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Time and Material Contracts Words by Bill Lindsey Lyrics by Fred Marks.

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Presentation on theme: "Time and Material Contracts Words by Bill Lindsey Lyrics by Fred Marks."— Presentation transcript:

1 Time and Material Contracts Words by Bill Lindsey Lyrics by Fred Marks

2 Time and Material Contracts When someone says trust me, do you really?

3 What is a Time and Material Contract? It is a contract which provides for the acquisition of supplies or services on the basis of direct labor hours at specified, fixed, hourly rates that include wages, overhead, profit, and general and administrative expenses, and materials AT COST. It is a contract which provides for the acquisition of supplies or services on the basis of direct labor hours at specified, fixed, hourly rates that include wages, overhead, profit, and general and administrative expenses, and materials AT COST.

4 What is Time? Time is a dimension in which events can be ordered from the past through the present into the future, and also the measure of durations of events and the intervals between them.

5 Time is Linear It can be defined It can be defined It can be measured It can be measured Its your Contract, you define it and you measure it using generally accepted methods. Its your Contract, you define it and you measure it using generally accepted methods. Do your research! Do your research!

6 Examples of how to define time Regular working hours " shall mean 8:00 AM to 4:00 PM, Monday through Friday, excluding legal holidays in the Commonwealth of Virginia Overtime Working Hours shall mean hours other than regular hours and eight (8) hours on Saturdays Premium overtime working hours shall mean hours in excess of eight (8) hours on Saturday and all day Sundays and legal holidays in the Commonwealth of Virginia Holidays" as used in this Contract, shall mean legal holidays of the Commonwealth of Virginia Kardash A unit of time being the 72 days length of Kim Kardashians marriage..

7 Does Time also include: Travel Time? Travel Time? Lunch Time? Lunch Time? Break Time? Break Time? Administrative Time? Administrative Time? Non-Productive Time? Non-Productive Time?

8 What are Materials? Materials are those durable and tangible items that are necessary to accomplish the work as further defined in this Contract. Materials are those durable and tangible items that are necessary to accomplish the work as further defined in this Contract. Materials Should not include rental of special purpose machinery which the Contractor requires to accomplish the work as further defined in this Contract Materials Should not include rental of special purpose machinery which the Contractor requires to accomplish the work as further defined in this Contract

9 Unallowable Expenses There are a number of costs that are deemed to be unallowable for government contracts. These costs should not be included in your proposal cost estimates, as they will not be reimbursable. Some of the major unallowable costs include: There are a number of costs that are deemed to be unallowable for government contracts. These costs should not be included in your proposal cost estimates, as they will not be reimbursable. Some of the major unallowable costs include: Airfare costs in excess of the lowest customary standard coach fare. Airfare costs in excess of the lowest customary standard coach fare. Advertising and public relations. Advertising and public relations. Alcoholic beverages. Alcoholic beverages. Bad debts. Bad debts. Entertainment costs. Entertainment costs. Fines and penalties. Fines and penalties. Goodwill. Goodwill. Lobbying. Lobbying. Losses on other contracts. Losses on other contracts.

10 Are there other elements to a Time and Materials Contract that are hidden? Set up Charges? Set up Charges? Administration Fee? Administration Fee? Permit Costs? Permit Costs? Mobilizing Costs? Mobilizing Costs? Rental of Specialized equipment? Rental of Specialized equipment?

11 Two Main Types of Time and Material Contracts Repair Contracts or Special Purpose Contracts Repair Contracts or Special Purpose Contracts Yearly Contract for different types of Maintenance, such as Painting, Electrical Work, Welding, Landscape Services. Yearly Contract for different types of Maintenance, such as Painting, Electrical Work, Welding, Landscape Services.

