A niche market

Roofing contractors working in the private sector customarily operate on the basis of lump sum contracts with general contractors or building owners. Similarly, roofing contractors who regularly perform reroofing of schools and other local public buildings also perform work in accordance with a fixed and firm written contract, including an agreed upon price, that is established when the contract is executed. Regardless of whether the project is competitively bid or privately negotiated, the scope of work the contractor is going to perform is defined, the location of the work is certain, and the time when the work is to be performed is generally, if not precisely, known and binding.

Contracting with the federal government can be quite different. Federal government contracting historically has been the province of a separate cadre of contractors who work primarily in that market and have successfully mastered the practice of contracting profitably with federal government agencies. The federal government uses many types of contracts to purchase products and services. One contract the federal government uses for procuring goods and services is "indefinite delivery" contracts. This method of contracting was initiated by the Department of Defense (DOD) in 1981 for use by the North Atlantic Treaty Organization. Indefinite delivery contracts have been used routinely by DOD departments and other federal agencies for a variety of procurements, including construction, maintenance, repairs, architectural and engineering services.

Unlike traditional construction contracts, the distinguishing feature of indefinite delivery contracts is the scope of work, location of work and time of work to be performed are not specifically established when the initial contract is executed. At the federal government level, indefinite delivery contracting is governed by Federal Acquisition Regulations, commonly known as FARs.

Types of contracts

FARs identify three indefinite delivery contracts used by federal government agencies when the exact times and/or exact quantities of future deliveries of supplies and/or services are unknown at the time of contract award. There are definite-quantity contracts, requirements contracts and indefinite-quantity contracts.

Definite-quantity contracts are used when the government determines in advance a definite quantity of supplies or services will be required during the contract period and the supplies or services are regularly available or will be available after a short lead time. Indefinite delivery/definite quantity contracts apply to contracts for the delivery of a definite quantity of specific supplies or services for a fixed period but with the deliveries of supplies or performance of services to be scheduled at designated locations at some time in the future upon issuance of a government order.

Requirements contracts occur when the government obtains all its actual purchase requirements of an identified product or service during a specified contract period from a contractor with deliveries or performance to be scheduled when the government places orders with the contractor for the designated products or services. Requirements contracts permit faster delivery when production lead time is involved because contractors usually are willing to maintain limited stocks when the government agrees to buy all its product purchases from the contractor.

Indefinite-delivery/indefinite-quantity contracts, commonly known as IDIQ contracts, are used when the government deliberately chooses not to specify the quantity, delivery date, and perhaps even the location and precise scope of services or supplies during the life of the contract. Per FARs, IDIQ contracts provide "for an indefinite quantity, within stated limits, of supplies or services during a fixed period."

What follows is a discussion of IDIQ contracts because, of the three types of indefinite delivery contracts, IDIQ contracts are extensively used by government agencies for construction and maintenance projects and obtaining professional design services from architects and engineers.

What is it?

IDIQ contracts provide for an indefinite quantity, within stated limits, of supplies or services during a fixed period. IDIQ contracts sometimes are referred to as task order contracts. FARs define a task order contract as a contract for services that does not procure or specify a firm quantity of services (other than a minimum or maximum quantity) but provides for the issuance of orders for the performance of tasks during the period of the contract.

An IDIQ contract is a single contract used for multiple projects where the quantity, scope, timing, cost and number of work orders are not identified at the time of the IDIQ contract award. A construction contractor awarded an IDIQ contract is, in effect, put on standby during the duration of the IDIQ contract to perform construction work of the type described in the IDIQ contract. The quantity, delivery date, price and other details are identified when the government issues work orders following the award of an IDIQ contract.

For instance, the Army might want to award an IDIQ contract for roof system repair services at one or several military installations during a five-year period. Rather than undertaking separate procurements for each installation or on each occasion when a specific need for roof repairs arises, the Army may conduct one IDIQ contract solicitation, make an award and then issue individual work orders for repairs as needed. IDIQ contracting allows the government agency to expand the contract volume without the need for reprocurement.

An IDIQ contract

IDIQ contracts are not entirely open-ended. FARs set forth basic requirements applicable to federal government IDIQ contracts. An IDIQ contract must include a statement of work, specifications or other description that reasonably describe the general scope, nature, complexity and purpose of the supplies or services.

IDIQ contracts must include a minimum and maximum amount in dollars for services or units for supplies. The government must order a minimum agreed-upon quantity of a product or service, known as the minimum guarantee, which is guaranteed to the contractor awarded the IDIQ contract. Typically, the guaranteed minimum is the first anticipated job order issued to the contractor. The government's purchases in the aggregate cannot exceed the maximum stated in the IDIQ contract. The contractor must provide services or products up to the stated maximum if ordered by the government.

