wvanpup

I think I qualify as an old-timer. From 1980-1984 I was an Army instructor for the basic procurement course at ALMC (Fort Lee, VA). My memory is the same as Vern's. Small business set-asides were considered negotiated acquistions under exception 2, even when formal advertising (I think the term was small business restricted advertising) was used. I also remember that several of the 17 exceptions required a Secretarial D&F, and the perhaps apocryphal story of the contracting officer who did not know what that meant had had his secretary sign the D&F.

You seem to have two quesions. One question seems to concern the mechanics of disallowing the overrun costs, which Vern has addressed. The other seems to be what you describe as "crossflow the CIF into the overrun." If the contract has something other than the standard Limitation of Cost clause (which you seem to indicate by your statement that the "cost sharing is defined within the terms and conditions of the contract to allow the crossflow of the funds to pay for overrun") I cannot help without knowing the exact terms of your contract. If your contract has just the standard CPIF clause and the standard Limitation of Cost clause, I do not understand the conclusion that it allows "the crossflow of the funds to pay for overrun." The standard clauses are pretty clear; if you incur costs in excess of the target cost, and the contracting officer has not provided additional funds, the Government is not obligated to pay you for your overrun whether or not you provided notice (in this case I expect you would receive the target fee rather than a reduced fee based on your actual costs).

Boof -- I am with Navy. As a general rule, in a cost contract the cost of corrective work is allowable. It will probably be difficult, but, depending on how egregious the prime's lack of oversight was, you may be able to fashion an argument that the original costs were not reasonable and therefore not allowable. I looked at the Inspection clauses. I find it somewhat ironic that you have a construction contract but no clause for inspection of a construction contract. I also find it somewhat ironic that there are inspection clauses for fixed price and cost supply, service, and R&D contracts, but the only inspection of construction clause is for fixed price contracts.

I do not understand your reference to funding overruns up to 8% of the target cost, but will assume it makes sense in the context of the specific arrangements of your contract. In your case, you have a Target Cost of $XXX. The Limitation of Cost clause says you must give notice when "the costs the contractor expects to incur under this contract in the next 60 days, when added to all costs previously incurred, will exceed 75 percent of the estimated cost specified in the Schedule." (I assume "estimate cost" in a CPIF contract means target cost; I am not aware of any other Limitation of Cost clause applicable to CPIF contracts.) The clause also says that unless the Contracting Officer notifies you that the estimated cost has been increased, you are "not obligated to continue performance under this contract (including actions under the Termination clause of this contract) or otherwise incur costs in excess of the estimated cost speceified in the Schedule." The clause also says that the "Government is not obligated to reimburse the Contractor for costs incurred in excess of (i) the estimated cost specified in the Schedule." The purpose of the notice is to give the Government an opportunity to determine if it wants to provide additional funds to complete the work or terminate the contract. As I read the clause, notice is irrelevant to how much the Government is required to pay (except perhaps if notice is given and there can be an argument that the Government has waived the cost limitation). The Government is required to pay no more than the target cost for the costs you incur. Assuming the contract is terminated (what are we doing here if the contract is not terminated?) the Government will pay allowable costs up to the estimated/target cost. With respect to fee, 52.216-10(e)(3) provides that if the 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 applicable clause is 52.249-6(g) and (h), which say that the Contractor and Contracting Officer may agree on the amount to be paid including an allowance for fee, and if there is no agreement the Contracting Officer shall issue a final decision paying a portion of fee based on "a percentage of completion of work contemplated under the contract." Under this situation, I do not see how unused CIF funds (the funds obligated to pay the incentive fee) can be shifted to pay overrun costs. Indeed, the whole scheme of how the incentive provisions are used to share overruns is effectively mooted by the termination that will result.

There are a couple of considerations that I would apply to the original question, but maybe not with the subsequent information. 1. Can the period of performance be unilaterally extended because, among other potential reasons, there is no option clause? Extending the period of performance may well be a new action that requires competition. What would be the authority to do this unilaterally? 2. Excusable delay. This is a term that should be used to excuse the contractor's failure to complete the work, i.e., the contractor is not in default because the work was not completed within the time required by the contract. It is a contractor remedy, not a Government remedy. 3. I am not very familiar with labor hour contracts, but my understanding is that they do not require delivery of an end product, nor do they require the contractor to provide a specific number of hours within the period of performance. If that is the case, the contractor has fulfilled its obligations; we cannot unilaterally require the contractor to continue working (among other things, we are forcing the same labor rates beyond the period for which they were negotiated).

