9.1
Generally. This chapter provides guidance for selecting types of contracts
and making contract modifications.
9.2 Selecting
Contract Type. The Procurement Official shall select the type of contract
that is appropriate for a particular procurement to protect the City's
interest. Without limitation, the official may consider the following
factors:
A. City Criteria. The Procurement
Official should consider the City's needs, including needed quality of
performance, costs, time for performance, and completion
date.
B. Product Criteria. The Procurement
Official should consider the type and complexity of the supply or service item
being procured, and the stability of markets and
prices.
C. Nature of Performance. The Procurement
Official should consider the difficulty of estimating performance costs, such as
when the City is unable to develop definitive specifications, identify the
contractor's risks inherent in performing the work, or otherwise clearly
establish contract
requirements.
D. Risk. The Procurement Official should
consider the amount of risk imposed by a contract type on both parties.
The degree of risk should not jeopardize any material interests of the City, or
the satisfactory performance of the
contract.
E. Administrative Impacts. The
Procurement Official should consider the administrative impacts to both parties,
such as administration costs, the degree to which the City must provide
technical coordination during the performance of the contract, and the ability
to meet any federal
requirements.
F. Competition. The Procurement
Official should consider the effect of the choice of contract type on the amount
of competition expected.
9.3 Contracting Methods
for Establishing Price. The Procurement Official may structure a contract
in any manner, but shall not issue a cost-plus-a-percentage-of-cost contract.
The following are some methods of establishing price in a
contract.
A. Fixed-Price Contracts. The
contractor performs for a price that is fixed in the contract, or that is
subject to contractually specified
adjustments.
1. Price Adjustments. Price
adjustments, if allowed, are specified in the contract based on conditions such
as changes in labor rates, periodic increases in an economic index, increases by
an agreed percentage, or specified changed conditions. The contract should
provide for the time and manner of any
adjustments.
2. When Not Appropriate. Fixed-price
contracts can result in inflated prices and poor performance when risks are
unknown or not readily measurable, or the type or amount of work is not
known.
B. Cost-Reimbursement Contracts. This
type of contract allows the City to reimburse the contractor for allowable and
incurred costs as specified in detail in the contract. It may establish a
target performance cost and/or a ceiling the contractor cannot exceed, and may
provide for payment of a
fee.
1. When to use. Cost-reimbursement
contracts are most appropriate when it is difficult to reasonably estimate the
cost of performance. They require careful contract management to verify
performance, price, and allowable costs, and the contractor must have in place a
suitable accounting system consistent with generally accepted accounting
principles.
2. Cost-Plus-Fixed-Fee Contracts. Fees
in cost reimbursement contracts are generally negotiated as a fixed sum which
does not vary unless the scope of work
increases.
C. Cost Incentive Contracts. This type of
contract allows the City to make cost-effective performance a priority, and to
share cost risks with the contractor. The City sets a target cost, and
will reimburse allowable and incurred costs up to a ceiling amount; under a
formula established in the contract, the contractor is rewarded or penalized for
performing below or exceeding a target cost or the ceiling amount. Profit
or fee is dependent on how effectively the contractor controls
costs.
1. When to Use. These contracts are
most appropriate when it is difficult to reasonably estimate the cost of
performance, when uncertainties and contingencies may exist, or when monetary
incentives will benefit the performance. They require careful monitoring,
accounting, and determining of what costs are allowable as with
cost-reimbursement
contracts.
2. Fixed-Price Cost Incentive
Contracts. The contract establishes (a) a target cost, (b) a target
profit, (c) a ceiling price, and (d) a formula that increases or decreases the
target profit by a specified percentage if costs go above or below the target
cost or ceiling price. However, the final total of reimbursed costs and
the contractor's fee may not exceed the ceiling price despite the actual cost of
complete
performance.
3. Cost-Reimbursement Contract with Cost
Incentive Fee. The contract establishes the same elements as a fixed-price
cost incentive contract and also establishes maximum and minimum fee
limitations. The final price of costs reimbursed under the contract may
not exceed the ceiling price, but profit varies depending on whether the target
cost or ceiling price were
exceeded.
D. Time and Materials Contracts. The City
reimburses the contractor for materials at cost and labor performed at an hourly
rate, which includes overhead and profit. These contracts provide no
incentives to minimize costs, and they should be managed carefully and
used with a not-to-exceed
amount.
E. Unit Price Contracts. The City
contracts to pay a fixed price for a defined unit of materials, and the final
contract price is calculated based on the number of units used in the
performance.
9.4 Other Contracting Methods.
Without limitation, the following describes other contracting methods available
to the City:
A. Definite Quantity Contracts. The
contractor must deliver a specified quantity of supplies or services either at
specified times or when
ordered.
B. Indefinite Quantity Contracts ("Open
Contracts"). The contractor must deliver an indefinite quantity of
supplies or services as ordered over a fixed period of time. The contract
may provide for minimum or maximum quantities, price adjustments, not-to-exceed
amounts and delivery
methods.
