wvanpup

There is a very recent 8th Circuit decision on fraud in the inducement and the False Claims Act. See In Re Baycol Product Litigation (http://caselaw.findlaw.com/us-8th-circuit/1646862.html). The decision was about whether the pleadings were sufficient to plead fraud (they were in some cases). The dissent raised an interesting issue that touches on the question I raised about calculating damages in the Hooper case, where the alleged fraud may have caused us to award to Lockheed a contract that we would have otherwise awarded to someone else. I have no answer, just find it an interesting issue.

Suppose a contractor's internal estimate is that it will take 1,000 production hours to make a widget. The contractor provides all required historical information and accurate rates. The contractor then represents to us that its estimate is that it will take 1,500 production hours to make the widget. Estimates, being judgment rather than fact, are not usually cost or pricing data. Disregarding the potential for a False Claims Act violation, is there a TINA violation for deliberately providing a false statement concerning the contractor's actual estimate?

Interesting theory. Of course, the Government would have incurred the expense because it would have awarded the contract to someone else, but that may not be relevant (does quantum meruit apply in fraud in the inducement cases, or does the government get to keep the value of what was delivered without having to pay for it?).

As noted above, the laws of your particular state and the terms of the Purchase Orders are critical. As a matter of general principal, it seems to me that you cannot unilaterally impose a liquidated damage provision in your purchase order. Your supplier may be willing to accept a liquidated damages provision in exchange for an additional performance period extension. Whatever you do, you should make this a bilateral agreement that becomes binding on both parties (I cannot tell if the current purchase order is unilateral or bilateral; if it is unilateral it is not clear what remedies you may ultimately have should the supplier fail to deliver).

Hooper alleges that Lockheed intentionally underbid on a cost contract. Though the court states the contract was cost plus award fee, there is a reference to a target price which makes me wonder if it was really a cost plus incentive fee contract. As noted, the appeallate court held that an intentionally low offer may be the basis for a False Claims Act case. Assuming that Hooper proves an intentionally low price was submitted, I wonder how damages will be determined. Lockheed was not the low offeror, and was awarded the contract on a best value basis. Will the court speculate on what the contracting officer would have done if the "correct" cost estimate had been provided (i.e., would Lockheed still have been best value)? If Lockheed would still be best value, there are no damages; indeed, there may be a savings to the Government because the negotiated fee may have been higher. If Lockheed would not have been best value, will the court speculate on the difference between Lockheed's cost of performance and the cost of performance of the company that would have otherwise won? What gets compared to what to determine how much we overpaid, e.g., actual performance vs other contractor's offered price, Lockheed's correct price vs other contractor's offered price, Lockheed actual cost vs an estimate of the other contractor's cost?

Some contracting officers think a stop work order means that the contractor is not incurring costs allocable to the contract. That is not necessarily true, and the clause authorizes an equitable adjustment if there is an "increase in the time required for, or in the Contractor's cost properly allocable to, the performance of any part of [the] contract." If the stop work order wil, as you say, be more costly to you, not less, you should seriously consider the previous suggestion on getting professional assistance in asserting your claim.

FARFETCHED Perhaps I was not as clear as I thought I was. I agree with you about the nature of the question: "What Awayforwrd describes the old Prime Contractor is protesting the work being moved out of their Set Aside Business concern to Full/Open. Coincidentally, they're a subcontractor to the new or potential Prime Contractor." I had two points: 1. It seems to me that "Old Prime" becomes an interested party because it is a prospective offeror whose direct economic interest would be affected by the award of the contract, similar to a protest that a proposed contract modification is a cardinal change/outside the scope of the contract and should be processed as a new acquisition. (As Vern suggests, this is now academic and I have not researched the question.) I wonder if GAO would consider the question one of contract administration, to be remedied under breach or constructive termination principles a la Tourncello. 2. Since the protest is against the issuance of a task order, is GAO jurisdiction precluded by 41 USC 4106(f): (f) Protests.— (1) Protest not authorized.— A protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order except for— (A) a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued; or ( a protest of an order valued in excess of $10,000,000. Sorry if I gave the impression that I thought there was something wrong with Old Prime filing a protest. I think it is fair for a contractor to use legal processes to retain business that it is entitled to.

They are called options for a reason. Claims based on failure to exercise an option are very unlikely to be successful.

I assume we are talking about a GAO protest (the sub can always attempt redress through other agencies). Seems to me that the sub can protest award to the prime as a violation of its contract if the sub is legally entitled to award of the task order under its 8(a) contract (no opinion on the merits of the claim, just that it is the basis of the protest) provided the sub can get over the jurisdictional hurdle of 41 USC 4106(f):

I may be missing something here. In the first formula, the formula you want to use, aren't you increasing the entire unit price, not just the portion related to material costs? Why would you want to do that? In the agency suggested formula, isn't it assumed that the material cost is the same for each offeror? Is there a valid basis for that assumption? Of course, the way I think it is supposed to work (each offeror sets the amount of material cost subject to adjustment, with the index being used to adjust that element of cost), lends itself to potential unbalanced bidding as offerors shift labor costs into the material cost element.

