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52.232-22 - Limitation of Funds - 75 percent notice

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Under 52.232-22 (Limitation of Funds), a Contractor is required to notify the Contracting Officer whenever it has reason to believe that the costs it expects to incur in the next 60 days, when added to all costs previously incurred, will exceed 75 percent of the total amount so far allotted to the contract by the Government. This makes sense the first time this occurs. The Contractor provides notice, and typically the Contracting Officer allots additional funding to the contract to cover continued performance before the funding is exhausted. Presumably, the Contractor should then continue to notify the Contracting Officer each time this occurs based on the new total funded amount. As the contract nears completion, this often creates a situation where the Contractor has already exceeded 75 percent of the total funded dollars at the time additional funding is added. What are the Contractor?s obligations for notifications in this situation?

As an example, let?s say there is a CPFF contract with a base year and four option years and a total potential contract value of $5,000,000. $1,000,000 is funded each year. For simplicity, let?s say that actual costs are also equal to $1,000,000 each year and that they are spread evenly throughout the year. The first year, notice should be provided when costs are approaching $750,000. Using this same formula the second year, notice should be provided when costs are approaching $1,500,000, which would be early in the year. The third year, notice would be provided when costs are within 60 days of reaching $2,250,000, which would be only a month after the most recent funding was allotted. By the beginning of the fifth year, the actual costs would already total $4,000,000, but 75% of the new total funded dollars would be $3,750,000 so notice would already be past due. The table below illustrates this example, although I can't seem to get the formatting to show properly.

__________________________________Total Funding__75% of total amount so far allotted

Initial contract funding for base year______$1,000,000___$750,000

Additional funding mod for option year 1___$2,000,000___$1,500,000

Additional funding mod for option year 2___$3,000,000___$2,250,000

Additional funding mod for option year 3___$4,000,000___$3,000,000

Additional funding mod for option year 4___$5,000,000___$3,750,000

Is anyone aware of any guidance on this issue?

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The funding is not cumulative through successive option periods. Each option period stands on its own as separately funded with its own estimated cost and funding schedule. In other words, you start over with each option. It would be cumulative only if the contract were continuous through five years.

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The funding is not cumulative through successive option periods. Each option period stands on its own as separately funded with its own estimated cost and funding schedule. In other words, you start over with each option. It would be cumulative only if the contract were continuous through five years.

Vern, do you have any board or court decision or specific regulatory guidance to support your position? What you have written seems to be contrary to the plain language of the clause which speaks to the amount currently obligated on the contract.

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:blink: Why do I need a board or court decision? Why do I need more specific regulatory guidance than the clause itself? :lol:

Retread, I suggest that you reread the clause, the problem scenario and my response, and do some thinking. Remember, we're talking about a contract with option periods, so, although Mrs. Bad Example does not say so, I presume that the contract is annually funded, which is why they are using options, and that the option periods are severable. Think about what you would see in the contract schedule. ("Schedule" is an important word in the clause.) Ask yourself this question: In a contract with option CLINs, would the schedule specify a single estimated cost for the entire contract covering all options, or a separate estimated cost for each option CLIN?

Vern

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:blink: Why do I need a board or court decision? Why do I need more specific regulatory guidance than the clause itself? :lol:

Retread, I suggest that you reread the clause, the problem scenario and my response, and do some thinking. Remember, we're talking about a contract with option periods, so, although Mrs. Bad Example does not say so, I presume that the contract is annually funded, which is why they are using options, and that the option periods are severable. Think about what you would see in the contract schedule. ("Schedule" is an important word in the clause.) Ask yourself this question: In a contract with option CLINs, would the schedule specify a single estimated cost for the entire contract covering all options, or a separate estimated cost for each option CLIN?

Vern

All right, let's think about what the issue is and what the clause says. We also have to think about what is the contractual significance of an exercise of an option. Starting with the latter, when an option is exercised, that does not create a separate contract for the option period. Instead, the option is merged with the previous contract requirements to form a unitary contract. Further, in every cost reimbusement contract I have seen, when an option is exercised, the modification adds the estimated cost of the option to the estimated cost of previous contract requirements to arrive at a new estimated cost. This new estimated cost is stated as a modification of section B of the contract, part of the contract schedule. Additionally, the modification exercising the option indicates the amount currently obligated on the contract for LOF purposes. This amount also is contained in the schedule of the contract either in Section B or H. If this process is utilzed, the notice requirements would be based on the total amount allocated to the contract and as reflected in the schedule, not merely the amounts allocated for the option period.

