Fixed Fee Payment for Reduced Period of Performance

[tguns]

I have a CPFF task order with a POP of 12 months (August 2011 - July 2012). The place of performance is Afghanistan. The decision has been made to shut the operation down two months early. We have notified the contractor and they are making arrangement to re-deploy. We did not issue a T4C but did modify the task order to revise the POP to 10 months (August 2011 - May 2012). The contractor bills the fixed-fee on a pro-rata basis of 1/12 per month.

Is the contractor entitled to the fixed-fee for the two months that were removed via the modification (June & July 2012)?

[here_2_help]

I would like to understand why this was not considered to be a T4C situation. What was the thinking?

[Don Mansfield]

Did you issue a bilateral or unilateral modification? If bilateral, did you adjust the estimated cost and fixed-fee? If unilateral, under what authority did you issue the modification?

[tguns]

First, to clarify we have not issued the modification. We want to issue a bilateral modification revising the period of performance. Second, we did not do a T4C since the administrative burden was far more significant versus revising the period of performance. We have a very good relationship with the contractor and have received virtually no negative feedback from the contractor when we presented them with the future plan for the task order. I am looking for justification to not pay the fee for the remaining last two months.

[here_2_help]

Hi tguns,

You know, the action being contemplated here strikes me as a T4C situation. If it were being handled as a T4C situation, my understanding is that the contractor would only receive fee on accepted work, but would receive (after a negotiated settlement) actual incurred costs plus settlement expenses.

But you didn't want to go that route. Instead, you descoped the PoP. Now the contractor will incur (and bill) you less costs. Since the fixed fee was fixed and should not vary based on costs incurred, I would expect the contractor to be able to bill the entire fixed fee amount.

Hope this helps.

[joel hoffman]

Tguns, in response to your post #4, you said that you dont want to issue this action as a Termination for Convenience and that you want to issue a unilateral modification. It wasn't clear but you suggested that the Contractor doesnt want to deal with a TFC either. Then, I believe that it would be issued under the Changes clause as a deductive change.

In reading the Changes Clause for Cost Reimbursement contracts at 52.243-2, with Alternate 1 or 2 for srvices, the contracting officer may make changes to "...(1) Description of services to be performed."

And...

"(b ) If any such change causes an increase or decrease in the estimated cost of, or the time required for, performance of any part of the work under this contract, whether or not changed by the order, or otherwise affects any other terms and conditions of this contract, the Contracting Officer shall make an equitable adjustment in the --

(1) Estimated cost, delivery or completion schedule, or both;

(2) Amount of any fixed fee; and

(3) Other affected terms and shall modify the contract accordingly."

Note that fee adjustment would be part of the equitable adjustment for a decrease in the cost of services. It might not necessarily be the full 2/12 of the reduction in services though.

[Don Mansfield]

Hi tguns,

You know, the action being contemplated here strikes me as a T4C situation. If it were being handled as a T4C situation, my understanding is that the contractor would only receive fee on accepted work, but would receive (after a negotiated settlement) actual incurred costs plus settlement expenses.

But you didn't want to go that route. Instead, you descoped the PoP. Now the contractor will incur (and bill) you less costs. Since the fixed fee was fixed and should not vary based on costs incurred, I would expect the contractor to be able to bill the entire fixed fee amount.

Hope this helps.

You assert that the contractor would be entitled to 100% of the fixed-fee even though it only completed 83% of the work. Following that logic, the contractor would only be entitled to the original fixed-fee amount if the contract were extended by two months. I don't agree. Whether it's T4C or a deductive change, the percentage of fixed-fee paid should reflect the percentage of completion. Note that FAR 16.306(a) states:

A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract.

See RJO Enterprises, Inc., DOTCAB 2951, 96-2 BCA, P 28,379 for a case holding that the Government properly adjusted the fee downward as a result of a constructive change reducing the amount of work required under the contract.

[Guest Vern Edwards]

Is the contractor entitled to the fixed-fee for the two months that were removed via the modification (June & July 2012)?

Had you terminated the contract for convenience, the contractor would be entitled to 10/12 of the fee. He would not be entitled to fee on the two months that you are deducting. See 52.249-6(h)(4)(i). You are handling it as a deductive change, which, despite the carping above, is okay as long as its okay with the contractor. Assuming that the services are severable, I suggest that you pay 10/12 of the fee, or the part of 10/12 which remains unpaid. Do not pay the entire fee. However, you are free to pay more if it facilitates an undisputed settlement.

P.S. I do not believe that you can do this as a unilateral change order. But if the contractor will go along with it, be my guest.

[here_2_help]

Don et al,

Yes. I agree with your point(s) and stand corrected, so long as we are dealing with a deductive change and not a termination in fact that is masquerading as a deductive change in order to avoid the T4C administrative requirements. I noted that the deductive change terminated the task order, and keyed on that fact.

I agree with Vern's comment that this is "okay as long as its okay with the contractor." Were I that contractor, then, depending on the circumstances, it might not be okay with me.

But again, I agree with the comments regarding deductive changes.

H2H