(a) Structured approach for determining profit fee objectives. The contracting officer's analysis of these profit factors is based on information available to the Government before negotiations. Such information is furnished in proposals, audit data, performance reports, preaward surveys and the like. The structured approach also provides a basis for documentation of a profit objective, including an explanation of any significant departure from this objective in reaching a final agreement. The extent of documentation should be directly related to the dollar value and complexity of the proposed procurement.

(b) Exemptions from requirement to use the structured approach. (1) Under

exempted procurements, other methods for establishing profit objectives may be used. Generally, such methods will be supported in a manner similar to that used in the structured approach (profit factor breakdown and documentation of profit objective). However, factors within the structured approach considered inapplicable to the procurement may be excluded from the profit objectives. The following types of procurements are exempt from the structured approach:

(i) Management contracts for operation and/or maintenance of Government facilities;

(ii) Contracts primarily requiring delivery of material supplied by subcontractors;

(iii) Termination settlements;

(iv) Cost-plus-award-fee contracts;

(v) Contracts and contract modifications of $100,000 or less in value; and

(vi) Architect-engineer and construction contracts.

(2) Other exemptions may be made in the negotiation of contracts having unusual pricing situations where the structured approach is determined to be unsuitable. Such exemptions must be justified in writing and approved by the HCA.

use to facilitate the profit objective computation. The contracting officer shall measure the Contractor Effort by the assignment of a profit percentage within the designated weight ranges to each element of cost recognized.

(c) If the facilities capital cost of money is allowed as an item of cost, either as a part of the contracting officer's price/cost objective in a firm fixed price type contract or as an allowable cost in a flexibly priced type contract, e.g., cost reimbursement or fixed price incentive type contract, the contracting officer shall reduce the profit/fee objective as follows. After the contracting officer has developed a dollar profit/fee amount for the requirement (e.g., the sum of the "contract effort" and "other factors" dollar profit/fee amounts on the GSA Form 1766, Structured Approach Profit/Fee Objective), the contracting officer shall subtract from that aggregate dollar profit/fee amount any dollar amount allowed for facilities capital cost of money. The remainder, after subtraction of the facilities capital cost of money amount, is the profit/fee objective.

[54 FR 26521, June 23, 1989, as amended at 55 FR 48848, Nov. 23, 1990]

515.905-1 Common factors.

(a) Contractor Effort encompasses broad and basic categories but shall not include facilities capital cost of money. Individual proposals may be in a different format.

(b) After computing a total dollar profit for Contractor Effort, the contracting officer shall calculate the specific profit dollars for the categories under other factors. This is done by multiplying the total Government cost objective, exclusive of any cost of money for facilities capital, by the specific weights assigned to the elements within the Other Factors category.

(c) In determining the value of each factor, the contracting officer should be governed by the definition, description, and purpose of the factors together with considerations for evaluating them as prescribed in FAR 15.9051 and the following:

(1) General management. Management problems surface in various de

grees and the management expertise exercised to solve them should be considered as an element of profit. For example, a new program for an item that involves advanced state of the art techniques may cause more problems and require more managerial time and abilities of a higher order than one that is a follow-on contract. If new contracts create more problems and require a higher profit weight, followons should be adjusted downward, as many of the problems should have been solved. An evaluation should be made of the underlying managerial effort involved on a case-by-case basis.

(2) Other-costs. Include all other direct costs of contractor performance under this item (e.g., travel and relocation, direct support, and consultants). Analysis of these costs in assigning profit weights must include (i) their significance, (ii) their nature, and (iii) how much they contribute to contract performance.

(3) Contract-cost-risk.

Where the

proper contract type has been selected, the reward for risk by contract type would usually fall into the following ranges:

Cost-reimbursement type contracts...... 0-3% Fixed-price type contracts..................................................... 3-7%

con

(i) A cost-plus-a-fixed-fee contract normally would not justify a reward for risk in excess of 0 percent, unless the contract contains cost risk features such as ceilings on overheads. In such cases, up to 1 percent may be justified. Cost-plus-incentive-fee tracts fill the remaining portion of the 0 to 3 percent range with weightings directly related to such factors as confidence in target cost, share ratio of fee(s), etc. The weight range for fixedprice contracts is wide enough to accommodate the many types of fixedprice arrangements. Weighting should indicate the cost risk assumed, with only firm fixed-price contracts reaching the top end of the range.