What are you missing? I think you are missing the sentence structure of the the DFARS section. Try reading it this way: A fixed price contract may be incrementally funded if: (1) the contract is for severable services that do not exceed one year and is funded with funds available as of the date the funds are obligated, OR (2) the contract is an R&D contract using funds from two or more years. Under this reading, which I believe is correct, there are two separate authorities for incremental funding, and there is no connection between contracts for severable services and contracts for R&D. Does this make sense?

Sorry to get off topic, but there was something in the original post that I found irresistable. In the mid 80s, when I was working in Germany, there was an American attorney who represented German firms in contract claims. He was perhaps the biggest horse's pattoot I have ever known, but that is beside the point. He once wrote a letter to the "contracting oafficer" (a term which, alas, bore a close resemblance to the truth). I have since been on the lookout for for other interesting typos (at least I hope they are typos). I think I have found one. Joel's post says: "Back in the mid 1990's I was assignerd ...." Joel seems to be a very interesting fellow, and I hope his self image improves. Back to being on topic.

I think you are reading the case correctly. A short summary of the case: In 1995, hospitals entered into a contract with an HMO to provide medical services. At that time, the HMO did not have a government contract. At some point in the future, the HMO entered into a contract with OPM to provide medical services to Government employees under the Federal Employees Health Benefit Program. At some point after that, the hospitals renewed their contracts with the HMO. The FEHBP contract was subject to equal employment and other provisions By executive order and regulation, the equal employment and other provisions applied to subcontractors The contracts between the hospitals and the HMO did not flow down the equal opportunity requirements The Dep't of Labor sought to audit the hospitals for equal opportunity compliance The hospitals resisted, claiming, among other things, that the lack of the clause meant the requirement did not apply to them. The hospitals' arguments and the court's rationale are too long to include here, but the bottom line is that the court cited Christian and said the required clauses applied even if not included in the contract. What would have happened if the original contracts had been in effect when the HMO entered into its contract with OPM? Would the Christian doctrine apply to an already existing subcontract if the prime and sub never negotiated a change to the subcontract to include the new Government requirement? My guess is that if the sub continued performance Christian would apply, even without the consent of the sub (and even if the sub is actually unaware of the new requirements imposed by the government contract), but can see arguments to the contrary. Would the subcontractor be in breach if it refused to perform because of the new requirement, whether or not the prime tried to flow down the new requirement? My guess is that it would not, but I can again see arguments to the contrary.

Bob, I hope you can find more fruitful ways to spend your evenings. There is a category of GAO protests that you do not consider in your post. The 4% sustained number does not seem to factor in the protests that are dismissed because the agency takes corrective action. (I realize it does not necessarily reflect the number of protests that would be sustained; it is not uncommon to take corrective action to address the issue raised rather than fight to have the initial decision vindicated, regardless of the merits of the protest.) I do not know the number, but it is at least higher than inconsequential.

Vern said: "The GAO and the COFC decide protests based on different standards of review. The COFC absolutely should not act as a court of appeal in re GAO decisions, for constitutional, statutory, and practical reasons. Congress should prohibit filing in one forum and then filing in another. A protester should be required to choose one forum and live with the outcome, with no forum switching or second bites at the apple (GAO first, then COFC if they lose). That nonsense does not serve the interests of the taxpayers. Ideally, the COFC should be cut out of the protest business altogether. "The purpose of the protest system is to ensure that government personnel obey the law when conducting procurements. The system is not intended to secure justice for losing offerors. There is no constitutional right to a government contract." (emphasis added) Vern: I agree with the one forum concept. We do it under the CDA, where a contractor can choose a Board of Contract Appeals or the COFC but not both. When you say "and live with the outcome," are you saying that there should be no judicial review? Should the GAO decision be final, or should it be appealable to the Fed Circuit (or whatever other forum is appropriate)? If the GAO decision is final, what about a COFC decision? My choice is to make the decision appealable, whether at GAO or COFC, as long as it is clear that the appeal is not de novo.