IDIQ contracts must specify the contract duration, which typically is three to five years. However, the contract may include options the government can invoke to extend the contract; if so, the number of options and their duration must be stated. An IDIQ contract also must state the procedures the government will use when issuing orders, and, if multiple awards may be made, state the procedure and selection criteria the government will use to provide contractors a fair opportunity to be considered for each order.

Delivery and task orders

After the award of an IDIQ contract, the government issues work orders for specific procurements. These may be called delivery, task or job orders. Orders for supplies are referred to as delivery orders, and task orders apply to services. Orders for construction services commonly are referred to as job orders. Delivery, task and job orders become the primary contract document between the government and contractor, governing the scope of work, location, time for performance and other project-specific requirements. The work specified in the task or job order must fall within the minimum and maximum values, scope, duration and other parameters stated in the IDIQ contract.

How are they awarded?

Unlike standard lump sum, fixed-price contracts where competitive bidding is used, sealed bids are received and the contract is awarded to the contractor who submits the lowest responsive bid. IDIQ contracts commonly are initiated by a government agency's issuance of a request for proposal. IDIQ contracts may be negotiated and are awarded based on which proposal offers the best value to the government but not solely on lowest price. It is an evaluative process. Past performance, experience, technical merit and quality of personnel are considered in addition to pricing.

Each contractor who desires to be considered for an IDIQ contract submits a proposal that requires so much extensive information that some contractors who have not previously sought to obtain IDIQ contracts are discouraged from doing so because of the time and effort needed to prepare a proposal.

Contractors are required to submit detailed information regarding their experience when performing contracts of the same type, their general experience, technical expertise and approach, management capability and structure, as well as pricing information. The proposal may require submitting an organizational chart, previous relevant contracting experience, previous contracts' contact information, teamwork qualifications, evidence of a quality-assurance/quality control program, subcontracting plan, logistics plan, price list, adjustment factors, proof of financial capability, proof of bonding capability and bid bond.

An IDIQ contract solicitation must state the relation-ship between the technical factors and price in the government's evaluation process: Is the technical proposal more important than price? Are the technical and price proposals weighed evenly, or will the contract be awarded based on the lowest priced proposal that meets the solicitation requirements? Proposals typically are first evaluated by the government based on technical factors and then price is considered. The government may call a contractor to discuss the contractor's proposal and the contractor's capability to perform the work contemplated in the IDIQ contract solicitation and may require the contractor to submit more information. Negotiations may ensue.

Contract awards typically are made within 60 days of receipt of proposals. IDIQ contracting allows the government to continue to contract with a contractor whose past performance has been satisfactory. Proponents of IDIQ contracting contend IDIQ contracting reduces the risk of contractor default. Critics complain that, unlike competitive bid public contracting, the process is not open and transparent.

Single- and multiple-award contracts

The government may choose to award an IDIQ contract to more than one contractor. The government's contracting officer determines, for a specific solicitation, whether to award an IDIQ contract to a single contractor or multiple contractors. When an IDIQ contract is awarded to a single contractor, all subsequent delivery, task and/or job orders placed pursuant to the IDIQ contract are issued to the single contractor who was awarded the IDIQ contract.

A multiple-award IDIQ contract occurs when an IDIQ contract is awarded to several contractors, each of whom may be issued delivery, task and/or job orders pursuant to the IDIQ contract. Multiple-award contracting commonly is used for federal construction contracting. These contracts essentially establish a pool of prequalified contractors who will have the opportunity to perform job orders that are issued during the duration of the IDIQ contract.

One approach is for each work order to be advertised to all IDIQ contract holders who submit price proposals, and the work order is issued to the lowest bidder. The scope of a construction-related multiple-award IDIQ contract may require different trades to perform different construction services and might also include design services. Some state government agencies that issue multiple-award contracts give the work to the IDIQ contract holder who submitted the lowest unit price for specific line items. If this contractor is unable to perform the work, the work order is assigned to the contractor with the next lowest bid based on the unit prices originally submitted.

Except for architect and engineer IDIQ contracts, FARs state a preference for multiple-award IDIQ contracts under a single solicitation so several contractors compete for subsequent orders. FARs require federal contracting officers to justify using a single-award IDIQ contract. Nevertheless, single-award IDIQ contracts are common in federal government contracting. State government agencies that use IDIQ contracting also tend to issue single-award IDIQ contracts.

FARs require all multiple-award IDIQ contractors be afforded a "fair opportunity" to receive all orders exceeding $3,500 that are issued during the life of an IDIQ contract. Beyond the requirement to meet a minimum guarantee, contractors can choose to submit offers on multiple-award IDIQ contracts. Each awardee is guaranteed a minimum amount of work, usually expressed as a dollar amount.