Maybe your experience is different from mine or you have some authoritiative pronouncement that shows that the process I have described is wrong.

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Application of either the LOC or the LOF clause depends on how the contract schedule is written. See Analysis Corp., ASBCA No. 54183, 04-1 BCA ? 32629.

In every annually funded cost-reimbursement contract that I have seen with a base period and option periods, the schedule has been written such that each period had its own CLIN and its own estimated cost and fee. You cannot combine the estimated costs of the separate CLINs of annually funded contracts into a single number reflecting a cumulative obligation, because (1) they are funded by different appropriations, (2) the Bona Fide Need rule applies, and (3) you cannot mingle the funds of different fiscal years. You cannot use the funds of one year to pay for an overrun in another. Thus, I cannot think why a CO would write a contract to merge the estimated costs for the separate CLINs into one big estimated cost for the entire contract. I have never seen such a contract, cost-reimbursement or fixed-price, that combined the values of separately priced, separately funded option year CLINs to come up with a single overall firm-fixed-price or estimated cost and fee for the entire contract. Not only is there no legal requirement to combine all the estimated costs of the various CLINs into a single overarching estimated cost and fee, but it would not make sense to do so. To do that would not only be problematical from the standpoint of appropriations law, but it would give rise to the very problem that perplexes Mrs. Bad Example. As she has pointed out, the contractor's 75 percent notice would be useless after a couple of options had been exercised.

If your experience has been different, then it's been different. I don't know why any CO would do what you have described and I have explained why I don't. But if doing that makes sense to you, then so be it. Hopefully, it will not make sense to Mrs. Bad Example.

By the way, your comments about options and unitary contract are off the mark. In the scenario that I have been discussing each CLIN describes a severable period of service, distinct from the periods of services under the other CLINs and separately funded. While the contract is unitary in the sense that the terms and conditions apply to all periods, You cannot "merge" the estimated costs of the periods into a single period for the reasons that I have explained above.

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Thanks to both of you for your comments. I?m afraid I have muddied the waters by including the option years in my example. This was intended to be a simple hypothetical contract that illustrated the general issue. However, as seems to often be the case on this forum, my inadvertent inclusion of this complicating factor has raised some interesting additional areas for discussion.

To address questions raised thus far and provide some clarity around my initial question:

My experience has actually been more similar to that of Retreadfed; typically when an option has been exercised in our contracts, the modification adds the estimated cost of the option period to the previous total estimated cost of the contract to arrive at a new total estimated cost. Each option period is not listed on a separate CLIN. The funding of our contracts does not always match up with the exercise of the option years, either; an option year might be exercised but then funded in multiple increments. These are generalities, and I didn't have a specific contract in mind when I asked this question, so one would obviously need to review the way the schedule and contract are written as a whole, as Vern mentions above.

Getting back to my original question, can we eliminate all references to option years and assume the contract is a five year $5,000,000 contract that is incrementally funded? Let?s just say that the CO funds the contract in accordance with the same schedule, although this is not required by any inclusion of option years.

Thanks again for your perspectives.

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Getting back to my original question, can we eliminate all references to option years and assume the contract is a five year $5,000,000 contract that is incrementally funded? Let?s just say that the CO funds the contract in accordance with the same schedule, although this is not required by any inclusion of option years.

Thanks again for your perspectives.

Mrs. Bad Example, if I knew your location right now I'd launch a drone attack.

If you eliminate the options and are talking about a contract with a five year period of performance the issue that you raised in your initial post goes away. I don't know why you asked the original question, I don't know what the hell you want to know now, and I don't care.

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Mrs. Bad Example, if I knew your location right now I'd launch a drone attack.

If you eliminate the options and are talking about a contract with a five year period of performance the issue that you raised in your initial post goes away. I don't know why you asked the original question, I don't know what the hell you want to know now, and I don't care.

I am talking about a contract with a five year period of performance that is incrementally funded. There are no option years. The contract is for five years, but the entire contract value is not funded at the time of award. Funding is periodically added to the contract. Each time the Contractor's costs approach 75% of "the total amount so far allotted to the contract", notice must be given.

