wvanpup

The "gross generalization" I referred to is, essentially, equitable estopple. The principle was applied in American Electronic Laboratories, Inc., v. United States, 774 F.2d 1110, October 7, 1985. As stated in LexisNexis Headnotes to the case: The research I did some time ago indicated that the Limitation of Cost clause was (virtually?) always enforced, usually because the contractor did not provide the required notice and the Government was therefore not aware of the overrun, or because the contractor did not establish the facts supporting equitable estoppel. See, e.g., the following from Northrop Grumman Corp. v. U.S., 42 Fed. Cl. 1, September 24, 1998. Will the principle apply here? I do not know, because there is insufficient evidence concerning the notice that was provided and the Government's actions in response to whatever notice may have been provided.

LM_ABITWT, Your posting, to me, raises two questions. 1. Can the CO deny your costs under the Limitation of Cost or Limitation of Funds clause, and you worked "at risk?" There is a line of cases holding (as a gross generalization) that these costs cannot be denied if the contracting officer knew you were incurring costs beyond the funds alotted to the contract and encouraged you to continue performance (such as, perhaps, by requesting a proposal for additional performance without telling you to stop incurring costs). 2. Are the costs considered unreasonable because of the rate or because they were incurred in excess of the Limitation of Cost clause or Limitation of Funds clause? If the former, which seems likely from your post, is the contracting officer willing to pay the originally proposed rate (which I expect was paid for the bulk of the labor and was considered reasonable) or some other higher rate that is considered reasonable, or is the contracting officer denying everything (if so, what is the reason for denying everything)?

Actually, there is something I do not like in the JTR provision. IIRC, if I save the Government money by staying with a friend or family (no lodging), I forfeit my entitlement to the meals and incidental expenses payment. If I stay in a hotel, the Government does not care how much I spend on my meals (whether or not I eat, where I eat, or if I bring my meals with me and use the hotel refrigerator and microwave). Why does the Government suddenly care about this when I do not have lodging expenses?

OK, the question is not whether it can be done (if your description of the option clause is accurate it can) but whether it should be done. You seem to have three choices: (1) exercise the options and pay the out year rates now; (2) negotiate new rates based on performing the work early; or (3) waiting to exercise the option if you cannot negotiate new rates and the option rates are too high at this time. I have no basis for speculating which of these is best for you.

You are correct that the "future line item may well be based upon projections of higher costs plus fee on the higher costs" and that the remaining work "may not cover all the contractor's fixed costs for the future performance periods." OTOH, the contractor may well have no problem with recovering costs, and there may well be no increase, or just a minimal increase, in the option price, so that "exercising" the option early does not result in additional cost (or the administrative expense would not be worth the savings that could result from trying to get the services at current prices). Would it then be DUMB? I did not "suggest" doing it bilaterally, I asked if it could be done bilaterally, and then suggested the possibility that this was what was really meant. I made no comment on the wisdom of doing it bilaterally, as that would depend on too many factors to be able to reach any valid conclusions (e.g., would there be a price increase, what is the impact of stopping now -- if we do not add effort at this time -- and resuming when the option can be exercised unilaterally, etc.). What I believe has been suggested is, in effect, obtaining the original LOE earlier. There is no indication that the total LOE required by the contract (base plus options) will be increased. I consider that an in-scope change (not a change that can be done unilaterally, but in-scope nonetheless) that does not require a sole source justification (if I remember GAO decisions correctly, not all quantity increases are out-of-scope modifications that require sole source justification). If the option were for additional quantities of widgets rather than LOE, and the option clause had an exercise date of not earlier than 1 August 2014, would I need a sole source justification for an agreement to change the option exercise date to 1 June 2014? I do not think so, and I do not see the difference between a supply option and a services option in that respect. As for what was actually meant by option exercise, I do not know either. Chip 13, does your contracting officer want to partially exercise the option unilaterally or with the agreement of the contractor? Boof, when you shortened the performance period to two years, was that done unilaterally or with the agreement of the contractor? Should the focus of the discussion be on what should be done, or should we focus on what may well be a poor choice of words to describe the situation?