I am in DoD. I looked at the HHS regulation and found its definition of incremental funding confusing, but perhaps that is because I have a DoD orientation and prefer the DoD definition (DFARS 232.001, "the partial funding of a contract or an exercised option, with additional funds anticipated to be provided at a later time"). In any event, I offer the following thoughts: 1. Incremental funding is not based on whether the funds are from the Department's regular annual Appropriations Act or from a Continuing Resolution. Incremental funding is based on funding less than the full amount of the contract. Your proposal would clearly be incremental funding under the DoD definition, and it looks like it would be incremental funding under the HHS regulations. 2. Unless the contract provides for incremental funding, you cannot unilaterally exercise an option with incremental funding. I am not aware of any reason why you cannot incrementally fund the option bilaterally (i.e., with the contractor's agreement). 3. I do not know why you would want to shorten the option period. You will probably have full funding available when the agency is fully funded. If you shorten the option period for this option you are messing around with all future options (how do you cover the period that was deleted, when do you exercise the remaining options, etc.). 4. I think from reading the HHS regulation you can fully fund the 12 months, but you should rely on advice from within your agency (or someone more knowledgeable than I).

"Looks like I need to find out the basis for the program. Thanks for the clarifications." I think you are right. You need to find the authority to collect the funds, and the authority to use the funds rather than turn them into the Treasury as miscellaneous receipts, to determine what you can do and how you can do it.

One other thing. From the nature of your posting it seems that the funds in question are not MWR non-appropriated funds, but funds received under the gift acceptance authority of your agency (you describe them as from a vendor, which to me sounds like they are a gift). While the FAR does not apply (see Vern's post), it does not necessarily follow that the MWR (NAFI) contracting rules will apply.

Thanks for the information. I quickly read the first article, which you described as the main article on the subject. Lack of time precludes me from reading the other material. I am not sure if there are any contract questions involved in this discussion, except perhaps contract requirements concerning liability insurance, but this is still an interesting question. After reading the article, I have a different perspective on your question. 1091 authorizes personal services contracts with individuals; it does not say anything about contracts with corporations and therefore probably does not authorize personal services contracts with corporations (if there is even such a thing as a personal services contract with a corporation). My interpretation (which does not matter because the issue is for DOJ and the Claims Service) is that 1089 applies to anyone providing services under a personal services contract with an individual, whether under the contract or under a subcontract (including a subcontract with a corporation since the services would still be provided under a contract authorized by 1091). It seems as if whether 1089 applies to contracts with corporations depends on a wide range of circumstances, as described in the article. It also seems that application of 1089 to these contracts is a question more of fairness than of actual coverage (which seems strange since waivers of sovereign immunity are usually strictly construed and would not depend on questions of fairness. Bottom line: things are just as murkey as you described them.

I am not just confused by the facts, but also by your terminology. What do you mean by an option for the project as distinguished from an option for the contract (renewing the project without renewing the contract)? What do you mean by "contractor attached to the project" as distinguished from the contractor performing the work under the contract?

An intriguing question. The specific language you are referring to is: I would interpret this to apply to anyone providing the services required by a contract entered into under section 1091, regardless of whether the person is providing the services as ( 1 ) the individual who entered into the personal services contract, ( 2 ) an employee of the individual or business that entered into the personal services contract, ( 3 ) an individual subcontractor (at any tier) of the individual or business that entered into the personal services contract, or ( 4 ) an employee of a subcontractor that entered into the personal services contract. In fact, without seeing the research you did, I find it hard to understand how the DoJ would refuse to defend someone because he or she was not a Federal employee, unless that refusal related to a contract that was not entered into under section 1091. Can you provide more details about why DoJ would refuse to defend someone performing services under a contract entered into under section 1091?

Joel Of course I saw what Vern wrote, I quoted it and made specific reference to the part where he says it is possible to incrementally fund a contract. Of course I read DFARS 232.703-1, all of it, before I referred to it. Let me ask you, in context, what did Vern's first sentence mean? Did he just describe the thought process without implying that the thought process was correct? If so, I misread what he said, though I still think it is a poor way of expressing that opinion.

Vern The original question that was posed, and to which you responded, was: "What is the thought process for the statement in bold below?" The statement in bold, from AFI 65-601, vol 1, para 4.61, was: "and that amount must be obligated when the contract is signed." The phrase "that amount" referred to the earlier part of the sentence, which was: "The total cost of the services to be provided over the 12-month period." Your response was: "The thought process is that appropriations law requires it." To me, your statement means that appropriations law requires that the full amount of the contract must be obligated at the time of contract award. If this is what you meant, I disagree for the reasons stated in my earlier post (my references to the DFARS provisions on incremental funding, which specifically permit obligating less than the full amount of award, and your specific recognition that incremental funding of an FFP contract is possible). If this is not what you meant, if all you really meant to do was to describe the thought process of the drafter of the regulation whether or not appropriations law requires obligating the full amount of the contract, your language was as sloppy as much of what you routinely criticize.