12 Repair Contracts – Its all in the definition! Repair Repair Overhaul Overhaul Reconditioned Reconditioned Refurbished Refurbished Rebuilt Rebuilt

13 T & M are Unit Price Contracts Based on historical data, or, Based on historical data, or, Based on a serious estimate of anticipated needs Based on a serious estimate of anticipated needs Estimated Quantities should reflect the scope of the Contract in Dollars Estimated Quantities should reflect the scope of the Contract in Dollars Unit Prices should be sufficient to determine a low bidder Unit Prices should be sufficient to determine a low bidder

14 Special Purpose Clauses Unit Prices for Bid Comparison Purposes Only Clause Unit Prices for Bid Comparison Purposes Only Clause Extra Work Clause Extra Work Clause

15 Sample Unit Price Clause The "Estimated Total Contract Price " is solely for the purpose of facilitating the comparison of Bids and of computing damages in the event of a default by the successful bidder in the agreement created by the acceptance of his Bid. We make no representation as to what the actual quantities of Work will be and shall not be held responsible even though the estimated quantities are not even approximately correct. Insofar as the Contractor's compensation is based upon the work performed, it will be computed from the actual quantities of Work performed, whether greater or less than the estimated quantities. The "Estimated Total Contract Price " is solely for the purpose of facilitating the comparison of Bids and of computing damages in the event of a default by the successful bidder in the agreement created by the acceptance of his Bid. We make no representation as to what the actual quantities of Work will be and shall not be held responsible even though the estimated quantities are not even approximately correct. Insofar as the Contractor's compensation is based upon the work performed, it will be computed from the actual quantities of Work performed, whether greater or less than the estimated quantities.

16 Extra Work Clause Sample When it is necessary for the Contractor to use any item of material during the performance of this Agreement, the Contractor shall first submit to us for its approval the name of the item, the identifying number therefore, if any, the quantity needed, the name of the proposed supplier and the proposed purchase price or if supplied by the Contractor the price that we are to be billed. We shall have the option of a) approving same; or b) supplying said material to the contractor itself provided it is of equal quality to that the Contractor proposed to supply. When it is necessary for the Contractor to use any item of material during the performance of this Agreement, the Contractor shall first submit to us for its approval the name of the item, the identifying number therefore, if any, the quantity needed, the name of the proposed supplier and the proposed purchase price or if supplied by the Contractor the price that we are to be billed. We shall have the option of a) approving same; or b) supplying said material to the contractor itself provided it is of equal quality to that the Contractor proposed to supply.

17 Estimated Quantity Description Unit Price (to be filled in by Bidder/Vendor) Total Price 26 Hours Transportation to and from our facility, including driver, special purpose trucks if necessary, rigging, and helper, including all mandated equipment like spill control $____ 15 Hours Technical Evaluation, including dismantling the equipment, failure analysis, and description of work to be performed if approved. No destruction of parts unless authorized in advance $125.00$____ 10 Hours Preparation of Repair Proposal including all administrative fees, permits and overhead. $145.00$____ $750 Material Cost Materials Cost less _____% Discount %_____(per centage discount applied to $750 Material Cost $____ Estimated Total Contract Price for Bid Comparison Purposes Only $____

18 Pitfalls Repair and General Labor Contracts Repair and General Labor Contracts 1. You have to know ahead of time the workers are competent and can do the job. 1. You have to know ahead of time the workers are competent and can do the job. 2. You have to know they can work under your competent surpervisi0m. 2. You have to know they can work under your competent surpervisi0m.

19 Contract Administrations The Key to Success Who is your Contract Administrator? Who is your Contract Administrator? Have you provided them with the Contract? Have you provided them with the Contract? Can the Contract be measured? – How? Can the Contract be measured? – How? How do you manage billing disputes or errors? How do you manage billing disputes or errors?

20 Executive Memorandum March 4, 2009 The Administration prefers fixed-price contracts as opposed to high-risk varieties. Time & Materials/Labor Hours contracts identified as HIGH RISK. The Administration prefers fixed-price contracts as opposed to high-risk varieties. Time & Materials/Labor Hours contracts identified as HIGH RISK. Federal Agencies are directed to cut these high-risk contracts by 10%. Federal Agencies are directed to cut these high-risk contracts by 10%.