(ii) The contractor's subcontracting program may significantly impact the contractor's risk under a contract. It could affect risk in terms of both cost and performance. This should be a part of the contracting officer's overall evaluation in selecting a weight for cost risk. The prime contractor may

effectively transfer cost risk to a subcontractor and the risk evaluation may, as a result, be below the range that would otherwise apply for the contract type being proposed. The risk evaluation should not be lowered, however, merely because a substantial portion of the contract cost represents subcontracts without any substantial transfer of contractor's risk.

(iii) In evaluating risk in the definitization of letter contracts, unpriced change orders, and unpriced orders under basic ordering agreements, the effect on risk as a result of partial performance before definitization should be considered. Under some circumstances the total risk may have been effectively reduced. Under other circumstances, the contractor's risk may have remained substantially changed. To be equitable, the determination of a profit weight for all recognized costs, both those incurred and those yet to be expended, must be made with consideration to all attendant circumstances, not just to the portion of costs incurred or percentage of work completed before definitization.

un

(iv) Service contracts should have a weight range for cost risk of 0 to 4 percent. A firm fixed-price contract, which is not priced on a labor-hour method, may warrant additional consideration for contractor cost risk. In those circumstances, a weight of up to 4 percent is authorized. Conversely, a cost-plus-a-fixed-fee service contract normally warrants a zero cost risk factor.

(4) Capital investment. The evaluation of this factor for profit weights should include the following:

(i) Facilities. To evaluate how this factor contributes to the profit objective requires knowledge of the level of facilities use needed for contract performance, the source of financing of the facilities, and the overall cost effectiveness of the facilities offered. Contractors who furnish their own facilities that significantly contribute to lower total contract costs, should receive additional profit. Contractors who rely on the Government to provide or finance facilities should receive less profit. Situations between the above examples should be evaluated on their merits with either a positive

or negative profit weight adjustment, as appropriate, being made. However, when a contractor who owns a large quantity of facilities is to perform a contract that does not benefit from these facilities, or where a contractor's use of its facilities has a minimum cost impact on the contract, profit need not be adjusted.

(ii) Payments. The frequency of payments by the Government to the contractor should be considered. The key to this weighting is the impact the contract will have on the contractor's cash flow. Generally, for payments more frequent than monthly, negative consideration should be given, with maximum reduction as the contractor's working capital approaches zero. Positive consideration should be given for payments less frequent than monthly with additional consideration given for payments less frequent than the contractor's or the industry's normal practice.

(5) Cost control and other past accomplishments. See FAR 15.905-1(e). (6) Federal socio economic programs. See FAR 15.905-1(c).

(7) Special situations and independent development. See FAR 15.905-1(f). [54 FR 26521, June 23, 1989, as amended at 55 FR 48848, Nov. 23, 1990]

515.905-70 Nonprofit organizations.

(a) The structured approach was designed for arriving at profit or fee objectives for other than nonprofit organizations. However, the structured approach as modified below, should also be used to establish fee objectives for nonprofit organizations. (See FAR 31.701.) The modifications should not be applied as deductions to historical fee levels, but rather, as a reduction in the fee objective calculated under the structured approach.

(b) For contracts with nonprofit organizations, an adjustment of up to 3 percent will be subtracted from the total profit-fee objective. In developing this adjustment, it will be necessary to consider the following factors: (1) tax position benefits;

(2) granting of financing through letters of credit;

(3) facility requirements of the nonprofit organization; and

(4) other factors that may work to the advantage or disadvantage of the contractor as a nonprofit organization.

Subpart 515.10-Preaward, Award, and Postaward Notifications, Protests, and Mistakes

515.1001 Notification to unsuccessful offerors.

Preaward notices are not required for small business-small purchase setasides. Notification to unsuccessful offerors can be made as provided in FAR 13.106(b)(9).

[56 FR 47005, Sept. 17, 1991]

515.1070 Release of information concerning unsuccessful offerors.

(a) GSA Order, GSA Freedom of Information Act (FOIA) procedures (ADM 1035.11B), should be consulted to determine what information may be disclosed.

(b) When small purchase procedures are used, the names and dollar amounts of unsuccessful offerors may be released upon request without processing through the formal FOI procedures.

(c) When the contracting officer determines, in connection with negotiated procurements (other than small purchases), that the administrative time and workload of processing regular FOIA requests (see FAR 14.4081(c)) is greater than the workload involved in preparing an abstract of offers to be displayed at an appropriate Business Service Center, the following rules apply:

(1) An abstract of offers may be prepared for display after award in the appropriate Business Service Center in addition to the notification required by FAR 15.1001(c).

(2) The abstract must include only the names, addresses, and "best and final" prices offered for unclassified acquisitions where the award is based on price and price-related factors. The successful offeror(s) must be identified.

(3) Abstracts must not contain information regarding failure to meet minimum standards of responsibility or other notations properly exempt from disclosure under FOI regulations.

