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52.216-7 Allowable Cost & Payment

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A CPIF contract was awarded (sole source) for the advance planning of ship repair. Two years later the parties agreed to incorporate the accomplishment of the repairs into the same contract.

The bilateral modification that adds the accomplishment CLIN states that the parties have agreed "to price the accomplishment effort in accordance with all clauses, terms and conditions comprising this supplemental agreement".

Incorporated by reference in this same modification is 52.216-7 Allowable Cost and Payment (Feb 1998). This clause states that the contracing officer shall determine allowable amounts in accodance with FAR 31.2 in effect on the date of this contract and the terms of this contract.

Problem:

FAR 31.2 established executive compensation caps in Feb 98. The government has deemed some executive compensation costs, incurred during the accomplishment phase of the contract, as unallowable in accordance with the change to 31.2. The contractor argues that because the base contract (planning) was signed prior to the change to 31.2 the salary caps don't apply to the entire contract.

Do any of you agree with the contractor?

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So the question is whether the version of 31.2 that applies to the repair work is the version in effect (a) on the date of award of the original contract or (B) on the date of execution of the supplemental agreement. The answer depends on the language of the contact, read as a whole. In order for anyone to give you an intelligent answer they would have to be able to see the entire contract.

Don't worry, that's not going to prevent you from getting an answer from someone.

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So the question is whether the version of 31.2 that applies to the repair work is the version in effect (a) on the date of award of the original contract or (B) on the date of execution of the supplemental agreement. The answer depends on the language of the contact, read as a whole. In order for anyone to give you an intelligent answer they would have to be able to see the entire contract.

Don't worry, that's not going to prevent you from getting an answer from someone.

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A CPIF contract was awarded (sole source) for the advance planning of ship repair. Two years later the parties agreed to incorporate the accomplishment of the repairs into the same contract.

The bilateral modification that adds the accomplishment CLIN states that the parties have agreed "to price the accomplishment effort in accordance with all clauses, terms and conditions comprising this supplemental agreement".

Incorporated by reference in this same modification is 52.216-7 Allowable Cost and Payment (Feb 1998). This clause states that the contracing officer shall determine allowable amounts in accodance with FAR 31.2 in effect on the date of this contract and the terms of this contract.

Problem:

FAR 31.2 established executive compensation caps in Feb 98. The government has deemed some executive compensation costs, incurred during the accomplishment phase of the contract, as unallowable in accordance with the change to 31.2. The contractor argues that because the base contract (planning) was signed prior to the change to 31.2 the salary caps don't apply to the entire contract.

Do any of you agree with the contractor?

I'm not sure I follow your question, even as Vern has rephrased it. Are you saying the government has disallowed exec comp because it exceeded the cap established in 1998 or the cap that was in effect in the year in which the services were performed? The cap has been raised every year since 1999. In what year was the contract awarded and in what year was the accomplishment mod issued?

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I'm not sure I follow your question, even as Vern has rephrased it. Are you saying the government has disallowed exec comp because it exceeded the cap established in 1998 or the cap that was in effect in the year in which the services were performed? The cap has been raised every year since 1999. In what year was the contract awarded and in what year was the accomplishment mod issued?

Retreadfred,

As I understand the issue, the original contract was effective prior to the date that the executive compensation caps were implemented in 31.205-6. A modification was subsequently executed after the caps became applicable. Somebody has alleged that the contractor has incurred unallowable executive compensation. The contractor is arguing that, since the effective date of the contract was prior to the implementation of the compensation caps, the "excess" compensation costs can not be deemed unallowable with respect to that contract. Somebody else seems to be arguing that, since the modification included 52.216-7, it established a new effectivity date and thus incorporated the modified cost principle.

The question omits a discussion of the controversy regarding whether the executive compensation caps were retroactive (I believe General Dynamics litigated that point). In any case, Vern is right that one would need to see the entire contract and the entirety of the modification in order to figure out what the parties intended, and I bet there are some extremely pertinent facts/circumstances that would need to be fleshed out ... especially since "pricing" is not the same as cost accounting and/or billing.

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Ordinarily, the applicable cost principles are those in effect on the date of contract award, or on the contract effective date, if that date is different. See Cibinic and Nash, Cost-Reimbursement Contracting, 3d ed. (2004), pp. 645-647. According to case law, this is so even if the government exercises an option to extend performance; the cost principles that apply during the extension are those that were in effect on the original award or effective date, not the date on which the option was exercised. Ibid., pp. 646-647.

However, I would argue that a bilateral modification that adds a new CLIN describing work that is outside the scope of the original contract constitutes a new contract, and that the cost principles that were in effect on the execution or effective date of the mod apply to the new work, not the principles in effect on the original date of award or effective date. Cibinic and Nash do not explicitly address the issue of an out-of-scope, new-work mod, and I know of no case law either in support of or in opposition to my argument. Nevertheless, if I were the contracting officer, and if the issue involved substantial sums of money, I would be willing to fight it out at a board or to court, unless I learned of negative case law or the government's attorney advised me that I had little chance of success.

Ideally, the parties would have expressly addressed the issue in the bilateral mod.

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Retreadfred,

As I understand the issue, the original contract was effective prior to the date that the executive compensation caps were implemented in 31.205-6. A modification was subsequently executed after the caps became applicable. Somebody has alleged that the contractor has incurred unallowable executive compensation. The contractor is arguing that, since the effective date of the contract was prior to the implementation of the compensation caps, the "excess" compensation costs can not be deemed unallowable with respect to that contract. Somebody else seems to be arguing that, since the modification included 52.216-7, it established a new effectivity date and thus incorporated the modified cost principle.

The question omits a discussion of the controversy regarding whether the executive compensation caps were retroactive (I believe General Dynamics litigated that point). In any case, Vern is right that one would need to see the entire contract and the entirety of the modification in order to figure out what the parties intended, and I bet there are some extremely pertinent facts/circumstances that would need to be fleshed out ... especially since "pricing" is not the same as cost accounting and/or billing.

I think RIR should still clarify the facts of her case so that we are sure of them. In any event, Vern addressed the general rule in regard to application of the cost principles under a cost reimbursement contract. As here-2-help indicated, GD challenged a retroactive application of the compensation cost principle to executive compensation before the Court of Federal Claims. Here is a link to that decision.

http://www.uscfc.uscourts.gov/sites/defaul...ralDynamics.pdf

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The base contract, for planning only, was signed prior to the establishment of the executive compensation cap. The bilateral modification was signed after 31.2 established the cap. The government is disallowing costs associated with executive compensation that were incurred during accomplishment of the effort added by the modification.

Thanks to all for your responses.

Ruth

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