1. CONTRACTS
&
REQUIREMENTS
Ronnie Goodin, CSP
“By 1970 America had 1 lawyer for every 4.5 engineers. By 1995, . . . we
had 1 lawyer for every 2.1 engineers.” Robert D. Putnam, Bowling Alone, p. 146
“The law is reason unaffected by desire.”
Aristotle, Politics, Book 3, Ch 16 (B. Jowett)

2. CONTRACTING OUTLINE
• Introduction
– Give & take Aristotle, Nicomachean Ethics, Book 5
• Contract Risk Profile
• Statements of Work / Source Board
Process
 Requirements
“. . . a magistrate should be appointed to inspect contracts. . .”Aristotle, Politics, Book 6, Ch. 8, p. 1

3. Contract Definitions 1 of 2
• A judicial fact is either: Carley v. Wheeled Coach
(1) generally known within the territorial jurisdiction of the trail court
or,
(2) capable of accurate & ready determination by resort to sources.
• A promise – A commitment to do or not do something in
the future.
– Two elements of a promise:
• Commitment
• Future
– Course of dealings “by implication from other circumstances” –
how parties have dealt with one another in the past. Uniform
Commercial Code (UCC).
If a man vow a vow unto the Lord, or swear an oath to bind his soul with a bond; he shall not
break his word, he shall do according to all that proceedeth out of his mouth. Numbers 30-2

4. Contract Definitions
• An agreement – An exchange of promises.
– An agreement defined by the UCC – “the bargain of the
parties in fact as found in their language or by
implication from other circumstances including course
of dealing or usage of trade or course of
performance.”
• Usage of trade – how other people like them usually act.
• Course of performance – how they have acted in performing
their current agreement.
• A contract – A legally enforceable agreement.
4000 years ago, a contract was formed when 2 parties by divided a sacrifice & walked
together between the halves. This was equivalent to going before a notary.

5. Contracts
• Contracts serve 2 functions within the big
picture of society:
– Dispute resolution for exchanges.
– Demonstrates society’s commitment to freedom &
autonomy.
• Form contracts.
• Note: “Don’t wait to trademark your brand
name, tag line, & logo, or to copyright your ads
& manufacturing materials.” By the Seat of Your Pants, p 372, Tom Gegax
When ye deal with each other, in transactions involving future obligations
in a fixed period of time, reduce them to writing . . . whether it be small or big. . .
Koran Surah 2 verse 282

6. Contracting
• Formation of the contract occurs through offer &
acceptance.
• Definiteness is important in contract formulation for 2
reasons:
– Definiteness is evidence of consent.
– A definite contract gives the court a better basis for dealing
with a breach.
• “In civil law systems. . . contracts tend to be much
shorter & less specific [than common law systems],
because many of the issues typically covered in a
common law contract are already covered in a civil
code.” Charles Hill, International Business, 3 Ed. p. 46
rd
• Caution: Consider worse case scenarios & devise
solutions for each. Tom Gegax, By the Seat of Your Pants, p 371
“Another officer registers all private contracts.” Aristotle, Politics, Book 6, Ch. 8, p. 1

7. Contractor Risk Profile
CPFF Greatest
CPAF Risk to
CPIF Buyer
Undefined effort
FPI Unstable design
Many unknowns
FP/EPA
Shared Risk
FP w/AF
FFP
Greatest Risk to Seller
Well defined effort
Stable design

8. Contract Types
• Firm-fixed-price (FFP). Self-explanatory.
• Fixed-price with economic price adjustment (FP/EPA)
contracts allow for specific contingencies to labor &
commodities. When market conditions are not stable, it is
used to protect either the contractor or the government
against significant fluctuations.
• Fixed-price incentive (FPI) contracts control profit based
on a pre-agreed to formula. The specific contract ceiling
price, target profit & profit adjustment formulas are agreed
to at the outset.
• Fixed-price contracts with award fee (FP w/AF) contracts
serve to motivate the contractor to perform above a set
standard in the presence of results typically in quality,
technical ingenuity or timeliness which normally can not
be measured objectively.