(d) The information outlined in paragraph (c) of this section must not be disclosed when the contracting officer determines, on a case-by-case basis, that it is not in the best interest of the Government or when it may be competitively harmful to offerors such as when negotiations are in process for an item that was recently awarded under another solicitation.

[54 FR 26514, June 23, 1989, as amended at 56 FR 47005, Sept. 17, 1991]

Subpart 515.70-Use of Bid Samples 515.7000 Scope of subpart.

This subpart supplements the policies and procedures in FAR 14.202-4 and 514.202-4 regarding bid samples required in negotiated acquisitions.

515.7001 General.

Except as provided in 515.7002 and 515.7003, the basic policy and procedures in FAR 14.202-4 and 514.202-4 apply to negotiated acquisitions. When referring to FAR 14.202-4 and 514.2024, the term "bid" means "offer" or "proposal" and the terms “bidder” and "invitation" or "invitation for bids" are used synonymously with "offeror" and "solicitation" or "RFP" when contracting by negotiation.

515.7002 Policy.

(a) Since the terms "responsiveness” and "nonresponsive" do not apply to negotiated acquisitions, FAR 14.2024(b) (2) and (4) do not apply when the use of bid samples is determined necessary under this subpart.

(b) Instead of FAR 14.202-4(b) (2) and (4), apply the following:

(1) Bid samples will be used in the technical evaluation of proposals to determine the acceptability of the samples to meet the Government's specification and to ensure compliance with the subjective and any objective characteristics listed in the solicita

tion.

(2) A proposal may be excluded from further consideration for award if after discussion with the offeror of any deficiencies found in the samples and after the offeror has been given an opportunity to correct those deficiencies, the sample still fails to con

form to each of the characteristics listed in the solicitation. (See FAR 15.609.)

515.7003 Procedural requirements.

(a) Unsolicited samples. The reference to FAR 14.404-2(d) in FAR 14.202-4(g) is not applicable and the following is to be applied when contracting by negotiation:

Qualifications in the proposal that are at variance with the Government's requirements are deficiencies and must be resolved as provided for in FAR 15.610.

(1)

(b) Solicitation requirements. When the clause at FAR 52.214-20 is used in a negotiated acquisition, the second sentence in paragraph (c) of the clause does not apply. A sentence substantially as follows must be substituted in the clause when contracting by negotiation.

Failure of the bid samples to conform to all of the required characteristics listed in the solicitation shall constitute a deficiency in the proposal and shall be resolved as provided for in FAR 15.610.

(2) In addition to listing subjective characteristics that cannot be adequately described in the specification, objective characteristics may be listed in the solicitation and evaluated when it has been determined, on the basis of past experience or other valid considerations, that examination of such characteristics is essential to the acquisition of an acceptable product.

(c) Samples received after the time set for receipt of offers may be considered only if they meet the requirements of FAR 52.215-10.

Sec.

Subpart 516.4 Incentive Contracts 516.403 Fixed-price incentive contracts. 516.405 Contract clauses.

Subpart 516.5-Indefinite-Delivery Contracts 516.505 Contract clauses.

Subpart 516.6—Time-and-Materials, LaborHour, and Letter Contracts

516.603 Letter contracts.

516.603-3 Limitations.

516.603-70 Architect-Engineer services. AUTHORITY: 40 U.S.C. 486(c).

SOURCE: 54 FR 26526, June 23, 1989, unless otherwise noted.

Subpart 516.2-Fixed-Price Contracts 516.203 Fixed-price contracts with economic price adjustment.

516.203-4 Contract clauses.

(a) General. When the contracting officer decides to use a clause providing for adjustments based on cost indexes of labor or material under FAR 16.203-4, a clause must be prepared with the assistance of counsel and approved by the contracting director.

(b) FSS Multiple Award Schedules. In Federal Supply Service (FSS) multiple award schedule (MAS) procurements, the contracting director will determine whether to use an Economic Price Adjustment (EPA) clause under FAR 16.203-2.

(c) Stock or Special Order Program Contracts. (1) The contracting officer shall insert the clause at 552.216-72, Economic Price Adjustment-Stock and Special Order Program Contracts, or a clause prepared as authorized in subparagraph (c)(2) of this section, in solicitations and contracts when the contracting officer has made the determination required by FAR 16.203-2 and the contract is a multiyear contract. If the contract includes one or more options to extend the term of the contract, the contracting officer shall use the clause with its Alternate I. If a multiyear contract with additional option periods is contemplated, the contracting officer may use a clause substantially the same as the clause at 552.216-72 with its Alternate