As DoD Relies on Indefinite-Delivery Contracts, So Must Contractors!

The General Accountability Office (GAO) recently determined that approximately 40% of DoD obligations in fiscal years 2015 through 2017, averaging more than $100 billion per year were obligated under DoD awarded Indefinite-Delivery contracts. Roughly two-thirds of the obligations were awarded to winners of single-award Indefinite-Delivery contracts. The other third totaled over $34 billion in 2017 and was awarded to holders of multiple-award contracts. Though the FAR allows three types of Indefinite-Delivery contracts, Requirements, Definite-Quantity, and Indefinite-Quantity, more than 80% of the obligations were placed against Indefinite-Delivery, Indefinite-Quantity (IDIQ) contracts.

No government contractor today would deny the importance of winning a position on one of the major Government-Wide Acquisition Contracts (GWACs). The statistics cited by GAO indicate that for DoD contractors it may be equally important to win single and multiple-award IDIQ contracts awarded by DoD. Failure to win an DoD IDIQ contract may result in the contractor being unable to compete for any work in that component of DoD for at least the next five years.

As important as IDIQ contracts are, they are not without their downsides. For instance, a large quantity of work usually allows the contractor to propose more aggressive pricing. This is a riskier call when bidding IDIQ contracts, as the total quantity can range from a lot to a little. Bidders who assume a small quantity are likely to be underbid, while bidders who assume a large quantity will risk losing money if that quantity does not materialize.

Multiple-award IDIQ contracts present another issue. GAO found that over 90% of the obligations awarded to multiple-award contract holders were awarded competitively. As one critic noted, when multiple-award IDIQ contracts became popular, “I used to have to submit one proposal to win a job, now I have to submit two. How is that more efficient?” This is especially troublesome for small businesses with limited bid & proposal (B&P) budgets who have to expend a significant percentage of their budget just to win a contract that requires them to spend more B&P to win a task. There are numerous examples of contractors who invested heavily to win a multi-award IDIQ contract and never won a single task.

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