The Benefits of Modular Contracting

July 27, 2021

Modular contracting is an acquisition strategy in which large, complex projects are broken up into multiple, tightly scoped procurements to implement technology systems in successive, interoperable increments. Modular contracting is intended to reduce program risk and incentivize contractor performance, while meeting the Government’s need for timely access to rapidly changing technology (FAR 39.103).

From an IT perspective, modular development allows agencies to test the probability of the successful implementation of solutions in shorter time periods, which better positions agencies to adopt new innovative technologies.

From an acquisition perspective, a modular approach to contracting balances the Government’s need for fast access to rapidly changing technology and risk management. This approach provides for the incremental delivery, implementation, and testing of an investment.

In addition, section 5202 of the Clinger-Cohen Act and Section 39.103 of the Federal Acquisition Regulations (FAR) each recognize the following benefits of modular contracting:

Usable capabilities that provide value to agencies more rapidly as missions and priorities mature and evolve.
Increased flexibility to adopt emerging technologies incrementally, reducing the risk of technological obsolescence.
Decreased risk as agencies allocate for smaller projects and increments versus “grand design” therefore, each project has a greater overall likelihood of achieving cost, schedule, and performance goals.
New opportunities for small businesses to compete for the work.
Greater visibility into contractor performance.
Limits risk when there is a shift in priorities or mission.

Modular work statements allow agencies to test the implementation of solutions in shorter time periods and better positions agencies to adopt innovative technologies. This approach allows for the incremental delivery, implementation, and testing of an investment. This modular approach is one of many methods that may be used by the Government to acquire major IT investments. Indefinite Delivery Indefinite Quantity (IDIQ) contracts are the most popular contracting form as agencies migrate to modular development approaches. Under an IDIQ contract, the agency awards an “umbrella” contract to one or more contractors with a statement of work that describes the general scope, nature, complexity and purposes of the goods or services to be procured.

When awarding a modular contract, agencies should include language that reinforces modular principles. For example, a requirements document that defines specific functionality that delivers value to the customer within a specified period, or a requirement document that ties additional work to the acceptable delivery of prior releases and contractor performance.

Per OUSD(A&S) Guidance: When planning a modular contracting strategy, it is important to understand the program needs and objectives to identify the contract vehicles needed to support the mission. The collection of modular contracts should be expected to change and evolve throughout the development lifecycle, especially as scaling occurs and more development activities are added.

When using modular contracting, an acquisition of a system of IT may be divided into several smaller acquisition increments that:

Better manage individually than would be possible with one comprehensive acquisition
Address complex IT objectives incrementally in order to increase the likelihood of achieving workable systems or solutions for attainment of those objectives
Provide for delivery, implementation, and testing of workable systems or solutions in discrete increments, each of which comprises a system or solution that does not depend on any subsequent increment in order to perform its principal functions
Provide an opportunity for subsequent increments to take advantage of any evolution in technology or needs that occur during implementation and use of the earlier increments
Reduce risk of potential adverse consequences for the overall project by isolating and avoiding custom-designed system components. Modular contracting can help agencies meet small business contracting goals by identifying opportunities for small businesses in the Federal marketplace. The key to modular contracting is scoping the projects into smaller, self-contained pieces. This allows each piece of work to be awarded in individual task orders, therefore increasing the opportunities available to small businesses.

Federal Agencies that can effectively meet and manage these challenges will be able to incrementally address complex IT objectives thereby significantly increasing the likelihood of achieving their program objectives.

Authors: Brittney Bookout, Huda Malik, and Astley Davy, are acquisitions and procurement professionals linked to WBD’s Acquisition Solution Group.