Vern I agree, the Government must exercise an option in strict accordance with its terms. In this sense, however, I think "exercise the option" refers to a unilateral action by the contracting officer. If an option provides for performance in a specific period, the Government cannot unilaterally exercise the option for a different period. However, can the contracting officer "exercise the option" early bilaterally, with the agreement of the contractor (exercise the option in quotes, since it is not technically an option exercise). I don't know, but I suspect that is what is meant in the posts so far. Do we have, perhaps, an improper use of terminology rather than an improper action by the contracting officer?

If, as has been posited, travel is a cost CLIN, it is fraud, not just "improper," for a contractor to bill the Government at per diem when it reimburses its employees at actual cost. On the other hand, there is nothing improper about a contractor who always reimburses employees at per diem, regardless of actual costs incurred by the employee, to bill the Government at per diem. Where travel is a cost CLIN, per diem represents the actual cost to the contractor.

How can the contractor do this without violating CAS?

Someone who works with CAS will probably give a better response, but what is inconsistent between the practice used in estimating the cost and the practice used in accumulating and reporting the cost? The basis for estimating the cost is actual cost, with the amount estimated to be the Government established per diem for the location of the travel. The basis for accumulating and reporting the cost is actual cost (no estimates are needed since the contractor has actuals). I sort of understand the disagreement with the amount that is estimated, but I do not see how that becomes a CAS question. I also am not sure of your concern about the effect on the NTE. What is the impact of "inflating the NTE," and if there is an impact can't you just negotiate the NTE down if you disagree with the amount estimated? Is there fee attached to the CLIN (typically, at least at my agency, a cost CLIN for travel does not include fee)? If there is no fee, what is the problem? If there is an incentive contract, either do not include travel among the costs subject to the incentive, or negotiate the cost down (it may be proposed at per diem, but you are not required to negotiate at per diem).

I am assuming that you are referring to Sister B providing support services for an NDI. If the services are the type of service included in definition 5 (installation services, repair services, training services, and other services), are for support of a commercial item, and the source of the services provides similar services to the general public under similar terms and conditions, you meet definition 5. Therefore, one of the conditions for definition 5 is not met, and you are, in essence, asking to expand definition 5 so the services can be considered commercial despite the failure to meet that condition. I am not aware of any effort within DoD to expand the definition as you are suggesting.

Beantown The Washington Post article concerned GSA Federal Supply Schedule contracts which had clauses providing that the minimum amount would be paid. That promise is not part of the standard IDIQ contract (which includes a promise to order a specified amount, but there is no promise of payment if the promise to order is breached). How does the promise to pay the minimum quantity relate to paying proposal costs? Assuming we order the minimum, the contractor is paid for goods delivered or services provided. Where are proposal costs included in that? If usage of guaranteed minimums should be extremetly limited, what do you propose should be done where our needs are indefinite and cannot be put on a definite quantity contract? Remember, the guaranteed minimum is required to make an IDIQ contract enforceable (the contract fails for lack of consideration without such a promise).

Regardless of what you have to pay for the failure to order the minimum, I do not see how you can issue a PO to meet the minimum. The contract is expired; what is the authority to issue a PO?

Vern It has been a couple of days since you asked the question. I am curious ..... what did I miss (if it is related to the "$100,000 will be for subcontractor effort included in subcontractor termination settlement proposals," I did not see how that is related to the percent complete)?

I strongly recommend you coordinate, in advance, with legal before deciding to pay the guaranteed minimum. The leading case in the area, particularly concerning paying the full contract price for the guaranteed minimum, is Maxima Corp. v. U.S., 847 F.2d 1549. It was described (by the ASBCA) as follows in Hermes Consolidated, 02-1 BCA 31767: In my view, paying the contractor the contract price for the guaranteed minimum provides the contractor a windfall. The contractor should receive, at most, the costs it incurred in being ready to perform the quantity that was not ordered (which may be difficult to establish, and there is an argument for being paid all costs incurred, plus profit, minus what was paid for delivered items), reasonable profit on those costs, and perhaps anticipatory profit if the failure to order the minimum is considered a breach of contract rather than a termination for convenience. Paying the guaranteed minimum pays the contractor for costs it never incurred, a windfall because it provides much more to the contractor than payment for the damages caused by the government's potential breach of contract.

