A1 SPE4A520R0150 Section H Special Contract Requirements.pdf

SPE4A5-20-R-0150 Amendment 1

Source Selection Information – See FAR 2.101 and FAR 3.104 For Official Use Only

Section H – Special Contract Requirements

1.0 ANNUAL ECONOMIC PRICE ADJUSTMENTS

The contract shall be an Indefinite Delivery Indefinite Quantity Commercial Fixed Price Contract with Economic Price Adjustments (EPA). The contract length will be ten (10) years with a one-year Transition Period, a base period of three years with two three-year option periods. After the Transition Period, each year of the contract will be referred to as a performance period.

Section L.11 details how the Contractor shall submit a proposal of unit prices for each basket for the first year of the contract. This Section details how the Government will calculate unit prices for all items (Core and Alternative) beyond the Transition Period by EPA using indices based on the Federal Supply Class (FSC) of items within the FSG 53 population.

Appendix H, EPA Index Calculation Example, is an Excel tool the Government will utilize to calculate unit prices for future performance periods based on the following information.

1.1 EPA Indices: Price indices are based on Producer Price Index (PPI) statistical data from the U.S. Bureau of Labor Statistics (BLS). PPI industry “series” codes for the FSCs within the population are listed in the table below. Price index data for each series will be obtained from the BLS at https://data.bls.gov/cgi-bin/srgate at the time of each annual price adjustment.

Series ID FSC Series Title PCU326130326130 5325 Laminated plastics plate, sheet (except packaging), and shape manufacturing PCU332119332119 5355, 5365 Other metal stamping, except automotive PCU332510332510 5340, 5342 Hardware manufacturing PCU332613332613 5360 Spring manufacturing PCU332618332618 5315, 5335 Other fabricated wire product manufacturing

PCU336310336310 5331 Motor vehicle gasoline engine and engine parts manufacturing

PCU332722332722 5305, 5306,

5307, 5310, Bolt, nut, screw, rivet, and washer manufacturing

1.2 Economic Price Adjustment Methodology:

(a) Warranties. The contractor warrants that-- (1) The base unit prices set forth in the Schedule do not include allowances for any portion of the contingency covered by this clause; and (2) The prices to be invoiced shall be computed in accordance with the provisions of this clause. (b) Definitions. As used throughout this clause – https://data.bls.gov/cgi-bin/srgate

(1) "Index" for the purpose of price adjustment under this clause shall be the Producer Price Index(es) reported in the monthly publication entitled, “Producer Price Indexes”, published by the United States (U.S.) Department of Labor (DOL), Bureau of Labor Statistics (BLS) for the following code number(s) and title(s): __see table at Section H, 1.1_____; or the Employment Cost Index(es) reported in the quarterly publication entitled, “Employment Cost Indexes,” published by the United States (U.S.) Department of Labor (DOL), Bureau of Labor Statistics (BLS) for the following code number(s) and title(s):

______________________n/a_______________________.

(2) "Base index" is the arithmetic average of the final version of the indexes published for the _12___ months, preceding the closing date for receipt of proposals or the date required for receipt of final proposal revisions, if discussions were held.

(3) "Adjusting index" shall be the arithmetic average of latest 12 months with published final versions of the index, prior to the month in which the adjusting contract modification is effective. For example, if the adjusting contract modification is effective in January 2020, and the latest 12 months with published final versions of the index are September 2018 through August 2019, the adjusting index shall be the arithmetic average of the final versions of the index for the 12 months of September 2018 through August 2019.

(4) "Base unit price" is the unit price applicable to a quantity of a contract line item established at contract award, exclusive of any price adjustment pursuant to this clause.

(5) “Adjustment period” is the period during which a particular adjustment to the unit price under this clause (calculated at the beginning of the adjustment period) will be applicable.

The length of each adjustment period in months shall be calculated by dividing 12 by the number of adjustments allowed per year in (c)(1) below.

