes along the way. Always put together a team to help with the proposal. Next we will discuss how to review the solicitation. So please remember to subscribe, comment, like and click the notification bell. The notification bell will let you know when we release new videos. We publish new videos every Monday and Friday.
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