Requirements Contracts

Q.  We advertised for the purchase of various types of buses. The total quantity was 350, but this quantity was not specific to any particular type or size of bus. After receipt of offers, we issued a Purchase Order to vendor X for a partial quantity (35 out of 350 buses). Subsequently, we processed additional purchase orders for additional quantities when needed to meet our requirements. Our purchasing staff never awarded a contract, relying instead on the issuance of purchase orders. Given this background, should we have awarded a written contract or not?

A. In this instance, a "requirements" contract or an Indefinite-Delivery-Indefinite Quantity (IDIQ) contract should have been solicited and awarded. The BPPM discusses these contract types in Sections 2.4.5.2 - Requirements Contracts, and 2.4.5.3 - Indefinite-quantity Contracts. FTA recommends an IDIQ approach with maximum quantities established in the contract, rather than an "open-ended," requirements-type contract where no maximum quantity is stated. Orders above the stated maximum in the contract must be processed as "new procurements" and not "change orders" since they are outside the scope of the original competition.

We would also be concerned about the prices being paid under each of the individual purchase orders. It is unclear from your question whether there was a basic contract awarded to this vendor, based on the original competition, committing the vendor to specific bus prices for a stated period of time. If the prices now being established in these purchase orders are being negotiated as the needs are being defined, then these purchase orders are not competitive since the prices were not established on the basis of the original competition. (Revised: August 28, 2009)
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* Section 2.4.5.2 of the BPPM is available online.
** Section 2.4.5.3 of the BPPM is available online.

Q. Many of our Operations personnel have requested that procurement establish blankets from various catalogue houses that have large parts/price manuals such as Grainger and Mc Master Carr based on % discount from their established list prices. We all know that each catalogue company establishes their own list pricing.  Can FTA provide some ideas on how to approach this issue?

A. We are aware of one major Transit agency (Marta in Atlanta) that competes a construction job order contract using a "price book" prepared for MARTA by an engineering consultant.  The price books contain many various jobs and prices for those jobs based on a survey of typical construction job prices in the region.  Bidders are then required to offer mark-ups or discounts that would apply to all jobs uniformly in the price book; i.e., one mark-up or one discount applicable to everything in the book.  The contract is then awarded to the bidder offering the lowest mark-up or highest discount factor to MARTA.  As job orders are issued they are then priced per the price book, and the discount or mark-up is applied to the price book prices in order to establish the prices for the various jobs being ordered.   As you can see, the MARTA process begins with a standard set of jobs and prices, against which all bidders are submitting one mark-up or discount.  Bidders do not use their own price books or catalogues; everyone starts from a common baseline.  The contact person at MARTA is Ms. Lisa DeGrace at 404-848-5467.  She is the Director of Procurement and she has agreed to talk to you if you think it would be helpful. (Posted: March 2010)