(c) Adjustments. Prior to the end of each adjustment period, the contracting officer shall calculate the adjusting index and any adjusted contract unit price(s) for the new adjustment period, and modify the contract accordingly. Price adjustments pursuant to this clause shall be made by contract modification, issued by the contracting officer and will show the base index, the adjusting index, the base unit price, the mathematical calculations, and the changed unit price(s). The price adjustment shall be applicable to orders issued after the effective date of the contract modification establishing the unit price for the adjustment period. The price adjustment(s) for each adjustment period will be based on the percentage change between the base index and the adjusting index for the adjustment period, as applied to the base unit price.

(1) The Government shall be entitled to a price decrease in any particular adjustment period if the adjusting index is less than the base index. There shall be ___1___ price adjustments per contract year.

(2) Example of adjustment calculation: Base Index = 162.49* Adjusting index = 165.53* Less base index = 162.49 Change to index = 3.04 Divide change to index by base index = 3.04 / 162.49 = .01873 (1.873%)** Multiply by the base unit price = $50.00 x .01873 = $0.94*** = Unit Price Adjustment Adjusted unit price = $50.94

* In computing the base and adjusting indexes, the resulting figure shall be rounded to the second decimal place. ** This figure shall be rounded to the fifth decimal place. *** All dollar figures shall be rounded to the nearest cent. See Appendix H for spreadsheet example of these calculations.

(d) Upward ceiling on economic price adjustment. No upward ceiling shall apply under this economic price adjustment clause, unless the BLS series is based on indices below the six-digit level (an index “below the six-digit level” in BLS usage means an index whose identifier exceeds six-digits). For any BLS series that is below the six-digit level, the following ceiling shall apply: The contractor agrees that the aggregate of the increases in any contract unit price under this clause shall not exceed _35__% (percent) of the original base unit price, except as provided hereafter.

(1) If at any time the contractor has reason to believe that within the near future a price adjustment under the provisions of this clause will be required that will exceed the adjustment ceiling for any item, the contractor shall promptly notify the contracting officer in writing of the expected increase. The notification shall include a revised ceiling the contractor believes is sufficient to permit completion of remaining contract performance, along with appropriate explanation and documentation as required by the contracting officer.

(2) If an increase in the index would raise a contract unit price for an item above the current ceiling, the contracting officer may issue a contract modification to raise the ceiling. If the contract ceiling will not be raised, the contracting officer shall so promptly notify the contractor in writing.

(e) Invoices. The prices payable under this contract will be based on the latest adjusted unit price incorporated into the contract as of the date of order.

(f) Revision of index. In the event –

(1) Any applicable index is discontinued or its method of derivation is altered substantially;

or

(2) The contracting officer determines that the index consistently and substantially fails to reflect market conditions, the parties shall mutually agree upon an appropriate and comparable substitute and the contract shall be modified to reflect such substitute effective on the date the index was discontinued, altered, or began to consistently and substantially fail to reflect market conditions.

(g) Final invoice. The contractor shall include a statement on the final invoice that the amounts invoiced hereunder have applied all decreases required by this clause.

(h) Disputes. Any dispute arising under this clause shall be determined in accordance with and subject to the “Disputes” clause of the contract.

1.3 Application of Discounts and Rebates: After the unit price for each NIIN is adjusted by the percentage increase or decrease from indexes’ performance, any discounts or rebates offered by the Contractor applicable at the NIIN level shall then be deducted to establish next year’s final unit price for each NIIN.

The baseline unit price for each NIIN and index value will be refreshed each year of the contract with the previous year’s final unit price for each NIIN and index value.

1.4 EPA Calculation Time Frame: Thirty (30) days prior to the end of each annual performance period, the EPA calculation process shall commence to determine the percentage of change that shall be utilized to change pricing for the next performance period.

The same process shall continue every annual performance period throughout the life of the contract.

In the event that the end of a performance period falls on a weekend, or if a catastrophic event causes no index to be posted, the Government shall utilize the last day an index price was posted.