Mea culpa, to an extent. I was thinking of this acquisition, which started as a FAR solicitation but received the $0 offer, as opposed to an "RFP" seeking $0 offers (and perhaps, in effect, selling the soil). Having started as a FAR acquisition, if award can be made at $0, I think it continues as a FAR acquisition to the extent that FAR applies during contract administration.

"My only comment is that I don't think the contract you are contemplating would be an "acquisition" as defined in FAR 2.101, because you would not be using appropriated funds. This doesn't mean it can't be done--just that the FAR wouldn't apply to such a contract. Also, the contracting officer may not have the authority to enter into a contract not covered by the FAR." Don, See B- 400058, B- 400058.3, 2009 CPD P 154, Matter of: Public Communications Services, Inc. As a threshold matter, ICE contends that our Office lacks jurisdiction to hear this protest because the RFP anticipated award of concession-type contract. As discussed in detail below, we conclude that our Office has jurisdiction because this protest concerns the award of a contract for the procurement of services by a federal agency for the benefit of the government. Under the Competition in Contracting Act of 1984 (CICA) and our Office's Bid Protest Regulations, we review protests concerning alleged violations of procurement statutes or regulations by federal agencies in the award or proposed award of contracts for procurement of goods and services, and solicitations leading to such awards. 31 U.S.C. §§ 3551 , 3552 (2000) ; Bid Protest Regulations, 4 C.F.R. § 21.1(a) (2008). The parties do not dispute that this protest concerns a solicitation issued by ICE, a federal agency. Instead, ICE argues that the services being procured are for the benefit of detainees, not the government. Our Office lacks jurisdiction to consider a protest challenging the award of a “pure” concession contract, that is, a no-cost contract that merely authorizes a concessionaire to provide goods or services to the public, as opposed to the government. See Great South Bay Marina, Inc. , B-296335 , July 13, 2005, 2005 CPD ¶ 135 at 2 . We have long recognized, however, that some concession contracts are hybrids that require the delivery of goods and/or services to the government. Id. ; see also , Shields & Dean Concessions, Inc. , B-292901.2, B-292901.3, Feb. 23, 2004, 2004 CPD ¶ 42, recon. denied , B-292901.4 , Mar. 19, 2004, 2004 CPD ¶ 71 (concessionaire required to provide maintenance, repair and other services for government facility as well as facility improvement valued at over $800,000); Starfleet Marine Transp., Inc. , B-290181 , July 5, 2002, 2002 CPD ¶ 113 (concessionaire for ferryboat services required to provide janitorial services for agency's docks and piers, equip ferries with public address systems for use by park rangers, and provide transportation for rangers). It has consistently been our Office's view that a mixed transaction that includes the delivery of goods or services of more than de minimis value to the government is a contract for the procurement of property or services within the meaning of CICA. Great South Bay , supra ; Starfleet Marine , supra , at 6. *6 In determining whether the government will receive the requisite value from the goods or services provided in connection with a concession, our Office examines whether the transaction in question reduces the agency's workload, or whether the effort is somehow rendered, either directly or indirectly, in support of the agency's mission requirements. Meyers Cos., Inc. , B-275963 et al. , Apr. 23, 1997, 97-1 CPD ¶ 148 at 4 . For example, we have found that a benefit was conferred to the government through a concession for haircuts for new Air Force recruits, because “the concession agreement is a contract for services under which the [agency] will satisfy its need to obtain initial haircuts for its recruits--which the agency insists is an important aspect of the training experience.” Gino Morena Enters. , Feb. 5, 1987, B-224235, 87-1 CPD ¶ 121 at 4 . Similarly, we have found that a benefit was conferred on the government through a concession for photocopy services at a U.S. District Court because the use of a concession-type contract aided the court's mission by reducing its workload and also providing a benefit to the public of more effective access to court records. West Coast Copy, Inc.; Pacific Photocopy and Research Servs. , B-254044, B-254044.2 , Nov. 16, 1993, 93-2 CPD ¶ 283 at 5-6; see also , New York Tel. Co.; New England Tel. & Tel. Co.; Bell Atlantic Network Servs., Inc. , B-236023, B-236097 , Nov. 7, 1989, 89-2 CPD ¶ 435 at 2-3 (concession to provide pay phone services to employees and visitors at a General Services Administration facility was subject to GAO protest jurisdiction where the services were intended to satisfy agency mission needs).

