35.006 Contracting methods and contract type
Source: FAR 35.006 on acquisition.gov
R&D contracts typically require negotiation and cost-reimbursement arrangements due to technical uncertainties, with a transition to fixed-price contracts as project risks decrease.
Overview
FAR 35.006 outlines the appropriate contracting methods and contract types for research and development (R&D) acquisitions. Because R&D projects often lack precise specifications, sealed bidding is generally not feasible, making negotiation the standard method. The regulation emphasizes that, despite the use of negotiation, agencies must still comply with FAR Part 6 regarding competition requirements. The contracting officer is responsible for selecting the contract type, but should consult technical personnel due to the technical complexity of R&D work. While fixed-price contracts are generally preferred by the government, their use in R&D is limited to situations where objectives and costs can be clearly defined. Cost-reimbursement contracts are usually more appropriate for R&D due to uncertainties in scope and cost. As projects mature and risks decrease, agencies should transition from cost-reimbursement to fixed-price contracts. The regulation also advises against committing to full-scale development and testing until feasibility and requirements are well established.
Key Rules
- Negotiation Required for R&D
- Sealed bidding is generally not suitable for R&D; negotiation is the standard method, but competition rules still apply.
- Contract Type Selection
- Contracting officers must select contract types based on technical input and the level of definition in project goals and costs.
- Preference for Cost-Reimbursement Contracts
- Cost-reimbursement contracts are usually appropriate for R&D due to uncertainties; incentive contracts should be considered when feasible.
- Use of Fixed-Price Contracts
- Fixed-price contracts may be used for short-duration or minor projects with well-defined objectives and reliable cost estimates.
- Transition to Fixed-Price for Production
- As R&D projects move toward production, contracts should shift from cost-reimbursement to fixed-price as risks and uncertainties decrease.
- Avoid Premature Commitments
- Do not commit to full-scale development until feasibility and requirements are established.
Responsibilities
- Contracting Officers: Must select appropriate contract types, consult technical personnel, and ensure compliance with competition requirements.
- Contractors: Should be prepared for negotiation and provide input on technical feasibility and cost estimates.
- Agencies: Must oversee the transition from cost-reimbursement to fixed-price contracts as projects mature and ensure proper documentation and justification.
Practical Implications
- This section ensures that R&D contracts are structured to manage technical and cost uncertainties, reducing risk for both the government and contractors.
- It impacts daily contracting by requiring careful contract type selection and ongoing evaluation as projects progress.
- Common pitfalls include premature use of fixed-price contracts or committing to development before feasibility is established.
(a) In R&D acquisitions, the precise specifications necessary for sealed bidding are generally not available, thus making negotiation necessary. However, the use of negotiation in R&D contracting does not change the obligation to comply with part 6.
(b) Selecting the appropriate contract type is the responsibility of the contracting officer. However, because of the importance of technical considerations in R&D, the choice of contract type should be made after obtaining the recommendations of technical personnel. Although the Government ordinarily prefers fixed-price arrangements in contracting, this preference applies in R&D contracting only to the extent that goals, objectives, specifications, and cost estimates are sufficient to permit such a preference. The precision with which the goals, performance objectives, and specifications for the work can be defined will largely determine the type of contract employed. The contract type must be selected to fit the work required.
(c) Because the absence of precise specifications and difficulties in estimating costs with accuracy (resulting in a lack of confidence in cost estimates) normally precludes using fixed-price contracting for R&D, the use of cost-reimbursement contracts is usually appropriate (see subpart 16.3). The nature of development work often requires a cost-reimbursement completion arrangement (see 16.306(d)). When the use of cost and performance incentives is desirable and practicable, fixed-price incentive and cost-plus-incentive-fee contracts should be considered in that order of preference.
(d) When levels of effort can be specified in advance, a short-duration fixed-price contract may be useful for developing system design concepts, resolving potential problems, and reducing Government risks. Fixed-price contracting may also be used in minor projects when the objectives of the research are well defined and there is sufficient confidence in the cost estimate for price negotiations. (See 16.207.)
(e) Projects having production requirements as a follow-on to R&D efforts normally should progress from cost-reimbursement contracts to fixed-price contracts as designs become more firmly established, risks are reduced, and production tooling, equipment, and processes are developed and proven. When possible, a final commitment to undertake specific product development and testing should be avoided until-
(1) Preliminary exploration and studies have indicated a high degree of probability that development is feasible and
(2) The Government has determined both its minimum requirements and desired objectives for product performance and schedule completion.