Indefinite-delivery indefinite-quantity contracts are used very often in the government. FAR part 16 talks about this contract type:
16.501-2 General.
(a) There are three types of indefinite-delivery contracts: definite-quantity contracts, requirements contracts, and indefinite-quantity contracts. The appropriate type of indefinite-delivery contract may be used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award. Requirements contracts and indefinite-quantity contracts are also known as delivery-order contracts or task-order contracts.
(b) The various types of indefinite-delivery contracts offer the following advantages:
(1) All three types permit—
(i) Government stocks to be maintained at minimum levels; and
(ii) Direct shipment to users.
(2) Indefinite-quantity contracts and requirements contracts also permit—
(i) Flexibility in both quantities and delivery scheduling; and
(ii) Ordering of supplies or services after requirements materialize.
(3) Indefinite-quantity contracts limit the Government’s obligation to the minimum quantity specified in the contract.
(4) Requirements contracts may permit faster deliveries when production lead time is involved, because contractors are usually willing to maintain limited stocks when the Government will obtain all of its actual purchase requirements from the contractor.
(c) Indefinite-delivery contracts may provide for any appropriate cost or pricing arrangement under Part 16. Cost or pricing arrangements that provide for an estimated quantity of supplies or services (e.g., estimated number of labor hours) must comply with the appropriate procedures of this subpart.
This contract type has always been seen as a great way for the government to order material quickly and easily. However, not everything the government needs is a fit for this contract type. Also the Government must do a good job at estimating its requirements for the period that the IDIQ covers. Making the determination whether an IDIQ is a good contract type can be a complex process for the Government. Contractors face the issue of estimating prices for as long as 5 years in some cases. That has its own set of challenges for industry.
I have done IDIQ contracts for both supplies and services. When I was buying large quantities of hardware it was a great tool to get orders placed with suppliers and keep the shelves stocked. However, in some instances I found the item manager really had no idea how to estimate his requirements. USG had estimated yearly requirement at 20,000 units and a max ordering of 5000 units per delivery order and six months into the ordering period had hit the 20,000 level. So while the USG was ordering fast it was paying more per unit because industry was pricing by order size not total estimate, because there is no guarantee on that 20,000 size. In reality, the government should have had a higher minimum order and yearly estimate.
I have seen the same for support services as programs have underestimated the number of people needed to support their efforts. Programs would run out of hours 3/4 of the way through the year and would have to exercise options early. So instead of a 3-year contract it turns in 2.5-year contract and the re-compete has to start that much sooner. So the contractor has hit the ceiling on hours and feels that he is not supporting his customer by getting more people. As a contacting officer I have told many a customer and supplier that “No you can’t increase the contract”. So bad requirements hurt both parties.
I have seen instances during a pre-solicitation conference where industry has questioned the requirements. Trying to inform the government that the work required and the hours estimated were out of sync. That was a good thing and industry should challenge government on requirements more. There is a difference between trying to force the government into something that they don’t need versus trying to tell the government what you want is not totally thought out.
So having the right requirements for the length of the IDIQ protects both parties and leads to the right support for the right price. Next time I will talk about the pricing risk of IDIQ contracts.