Perhaps someone can enlighten me on why Vern believes the issue goes away under these circumstances. Maybe I haven't had enough coffee today...

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Mrs. Bad Example:

In your opening post you began as follows:

Under 52.232-22 (Limitation of Funds), a Contractor is required to notify the Contracting Officer whenever it has reason to believe that the costs it expects to incur in the next 60 days, when added to all costs previously incurred, will exceed 75 percent of the total amount so far allotted to the contract by the Government. This makes sense the first time this occurs. The Contractor provides notice, and typically the Contracting Officer allots additional funding to the contract to cover continued performance before the funding is exhausted. Presumably, the Contractor should then continue to notify the Contracting Officer each time this occurs based on the new total funded amount. As the contract nears completion, this often creates a situation where the Contractor has already exceeded 75 percent of the total funded dollars at the time additional funding is added. What are the Contractor?s obligations for notifications in this situation?

You then provided an example, which I?ve edited to remove the references to options and formatted to (hopefully) make it clearer:

[L]et?s say there is a CPFF contract with [a five year performance period] and a total potential contract value of $5,000,000. $1,000,000 is funded [at the end of or at the beginning of] each year. For simplicity, let?s say that actual costs are also equal to $1,000,000 each year and that they are spread evenly throughout the year.

The first year, notice should be provided when costs are approaching $750,000. Using this same formula the second year, notice should be provided when costs are approaching $1,500,000, which would be early in the year. The third year, notice would be provided when costs are within 60 days of reaching $2,250,000, which would be only a month after the most recent funding was allotted. By the beginning of the fifth year, the actual costs would already total $4,000,000, but 75% of the new total funded dollars would be $3,750,000 so notice would already be past due.

Here is the relevant portion of the LOF clause:

(B) The Schedule specifies the amount presently available for payment by the Government and allotted to this contract, the items covered, the Government?s share of the cost if this is a cost-sharing contract, and the period of performance it is estimated the allotted amount will cover. The parties contemplate that the Government will allot additional funds incrementally to the contract up to the full estimated cost to the Government specified in the Schedule, exclusive of any fee. The Contractor agrees to perform, or have performed, work on the contract up to the point at which the total amount paid and payable by the Government under the contract approximates but does not exceed the total amount actually allotted by the Government to the contract.

? The Contractor shall notify the Contracting Officer in writing whenever it has reason to believe that the costs it expects to incur under this contract in the next 60 days, when added to all costs previously incurred, will exceed 75 percent of (1) the total amount so far allotted to the contract by the Government or, (2) if this is a cost-sharing contract, the amount then allotted to the contract by the Government plus the Contractor?s corresponding share. The notice shall state the estimated amount of additional funds required to continue performance for the period specified in the Schedule.

Okay, here is how I worked out your example. Based on the numbers in your third (the red-lettered) sentence, the monthly rate of cost incurrence would be about $83,333 ($1,000,000/12 or $5,000,000/60 = $83,333).

If that is correct, and if the initial increment of funding is $1,000,000 and is supposed to last for 12 months, then the contractor would exceed 75% ($750,000) at some time during the 9th month of performance, at which time it would have enough funds remaining ($250,000) to continue working for about three more months ($250,000/$83,333 = 3), which would carry it through to the end of incremental funding period. It would have to make the 75% notice in about the 7th month and would say that it needs no additional funds to carry it through to the end of the funding period.

Now suppose that the government adds $1,000,000 in funding during the 12th month. The total funds allotted are now $2,000,000 and are supposed to last through the 24th month of performance. The contractor would exceed 75% ($1,500,000) at some time during the 18th month of performance, at which time it would have enough funds remaining ($500,000) to continue working for about 6 more months ($500,000/$83,333 = 6) -- through the end of the second incremental funding period. It would have to give the 75% notice in about the 16th month and would say that it needs no additional funds to carry it through to the end of the funding period.

Now suppose that the government adds another $1,000,000 during the 24th month. The total funds allotted would then be $3,000,000 and are supposed to last through the 36th month of performance. The contractor would exceed 75% ($2,225,000) at some time during the 27th month of performance, at which time it would have enough funds remaining ($775,000) to continue working for about 9 more months ($775,000/$83,333 = 9.3) -- through the end of the third incremental funding period. It would have to give the 75% notice in about the 25th month and it would say that it needs no additional funds to carry it through to the end of the funding period.

