Page 248 - Automated Fingerprint Identification Systems (AFIS)

CONTRACTUAL ISSUES REGARDING THE PURCHASE OF AN AFIS 233

One other topic to address is the government’s expectations regarding
payment holdbacks. This concept recognizes that while value may be received
from delivery of a phase, the real value is received only when the entire System
is accepted. Holding back an agreed-upon amount or otherwise deferring a
portion of the payment provides an incentive for the vendor to deliver both the
individual phases and the total System. Statutes may dictate the amount that
may be held back. Otherwise, it will be the topic of negotiation with the winning
vendor.

9.7.6.4 Technology Substitution or Refreshment (or Updated Price Lists)
Consistent with developing a contract with flexibility to address future growth
or technological advances, contractual language could be included describing
a process for adding new or updated technology or prices to the contract.

9.7.6.5 Price Adjustments During the Term of the Contract
If the cost evaluation does not request a proposal from the vendor about price
increases, language could be included to address the matter. For example,
it could be proposed that price increases for the hardware and software will
be keyed to the vendor’s public price list (with a percentage discount), and
increases to the hourly rates for training and consulting services will be keyed
to the Consumer Price Index. The language should set both a floor and a
ceiling for the price increases. Also, it should be as specific as possible regard-
ing which Consumer Price Index or other index is used and how increases are
calculated. Inclusion of contractual terms addressing price increases should
decease the number of amendments and increase the flexibility of the contract
to serve long-term needs.

9.7.6.6 Guarantees for Performance
A guarantee for performance can be compared to an insurance policy the gov-
ernment would access to ensure it obtains the needed AFIS. There needs to be
a mechanism to protect the government’s interests in case the vendor does not
fulfill its contractual obligations. A number of means are available, such as
requiring the winning vendor to supply a letter of credit or performance bond.
The value of the guarantee should be keyed to the payment stream. For
example, if the payment stream anticipates that funds will be paid before full
system acceptance, these payments need to be protected. It is not difficult to
imagine a situation in which the parties have agreed to payments upon com-
pletion of milestones, but the entire System never satisfies the performance
requirements, or a situation in which the System provides a higher level of per-
formance than required in one area, but a lower level of performance than