The target fee is $2,000,000. The fee earned will be 60%, or $1,200,000. Rationale is: 52.216-10(e)(3) provides: "If this contract is terminated in its entirety, the portion of the target fee payable shall not be subject to an increase or decrease as provided in this paragraph. The termination shall be accomplished in accordance with other applicable clauses of this contract." The fee due at termination will be determined IAW 52.249-6(h)(4)(i), which provides: "If the contract is terminated for the convenience of the Government, the settlement shall include a percentage of the fee equal to the percentage of completion of work contemplated under the contract, but excluding subcontract effort included in subcontractors' termination proposals, less previous payments for fee." Thus, whether the contractor is overrunning or underrunning, fee is based on percent complete, which is stipulated at 60%. The contractor owes a partial refund ($650,000) of the fee that has been paid. As described above, the fee earned is $1,200,000. The contractor has been paid $1,850,000 in fee, which is $650,000 more than it earned. Rationale is: 52.249-6(h) is the method of determining how much is due the contractor, and includes fee based on percentage of work completed 52.249-6(m)(2) provides that if "total payments exceed the amount finally determined to be due, the Contractor shall repay the excess to the Government upon demand" The total amount due the contractor will be $19,500,000 for costs incurred, $500,000 for termination settlement, and $1,200,000 for fee, a total of $21,200,000. The contractor has been paid $19,500,000 for costs incurred plus $1,850,000 for fee, a total of $21,350,000. The contractor should refund $150,000. I do not know if this is part of the question, but I do not believe payments are limited by the Limitation of Cost clause. Inasmuch as payments, including fee, total more than the estimated cost, I assume additional funds were obligated to cover payment of fee.

I work on legacy aircraft platforms, so may have situations different than yours, but we do not incorporate the solicitation into awards. Why do you believe you need to incorporate the solicitation (apparently not just Section K but the whole solicitation) into the award? What is in the solicitation that is not in the award, but needs to be part of the contract?

1. What is your all time favorite book? I Robot 2. What is your all time favorite song or album? Swan Lake 3. What is your all time favorite movie? West Side Story

Also try 52.216-8, Fixed Fee

It is now 0730 Wed morning and I was able to get in directly (on an Air Force computer, did not have to go through anything).

Retread: I do not disagree that TINA is only a disclosure statute, nor do I disagree that a contractor is not required to use the cost or pricing data in preparing its proposal. United Technology was decided on the basis of lack of reliance, not on quantum. I still maintain there is a rebuttable presumption concerning the amount of the increase caused by the defective data. The following is from material from a Fed Pubs defective pricing course I took in 2012: For cases to this effect, see Sperry Corp. Computer Systems, 88-3 BCA 20975 ("In these circumstances, we can only conclude that appellant's vague allusions to an overlooked credit are insufficient to overcome the presumption that the contract price should be reduced on a dollar-for-dollar basis. See Sylvania Electric Products, Inc. v. United States, 202 Ct.Cl. 16, 27–28, 479 F.2d 1342, 1349 (1973); DAR § 3–807.10(a)(2)" (emphasis added).) Etowah Mfg. Co., 88-3 BCA 21054 ("The failure to disclose the purchase and intended use of the interim Mill–Max assembly machines increased the Government's justification for the definitive price by $115,933 or $.003 per fuze. Finding 37. Etowah has failed to rebut the presumption that the negotiated price was increased by this amount as a result of the non-disclosure" (emphasis added).) Sylvania Elec. Products, Inc. v. U.S., 479 F.2d 1342, quoting the following from the Armed Services Procurement Regulation: "In establishing that the defective data caused an increase in the contract price, the contracting officer is not expected to reconstruct the negotiation by speculating as to what would have been the mental attitudes of the negotiating parties if the correct data had been submitted at the time of agreement on price. In the absence of evidence to the contrary, the natural and probable consequence of defective data is an increase in the contract price in the amount of the defect plus related burden and profit or fee; therefore, unless there is a clear indication that the defective data was not used, or was not relied upon, the contract price should be reduced in that amount” (emphasis added).