And so on?

Have I been consistent with the terms of your initial example? Have I missed something? Is my arithmetic correct? (Please check, because I have not had my coffee yet).

In your opening post you said:

As the contract nears completion, this often creates a situation where the Contractor has already exceeded 75 percent of the total funded dollars at the time additional funding is added.

I don?t understand that statement. Please explain, because I don't know why the fact that the contractor will have exceeded the 75 percent level before funds are added should be a problem in your example. That's the way it ought to be. Funds don't have to be added until they are needed, and in your example they won't ever be needed until just before the money runs out.

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And so on?

Have I been consistent with the terms of your initial example? Have I missed something? Is my arithmetic correct? (Please check, because I have not had my coffee yet).

Yes, this is consistent with my example. And up until this point there is no real problem (although it seems that 25 months into the contract is a bit early to be sending the required notice to be of much value, since funds would have just been added one month earlier and at the time of notice there are still enough funds to last another 11 months).

Continuing with this example, though, is when the problems occur:

Now suppose that the government adds another $1,000,000 during the 36th month. The total funds allotted would then be $4,000,000 and are supposed to last through the 48th month of performance. The contractor would exceed 75% ($3,000,000) at some time during the 36th month of performance, at which time it would have enough funds remaining ($1,000,000) to continue working for about 12 more months ($1,000,000/$83,333 = 12) -- through the end of the fourth incremental funding period. It would have to give the 75% notice in about the 34th month and it would say that it needs no additional funds to carry it through to the end of the funding period.

Here's the problem. The Contractor would be required to give the 75% notice two months before the new funding is added. Note that they would have already given the notice (11 months earlier) required for 75% of the $3M funding level. Now they would be expected to give the notice for 75% of the $4M funding level two months prior to that funding being added.

In the fifth year, the problem is even greater, as notice would have to be given in the 43rd month.

In your opening post you said:

QUOTE

As the contract nears completion, this often creates a situation where the Contractor has already exceeded 75 percent of the total funded dollars at the time additional funding is added.

END QUOTE

I don?t understand that statement. Please explain, because I don't know why the fact that the contractor will have exceeded the 75 percent level before funds are added should be a problem in your example. That's the way it ought to be. Funds don't have to be added until they are needed, and in your example they won't ever be needed until just before the money runs out.

I see the confusion with this statement. You're right; funds wouldn't normally be added until more than 75% of the previously allotted funds are expended. But what I meant was that 75% of the NEW total funding would already have been exceeded at the time those new funds are added. How is a contractor to provide notice before they know when or how much new funding is going to be allotted?

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I don't know why you are determined to see a "problem". The purpose of the 75% notice is to let the government know the status of funding so that it can either decide to give the contractor more money to keep the work under going or to cut funding to slow or end the work. The contractor must give the notice and the government will do what it wants to do. Why is any of this "problem"? Give the notice and don't worry about anything as long as you have money. Let the government decide what to do if anything. Moreover, your division of the contract into yearly periods appears to be entirely artificial, unless you have withheld some essential piece of information, in which case the drone is on the way. It's a five year contract. The government will fund the contract (or not) when it must. If the contractor overruns, the notices and the funding will come earlier and perhaps more frequently. If the contractor underruns they will come later and perhaps less frequently. So what? And why does the contractor need to know

I simply do not see a "problem" in any of this. And why does the contractor need to know when and how much additional funding is coming in order to notify the government that it's going to reach the 75% figure of the current total amount allotted?

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I don't know why you are determined to see a "problem".

I'm not determined to see a "problem"; I'm determined to find guidance on how the Government expects contractors to deal with a problem. I've been following this forum for awhile, and I have always appreciated the insight and information provided by its members (you in particular). I'm not sure why I am having so much trouble explaining this problem in a way that can be understood.

The purpose of the 75% notice is to let the government know the status of funding so that it can either decide to give the contractor more money to keep the work under going or to cut funding to slow or end the work. The contractor must give the notice and the government will do what it wants to do.

Agreed

Why is any of this "problem"? Give the notice and don't worry about anything as long as you have money. Let the government decide what to do if anything.