C. Requirements Contracts. A department or
division obtains all of its requirements for a specified supply or service
from a contractor during a specified period of time. The contract may
reserve the right to publicly solicit for particular matters, such as for other
than ordinary
needs.
D. Performance Incentives. The contract
provides a formula for paying additional compensation if the contractor meets or
exceeds specific performance goals, such as early
completion.
E. Time and Materials Work. The
contract permits specified types or portions of the work to be performed on a
time and materials basis, such as where the contractor is required to
perform regardless of a dispute, or for matters submitted under a contractual
allowance.
F. Allowances. The contract creates
allowances to pay for the performance of certain types of work. The
contract must specify all work that is compensable under the allowance, a system
of accounting for payment, and a maximum dollar amount that may be charged to
the allowance. Allowances may be increased by amendment to accommodate
matters reasonably within the scope of the original solicitation at the
discretion of the Procurement
Official.
G. Not-to-Exceed Amounts. Any contract, or
portions of any contract, may be limited to an amount which may not be
exceeded. Not-to-exceed amounts may be increased by amendment to
accommodate matters reasonably within the scope of the original solicitation at
the discretion of the Procurement
Official.
H. Progressive Awards. The Procurement
Official may award portions of a definite quantity requirement to more than one
contractor as appropriate, such as when the City's quantity needs exceed what
one contractor can supply at the needed
times.
I. Multiple Awards. The Procurement
Official may award an indefinite quantity contract for one or more similar
supplies or services to more than one bidder or offeror. Multiple awards
should not be made solely for the purpose of dividing business or accommodating
a user's preference, but may be made when determined to provide a benefit to the
City with respect to needs for quantity, delivery, style, price, quality, or
other features.
J. Time and Dollar Bidding Awards. The
Procurement Official may solicit bids for the cost of performing a project (part
A), and the time to complete the project using an established cost per day based
on an appropriate analysis by the City (part B). Award is made to the
lowest combined bidder
(A+B).
K. Exclusive/Nonexclusive Basis.
Awards may be made on an exclusive or nonexclusive basis. Where
nonexclusive, the City is not required to fill all similar needs from one
contractor, but may solicit as it determines. Where a contract does not
specifically state it is exclusive, it shall be deemed
nonexclusive.
L. Appropriation of Funds. Contracts
extending beyond the current fiscal period shall be subject to termination
for nonappropriation of funds for departments or divisions which rely on
the general fund.
M. Options to Extend Term. Contracts may
include provisions to extend a contract term for specified periods at the City's
option.
9.5 Modifying Contracts. Contracts
relating to procurement may be modified as
follows:
A. Generally. All modifications to
contracts must be in writing and signed by all parties. Modifications
shall modify only the specific terms set forth, and all other contract
provisions shall remain as originally entered. Modifications shall comply
with the requirements for contracts set forth in Salt Lake City Code Title 3,
Chapter 25.
Modifications Not Affecting Scope, Price or Term. Any contract provisions
not affecting the scope, price or term of the contract may be modified as
determined appropriate by the Procurement Official and the department or
division, and they shall consult with the City Attorney's Office as
necessary.
Modifications Affecting Price. The Procurement Official shall review any
proposed modification that significantly increases price to determine whether
there has been a material change in the scope of the work originally solicited,
or whether the modified price may be
unreasonable.
D. Modifications Affecting Scope of Work.
The City may decrease any scope of work when in the City's interest. The
Procurement Official may increase any scope of work as the official shall
determine appropriate when in the City's interest, when the modifications are
reasonably related to the work originally solicited, and when the price for the
increase appears
reasonable.
E. Modifications Affecting Term.
Contracts may be renewed or extended by the Procurement Official in consultation
with the department or division. Extensions cannot be used solely for the
purpose of avoiding a solicitation
process.
F. Modifications to Open Contracts. In an
open contract, the contractor generally agrees to provide specified supplies or
services as needs arise during a fixed term, and the contract may include a
total not-to-exceed price during the term. When the contract does not
include a not-to-exceed price, the contract's term can only be extended when
approved in writing by a Procurement Official. When the contract includes
a not-to-exceed price, the Procurement Official may approve an increase in price
if the term is not exceeded, and the term may be extended when the not-to-exceed
price is not exceeded. The Procurement Official must approve in writing an
increase in both term and price. When practicable, these contracts should
be resolicited rather than being modified to extend a
term.
G. Modifications to Small Purchase
Contracts. Contracts solicited under the small purchase procedures of the
Procurement Code and Rules may not be modified in excess of the maximum dollar
amounts permissible for such purchases, and may not be renewed on a successive
basis, unless approved by the Procurement Official as provided in Procurement
Rules Chapter 11.
9.6 Terminating
Contracts. No contract procured in connection with this chapter shall be
terminated without the authorization of the City official who signed the
contract or that persons' successor, or the Procurement
Official.
CURRENT
REFERENCES: Salt Lake City Code §§
3.24.120
PRE-1996
REFERENCES: Salt Lake City Procurement Policy 3.09.002 Part
7
AMENDED
EFFECTIVE DATE: December 19,
2004