Retread In post 12, I wrote: Your comment to this was: I am not sure if you are taking issue with my post, or clarifying it. Of course I agree with you that a defective pricing claim is a Government claim for which the Government has the burden of proof, including the burden concerning amount. However, the Government has the benefit of a rebuttable presumption concerning the dollar for dollar effect of defective data. That being the case: I do not question what the regulation says, but I still cannot understand why the regulation uses actual cost of performance in the formula that determines the limit on the Government's defective pricing recovery. The issue should be the price the Government agreed to vs. the price the Government would have agreed to without the defective data. The rebuttable presumption of a dollar for dollar impact is sufficient to meet the Government's burden of proof concerning quantum. The contractor has at least the burden of going forward to raise an issue that rebuts the presumption (e.g., that it would have used a different decrement had the subcontract price not been affected by defective data). I do not recall if the contractor also has the burden of persuasion to show that the presumption has been rebutted, or if raising the issue is sufficient to put the burden of persuasion concerning quantum back on the government (i.e., the Government must prove quantum without the benefit of the presumption concerning the effect of the defective data).

Seeker, that you did significant research before asking the question puts you ahead of many others seeking advice. I would suggest (subject to correction from Vern, Don, Joel, and the others who make far more significant contributions to the discussions than I), that future questions include more information about the specific issue so that those who would like to respond can focus more specifically on what you really need.

In his article (interestingly, it requires high doses of caffein to go through an article written under the influence of Nyquill), Vern wrote: I think it is highly significant. I cannot imagine why, in this specific case, actual cost of performance makes a difference. The fact of the matter is that we agreed to a price $3M higher than what we would have agreed to without defective data (I think the burden should be on the prime to prove it would not have had the same decrement to the proposed subcontract price that should have been offered (i.e., without defective data) that it had to the actual subcontract proposed price). Why give the prime a benefit based on actuals? BTW, I understand the nightmare of the calculations, but is there an interpretation that allows including the prime's overhead twice when calculating L (it is part of the 19.8M and then added again as part of the formula)?

When I submitted my original response, I had glossed over your description of the issue. I apologize for that. However, the additional information you provided has led me to what I hope is something you may be able to use, and I am making the same guess Don is making concerning defective pricing. In your description of the issue, you said that it concerned a regulation which says that when making a calculation you have to include "applicable overhead and profit." You later indicated the issue "concerns the interpretation and application of a contract clause from FAR." The only FAR clause I could find that uses the phrase "overhead and profit" is the defective pricing clause, and it uses the phrase when describing the price adjustment for defective pricing related to a prospective subcontractor which does not become the actual subcontractor (i.e., when the prime awards the subcontract to someone else). 10 USC 2306a implements TINA, and includes the following: Neither TINA nor the defective pricing clause define how to calculate the "significant amount by which ... such price was increased." However, the defective pricing clause says that "for defective data from a prospective subcontractor that was not subsequently awarded the subcontract," the price reduction shall be "limited to the amount, plus applicable overhead and profit markup, by which ..." What is interesting is that the FAR provision on this same issue does not say "applicable overhead and profit," it says "applicable indirect cost and profit." What is the impact of the change? The FAR has definitions for both "indirect cost" and "General and administrative expense." The definition of "indirect cost" says it is "any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective." There is nothing in the definition which excludes G&A as a type of indirect cost, and the fact that there is a FAR definition of G&A does not make it something other than an indirect cost (it is a specific type of indirect cost). Based on the context I think it is clear that "overhead" and "indirect cost" were being used interchangeably. Whether this is good writing is debatable, but it does not change the outcome. If you are looking for something which says this specifically I doubt you will find it. In the absence of something specific, logic should lead you to my conclusion.

Seeker, you should be able to easily look up the definitions of overhead and G&A in online business dictionaries to get verification. So that any answer provided can be given in proper context, can you tell us why it makes a difference?