How a successful COFC protest after an unsuccessful GAO protest merits a round of lawyer bashing is beyond me. I guess what you think depends on where you sit. The number of protests dismissed because they do not present an issue within the GAO's jurisdiction is too high. The number of protests where an offeror simply disagrees with the contracting officer's evaluation is too high. The number of other protests that are a sheer waste of time is too high. It is these protests, not those that raise legitimate issues (whether the protest is denied or sustained) that cause the hue and cry about frivilous protests. Most Government contracting officers and lawyers I know rant about the pro contractor slant to the GAO, which seems kind of at odds with the chances of a GAO attorney giving fair consideration to a protest being not that great. As for claims of bad faith, in the 2012 and 2013 decisions to date, there were 22 protests that used the phrase bad faith, and none that had the word nigh, as in well nigh irrefragable. The truth is that very few, as opposed to most, GAO cases have allegations of bad faith because the vast majority of Government contracting personnel are honest and hard working. The actual level of corruption in government contracting is not so high that allegations of fraud should be sustained by a preponderance of the evidence; clear and convincing (the equivalent of well-nigh irrefragable) is a sufficient standard. I do not know, though I should, the standard used by COFC when reviewing an issue that was the subject of a GAO protest decision. IMHO there should not be a de novo review, and the COFC action should function as an appeal of the GAO decision rather than a retrial. Contractor's should be able to choose either the red apple at COFC or the green apple of the GAO, but whichever they appeal they only get one bite (subject to appeal).

Almond2020: Ethics counselors are almost always attorneys, but their communications with their clients are not subject to an attorney-client privilege. I advised the people who sought my assistance that not only could I reveal information they gave to me, but if they told me something that indicated they had violated a statute or regulation I might be compelled to disclose the information. However, I also told them that I considered the communication as between me and them, not necessarily "confidential" if that implies an obligation to not disclose anything but more as a respect for their desire to keep things private. That is my standard. It is not a required standard, and I have no idea what standard is applied by the ethics counselor(s) at your location. I also have never been concerned about letting my supervisor know if I was applying for another position, because I have been blessed with supervisors who recognize that promotion in the Government almost always means changing jobs and therefore did not consider me a traitor for seeking a better job. YMMV

As someone at a major Air Force contracting activity who spent several years as an ethics counselor where 75+% of my time was post-government employment counseling, I offer the following advice. You have two choices. Rely on your reading of the general rules and ignore the advice of virtually everyone who has responded to see an ethics counselor, or GO SEE THE ETHICS SOUNSELOR. Why on (or above or below) earth would you "like to know some of the outcome before contacting" the ethics officer? Are you afraid of the answer (it doesn't seem like it) or are you planning to tailor your response to questions in order to get the right answer (again, it doesn't seem like it)?

Boof - If I am going to be furloughed two days per pay period (I am in DoD and this is the furlough plan unless the idiots in the _____ Party (take your pick, to me they are all idiots but one is more idiotic than the other) actually do something about this) I am going to ask for Thurs-Fri of week 2 in one pay period and Mon-Tues of week 1 in the next pay period. I don't expect to get it, and if I do I don't know where the money for my "vacation" will come from, but that is my plan.

My Army experience goes back a long way (1987-1991), and was in Germany, so it may no longer be relevant. However, the goal at the end of the year was to award contracts under two criteria: (1) ensure the most important work was awarded first, and (2) use all the available funding. Solicitations included an availability of funds provision (I do not recall if it was the standard clause or a locally approved clause) saying we would award a contract either in the last quarter of the year of the first quarter of the next year, subject to availability of funds. Every solicitation was issued with the expectation of an award, and I believe that it was very rare (if ever) that we did not award a contract at some point. I do not know if your situation mirrors what I experienced back then.

