Current through Register Vol. 48, No. 38, September 20, 2024
a) Scope
of Rule
This Section contains descriptions of types of contracts and
limitations as to when they should be utilized by the OAG in its
procurements.
b)
Prohibition of Cost-Plus-a-Percentage-of-Cost Contracting
The cost-plus-a-percentage-of-cost contract is prohibited by
Section 20-55 (Types of Contracts) of the Illinois Procurement Code and by this
Part. This type of contracting may not be used alone or in conjunction with an
authorized type of contract.
c) Types of Fixed-Price Contracts
1) Firm Fixed-Price Contract. A firm
fixed-priced contract provides a price that is not subject to adjustment
because of variations in the contractor's cost of performing the work specified
in the contract.
2) Fixed-Price
Contract with Price Adjustment.
A) A
fixed-price contract with price adjustment provides for variation in the
contract price under special conditions defined in the contract, other than
customary provisions authorizing price adjustments due to modifications to the
work. The formula or other basis by which the adjustment in contractor price
can be made shall be specified in the solicitation and the resulting contract.
Adjustment allowed may be upward or downward only, or both upward and downward.
Examples of conditions under which adjustments may be provided in fixed-price
contracts are:
i) changes in the contractor's
labor agreement rates as applied to industry or areawide (such as are
frequently found in State contracts for the purchase of coal);
ii) changes due to rapid and substantial
price fluctuations, which can be related to an accepted index (such as
contracts for gasoline, heating oils, and dental gold alloy); and
iii) in requirement contracts (subsection
(g)(3) of this Section) when a general price change applicable to all customers
occurs, or when a general price change alters the base price (such as a change
in a manufacturer's published price list or posted price to which a fixed
discount is applied pursuant to the contract to determine the contract
price).
B) If the
contract permits unilateral action by the contractor to bring about the
condition under which a price increase may occur, the OAG shall have the right
to reject the price increase and terminate without cost the future performance
of the contract.
d) Cost-Reimbursement Contracts
1) Determination Prior to Use
A) A cost-reimbursement type contract may be
used only when the Procurement Officer determines in writing that such a
contract is likely to be less costly to the OAG than any other type or that it
is impracticable to obtain otherwise the supplies, services, or
construction.
B) Reimbursement of
travel expenses in accordance with applicable travel control board regulations
is authorized without further determinations.
2) Cost Contract. A cost contract provides
that the contractor will be reimbursed for allowable costs incurred in
performing the contract, but will not receive a fee.
3) Cost-Plus-Fixed-Fee Contract. This is a
cost-reimbursement type contract that provides for payment to the contractor of
an agreed fixed fee in addition to reimbursement of allowable incurred costs.
The fee is established at the time of contract award and does not vary if the
actual cost of contract performance is greater or less than the initial
estimated cost established for such work. Thus, the fee is fixed but not the
contract amount because the final contract amount will depend on the allowable
costs reimbursed. The fee is subject to adjustment only if the contract is
modified to provide for an increase or decrease in the scope of work specified
in the contract. The cost-plus-fixed-fee contract can be either a Completion
Form or Term Form.
4) Cost
Incentive Contracts
A) General. A
cost-incentive type of contract provides for the reimbursement to the
contractor of allowable costs incurred up to the ceiling amount and establishes
a formula whereby the contractor is rewarded for performing at less than target
cost (that is, the parties' agreed best estimate of the cost of performing the
contract will vary inversely with the actual, allowable costs of performance
and consequently is dependent on how effectively the contractor controls cost
in the performance of the contract).
B) Fixed-Price Cost-Incentive Contract. In a
fixed-price cost-incentive contract, the parties establish at the outset a
target cost, a target profit (that is, the profit that will be paid if the
actual cost of performance equals the target cost), a formula that provides a
percentage increase or decrease of the target profit depending on whether the
actual cost of performance is less than or exceeds the target cost, and a
ceiling price. After performance of the contract, the actual cost of
performance is arrived at based on the total incurred allowable costs as
provided in the contract. The final contract price is then established in
accordance with the formula using the actual cost of performance. The final
contract price may not exceed the ceiling price. The contractor is obligated to
complete performance of the contract, and, if actual costs exceed the ceiling
price, the contractor will suffer the loss.