Vern, I really dislike disagreeing with you and running the risk of displaying my ignorance, but here goes. You say that "appropriations law requires it," with "it" being the requirement to obligate the full amount of the contract at the time of award. However, this seems to be directly contradicted by the DFARS provisions on incremental funding (as well as the last sentence of your post concerning policy). DFARS 232.001 defines incremental funding as "the partial funding of a contract or an exercised option, with additional funds anticipated to be provided at a later time." DFARS 232.703-1(1) says a fixed-price contract may be incrementally funded if "(i) The contract (excluding any options) or any exercised option -- (A) is for severable services; ( Does not exceed one year in length; and (C ) Is incrementally funded using funds available (unexpired) as of the date the funds are obligated." If appropriations law required obligating the full amount of the contract at award, the DFARS incremental funding authorization would violate appropriations law. It appears that the Air Force, rather than being forced to prohibit incrementally funding severable service contracts, has made a policy decision to do so. Also, the requirement is not to record the value of the contract, the requirement is to record the obligation. Therefore, when a contract is incrementally funded, all that needs to be recorded is the amount obligated. Of course, the contract should/must include a clause, such as DFARS 252.232-7007, advising the contractor that cost incurred in excess of the amount obligated are not allowable, and advising the contractor what to do as its incurred costs approach the amount obligated.

As a policy matter, I am not sure I agree. In today's budgetary climate, incrementally funding a contract, with the expectation that it will be fully funded later, runs the significant risk that the funds will not be provided and you will ultimately have to terminate the contract for convenience. The risk is exacerbated when this is done with several contracts. For example, assume you have piecemeal funding of $1M. You have four requirements, each needing $500K. If you award each contract but only obligate $250K apiece, you are obligating within the amount available, but what happens when the expected funding does not materialize. You are up the creek, heading to the waterfall without the necessary means of propulsion and guidance.

What type of funds do you use, and are the future fiscal year services bona fide needs of those funds?

I read the situation a little differently. I thought "money left on a sustainment contract" meant that some obligated funds had not been expended, and there was a desire to use that money to fund two more months of performance. I did not think the question was about expired funds to be obligated for an additional two months of performance.

Larry, thank you for your reply. I think that, in general, the US self insures because it is considered cheaper than to pay insurance premiums incorporated into the contract price, but this is not necessarily based on the inherently high risk of a particular contract. For example, the US self insures under the standard Government Property clause regardless of the nature of the property or the purpose of the contract. In this case I am told the FMS country has a law by which it cannot accept the risk of loss to property under the custody and control of a contractor. The FMS country is willing to pay the cost of insurance, the prime contractor has arranged for that insurance, and the prime is willing to accept liability for the deductible (even though the contract is cost reimbursable). I can help draft the special contract clauses, but I was looking for help in making sure my clauses did not contradict the FAR and DFARS on any issues.

I have a question concerning DFARS 252.228-7001, Ground and Flight Risk, as related to a cost reimbursable contract to modify an aircraft for an FMS country. The guidance in the DFARS seems incomplete. DFARS 228.370( says to use the clause in all contracts for the modification of aircraft unless, among other things, "a non-DoD customer (including a foreign military sales customer) has not agreed to assume the risk for loss or destruction of, or damages to, the aircraft." Suppose the FMS country does not agree to assume any risk of loss, including deductibles under insurance policies. If you do not include the clause, what governs the risk of loss? Who bears the risk associated with an insurance deductible (note that under the cost principle for insurance, FAR 31.205-19, losses resulting from insurance deductibles are allowable)? Does the contractor's assumption of risk under the Ground and Flight Risk clause make the deductible unallowable? It has been suggested that the aircraft can be provided to the contractor under a bailment agreement. Note that the definition of aircraft in the Ground and Flight Risk clause refers to bailment agreements as follows: I would appreciate any suggestions, particularly from someone who has worked with a bailment agreement in this situation.

So do I, particularly with the number of times I have told the story as if it were true. Now I am embarrassed. Exception 2 was for urgency. I should have remembered because our school building was hit by lightning, and it knocked out our air conditioning. We had an emergency contract to get a new air conditioning system (teaching in windowless rooms in Virginia during July and August was no fun), and I always used that as an example of when to use exception 2. I also remember the story because I was staff duty officer the evening it happened. The fire alarm was triggered and I went around the building to make sure it was evacuated (the building was used for college courses in the evening). Sure enough, some major was teaching a class. When I told him that it was not a drill, he said he knew that and thought it was just a mistake, so he continued his class. He was a bit confused when I, a young JAG Captain, told him he had to take the class outside, but he complied.