In the mid 1980s, I was presented a Disputes Act claim by a contractor for about $30 in unpaid Prompt Payment Act interest. After sending it back to find out what was really going on, we learned that the contractor had over $100,000 in similar claims waiting to be filed. The contract was executed before the effective date of the Prompt Payment Act (IIRC, before 1 Oct 82), but there were options exercised after the PPA became effective. Again, IIRC, the ASBCA ruled that (1) an option is an irrevocable offer that may be accepted in the manner prescribed by the offer, (2) the option exercise is acceptance of that offer, (3) the contract came into existence when the offer was accepted, and (4) therefore the PPA did not apply to the basic contract but did apply to the option periods. I do not know if that is still (or ever was) good law -- I seem to recall contrary holdings.

I have enjoyed reading all of the posts. I am glad that I gave everyone something to think about. The share ratios are real. The share ratios were recommended by an individual at USD AT&L about a year ago. Rather than an incentive, the arrangement was structured to remove the contractor's incentive to limit expenses in order to pocket additional profit which was a concern at the time when the RFP was issued. The CLIN with the applicable arrangement is an interim development (i.e. completion of PDR, CDR, etc.). Regarding the CPIF math, my personal interpretation had previously matched that of wvanpup because I had believed that the adjustment to the target profit could not be less than zero. Additionally, an FPIF graphing tool from the former chief of our pricing office generated a graph which showed a final cost between target price and ceiling that resulted in the final price equalling the final cost. Based on the conversations here and recent discussions with my current management, I am inclined to believe that I along with the grahing tool were wrong. Given these new facts, I add to my previous analysis the probability of giving some form of relief based on mutual mistake. The Government has now admitted that it intended the clause to permit a reduction in profit to zero, but not below. Assuming that was also the contractor's intention, the contract should be reformed to correct the mistake (the clause was not written to reflect the intent of the parties) that frustrates the intention of each party. It also strikes me that a cost incentive is not appropriate in this situation. "Rather than an incentive, the arrangement was structured to remove the contractor's incentive to limit expenses in order to pocket additional profit which was a concern at the time when the RFP was issued." Isn't the whole purpose of a cost incentive to limit the contractor's expenses while still giving us what we want? Why are we writing an incentive contract if we do not want the contractor to reduce expenses, or if by reducing expenses we will not receive what we want?

In post #7, Vern wrote: (from earlier post) (2) The total final price (X) shall be established by applying to the total final negotiated cost ($ 68M) an adjustment for profit or loss, as follows... (ii) If the total final negotiated cost is greater than the total target cost ($ 60M), the adjustment is the total target profit ($ 7M), less 100 percent of the amount by which the total final negotiated cost exceeds the total target cost. (applying the formula exactly as written) So we adjust the $ 68M by deducting $ 7M (total target profit) - $ 8M (the amount by with the total final negotiated cost exceeds the total target cost). Is that right? The total final negotiated cost is $ 68M. The total target profit ($ 7M) less the amount by which the total final negotiated cost exceeds the total target cost ($ 8M) is how much? $ 7M - $8 M = - $ 1M. So the total final price is: $ 68M - (- $ 1M). How much is that? In post # 59, Navy wrote: (quoting me)...The literal language, as Vern has demonstrated, results in subtracting -1, which mathematically means adding 1. I suppose you can take your pick -- apply the literal language or find something else that is not addressed specifically. (navy's comment) Vern has said no such thing. As a matter of fact, here's a quote from his post #48 - "you add the adjusted profit to the total final negotiated cost in order to get the total final price." [emphasis added.] My response to Navy: Maybe Vern was having fun with numbers and got me. He wrote: "So we adjust the $ 68M by deducting $ 7M (total target profit) - $ 8M (the amount by with the total final negotiated cost exceeds the total target cost). Is that right?" That sounded good at the time, but is "deducting" the right word there? The adjustment actually is adding. If we apply Vern's formula in the case of a final cost of $64M, we get "So we adjust the $ 64M by deducting $ 7M (total target profit) - $ 4M (the amount by with the total final negotiated cost exceeds the total target cost). Is that right?" This results in $64M - $3M, or a price of $61M rather than $67M, which cannot be right. Regardless of whether I was got or not, I stand behind my conclusion as to how I would apply the clause. I am not going to establish a de facto price ceiling of $67M and ignore the contract price ceiling of $70M.

