Procurement Chapter 9 - Contracts

 

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