21 Whats the Risk? Show me the Money FY Sole Source Contracts $73B to $173B Cost Reimbursement $71B to $135B T & M Contracts $ 8B to $ 29B

22 OMB Letter to Senator Lieberman July 8, 2011 Cost-reimbursement contracts are appropriately used in circumstances where the agency is not able to define its needs. Cost-reimbursement contracts are appropriately used in circumstances where the agency is not able to define its needs. A risk of wasteful spending occurs when agencies pay expenses as incurred versus a fixed price. A risk of wasteful spending occurs when agencies pay expenses as incurred versus a fixed price. This risk exists with T & M contracts which have long been recognized in government-wide policy as the least favored contract type. This risk exists with T & M contracts which have long been recognized in government-wide policy as the least favored contract type.

23 How do you avoid Risk in a T&M Contract! Do your research! Ask for the quality of labor you require. Technical people with certifications and commendations to their satisfactory work. Do your research! Ask for the quality of labor you require. Technical people with certifications and commendations to their satisfactory work. Do your research, Get quality Contract Administrators to tell you how the work is progressing, along with problems and solutions. They should know the trade practices and the Scope of Work. Do your research, Get quality Contract Administrators to tell you how the work is progressing, along with problems and solutions. They should know the trade practices and the Scope of Work.

24 Answer: You research!!!! Ask Questions of what is usual in that particular industry. Interview Potential Vendors for how they bill and charge for repairs (Usually an industry will have methods in common) Not all industries bill and charge the same way Interview Potential Bidders staff for more information

25 Contract Administration-Key to Success Whats Success? The desired service was provided. The desired service was provided. The desired service was provided at a reasonable cost. The desired service was provided at a reasonable cost. The desired service was measured and documented. The desired service was measured and documented. The risk was managed. The risk was managed.

26 Contract Administrator Who is it? Who is it? Do they know what is being purchased? Do they know what is being purchased? Are they independent of the Contractor? Are they independent of the Contractor? Are they experienced and/or trained to administer contracts? Are they experienced and/or trained to administer contracts? Are they empowered to make decisions? Are they empowered to make decisions? Has the Buyer and Contract Administrator met each other? Has the Buyer and Contract Administrator met each other?

27 The Contract Does the Contract Administrator have a copy of the Ageement with the following? Business name, address, phone, fax & contacts. Business name, address, phone, fax & contacts. The Contractors signatory. The Contractors signatory. Scope, specifications, plans, drawings, etc. Scope, specifications, plans, drawings, etc. Terms and Conditions. Terms and Conditions. Rates/Fees per Unit. Rates/Fees per Unit. Bid document with all addendums. Bid document with all addendums. Insurance Certificate. Insurance Certificate. Bonds. Bonds.

28 Performance Measurement Whats the Mechanism? Mutually Agreed for Work Assignment. Mutually Agreed for Work Assignment. Mutually Agreed for Timely Performance. Mutually Agreed for Timely Performance. Mutually Agreed for Determining Quality. Mutually Agreed for Determining Quality. Mutually Agreed for Submitting Invoices. Mutually Agreed for Submitting Invoices.

29 Disputes and Claims Whats the Mechanism? Disputes and Claims Whats the Mechanism? Is there a disputes clause for performance issues? Is there a disputes clause for performance issues? Is there a disputes clause for billing errors? Is there a disputes clause for billing errors? Is there an identification of who resolves disputes? Is there an identification of who resolves disputes? How is the Buyer involved in resolving disputes? How is the Buyer involved in resolving disputes?

30 Contract Administration Wheres the Magic Begins with the Buyer developing common-sense solicitations. Begins with the Buyer developing common-sense solicitations. Proceeds with the Selection of qualified Contractors. Proceeds with the Selection of qualified Contractors. Ends with the assignment of talented contract administrators that not only know their business, but also the Contractors business. Ends with the assignment of talented contract administrators that not only know their business, but also the Contractors business.

31 Questions Fred Marks, CPPO, VCO Fred Marks, CPPO, VCO (516) (516) Bill Lindsey, CPPO, C.P.M. Bill Lindsey, CPPO, C.P.M. (804) (804)


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