The problem is that it is impossible to provide the notice as I understand it to be required. Please refer to my continuation of the example as you began.

"Now suppose that the government adds another $1,000,000 during the 36th month. The total funds allotted would then be $4,000,000 and are supposed to last through the 48th month of performance. The contractor would exceed 75% ($3,000,000) at some time during the 36th month of performance, at which time it would have enough funds remaining ($1,000,000) to continue working for about 12 more months ($1,000,000/$83,333 = 12) -- through the end of the fourth incremental funding period. It would have to give the 75% notice in about the 34th month and it would say that it needs no additional funds to carry it through to the end of the funding period. "

In this example, the current funding brings the total allotted amount to $4M. 75% of $4M is $3M. So the contractor would need to provide notice 60 days prior to reaching $3M in costs. However, in this example, $3M in costs have already been exhausted at the time of the funding action. So the contractor would need to provide notice 60 days before the funding action actually happens. As stated above, the funding action happens in month 36, but the notice would be required in month 34. The contractor would have to go back in time once they knew the amount of the new funding action in order to provide the advance notice as required.

Now suppose that the government adds another $1,000,000 during the 48th month. The total funds allotted would then be $5,000,000 and are supposed to last through the 60th month of performance. The contractor would exceed 75% ($3,750,000) at some time during the 45th month of performance, at which time it would have enough funds remaining ($1,250,000) to continue working for about 15 more months ($1,250,000/$83,333 = 15) -- through the end of the fifth incremental funding period. It would have to give the 75% notice in about the 43rd month and it would say that it needs no additional funds to carry it through to the end of the funding period.

The contractor would need to provide notice 60 days prior to reaching $3,750,000 in costs. Again, in this example, $3,750,000 in costs have already been exhausted long before the time of the funding action. So the contractor would need to provide notice 5 months before the funding action actually happens. The funding action happens in month 48, but the notice would be required in month 43. Once again, the contractor would have to go back in time once they knew the amount of the new funding action in order to provide the advance notice as required.

Moreover, your division of the contract into yearly periods appears to be entirely artificial, unless you have withheld some essential piece of information, in which case the drone is on the way. It's a five year contract. The government will fund the contract (or not) when it must. If the contractor overruns, the notices and the funding will come earlier and perhaps more frequently. If the contractor underruns they will come later and perhaps less frequently.

You are correct. My division of the contract into yearly periods was entirely artificial and was done entirely to make the problem obvious and more easily discussed. (This was clearly unsuccessful.) A real contract would not typically be funded in this manner, and the costs would not be expended so regularly. This is a hypothetical contract meant to illustrate an issue that I have seen on multiple real contracts.

I simply do not see a "problem" in any of this. And why does the contractor need to know when and how much additional funding is coming in order to notify the government that it's going to reach the 75% figure of the current total amount allotted?

Because in the later parts of the contract, 75% of the newest ("current") total amount allotted has already been reached before the time of the funding action. The contractor would need to know how much additional funding was coming in order to provide the notice, or it would need to have a time machine to go back and give the notice at the time required.

We could scrap this entire example, and look at a new one. Forget what's happened for the first 4.5 years of a contract - funding actions have been made and costs have been incurred, with no particular regularity. You're 4.5 years into a contract. The previously allotted amount is $900,000. You've incurred costs of $850,000 so far. The CO funds another $100K, bringing the total allotted amount to $1,000,000. 75% of $1,000,000 is $750,000, which you exceeded two years ago. How can you provide notice 60 days in advance that 75% of the new total allotted amount of $1,000,000 will be reached?

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Mrs. Bad Example:

Let's try to work through your first example before taking on your new one. Today is my birthday and I may not have enough time left to try something new at this point. In any case, I think I finally see what's bothering you. I think.

At the end of the 36th month the contractor will have incurred costs of $3,000,000, the total amount allotted at that tme. Presumably the contractor and the government are on speaking terms and so they expect the government to increase the total amount allotted by $1,000,000 to $4,000,000 in that month. Presumably, both are capable of 3rd grade arithmetic, know that the contractor has already spent 75% of $4,000,000 and so will have to provide the 75% notice immediately, and have spoken about that. The parties also presumably know that the total estimated cost is $5,000,000 and that the government will have to make only one more $1,000,000 incremental allotment if the contractor does not overrun.

