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Case Study - Distinguishing Among Phases, Options, Performance Increments and Severability

Scenario:

A recently appointed Project Officer (PO) in the Office of the Assistant Secretary for Preparedness and Response is contemplating two unrelated requirements for a 3-year period: one for independent verification and validation (IV&V) of the efficacy of a vaccine; and one for support services to the office in helping to prepare briefings. The PO has heard the terms "phase," increment", and "option" in relation to contracting for services and wants a better understanding of how those concepts may apply to the statements of work (SOWs) that s/he will be writing. In discussions with the PO, the Contracting Officer (CO) learns that the PO would like to structure the SOW for the IV&V effort so that s/he will able to review the protocol before it is applied by the contractor.

Discussion:

Taking each requirement separately, the CO must determine whether the requirement is for severable or non-severable services and advise the PO accordingly on how to structure and fund these contracts, e.g., whether use of phases, options, or incremental funding is appropriate.

  1. The requirement for an IV&V effort appears to be non-severable, with review of the protocol as an integral part of such requirement. In this case, options would not be appropriate (unless structured as a multi-year requirement), and incremental funding would be prohibited by HHS policy.
    1. Therefore, the IV&V SOW should be structured to define two phases—completion of the protocol and application of the protocol to evaluate vaccine efficacy. By doing so, the contractor must complete, and the CO must approve, phase 1 before the contractor may begin work on the second phase. Each phase should be defined by a completion date and can include an estimate of the funding devoted to that phase within the overall award amount.
    2. "Phases" do not provide a means to separately fund the work involved. In other words, the contract must be funded as a contract for non-severable services (fully funded at initiation or as a multi-year contract); each phase cannot be separately funded. If the phase 1 product is not approved, the CO and the PO can work with the contractor to get the product to an acceptable point; otherwise the contract must be terminated to recoup remaining funding (less termination costs).
  2. The requirement for support services is severable, i.e., it is continuing and recurring in nature. Use of "phases" is not appropriate for severable services. Instead, performance covering multiple years should be separated into options or increments of performance. However, under a contract for severable services, HHS policy comes into play when deciding how to structure the overall contract and fund beyond the first year.
    1. Options, which must be priced and established in the contract, allow (but do not require) the Government to unilaterally purchase additional supplies or services. Options can be governed by the severability of efforts, e.g., completion of all briefings during a specified period, with an option to acquire services to develop briefing books. Options need not be sequential, but can overlap. Usually, however, options for severable services are structured to acquire the same scope of services from year-to-year.
    2. If using incremental funding, separately funded increments of performance (by time and/or work) must be defined in the contract, and the contract must provide specific spending limits that are less than the total estimated cost/price of the entire contract—with the understanding that additional funds are expected to be provided at a later date. Under incremental funding, the contractor is not obligated to perform beyond the ceiling amount currently included in the contract. An incrementally funded contract requires closer monitoring than the norm, and if the Government decides at some point that the services are no longer required, the contract must be terminated for convenience. Because of this, use of options is preferred by HHS as a matter of policy.
    3. Therefore, based on the PO’s description of the services desired and HHS policy, this second requirement should be structured as a 12-month base period with two 1-year options.
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