Current through Register Vol. 48, No. 38, September 20, 2024
a) Scope
This Section contains descriptions of types of contracts and
limitations as to when they should be utilized by the State in its
procurements. Types of contracts not mentioned in this Section may also be
utilized.
b) Prohibition of
Cost-Plus-a-Percentage-of-Cost Contracting
The cost-plus-a-percentage-of-cost contract is prohibited by
Section 20-55 of the Illinois Procurement Code. This type of contracting may
not be used alone or in conjunction with an authorized type of contract. A
cost-plus-percentage-of-cost contract is one in which the vendor selects the
supply or service on which the vendor's percentage is applied.
1) A percentage mark-up from an agreed price
list is not a cost-plus-a-percentage-of-cost contract.
2) A percentage mark-up from the price of a
supply or service selected by the State or another vendor under contract to the
State is not a cost-plus-a-percentage-of-cost 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 vendor'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 the vendor's 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 vendor's
labor agreement rates as applied to an industry or area (such as are frequently
found in contracts for the purchase of coal);
ii) changes due to rapid and substantial
price fluctuations that can be related to an accepted index (such as contracts
for gasoline, heating oils, and dental gold alloy); and
iii) in requirement contracts, where a vendor
is selected to provide all of the State's needs for the items specified in the
contract, 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 vendor to bring about the condition under which a
price increase may occur, the State 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 State than any other
type or that it is impracticable to obtain the items.
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 vendor 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 vendor 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.
4) Cost Incentive
Contracts
A) General. A cost-incentive type
of contract provides for the reimbursement to the vendor of allowable costs
incurred up to the ceiling amount and establishes a formula whereby the vendor
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 vendor 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 vendor is obligated to
complete performance of the contract, and, if actual costs exceed the ceiling
price, the vendor suffers a 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 State is
obligated to reimburse the vendor. The vendor 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 vendor.
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 vendor to a
bonus, while late completion may entitle the State 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 State 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 State is obligated to order and may
also provide for a maximum quantity provision that limits the State's
obligation to order.
3)
Requirements Contracts. A requirements contract is an indefinite quantity
contract for supplies or services that specifically obligates the State to
order all the actual requirements of designated State agencies 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, except
pursuant to an option to purchase.
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 OLG's option, and there is no material change
in the terms and conditions or any such change is dependent on a fixed formula
or standard established in the original contract.
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 State's requirements, the purchase option price is less than the
small purchase limit or 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 State
reserves the right to take bids separately if a particular quantity requirement
arises that exceeds the State'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 OLG would make payment based on
utility cost savings. Such 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.