Now if we presume that both parties are reasonably intelligent and on speaking terms, we can assume that they both know that 75% of $5,000,000 is $3,750,000 and that the contractor will reach that amount at some time early in the 46th month of performance, about 2 months before the government would ordinarily provide the last $1,000,000 allotment of funds. However, at present the total amount allotted is only $4,000,000 and the contractor has already provided the 75% notice for that allotment. The LOF clause will not require the 60 day advance notice until the final allotment has been made, but when that allotment is made the contractor will have already passed the 75% amount and so can't provide advance notice. OMG! What to do? :lol:

This is the problem that worries you, right? Well, contract clauses don't address and guidance can't be issued for every possibility. COs and contractors must adopt common sense measures to cope with what appear to be contractual dilemmas. They must improvise and adapt. In this case the parties could act like they have brains in their heads and talk it over. They could agree that when the contractor is 60 days from the point at which it will have incurred $3,750,000, which should be toward the end of the 43rd month, the contractor can give the government a written notice that in 60 days it will have reached 75% of the total estimated cost. The contractor's notice might say:

Although the total amount allotted at the present time is only $4,000,000, this is to notify you that in 60 days we will reach $3,750,000, which is 75% of the $5,000,000 total estimated cost of the contract. We are providing this notice even though the total amount allotted has not yet been raised to $5,000,000. We have enough money to last until the end of the 48th month of performance and will not need more money until then. Our current estimate is that we will need the remaining $1,000,000 at that point in order to complete performance. Please contact us if you have any questions. We will advise if anything changes.

The CO might then respond as follows:

Got it. Thanks. We plan to make the last $1,000,000 funding increment during the 48th month and understand that you are providing the 75% notice in advance of that allotment. Good job. Appreciate it. Yes, let us know if anything changes. We will advise if our funding plans change.

Or they might do something else that makes sense.

No problem. :blink:

Are you a Warren Zevon fan? If so, I'll recall the drone.

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Application of either the LOC or the LOF clause depends on how the contract schedule is written. See Analysis Corp., ASBCA No. 54183, 04-1 BCA ? 32629.

In every annually funded cost-reimbursement contract that I have seen with a base period and option periods, the schedule has been written such that each period had its own CLIN and its own estimated cost and fee. You cannot combine the estimated costs of the separate CLINs of annually funded contracts into a single number reflecting a cumulative obligation, because (1) they are funded by different appropriations, (2) the Bona Fide Need rule applies, and (3) you cannot mingle the funds of different fiscal years. You cannot use the funds of one year to pay for an overrun in another. Thus, I cannot think why a CO would write a contract to merge the estimated costs for the separate CLINs into one big estimated cost for the entire contract. I have never seen such a contract, cost-reimbursement or fixed-price, that combined the values of separately priced, separately funded option year CLINs to come up with a single overall firm-fixed-price or estimated cost and fee for the entire contract. Not only is there no legal requirement to combine all the estimated costs of the various CLINs into a single overarching estimated cost and fee, but it would not make sense to do so. To do that would not only be problematical from the standpoint of appropriations law, but it would give rise to the very problem that perplexes Mrs. Bad Example. As she has pointed out, the contractor's 75 percent notice would be useless after a couple of options had been exercised.

If your experience has been different, then it's been different. I don't know why any CO would do what you have described and I have explained why I don't. But if doing that makes sense to you, then so be it. Hopefully, it will not make sense to Mrs. Bad Example.

By the way, your comments about options and unitary contract are off the mark. In the scenario that I have been discussing each CLIN describes a severable period of service, distinct from the periods of services under the other CLINs and separately funded. While the contract is unitary in the sense that the terms and conditions apply to all periods, You cannot "merge" the estimated costs of the periods into a single period for the reasons that I have explained above.

Vern, I think what we have here is a failure to communicate. A good discussion of the nature of options and the effect of their exercise is found in VHC Inc. v. Peters, 179 F.3d 1363. Further, the relationship between options under FAR 17 and DoL's rules relating to contracts subject to the Service Contract Act is discussed in Penn Enterprises, Inc., ASBCA No. 52234 (January 5, 2001). Based upon those decisions, I stand by my statement regarding the exercise of an option creating a unitary contract.