And it's not true that after the point of total assumption "there is no profit." You are, of course, correct. It is what happens when I try to respond in less than five minutes while heading out the door to a doctor appointment. Sloppy thinking, and even sloppier writing. What I should have written is: "As for the comment about how to reconcile my statement with FAR 16.403-1(a) which states that when final cost is more than target cost the formula may result in a net loss, I read that as applying to the ceiling price. After the point of total assumption the contractor's profit is reduced dollar for dollar by the cost overrun until the price ceiling, after which there is a net loss. It does not mean reducing the final cost to create a loss when costs are below the price ceiling."

Vern You asked why I thought the ambiguity is latent, not patent. I do not have the time to research this, so I am answering from what I think is a pretty good memory of the distinction. For the discussion I am going to assume that the Government created the ambiguous term. A contract term is ambiguous if it is subject to two or more reasonable interpretations. The rule contra proferentum (sp?) says, in effect, that ambiguities are construed against the party that drafted the ambiguous term if the ambiguity is latent, but will be construed in favor of the Government if the ambiguity is patent. A patent ambiguity is one where the parties should realize, from examinging the terms of the contract, that there is an ambiguity. A contractor in such a situation has a duty to inquire as to the meaning of the term. A latent ambiguity is one where the parties reasonably do not recognize the other potential interpretations. In my judgment, it is reasonable for the contractor to believe that the FPIF formula says that profit may be reduced to zero, but not less than zero until the price ceiling is reached, and it is also reasonable to not realize that others might interpret the clause differently because a different interpretation could (in cases, like this, of very high contractor share ratios) render the price ceiling meaningless. This is my judgment. I suppose reasonable minds can differ on what others may consider reasonable.

I have no specific authority for my statement that the clause does not allow adjusting profit to less than zero, just as there is no specific statement that profit can be adjusted to less than zero. The literal language, as Vern has demonstrated, results in subtracting -1, which mathematically means adding 1. I suppose you can take your pick -- apply the literal language or find something else that is not addressed specifically. As for the comment about how to reconcile my statement with FAR 16.403-1(a) which states that when final cost is more than target cost the formula may result in a net loss, I read that as applying to the ceiling price. After the point of total assumption there is no profit, after the ceiling price there is a net loss. It does not mean reducing the final cost to create a loss when costs are below the price ceiling.

My inclination is to treat this seriously. FAR 9.406-2 authorizes debarment for a number of different things, including making false statement or any offense indicating a lack of business integrity. I am not willing to assume that a business willing to cheat a foreign country will not try to cheat the United States, regardless of how serious the matter is treated by the foreign country.

Kind of late to the party here - maybe this will teach me not to ignore WIFCON for a day or two. We still don't know if the situation is real or some diabolical plot, with the original poster LHAO. The question reminds me of my rabbi, who when asked how many angels could dance on the head of a pin wanted to know what kind of pin. FWIW, my vote (absent my "judicial" assessment below) is $68 because (1) incentive contracts do not permit adjusting profit to less than zero, and (2) the permitting the profit adjustment to be less than zero renders the price ceiling meaningless, and we are required to interpret a clause in a way that gives meaning to all its terms. If I were the judge, my ruling would probably depend on who drafted the pricing arrangement. Applying the rule concerning ambiguities, I would find the clause is subject to two or more reasonable interpretations (I am sure no one here would want to call Vern unreasonable) and therefore ambiguous. The ambiguity would be latent. If, as is normal, the Govenment drafted the pricing arrangement, I would hold for the contractor and rule that there is a price ceiling of $70M and applying the share ratio to the overrun merely establishes $67M as the point of total assumption. If the pricing arrangement was drafted by the contractor I would probably hold that it created the ambiguity and rule in favor of the Government. If, as may be the case, the pricing arrangement was a give and take, I would rule that neither side drafted the ambiguous term, and would therefore interpret the contract in a way that gives meaning to all its provisions, and rule that decreasing the final price to $67M would not give meaning to the price ceiling included in the contract. To bring another quirk into the equation, what would the price be if the final cost was $72M? For me it is easy, the price would be the price ceiling of $70. But if you think the price ceiling does not really apply because of how the share ratios work, would the final price be $67M ( $72M - ($12M - $7M)) or would it be $65M by deducting from the $70M price ceiling rather than the $72M final costs?