1.5 Contractual Price Change Time Frame: Within fourteen (14) working days after the start of each annual performance period, the Government shall amend the contract prices for the Core and Alternate Baskets via a Government-issued, unilateral modification. The new contract prices shall be in effect for delivery orders issued in the 12-month period following the date of the modification.

1.6 Volume-Based Tier Rebates: Volume-based tier rebates will be provided to DLA in the form of a line of credit, and will not be reflected in an adjustment to unit prices. Any similar rebates provided as a line of credit will also not be reflected in an adjustment to unit prices.

The Contractor will be responsible for tracking and reporting this data, subject to DLA audit.

DLA may utilize the line of credit by applying a discount to existing or future orders, or request repayment via other means for the value of the line of credit.

2.0 COST CONTAINMENT– GAINS & SAVINGS

All NSNs in the Alternative basket are subject to over-run and under-run incentives or ratios.

This allows DLA and the Contractor to share the cost risk, and provides a dollar amount (performance incentive) that the Contractor may earn for achieving savings. The Contractor shall maintain a purchasing system that ensures adequate competition. The Contractor shall provide an annual report that compares actual material prices paid by the Contractor to the Contractual unit prices for the performance period. Performance will be tracked annually and will begin immediately following the Transition Period. The following cost gains and cost savings incentives shall be reviewed on a quarterly basis. On an annual basis, the cost gains and cost savings incentives will be reviewed and calculated on an annual, aggregate delivery order basis to determine gain sharing.

2.1 Cost Gains Sharing: The Contractor shall retain all savings achieved up to 2.5% of the aggregate annual delivery orders paid. Savings realized beyond 2.5% shall be shared between DLA and the Contractor on a 50/50 basis.

Cost Gains Sharing Example:

Year 2: 15% under-run Aggregate Total Delivery Orders = $20,000,000.00 Aggregate Total Contractor Material Spend = $17,000,000.00

Difference = $3,000,000.00 Contractor Retained Savings (.025 x $20,000,000.00) = $500,000.00 Government Shared Savings [Lump Sum Decrease] (0.5 x $2,500,000.00) = $1,250,000.00 Total Contractor Savings = $1,750,000.00 ($500,000.00 + $1,250,000.00)

2.2 Cost Savings Sharing: The contractor shall absorb all costs realized up to 2.5% over the aggregate annual delivery orders paid. Costs realized beyond 2.5% shall be shared between the DLA and the Contractor on a 50/50 basis.

Cost Savings Sharing Example:

Year 2: 10% over-run Aggregate Total Delivery Orders = $20,000,000.00 Aggregate Total Contractor Material Spend = $22,000,000.00 Difference = $2,000.000.00 Contractor Absorbed Costs (.025*$20,000,000.00) = $500,000.00 Government Reimbursement to Contractor (50/50) = $750,000.00 (.5*$1,500,000.00) Total Contractor Absorbed Costs = $1,250,000.00 ($500,000.00 + $750,000.00)

2.3 Cost Containment Quarterly/Annual Reports and Annual Calculation Process:

(a) Cost Containment Quarterly Report: Starting in Year 2 of the contract (at the beginning of Contract Execution) and within 15 days after the end of each quarter of the contract, the Contractor will provide to the DLA Contracting Officer a report that compares actual material unit prices paid by the Contractor and the unit prices paid on delivery orders issued by DLA (contractual unit prices). The report shall be in accordance with the deliverables requirements of SOW Section C 10.2.3 and shall notate the Contractor’s potential NSN migration candidates. Each quarterly report will allow both parties to review and track NSNs that are experiencing gains or savings prior to the annual calculation outlined above in Sections H 2.1 and 2.2 and will build support for the potential migration from one basket to another as outlined in SOW Section C 6.0.

(b) Cost Containment Annual Report: Along with each fourth quarter report, the Contractor will provide to the DLA Contracting Officer an annual report that compiles all four quarters of cost containment data in order to calculate cost gains or savings.

(c) Cost Containment Annual Calculation: DLA will calculate cost containment gains or savings based on the Contactor’s annual report.