As for your concerns regarding the fiscal implications of the exercise of an option creating a unitary contract, I have never said that the exercise of an option creates one obligation. What I have said is that the amounts of each option period are combined to form one estimated cost of the contract. Using Ms. B's scenario as an example, CLIN 1 would have an amount obligated from one appropriation. That appropriation can be used only for that CLIN. When the first option is exercised for CLIN 2, a specified amount is obligated to the contract, probably from a different appropriation used to fund CLIN 1. The funds obligated for CLIN 2 can only be used for CLIN 2. However, the estimated cost of the contract is the sum of the estimated cost of CLIN's 1 and 2. This does not result in a merger of appropriations, but simply a statement of the estimated cost of the contract. This is nothing different from the situation where different CLINS of a contract are funded by different appropriations. The estimated cost of the contract is the sum of the value of the CLINs.

Finally, returning to your original response to my question, the notice requirements in the LOF clause are found in paragraph ©. That paragraph does not refer to the schedule but to the contract.

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Retread:

I stand by my position: When a contract contains annually funded options, each with its own estimated cost and fee, the notice requirements of the LOC and of the LOF clauses apply to each option period separately, not to the contract as a whole. The estimated costs and fees of the options are not summed to contractually stipulate a single estimated cost and a single fee for the entire contract for the purposes of application of those clauses -- not by a CO who knows what he or she is doing.

The discussion of options and unitary contract in VHC, Inc. v. Peters, 179 F.3d 1363, 1366, (Fed. Cir. 1999) is not pertinent to the issue we have been discussing and in no way supports your position or undermines my own.

As for CLINs, it is not necessarily true that the values of CLINs with separate estimated costs are summed for purposes of application of the LOC or LOF clause. See Moon Engineering Co., Inc., ASBCA No. 49210, 99-1 BCA ? 30,187.

As for the paragraphs in the clause, I know I don't have to tell you that when interpreting a clause you read it as a whole.

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Let's try to work through your first example before taking on your new one. Today is my birthday and I may not have enough time left to try something new at this point.

Happy belated birthday. Hope you live long enough to make it to the end of this post.

In any case, I think I finally see what's bothering you. I think.

At the end of the 36th month the contractor will have incurred costs of $3,000,000, the total amount allotted at that tme. Presumably the contractor and the government are on speaking terms and so they expect the government to increase the total amount allotted by $1,000,000 to $4,000,000 in that month. Presumably, both are capable of 3rd grade arithmetic, know that the contractor has already spent 75% of $4,000,000 and so will have to provide the 75% notice immediately, and have spoken about that. The parties also presumably know that the total estimated cost is $5,000,000 and that the government will have to make only one more $1,000,000 incremental allotment if the contractor does not overrun.

Now if we presume that both parties are reasonably intelligent and on speaking terms, we can assume that they both know that 75% of $5,000,000 is $3,750,000 and that the contractor will reach that amount at some time early in the 46th month of performance, about 2 months before the government would ordinarily provide the last $1,000,000 allotment of funds. However, at present the total amount allotted is only $4,000,000 and the contractor has already provided the 75% notice for that allotment. The LOF clause will not require the 60 day advance notice until the final allotment has been made, but when that allotment is made the contractor will have already passed the 75% amount and so can't provide advance notice. OMG! What to do? :lol:

This is the problem that worries you, right?

Exactly. Although "worry" might be a strong term. Perhaps "problem" is too strong as well, though it depends on which definition you choose. Alas, the FAR doesn't define "problem"; Merriam-Webster offers the following definitions:

  • a question raised for inquiry, consideration, or solution
  • an intricate unsettled question
  • a source of perplexity, distress, or vexation

I would say the first two fit, and it is a source of perplexity for me. Not so much distress.

So as not to go off on another tangent, I'm refraining from commenting on the assumption that all Contractors and Contracting Officers are reasonably intelligent and on speaking terms...

Well, contract clauses don't address and guidance can't be issued for every possibility. COs and contractors must adopt common sense measures to cope with what appear to be contractual dilemmas. They must improvise and adapt.

Agreed. But it does seem to me that this problem is likely to occur in the vast majority of incrementally funded contracts, so I am perplexed as to why the clause is written the way it is, and why there wouldn't be any guidance about it (or at least anyone complaining about it). There are lots of unique situations where the only option is to improvise and adapt, but it seems to me that FAR clauses should adequately address the majority of contracts in which they are included.

