22 Feb 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.
IDIQs 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 (IDIQs) 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 five years, but it’s very common that they will contain options to extend the time if necessary.
This contract allows the government to retain technical expertise for an indefinite period of time in areas such as construction, repairs, electric work, architectural design, among other services.
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.
Who Uses IDIQ Contracts?
These types of contracts are commonly used by the various branches of the US Government. There are several reasons why they use them, but they are quite often beneficial for parties on all sides.
Types of Projects That Use IDIQs
IDIQ contracts are commonly set up for service projects when the appropriate people must 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. They can guarantee that projects will stay within budget constraints, even at times when funding is tight.
Multiple Companies Awarded IDIQ
In some cases, an IDIQ will be awarded to only one company. It is very beneficial because it allows that organization to set prices within their limitations.
In other situations, these contracts will be awarded to multiple companies. In these cases, the government agency will give orders for the tasks or deliveries, and all participating companies submit a proposal with pricing and time commitment.
Because contracts are being awarded to multiple companies, competition in IDIQ contracts are often fierce. In addition, government agencies are more likely to select a company that they have experience working with for IDIQ participants. Favor of lower pricing can make it hard for newcomers to break into the scene and see meaningful work, especially if more established competitors propose very low prices.
In spite of this, we recommend participating in IDIQs whenever possible. After all, if you don’t participate in IDIQs, you’re missing out on a billion-dollar industry of tasks and orders for the government.
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 of contracts. 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.
Other benefits of IDIQ contracts:
- They streamline the contract process into one large multi-year contract rather than hundreds of small contracts over the course of the project life.
- 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 streamlined contract process.
Risks of Using IDIQ Contracts
If you agree to be the supplier of an IDIQ, then you are liable to provide an unknown amount (within limits) 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. If you’re planning on being involved in these types of projects, they are worth familiarizing yourself with in more detail.
IDIQ Vs BPA
When comparing available government contract options, you might confuse the IDIQ and BPA (Blanket Purchase Agreement). Both are common types of government contracts. These two contract types are very similar, with the main difference being the project parameter control factor. With the IDIQ, the control factor is the duration of the contract. Any service or order can be requested during the contract period, with no definite terms on quantity or timing within that period. There is also no stipulation on budget. The contract ends when the term limit is reached, even if it’s many years in the future.
However, BPA agreements have a fixed budget. When operating under a BPA, orders and services can be ordered up until the budget is reached. You could reach this budget cap in six months or three years, but the budget acts as a hard line.
For a more in-depth, read our article on IDIQ versus BPA.