Pricing

Pricing for IDIQ contracts can be established at different times depending on how the IDIQ contract is structured. Price and technical factors are considered during the evaluation of an IDIQ proposal and when a task or job order is to be issued. Pricing might be established in the IDIQ contract, by the job or task order, or some combination.

For example, the Air Force awarded an IDIQ contract to multiple contractors for roof system repairs with a maximum of $325 million during the life of the contract. The IDIQ contract included a not-to-exceed price for 11 types of repairs. When a need for roof system repairs arises at an Air Force facility, the government solicits offers from the multiple-award IDIQ contract holders. Each contractor submits proposals and prices based on the type of roof, extent of repairs and location. The proposal with the lowest price that is technically acceptable and less than the not-to-exceed price established in the original IDIQ contract is awarded the order.

FARs require that before purchasing supplies and services, contracting officers must determine the prices proposed by contractors are fair and reasonable. IDIQ contracting commonly uses unit prices. Adequate price competition normally establishes a fair, reasonable price, but in some cases the government will need to resort to other sources and methods to check contractors' prices are fair and reasonable, particularly when administering a single-award IDIQ contract where there has been limited competition. The contracting officer might look at actual cost data such as labor rates, the contractor's cost to obtain materials and invoices for the same items sold to commercial customers.

Because IDIQ contracts extend for several years, they may include provisions pertaining to cost escalation. Different agencies use different approaches, using construction cost indexes, a fixed annual adjustment rate or reliance upon bids obtained in response to issuance of a work order. On multiple-award IDIQ contracts when the pool of IDIQ contractors is called upon to bid against each other, there is no need for an escalation provision.

The government likes it

Government agencies like IDIQ contracting primarily because IDIQ contracts provide the government with great flexibility in quantities and delivery scheduling while eliminating the need to conduct a full and separate procurement for every construction and maintenance contract. It is easier and faster for the government to place an order under an existing IDIQ contract compared with awarding a separate contract when the need arises.

In addition, an agency can issue job orders to a contractor whose quality of work, cost and timeliness have been satisfactory and can limit its risk of contracting with a poorly performing contractor by not awarding any further job orders to that contractor beyond one project that satisfies the IDIQ minimum. In this way, the government can effectively terminate the contract of a marginal contractor with minimal risk. The government can continue to issue job orders to a well-performing contractor until the maximum amount stated in the IDIQ contract is reached.

Who uses them?

An April 2017 report prepared by the Government Accountability Office found that for fiscal years 2011 through 2015, IDIQ contracts accounted for about one-third of all federal government contracting, and federal military and civilian agencies obligated more than $130 billion annually to IDIQ contracts during those fiscal years. The DOD was by far the largest user of IDIQ contracts, accounting for a little more than two-thirds of all IDIQ obligations during fiscal years 2011-15. The Departments of Homeland Security, Health and Human Services, and Veterans Affairs were the next main users of IDIQ contracting.

IDIQ contracts were used more often for services than products across government agencies with about two-thirds of government-wide IDIQ contracts used for services. Despite the FARs preference for multiple-award IDIQs, more dollars were awarded by federal agencies through single-award IDIQ contracts than through multiple-award IDIQs. About 60 percent of federal government-wide IDIQ contract obligations were awarded through single-award IDIQ contracts.

In recent years, IDIQ contracting has been increasingly used by state and local government agencies, particularly state transportation departments, to acquire services, such as construction and maintenance. For instance, Florida's Department of Transportation uses IDIQ contracts to remove hurricane debris and activates contractors in affected areas when a hurricane strikes. New York has a similar arrangement for statewide emergency bridge repair and replacement work.

A substantial percentage of IDIQ contracts are awarded by the government as small-business set-aside projects, meaning only contractors who qualify as small businesses are eligible to be awarded the contract. Currently, the size standard limit for roofing contractors and other specialty contractors to qualify as a small business is average annual receipts up to $15 million.

An opportunity

Roofing contractors looking to expand opportunities and enter into a niche market may want to explore IDIQ contracting. If your business qualifies as a small business, small-business set-aside IDIQ solicitations may present an excellent opportunity. For contractors whose average annual receipts exceed $15 million, a teaming arrangement with a qualified small business, woman-owned business or disadvantaged business enterprise may lead to a profitable project.

If you're new to government contracting and/or IDIQ contracting, it's best to team with a successful contractor with experience in this market. Once you've progressed along the learning curve and developed expertise in obtaining and performing government IDIQ contracts, you are likely to have a source of future business when the private construction market next experiences a down cycle as IDIQ contracting is likely to grow and be continually used by government agencies at federal, state and local levels.

Stephen M. Phillips is a senior partner with Atlanta-based law firm Hendrick, Phillips, Salzman & Siegel.