9. Contract Types
• Cost-plus-incentive-fee (CPIF) contracts are often
used in stable contracts with little uncertainty.
• Cost-plus-award-fee (CPAF) contracts provide
incentives when finite performance measurements
associated with incentive type contracts can not
be established. Award fee is a fixed amount
decoupled with performance.
• Cost-plus-fixed-fee (CPFF) contracts are used
when changes in the services or products are
expected. Because the fixed fee above the cost
does not change, the contractor has no incentive
to seek continual improvement.

10. Statement of Work (SOW) Types
• Design/detailed specification.
• Level of effort.
• Performance oriented (based).
“. . . most businesses relations – those, namely, that are voluntary – are
regulated by contracts, & if these lose their binding force, human intercourse
ceases to exist.” Rhetoric by Aristotle (Richard McKeon), p. 4, Ch 15, Book 1

11. Historical Questions
Source Board Process
1 of 2
• What type of contract is this?
• If there was an earlier procurement, did
the type of contract change?
• Has this requirement been purchased
before by your organization / or another
organization?
• Did the contractor perform as
expected?
– Reorganization

12. Historical Questions
Source Board Process
• Did the contractor deliver on time?
• What type of requirements document was
used to describe the requirement? (design
or performance)
• What monitoring does this type of
requirements document require to ensure
compliance?
• What would happen if requirement delivery
was delayed?

13. Source Board Process
• Did the contractor deliver on time?
• What type of requirements document was
RFP Response (the proposal)
used to Strengths. (Opportunityrequirement? (design
(1)
describe Opportunities:
Two the
for strength may not
or performance) to a specific requirement)
be a response
(2) Weaknesses.
• What monitoring does this type of
Note: Some RFP requirements appear to be neither
requirements document require to ensure
opportunity for strength or weakness – however,
do not underestimate that obscure requirement
compliance?sole job of a source board member.
may be the
• What would happen if requirement delivery
was delayed?

14. Getting Around the System

15. Working Without a Contract
Mark H. McCormack, On Negotiating, p. 103-105,
• Pre-contract work binds associates & feelings of obligation
develops.
• “A person’s word is a matter of honor. A contract is a
matter of law.”
• “You can’t buy . . . goodwill – or mandate it in a contract.”
• “If they are honorable people, they’ll keep their word. If
they’re not honorable, I doubt if any contract will bind them
or fully protect you.”
“Successful organizations must shift from an age
dominated by contract & litigiousness to an age
of handshakes & trust.” Thriving on Chaos, p. 518, Tom Peters
˗ Jerry Greenberg, McDonalds, “We buy $12 -$14B/yr of food
& paper without a contract.” Good Business, p. 160 Mihaly Csikszentmihalyi

16. Getting out of a Contract
• Include a contract exit strategy. Tom Gegax, By the Seat of Your Pants, p 203
• Simply ask to be released.
• Mistakes.
• A condition of a duty not done.
– Jacob & Youngs Inc. v. Kent (1921).
• Functionality vs. Owner satisfaction.
• Impossibility.
– Taylor v. Caldwell (1863).
• Impracticability.
“. . . a contract unintentionally
frustrated by unforeseen
• Frustration of purpose. circumstances. . .” Plato, The Laws, p.
9-10 of Book 11, Taylor (p. 313-314)

17. Getting out of a Contract
Background & Damages
• Damages figured in present day $$$.
• No moral condemnation attached to breach so
fault is less important than in torts.
efficient breach
• Mandatory arbitration clause.
Side Note: Contract Disputes Act. 41 U.S.C. § 601 et seq.
EARLY ETHICS NOTE: “. . . for this reason a prudent Prince neither can nor
ought to keep his word when it is hurtful to him & the causes which led him
to pledge it are removed.” Machiavelli, The Prince, p. 46
Also see Robert Green, The 48 Laws of Power, for a modern Machiavellian type reference

18. Security Checklist 1 of 2
• Proposals kept under lock & key – never
unattended.
• Do not work on the RFP or review
proposals in an area with work visible to
anyone without a need to know.
• Do not discuss source board work where
the discussion may be overheard.
• Avoid any behavior that could be
interpreted as favoring one offeror over
another.

