Letter Contracts Rabbanai T. Morgan Chief, Contingency Contracting Element February 2005

Letter Contracts Governing Directives Definition/Circumstances for Use Overview Governing Directives Definition/Circumstances for Use Essential Elements Limitations Clauses Summary

Governing Directives Letter Contracts FAR 16.603 DFARS 216.603-3/217.74 AFFARS 5317.74 Appendix CC CC-501 Expedited Contingency Procedures Attachment CC-1, Deployment Kits

Letter Contracts Letter Contract: Circumstances for Use: A written preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services. Circumstances for Use: Government's interests demand that the contractor be given a binding commitment so that work can start immediately and Negotiating a definitive contract isn’t possible in sufficient time to meet the requirement. However, a letter K should be as complete and definite as feasible under the circumstances.

Letter Contracts Essential Elements Price ceiling if based on price competition Negotiated definitization schedule Dates for submission of price proposal Required cost or pricing data Make-or-buy & subcontracting plans Date for start of negotiations Target date for definitization (earliest practicable date) 180 days after date of Letter K/40% completion of work Target date for definitization Whichever is earlier CO may authorize additional period in extreme cases Before exceeding the definitization date, the contracting officer shall document in the contract file the reason(s) for the delay, remedial actions, and the revised definitization schedule. This documentation requires approval at a level no lower than the initial approval authority. The date that is 180 days after issuance of the action (this date may be extended but may not exceed the date that is 180 days after the contractor submits a qualifying proposal); or The date on which the amount of funds obligated under the contract action is equal to more than 50 percent of the not-to-exceed price. Submission of a qualifying proposal in accordance with the definitization schedule is a material element of the contract. If the contractor does not submit a timely qualifying proposal, the contacting officer may suspend or reduce progress payments under FAR 32.503-6, or take other appropriate action. If unable to definitize, contractor must perform and CO may (with HCA approval) determine fair and reasonable $ subject to appeal under disputes clause

Letter Contracts Essential Elements Maximum liability of the Gov’t - 52.216-24 Estimated amount necessary to cover the contractor's requirements for funds before definitization. NTE 50% of the estimated cost of the definitive contract unless approved in advance by the official that authorized the letter contract. Appropriate priority rating The Government shall not obligate more than 50 percent of the not-to-exceed price before definitization. However, if a contractor submits a qualifying proposal before 50 percent of the not-to-exceed price has been obligated by the Government, then the limitation on obligations before definitization may be increased to no more than 75 percent Exception: The HCA may waive the limitations regarding ceilings, definitization schedules, or obligations for UCAs if the head of the agency determines that the waiver is necessary to support- (1) A contingency operation as defined in 10 U.S.C. 101(a)(13); or (2) A humanitarian or peacekeeping operation as defined in 10 U.S.C. 2302(7). 5317.7404-4 Limitations on obligations. Obligations exceeding 50 percent of the NTE must be approved at a level no lower than the initial approval authority and documented in the contract file. Obligations for UCAs shall never exceed 75 percent of the NTE. SAF/AQC signed Enduring Freedom Memo, EF-01-03, concerning undefinitized contract actions and contingency operations in support of Operations Enduring Freedom and Noble Eagle. This memo waives several DFARS 217.74 limitations, declares Operation Noble Eagle meets the statutory definition of a contingency operation and grants a class deviation to AFFARS 5317.7404-4.

Letter Contracts Limitations Requires D&F by HCA/Designee Shall not exceed availability of funds at time of execution Shall comply with competition requirements Shall not be amended to satisfy new requirement unless new requirement is inseparable from original requirement new requirement subject to same requirements and limitations D&F 2) Requirements impact statements shall: (i) Specifically address the impact on mission requirements projected to occur during the time that would be required to issue a definitive contract action; and (ii) Be signed by the official with responsibility for the requirement. HCA/Designee: Contracting Authority - CC-201 Contracting Relationships - CC-205

Letter Contracts Limitations Final price negotiation after a substantial portion of the required performance has been completed HCA shall ensure the profit allowed reflects contractor’s actual risk for costs incurred for performance before final price negotiation and through performance of the remainder of the contract

Letter Contracts FAR Clauses As required by for the type of definitive contract contemplated and any additional appropriate clauses 52.216-23, Execution and Commencement of Work, (may be omitted from letter Ks awarded on SF 26) 52.216-24, Limitation of Government Liability IAW (16.603-2(d))

Letter Contracts DFARS Clauses 252.217-7027, Contract Definitization, in all UCAs & associated solicitations IAW its prescription at 217.7406(b), vs. FAR 52.216-25 If, at the time of entering into the UCA, the contracting officer knows that the definitive contract action will meet the criteria of FAR 15.403-1, 15.403-2, or 15.403-3 for not requiring submission of cost or pricing data, the words "and cost or pricing data" may be deleted from paragraph (a) of the clause.

Letter Contracts Rabbanai T. Morgan Chief, Contingency Contracting Element February 2005