Buying Offices' Terminology

The following information is from the Defense Supply Center Richmond, illustrating procurement processes at a DoD buying office. DSCR is part of the larger DoD buying organization, and if you understand better what DSCR is doing, you will be better prepared to work with the other Supply Centers and federal buying offices.

DSCR, like many other buying offices, issues many long-term contracts. These contracts are more than just fixed-price, fixed-quantity awards. Generally, they contain a range of annual estimated quantities, a separate ordering quantity and a small guaranteed quantity. These quantities will be utilized over a period of a year or years with option terms. For long-term contracts over $100,000, the most common type is referred to as an Indefinite Quantity Contract (IQC). Long-term contracts under $100,000 are identified as Indefinite Delivery Purchase Orders (IDPOs).

• Indefinite Quantity Contract (IQC): An IQC is a contract issued for an estimated but indefinite quantity of supply to be ordered via delivery orders during a specified period of contract performance. This is the government's preferred method of long-term contracting. Total value of an IQC, including all option years, is anticipated to exceed $100,000. The limitation of the contract is based on the maximum estimated annual demand quantity for each contract period. Typically, contracts are issued with a base year and up to four option years. Each option year must be exercised via a modification to make the option effective. The determination to exercise the option is made solely by the government.
• Indefinite Delivery Purchase Order (IDPO): An IDPO is a purchase order (not a contract) issued for an estimated but indefinite quantity of supply to be ordered via delivery orders during a specified period of contract performance. Like the indefinite quantity contract, it sets minimum and maximum delivery order sizes and an estimated annual demand. Its term is based on the maximum contract value of $100,000. The contract expires whenever the threshold of $100,000 is attained, with a maximum of 5 years allowed.

Long-Term Contract Clauses

If you hope to compete for a long-term contract, there are a number of features that are unique to these kinds of arrangements. Be sure you understand these various elements before committing yourself to a project.

• Guaranteed Minimum: This is the minimum quantity the government agrees to buy during the contract period. The government is not obligated to buy any quantity beyond the guaranteed minimum quantity and may, if justified, buy elsewhere after that quantity has been procured (though that is not the intent and is not a common occurrence). The guaranteed minimum provides a vendor assurance of some sales and delineates where vendor risk in pricing begins.
• Estimated Annual Demand/Quantity: This spells out the actual quantity the government estimates that it will order during the contract period. Estimates are based on prior demand history but not assured. A check with contract history will reflect the consistency pattern of prior demand history.
• Contract Maximum Quantity: This is the maximum cumulative quantity the government can procure during the period of contract performance. If a contract period runs from January to December and in September the full quantity is reached, no further orders will be issued until the new contract period (option) is exercised.
• Minimum Order Quantity: This shows the minimum quantity that will be ordered at one time in a delivery order. It is usually based on average demand quantity ordered by requisitions. Consideration of this quantity is critical in pricing and considering the size of a production run.
• Maximum Order Quantity: This sets the maximum quantity that will be ordered at one time in a delivery order. The Government may order a larger quantity but vendors have the right to decline the order or request a modification to the delivery schedule to meet the increased demand. At no time can the order quantity exceed the (accumulated) maximum contract quantity.
• Flexible Option: This clause allows the government to exercise an option earlier than the expiration of the contract term. If a contract covers a period from January to December, and the full contract quantity is utilized in September, the contracting officer will not have to wait until December to exercise the option. With the flexible option, the option can be exercised in September and the new contract period would then run from September to August of the next year. While this process may shorten the ultimate contract period, the quantities are not altered and both vendor and government are unharmed by the action.
• Paperless Order Processing System (POPS): This requires the use of special software and a Value Added Network (VAN) when electronically sending delivery orders via Electronic Data Interchange (EDI). Failure to comply with POPS during award performance may result in a termination for default. While a vendor does not need to have the system in place at the time of solicitation, it must be in place within 30 days after award. Your local PTAC can help you identify potential VANs.

There also are other options to consider such as:

• blanket purchase agreements
• surge requirements
• market baskets