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September 19, 2017

The Dotted Line: Understanding IDIQ contracting's win–win potential

Construction Dive
McKissack's Charlie Yetter shares his knowledge on the inner workings of IDIQs.

It is no secret that government construction contracts are big business for contractors. Public construction spending recorded a seasonally adjusted average of $266 billion in July 2017, and industry giants like AECOM have business units dedicated to the practice. 

Included among the lump sum, design-build and cost-plus contracts — to name a few — commonly used to carry out this work is another type of arrangement: indefinite delivery/indefinite quantity (IDIQ) contracting. Many public agencies use IDIQ when there is uncertainty as to how much of a service they need and when they'll need it.

The word "indefinite" might lead some to think its use could cause unscrupulous contractors to abuse the mechanism as an open faucet of funding. In practice, however, it is actually a tool for governments to better manage their budgets and prevent that scenario. 

IDIQ programs allow public agencies to lock in prices for a set period of time. For contractors chosen to participate, it can be an opportunity to lock in a customer.

Understanding the IDIQ process

When public agencies know they will need some type of construction service but lack certainty around the timeframe or the volume or scope of work, they often turn to IDIQ. 

For example, a city in a hurricane-prone region might have an occasional need for demolition and cleanup, but officials have no way of knowing exactly when a storm will come roaring through. So, they will select a small pool of contractors to have on standby in case they need those services.

"[The IDIQ process] is good for the government because it streamlines their procurement procedures, and they get a stream of stable contractors or vendors who can provide services or supplies for a certain amount of time for certain prices," said Sarah Biser, a New York City–based litigation partner at Fox Rothschild. "They don’t have to go back on the market to get them."

So attractive is this model that the federal government spent $130 billion annually on IDIQ-related contracting between 2011 and 2015, with the Department of Defense representing 68% of that amount, the U.S. Government Accountability Office (GAO) reported.

Typically, the city, state or federal government will issue a solicitation or request for proposal (RFP) for contractors interested in becoming IDIQ contractors. Of those, a certain number are approved based on their qualifications and ability to provide the anticipated services.

"Most initial RFPs to become part of the pool of IDIQ contractors contain a 'seed' project that serves as the basis of the price competition for evaluating the offers on the master contracts," said Aron Beezley, partner at Bradley Arant Boult Cummings. After the IDIQ pool is determined, contractors submit price proposals for each subsequent task order as the need arises. The winning firm for each task order then enters into a contract based on their bid.

Those contracts establish project-specific considerations such as unit prices, maximum prices and inflation allowances, Biser said. The government knows what it will be spending and the contractor can count on that amount. It's not unusual for pricing to be extremely competitive, especially if the contract will last for more than a year, she said.

The challenges of IDIQ

Being part of an IDIQ contractor pool does not assure work, however, and contractors can be selected to participate without the benefit of an initial project.

"[The government does] ... not necessarily give you a task order. You are only one of a few firms that are eligible," said Charles Yetter, national operations manager for McKissack & McKissack in Washington, DC. Many times it's a matter of whether the government is actually able to subsidize a project.

"A task order has to be funded," Yetter said. "The government can't order [services] unless they can pay for it." He likens the process to being put on unpaid retainer, meaning the contractor is on standby until the government is ready to move forward. "Until you get a task order, you don’t really have a contract," he said.

The IDIQ vehicle can encompass a range of services, including snow removal, ongoing road repairs and engineering work. McKissack & McKissack provided the construction management services for the Smithsonian Institution’s National Museum of African American history and Culture (top image), in Washington, DC, as part of an IDIQ contract, Yetter said, although it was not specifically selected for the museum. "The Smithsonian chose us from a list of IDIQ-eligible firms who were awarded contracts to be used when the entity needed a contractor," he said.

The typical IDIQ pool usually lasts for three to five years, Yetter said. After that, contractors have to undergo the qualification process again.

Aside from getting an assurance of costs during the length of a task order, another reason federal agencies might favor the IDIQ process is that contractors cannot protest the issuance of a task order under a certain dollar amount, Beezley said. According to the GAO, those amounts vary by agency but typically range from $10 million to $25 million.

Contractors' inability to lodge a formal complaint is one of the mechanisms' drawbacks, even though the government might like the idea of a protest-free bid process.

A con for the government, once it has established an IDIQ pool, is that it is limited from contracting with non-IDIQ companies if the work can be fulfilled using the IDIQ vehicle, Beezley said. This would be an advantage for the contractors in that pool.

The construction environment also plays a role in how attractive IDIQ contracting can be. "If you're able to get a better price in the short term, then you might not want [to pursue IDIQ contracting]," Biser said. "If you're overloaded with work [right now], there might not be a reason."

Plenty of contractors are enthusiastic about the chance to line up the potential for long-term work at a known price, however. "There's a lot to be said for that," Biser said.

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