19. Security Checklist
• Do not reveal information about another offeror’s proposed
technical solution, proprietary information, or intellectual
property.
• Do not reveal a competitor’s price although telling an
offeror that its price is too high or too low with
accompanying rationale is acceptable, as is providing the
government’s reasonable cost or price estimate.
• Do not reveal sources of past performance information.
• Do not knowingly provide source selection information.
(FAR 15.306)

20. Contracting Topics
• Data Deliverables:
– Coding.
– Scheduling.
– Distribution.
• Dealing with Unsatisfactory Performance:
– Metrics that only hammer the contractor invite
unsatisfactory communication.
• Surveillance Plans.
• RFP – Proposal Page Counting.
• Independent Government Cost Estimate.

21. Independent Government Cost Estimate
S&MA Contract Government Estimate
Activity/Current Status Start Feb 06 Year 2 Year 3 Year 4 Year 5
Range Safety Support 0 3 3 3 3 4
LSP Safety 0 0 0 0 0 17
Industrial Safety 8 8 6 6 6 6
Independent Assessment 4.5 4.5 4.5 4.5 4.5 4.5
Agency Payload Safety 1.5 1.5 1.5 1.5 1.5 2
Management .5 .5 .5 .5 .5 1
__________________________________________________________________
Totals 14.5 17.5 15.5 15.5 15.5 34.5
Job classifications:
Industrial 1-SE, 3-SS, 2-DM, 1-SE Lead
Ind Assmt 4.5-S&MA Engineers
Agency P/L 2-S&MA Engineer
Agency RS 4-S&MA Engineer
Mgt 1
Contract Support 2-SE, 4-S&MA Eng., 6-QE, 5-QAS

22. Labor Category
Labor Category – Year 1 Number of FTEs
Safety Engineer Level 2 3.5
Safety Specialist Level 2 1
Safety Engineer Level 1 1
Data Manager Level 2 2
S&MA Engineer Level 2 4.5
Manager (Engineer) Lev 1 .5
FTE – Full time equivalent

23. EVALUATION FACTORS
Service Contract Ex.
• Understanding the Requirements 53%
• Qualifications 15%
• Management 16%
• Past Performance 10%
• Safety 3%
• Labor 3%
Section M of RFP

24. EVALUATION FACTORS
Hardware Development Ex.
• Mission Suitability
– Management Approach - 375 pts
– Technical Approach – 575 pts
– Small & Small Disadvantaged Business
Approach – 50 pts
• Price
• Past Performance
Consider addressing labor contract status: threat of strike before
completion of contract.

25. Contractor Risk Profile
Monitoring Planning
CPFF Greatest
CPAF Risk to
CPIF Buyer
Undefined effort
FPI Unstable design
Many unknowns
FP/EPA
Shared Risk
FP w/AF
FFP
Greatest Risk to Seller
Well defined effort
Stable design

26. Monitoring Level
Implementation – Required by FAR
Contract Type Need for Monitoring
Cost- Guard against paying for excessive cost & non-contract
reimbursement related reimbursement work.
Government responsible for planned expenses.
Fixed-price Contractor monitors its own costs to ensure sufficient
funds for meeting requirements.
No need for Government monitoring contractor
spending.
Warning: FFP – When Contractor underbid to get work, or you & your
contractor has a cost-reimbursement contract AND your contractor has
another fixed price contract with another organization that is in trouble, watch
for cost-cutting effects.

27. Monitoring Level Example
Air Force Air Force
B-2 F-15
Northrop Corporation McDonnell Douglas
cost plus contract radar fixed price contract radar upgrade
Hughes Aircraft Company
HUGHES AIRCRAFT COMPANY, PETITIONER v. U.S., US Supreme Court No. 95-1340 1997

28. Monitor Contractor Performance
• 100% inspection. (Preserve inspection records.)
• Sampling, or statistical based sampling.
INCREASING UNCERTAINITY
• Audits & assessments. (Preserve audit reports as
a business record.)
• Onsite visits. (Preserve trip reports as a business
record.)
• Customer complaints/suggestions.
• Conduct progress meetings or reviews. Formal
reviews often serve as the active external force
that helps the contractor safety team within its
own organization. (Record review/meeting
minutes as a business record.)

29. Monitor Contractor Performance
Special notes
• Waivers requested by Contractor.
• Mishaps during an award fee period.
• Silence.
– When the contractor fails to meet a requirement
& the government with knowledge remains silent,
that silence is interpreted as a contract change.
• Landgraft vs. McDonnell Douglas Helicopter Co. (6th
Circuit/1993)