In this case the parties could act like they have brains in their heads and talk it over. They could agree that when the contractor is 60 days from the point at which it will have incurred $3,750,000, which should be toward the end of the 43rd month, the contractor can give the government a written notice that in 60 days it will have reached 75% of the total estimated cost. The contractor's notice might say:

Although the total amount allotted at the present time is only $4,000,000, this is to notify you that in 60 days we will reach $3,750,000, which is 75% of the $5,000,000 total estimated cost of the contract. We are providing this notice even though the total amount allotted has not yet been raised to $5,000,000. We have enough money to last until the end of the 48th month of performance and will not need more money until then. Our current estimate is that we will need the remaining $1,000,000 at that point in order to complete performance. Please contact us if you have any questions. We will advise if anything changes.

The CO might then respond as follows:

Got it. Thanks. We plan to make the last $1,000,000 funding increment during the 48th month and understand that you are providing the 75% notice in advance of that allotment. Good job. Appreciate it. Yes, let us know if anything changes. We will advise if our funding plans change.

Or they might do something else that makes sense.

No problem. :blink:

True, and most of the time improvising works just fine. I think your first possible solution addresses the requirements of the clause but provides no useful information to the CO. Something else that makes sense might be to agree with the CO that instead of providing notice at the 75% level, we'll just let them know when there are a few months of funding remaining and they should start thinking about adding some. That usually works just fine, with no problems.

One of the bullet points in my job description involves anticipating problems and mitigating them before they occur. As such, this clause has always made me think about the following possible scenario:

Contractor: Hey, Mr. CO. Did you see the Green Bay game the other night? I can't believe they lost! They were robbed!

CO: No, I didn't see the game. I hate Wisconsin, and I hate football.

Contractor: So anyway, I wanted to let you know that we think the current funding levels on our contract will last another 6 months or so. Depending on how XYZ goes, we may end up exceeding our estimate by a few thousand dollars. Once I get guidance from the COTR as to how he wants us to handle XYZ, we'll send you a revised estimate to complete. [Note: XYZ is some unanticipated problem which does not constitute a change in the scope of work.]

CO: Silence.

Contractor: Hi Mr. CO. Here's that revised estimate to complete we mentioned. Sure enough, because of XYZ it looks like we're going to end the contract about $10K over budget.

CO: Silence.

... and so on until...

Contractor: Dear Mr. CO, our costs have now exceeded the level of funding and contract value on this contract. As we know this is an important project that may save all of mankind, we are continuing to perform the work for its completion. We would appreciate it if you could expedite a modification to the contract adding $10K of funding and contract value. Thank you in advance.

CO (once contract is complete): Sorry, you aren't entitled to the additional $10K that you incurred, because you didn't provide the proper notice in accordance with 52.232-22.

Contractor: What do you mean? We had an agreement that since notice in strict compliance with 52.232-22 would be impossible, we would just keep you updated in a timely manner?

Co: I don't have any recollection of that. Anyway, it doesn't matter. 52.232-22 is very clear on when notice should be provided. And I hate Wisconsin.

Perhaps an unlikely scenario (after all, who hates Wisconsin?) but I have seen many references to excess costs being denied due to lack of proper notice per 52.232-22.

Are you a Warren Zevon fan? If so, I'll recall the drone.

Huge fan.

I'm proud to be a glutton, and I don't have time for sloth

I'm greedy, and I'm angry, and I don't care who I cross

Thanks for getting the reference. And you can just call me mrsbad.

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Dear, Dear Mrs. Bad,

Still out here in the wind and rain

Look a little older but I feel no pain

And it stands to reason

I'm still looking for love

I've called off the drone.

I... I think I love you. :blink:

Vern

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Dear, Dear Mrs. Bad,

Still out here in the wind and rain

Look a little older but I feel no pain

And it stands to reason

I'm still looking for love

I've called off the drone.

I... I think I love you. :blink:

Vern

You can go and be

What you want to be

And it'll be alright

If we disagree

I'm the one who cares

And I hope you'll see...

-mrsbad

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Gentle rain

Falls on me

All life folds back

Into the sea

We contemplate eternity

Beneath the vast indifference of heaven

V.

Ahhh, Warren, we hardly knew ye.

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