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Contract Claim based on a new State requirement

By John Ford on Tuesday, January 11, 2000 - 11:50 am:

I agree with almost everything that has been said in the other messages. However, I have some questions concerning the facts. First, you indicate that a State requirement concerning recycling is the basis for the contractor's "claim." Did this change by the State require any contracting officer approvals in regard to contract performance? If so, this might be a constructive change. Also, you indicate this is a fixed price contract, but you did not say firm fixed price. If it is an FPI, the contractor might be entitled to a change in billing prices if the State requirement caused its costs to go. Finally, don't overlook the possibility that the State requirement may be cause for an excusable delay in contract performnce, although this would not entitle the contractor to a price adjustment.


By Dee McCombie on Thursday, January 6, 2000 - 03:29 pm:

Thanks Vern,

I was able to pull the decision and it is helpful in that it shows that boards will look for what basis, ie., entitlement under a contract clause, as you indicated in your first message.
At the GSABCA website I plugged in 'woodbridge' which gave me the decision you referenced as well as the followup decision.


By Vern Edwards on Thursday, January 6, 2000 - 01:21 pm:

Dee:

Take a look at Woodbridge Construction Corp., GSBCA No. 14200, November 25, 1997. It is available on the web. Go to www.wifcon.com, then click on the link to BCA decisions, then click on the link to the GSBCA. You can search for the decision by file number. I found it using the search: <"change in state law" AND entitlement>.

Since I don't know the facts of your problem I don't know if the facts of this case are similar enough to be persuasive. The case involved a GSA building lease. A county government assessed the building owner a fee for constructing water and sewer lines which the building owner wanted to pass on to GSA. The Board denied the claim for lack of entitlement. At one point the Judge writes: "Trying to understand why Woodbridge believes that it is entitled to recover the front benefit assessment charges has not been an easy task. In its claim, Woodbridge does not explain why it believes that GSA should pay the charges."

I did not analyze the case comprehensively, and it was not the only case that came up in response to my search.

Vern


By Dee McCombie on Thursday, January 6, 2000 - 12:35 pm:

Thanks to both Joel & Vern for your comments. I am in agreement with both of you. Ironically the contract does provide for some adjustments for taxes -- but this is not a claim for tax but a recycling requirement. The contractor has no theory. He just believes he is entitled to an adjustment. If we could provide the contractor a decision, he may accept our position a bit better. There may be a way to settle this in a win-win scenario that would benefit both of us by adding our own recycling requirements into the contract.


By joel hoffman on Wednesday, January 5, 2000 - 11:50 pm:

Dee, can you provide any more specifics?

There is a clause entitled "State, Federal and Local Taxes," applicable to FFP construction contracts. Without my FAR at hand, I can't tell you whether it applies to supply or service contracts but you can look it up.

This clause basically states that the contract price includes all applicable state, federal and local taxes. It also provides a mechanism for a price adjustment for after imposition of new or increases in certain FEDERAL Excise Taxes. I don't have my FAR at home but I think the clause also specifically clarifies that new or increased local taxes are the Contractor's risk.

At any rate, I have seen discussion in cases denying adjustment for after imposed State or local taxes or increases in those taxes. Nash and Cibinic's "Administration of Government Contracts" may also include discussion on this topic. Again - I'm at home - the book is in my office.

Even some Federal excise tax increases do not automatically merit price adjustments. For example, contractors can obtain an exemption for fuel excise taxes used in off-road construction equipment - so the 5 and 10 cents per gallon tax increases of several years ago weren't compensable. The Contractor was expected to file for the exemption.

I have dealt with this subject several times over the years - there is no contract provision for State tax increases that I am aware of. Contractors don't like it but generally have no legal basis for an adjustment.

Again, more specifics are required in order to render an opinion. Happy Sails! Joel


By Vern Edwards on Wednesday, January 5, 2000 - 07:42 pm:

Dee:

A claim for a price adjustment under a fixed-price contract must be based on legal entitlement, which is provided by either a contract clause or a breach of contract (including so-called "constructive changes") by the government. I cannot see how an act of a state government, even a new law, would entitle a contractor to a price adjustment under a Federal government fixed-price contract, unless some clause in that contract provides entitlement in such event.

Every contractor takes the risk that a new law will increase its performance costs. If that happens, the contractor is out of luck under its fixed-price contracts.

It is up to the contractor to establish its entitlement to a price adjustment. What is its theory?

Vern


By Dee McCombie on Wednesday, January 5, 2000 - 05:14 pm:

I am in need of a good decision (Board of Contract Appeals) that addresses allowing/disallowing a claim submitted for increase in price on a fixed priced contract because of a new State requirement imposed on a contractor causing his costs to go up. Appreciate a cite which can be retrieved electronically from the internet. I've searched the available BCA websites without luck. Also, any opinions you might have about a claim like this would be appreciated.  

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