08 Jun What are Indefinite Delivery Indefinite Quantity Contracts?
If your company engages in any projects with the US Government, it’s quite likely that you’ve heard about Indefinite Delivery/Indefinite Quantity contracts. IDIQs are important, but it’s critical to know the details about them, as well as understand what they are. These are a very common form of government contract, and the appropriate knowledge can help you determine if they are worth engaging in.
What Are IDIQs?
Indefinite Delivery Indefinite Quantity contracts (often simply referred to as IDIQ) are a form of contract in which one party is required to deliver an indefinite amount of supplies or services over a predetermined amount of time.The amount of time covered in these contracts typically doesn’t exceed 5 years, but it’s very common that they will contain options to extend the time if necessary.
Time In Place of Deliverables
A more simplified way to think about these contracts is that they are designed in a way that deliverables aren’t necessary for measurement. Services or goods are guaranteed throughout the time period, but they are only delivered if the need arises. Once the determined amount of time finishes, the contract will end, regardless of what has or hasn’t been accomplished.
How the Prices Are Set
The prices for IDIQs are generally calculated based on prices previously offered and experiences in the past. This is generally beneficial to a company entering a contract because it is a direct comparison to how much money was paid when involved in similar projects.
As a supplier or vendor, you will attempt to be awarded an IDIQ through a process where you will provide some specific information. At a basic level, you will have to give price requirements, as well as explanations of how you will be able to deliver the necessary goods or services.
Minimum and Maximum Limits
The strength of the ‘indefinite’ words in the title may be intimidating enough to frighten many businesses from being interested in these contracts, but there is less risk than the name implies. IDIQ contracts contain a minimum and maximum level of expected deliveries. In other words, a service supplier will have a lower and upper limit of hours spent working, and a company providing goods or materials will also have limits. However, there is not a limit to how large the contracts can be – just a cap on what can happen once the agreement has been entered into.
Who Uses IDIQ Contracts
These types of contracts are commonly used by the various branches of the US Government. There are a number of reasons why they use them, but they are quite often beneficial for parties on all sides.
Types of Projects That Use IDIQs
There are many situations where these are used, but IDIQ contracts are commonly set up for service projects when the appropriate people have to remain in an on-call status. Also, they’re very popular with architect and engineering services.
Why IDIQs Are Used
These contracts were essentially created to solve delays due to difficult calculations on projects. Rather than losing time over something that may never be determined, they often help projects move forward. Also, they can guarantee that projects will stay within budget constraints, even at times when funding is tight. Another benefit is that they allow agencies to have a specific list of companies they can work with on relatively short notice. Overall, they provide less administration and a simpler process.
Multiple Companies Awarded IDIQ
In some cases, an IDIQ will be awarded to only one company, and this is very beneficial because it basically allows that organization to set prices within the limitations.
In other situations, they will be awarded to multiple companies. In these cases, the government agency will give orders for the tasks or deliveries, and there will be a competition among all companies involved.
Advantages of IDIQs
One of the primary benefits of IDIQs is that these contracts are usually a more straightforward structure to engage in than other types. In some cases, the payment received by the supplier company can be less than the cost of fulfilling the contract, so this is an obvious business benefit.
Risks of Using IDIQ Contracts
As is obvious, if you agree to be the supplier of an IDIQ, then you are liable to provide an unknown (within limits) amount for the duration of the contract. It is very important that you make a detailed assessment before entering into this type of legal agreement, or it could potentially end up hurting you in the long run.
Common Form of Contract
There are many pros and cons to IDIQ contracts, and they go much further than the brief overview covered here, but they are a common type of legal format used on government contracts. If you’re planning on being involved in these types of projects, they are worth familiarizing yourself with in more detail.