No notice cost increase

[Ken]

Clause 52.232-22(h) states -- No notice, communication, or representation in any form other than that specified in paragraph (f)(2) of this clause, or from any person other than the Contracting Officer, shall affect the amount allotted by the Government to this contract. In the absence of the specified notice, the Government is not obligated to reimburse the Contractor for any costs in excess of the total amount allotted by the Government to this contract, whether incurred during the course of the contract or as a result of termination. 

Basically have a contractor submitted a no notice overrun and per this clause the government is no obligated to reimburse the contractor for it. This is on a CLIN that has more work needing to be accomplished that the contractor later submitted overrun costs above the no notice overrun needed to complete the CLIN. Question is, if the government does not reimburse the contractor, is the contractor required to pay this no notice overrun with their own funds. And if so, is the contractor required to continue the rest of the work after the government funds the additional overrun request for work above the no notice overrun. 

For example, let's say the contractor's no notice overrun was for $25. Then later they send an additional overrun request above the $25 for $75. Thus, their overall costs required to complete the effort is now $100. If the government does not pay the $25 (as the no notice clause states) and pays the $75, is the contractor required to complete this entire effort in this CLIN?

[C Culham]

On 4/13/2022 at 3:38 PM, Ken said:

If the government does not pay the $25 (as the no notice clause states) and pays the $75, is the contractor required to complete this entire effort in this CLIN?

I suspect the absence of responses to your question is due to the fact that while your question seems direct and simple it actually presents a very large onion of facts that would need to be peeled back to formulate an appropriate response.  Like many questions related to contracting the general statement of "it depends" applies.   

[ji20874]

Ken,

You are confusing allotments (or obligations) and reimbursements (or payments).  They are different.  You must treat them differently and separately.

The contractor gave you a notice of overrun.  Are you going to increase the allotment (or obligation)?  This is a YES or NO question. 

I agree that there is insufficient information to answer the reimbursement (or payment) question.  

I hope your contractor stops work because of your inability or unwillingness to obligate funds.

[Vern Edwards]

On 4/13/2022 at 3:38 PM, Ken said:

Basically have a contractor submitted a no notice overrun and per this clause the government is no obligated to reimburse the contractor for it. This is on a CLIN that has more work needing to be accomplished that the contractor later submitted overrun costs above the no notice overrun needed to complete the CLIN. Question is, if the government does not reimburse the contractor, is the contractor required to pay this no notice overrun with their own funds. And if so, is the contractor required to continue the rest of the work after the government funds the additional overrun request for work above the no notice overrun. 

For example, let's say the contractor's no notice overrun was for $25. Then later they send an additional overrun request above the $25 for $75. Thus, their overall costs required to complete the effort is now $100. If the government does not pay the $25 (as the no notice clause states) and pays the $75, is the contractor required to complete this entire effort in this CLIN?

 

42 minutes ago, ji20874 said:

Ken,

You are confusing allotments (or obligations) and reimbursements (or payments).  They are different.  You must treat them differently and separately.

The contractor gave you a notice of overrun.  Are you going to increase the allotment (or obligation)?  This is a YES or NO question. 

I agree that there is insufficient information to answer the reimbursement (or payment) question.  

I hope your contractor stops work because of your inability or unwillingness to obligate funds.

I don't understand what ji20874 wrote.

If a contractor, without providing the advance notice required by FAR 52.232-22(c), overruns the amount allotted under an incrementally funded cost-reimbursement contract containing the clause at FAR 52.232-22, then, under ordinary circumstances, the government is not obligated to reimburse the contractor for the overrun and, yes, the contractor must .

However, under some circumstances the Court of Federal Claims and the boards of contract appeals have excused the lack of advance notice when the overrun was unforeseeable or when the lack of notice was caused by the government. See Cibinic & Nash, Cost-Reimbursement Contracting, 3d ed., pp. 992-1008. See also Manos, Government Contract Costs & Pricing, § 85.7:

 

Quote

 

Nevertheless, the contractor's failure to give notice has been excused in circumstances where the contractor could not reasonably have foreseen the cost overrun. For example, in General Electric Company v. United States, the contractor did not provide notice of an impending overrun because during contract performance, its actual indirect cost rates did not give it reason to believe a cost overrun would occur. After the end of contract performance it experienced a substantial decline in business, resulting in higher than anticipated final indirect cost rates. The ASBCA rejected the contractor's claim for an overrun, but was reversed by the Court of Claims, which held that “it would be inequitable for the Government to refuse additional funding” and “a contracting officer abuses his discretion … if he refuses to fund a cost overrun.”

 

Similarly, in Metrametrics, Inc., a contract overrun was caused by an unforeseeable downturn in the contractor's business in the months following contract completion. The drop-off in direct costs caused a substantial increase in the indirect expense rates allocable to the contract. 

 

Footnotes omitted.

 

Those court and board decisions are long-standing and still good law.

 

In short, the contracting officer in your case should investigate the reasons for the lack of notice before denying reimbursement.

 

If you, or anyone else, are not familiar with the law, then read the references I have given you above.

 

On 4/13/2022 at 3:38 PM, Ken said:

If the government does not pay the $25 (as the no notice clause states) and pays the $75, is the contractor required to complete this entire effort in this CLIN?

NO! Presumably, if the contract contains 52.232-22 it is cost-reimbursement. If you don't provide additional funds the contractor gets to quit. If you do provide additional funds then the contractor must be reimbursed for its costs, including the cost of the overrun. Read clause paragraph (i).

[Vern Edwards]

Just now, Vern Edwards said:

If a contractor, without providing the advance notice required by FAR 52.232-22(c), overruns the amount allotted under an incrementally funded cost-reimbursement contract containing the clause at FAR 52.232-22, then, under ordinary circumstances, the government is not obligated to reimburse the contractor for the overrun and, yes, the contractor must .

That paragraph should read:

If a contractor, without providing the advance notice required by FAR 52.232-22(c), overruns the amount allotted under an incrementally funded cost-reimbursement contract containing the clause at FAR 52.232-22, then, under ordinary circumstances, the government is not obligated to reimburse the contractor for the overrun.

[Retreadfed]

12 minutes ago, Vern Edwards said:

If you don't provide additional funds the contractor gets to quit.

See FAR 52.232-22(c) and (f)(2).

[REA'n Maker]

You are buying hours with a CR contract.

Yes, a deliberate over-simplification, but a practical truth nonetheless, and an example of why they should only be used as a last resort.

(I'm also puzzled by the "no notice" reference.  Isn't 'no' used as an adverb in "No notice, communication, or representation..."?  Maybe I read the OP wrong?)

[Retreadfed]

20 hours ago, REA'n Maker said:

I'm also puzzled by the "no notice" reference.  Isn't 'no' used as an adverb in "No notice, communication, or representation..."?  Maybe I read the OP wrong?)

I think the reference is to the notice from the contractor required by 52.232-22(c).