C) Cost-Reimbursement Contract with
Cost-Incentive Fee. In a cost-reimbursement contract with cost-incentive fee,
the parties establish at the outset a target cost; a target fee; a formula for
increase or decrease of fee depending on whether actual cost of performance is
less than or exceeds the target cost, with maximum and minimum fee limitations;
and a cost ceiling that represents the maximum amount that the OAG is obligated
to reimburse the contractor. The contractor continues performance until the
work is complete or costs reach the ceiling specified in the contract,
including any modification thereof, whichever first occurs. After performance
is complete or costs reach the ceiling, the total incurred, allowable costs
reimbursed as provided in the contract are applied to the formula to establish
the incentive fee payable to the contractor.
e) Performance Incentive Contracts
In a performance incentive contract, the parties establish at
the outset a pricing basis for the contract, performance goals, and a formula
that varies the profit or the fee if the specified performance goals are
exceeded or not met. For example, early completion may entitle the contractor
to a bonus, while late completion may entitle the OAG to a price
decrease.
f) Time and
Materials Contracts; Labor Hour Contracts
Time and materials contracts provide an agreed basis for
payment for materials supplied and labor performed. Labor hour contracts
provide only for the payment of labor performed. Such contracts shall, to the
extent possible, contain a stated ceiling or an estimate that shall not be
exceeded without prior OAG approval.
g) Definite Quantity and Indefinite Quantity
Contracts
1) Definite Quantity. A definite
quantity contract is a fixed-price contract that provides for delivery of a
specified quantity of supplies or services either at specified times or when
ordered.
2) Indefinite Quantity. An
indefinite quantity contract is a contract for an indefinite amount of supplies
or services to be furnished at specified times, or as ordered, that establishes
unit prices of a fixed-price type. Generally an approximate quantity or the
best information available as to quantity is stated in the solicitation. The
contract may provide a minimum quantity the OAG is obligated to order and may
also provide for a maximum quantity provision that limits the OAG's obligation
to order.
3) Requirements
Contracts. A requirements contract is an indefinite quantity contract for
supplies or services that specifically obligates the OAG to order all the
actual requirements of the OAG during a specified period of time.
h) Leases
A lease is a contract for the use of supplies or real
property under which title will not pass to the State at any time.
i) Recovery Contracts
Contracts may provide for payment to the vendor of a
percentage of the amount the vendor recovers or collects on behalf of the
State. The percentage may be fixed or may vary depending on amount of recovery
or other factors, and the percentage may be paired with a fixed price or cost
reimbursement method.
j)
Option Provisions
1) Contract Provision. When
a contract is to contain an option for renewal, extension, or purchase, notice
of such provision shall be included in the solicitation. These options may be
exercised without taking other procurement action when the option is
established for exercise at the OAG's option.
2) Lease with Purchase Option. A purchase
option in a lease may be exercised only if the lease containing the purchase
option was awarded under competitive sealed bidding or competitive sealed
proposals, the leased supply or facility is the only supply or facility that
can meet the OAG's requirements, or if the purchase option price is less than
the small purchase limit or if emergency conditions exist.
k) State Produced Supplies and Services
Notwithstanding any provision in any contract, supplies or
services available from the State's own programs, such as Correctional
Industries, may be ordered without violating any contract.
l) Extraordinary Quantities
Notwithstanding any provision in any contract, the OAG
reserves the right to take bids separately if a particular quantity requirement
arises that exceeds the OAG's normal needs or ordering requirements.
m) Energy Conservation
The CPO may authorize an IFB, RFP or sole source negotiation
for energy conservation measures whereby the OAG would make payment based on
utility cost savings. The contract shall require a clearly defined baseline of
energy usage and method of measuring cost savings taking into account at least
differing weather conditions, changes in facility, usage and cost of
energy.
