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CCS offers the following from our Chief Problem Solver, Tom Reid:
First we should explain what “an ID/IQ” contract is. This type of contract is most often used when it is not possible to know exactly how much of a product or service will actually be needed. The letters stand for “indefinite delivery/indefinite quantity” contract. The contract may require that the offeror maintain a warehouse for prompt delivery, or maintain some level of a standing army to provide a service; but, typically, the government need is intermittent and inconsistent from year to year.
This has become a popular contract type to use when purchasing commercial items under FAR part 12. Many commercial contracts are structured similarly. One note of distinction: An ID/IQ contract requires that there be some minimum initial order. This provides the necessary “consideration” to support the creation of the contract. (Remember from your b-law days, the five necessary elements of a contract are offer, acceptance, capacity of the parties, lawful purpose, and consideration. Yes, under the Uniform Commercial Code the rules are a little different, but the Government still follows what is called the “common law” in contract formation.) A similar contract form is the “requirements contract.” Under that type there need NOT be a minimum order. The promise that whatever the need is, it will be ordered ONLY from that contractor is legal consideration to support the deal.
So what this question gets to is the issue of whether the government’s estimate of its annual need can be trusted. While there have been diverse opinions in this arena, the general rule is that the minimum must be more than nominal and the maximum must be a good faith estimate. Still, it is not unusual to see solicitations that offer only a $5,000 minimum with the annual estimate falling into the millions.
In at least one case, the Department of Interior Board of Contracts Appeals has found the government liable for breach of contract for grossly overestimating its needs. It is not clear whether the action was taken intentionally to get the lowest possible pricing, but the Board found that this was the effect and found the government liable to the contractor for its discounted pricing in light of the overstated estimate.
On the other hand, the Comptroller General has held that a $2,500 minimum amount against an estimated total contract value between $15,000,000 and $150,000,000(!) was more than nominal and therefore was adequate consideration to support the contract.
So where does that leave the potential bidder/offeror? Well, with very little to go on. Some agencies are extremely good at producing their estimates. Others are notoriously bad. The best defense is to understand the procurement as thoroughly as possible, to attend all preproposal conferences and walk-throughs, to ask excellent questions, and to be cautious of making any assumptions. This is where a good relationship with the contracting officer, doing your homework in preparing your bid, and judicious (and timely) use of FOIA can work to your advantage.
Agencies are under minimal obligation to pin themselves down too much. They can use very broad ranges for their estimates, and rarely will they be held liable for bad estimates. If the estimate seems odd to you, ask a question. If the question is not helpful, consider whether you can afford to win the contract. No business is often better than bad business.
CCS is experienced in helping clients perform many of these tasks. Freedom of Information Act (FOIA) requests are very routine for us, training on contract types has been provided to many clients, proposal preparation support has been used by many of you, and training and coaching on how to ask good questions has been provided to select clients. Call us if we can assist you in any of these areas.
NOTE: CCS is not authorized to practice law or accounting. This information should not be relied on in any particular facts you may have without checking with a properly licensed professional.
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