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Payment of Minimum Guarantee

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A recent solicitation for Multiple Award Indefinite Delivery/Indefinite Quantity Contracts for General Construction was written and is in the review stages. Note that any task order awarded under any resulting contract will be for construction greater than $500K. Regarding payment of the minimum guarantee, the solicitation stated, "The contract minimum guarantee is $2500 per contract and is applicable to the base year of performance only. All contractors receiving award, with the exception of the contractor receiving a Task Order for the Seed Project, will have $2500 obligated on their base contract to cover the Minimum Guarantee. If the contractor receives a Task Order, a unilateral modification will be issued to deobligate the minimum guarantee from the base contract. If the contractor does not receive a Task Order prior to contract expiration, they may submit an invoice for the minimum guarantee amount immediately following the expiration of the contract.".

One of the reviewers indicated that the last sentence is incorrect and that, should the contractor not receive a Task Order, they must submit a request for equitable adjustment in accordance with the Disputes Clause, rather than an invoice. Has anyone ever seen payment of a minimum guarantee handled in such a way?

I maintain that the reviewer is incorrect if, for no other reason, that the Disputes Clause states "a voucher, invoice or other routine request for payment that is not in dispute when submitted is not a claim under the Act". How can invoicing for something that was guaranteed and properly obligated on their contract be a dispute?

Since I must provide a written response to the reviewer regarding my disagreement I was hoping I might find something on this discussion forum. Thoughts?

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"If the contractor does not receive a Task Order prior to contract expiration, they may submit an invoice for the minimum guarantee amount immediately following the expiration of the contract."

One of the reviewers indicated that the last sentence is incorrect and that, should the contractor not receive a Task Order, they must submit a request for equitable adjustment in accordance with the Disputes Clause, rather than an invoice. Has anyone ever seen payment of a minimum guarantee handled in such a way?

I think that either the reviewer is screwy or you misunderstood. There is nothing wrong with agreeing in advance to pay the contractor the minimum in the event that the government does not order the minimum by the deadline, and letting the contract submit an invoice in order to settle the matter. That's a perfectly intelligent, fair, and administratively simple way to handle it. Nothing in statute or regulation prohibits that approach, unless the prohibition is peculiar to your office or agency. In fact, i think it is a common among agencies to handle it that way.

As for requesting an equitable adjustment, I don't think the reviewer understands the concept. An equitable adjustment is an adjustment to price or cost and fee based on the cost impact of an act or omission. To request payment of the minimum would not be a request for an equitable adjustment, since the minimum is not a measure of cost impact. Rather, it would simply be a request for payment of the minimum as settlement for not placing an order.

The reviewer might have meant that you should require the contractor to submit a claim for payment of the minimum pursuant to the Disputes clause instead of merely invoicing for it. That would be one way to handle it, but why bother to do it that way? You would need more paper: (1) the claim, (2) a settlement agreement/release of claims, and (3) an invoice for the amount of the settlement. Why do all that if the contract can provide for the contractor to simply submit an invoice and sign a release of claims? The release can be included in the invoice.

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I agree with Vern. In addition, I think the reviewer has some concepts confused. The Disputes clause deals with claims. A claim is a different action from filing a request for an equitable adjustment. For example, if you are in DoD, an REA needs to be certified, just as do certian claims under the Disputes clause. However, the language of the two certifications is different and the certification for an REA does not satisfy the requirement for a cefrtification under the Disputes clause. Further, the consequences attached to filing an REA are different form the consequences of filing a claim. For example, an REA does not accrue interest, whereas a claim does accrue interest. Additionally, the cost of pursuing an REA is generally an allowable cost of contract administration, but the costs of filing and pursuing a claim are expressly unallowable costs.

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A claim is a different action from filing a request for an equitable adjustment.

Not necessarily. Under the Contract Disputes Act and the definition of claim in FAR 2.101 there is no categorical difference between an REA and a claim. The terms are not mutually exclusive. An REA that meets all of the requirements in FAR 2.101 for a claim is an REA that is a claim. See Reflectone v. Dalton, 60 F.3d 1572, 1577 (Fed. Cir. 1995):

[A]n REA is anything but a “routine request for payment.” It is a remedy payable only when unforeseen or unintended circumstances, such as government modification of the contract, differing site conditions, defective or late-delivered government property or issuance of a stop work order, cause an increase in contract performance costs. Pacific Architects and Eng'rs, Inc. v. United States, 491 F.2d 734, 739, 203 Ct. Cl, 499 (1974). A demand for compensation for unforeseen or unintended circumstances cannot be characterized as “routine.” The Supreme Court has confirmed the non-routine nature of an REA by equating it with assertion of a breach of contract. Crown Coat Front Co. v. United States, 386 U.S. 503, 511, 87 S.Ct. 1177, 1181, 18 L.Ed. 2d 256 (1967) (“With respect to claims arising under the typical government contract, the contractor has agreed in effect to convert what otherwise might be claims for breach of contract into claims for equitable adjustment.”). Thus, an REA provides an example of a written demand for payment as a matter of right which is not “a routine request for payment” and, therefore, it satisfies the FAR definition of “claim” whether or not the government's liability for or the amount of the REA was already disputed before submission of the REA to the CO.

See, more recently, Zafar Taahhut Insaat VE Ticaret A.S., ASBCA 56770. 11-2 BCA para. 34841:

A “CDA claim need not be submitted in any particular form or use any particular wording,” provided it contains “‘a clear and unequivocal statement that gives the contracting officer adequate notice of the basis and amount of the claim.”’ M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1327 (Fed. Cir. 2010) citing Contract Cleaning Maintenance, Inc. v. United States, 811 F.2d 586, 592 (Fed.Cir. 1997). We employ a common sense analysis in evaluating on a case by case basis whether a demand constitutes an effective claim.Transamerica Insurance Corp. v. United States, 973 F.2d 1572, 1579 (Fed. Cir. 1992), and first assess Zafer's document of 1 August 2007 for compliance with statutory and regulatory requirements.

The government objects to Zafer's 1 August 2007 REA as the basis for our jurisdiction, alleging that the document is a preliminary request for equitable adjustment, and does not adhere to CDA certification requirements because “request” is twice substituted for “claim” and the authority of the certifier is not stated. We find that the REA is a cognizable claim, as it adequately informs the government of the basis and precise amount of the claim and that the use of the word “request” in lieu of “claim” is inconsequential. When read in concert with its transmittal letter of the same date, the contractor asks for a COFD [Contracting Officer's Final Decision].

Appellant's 1 August 2007 REA sought the sum certain of $4,909,396.28 (R4, tab 2 at 163), and advised the government of longstanding issues upon which this amount is premised (id.,passim). Serial letter 095 transmitting the REA specifically “requested] a Contracting Officer's Decision on this matter” (app. opp'n, ex. 2). Together, these meet the regulatory requirements that a claim be a written demand seeking, as a matter of right, the payment of money in a sum certain Reflectone, 60 F.3d at 1575 citing the definition of "claim" in FAR 33.201 (now FAR 2.101). We reject the government's premise that Zafer's REA is confined in function to fostering preliminary discussions. The Reflectone decision determined that an “REA” can serve as a competent claim (id. at 1577). “A dispute requirement that allows the government to unilaterally designate when a submission becomes a ‘claim’ disrupts the balance between the government and contractors that the CDA sought to establish.” Id. at 1582 (citations omitted).

One of the more persistent and aggravating notions in government contracting is that there is a categorical difference between an REA and a claim. There is no such difference. But some people have that notion in their heads and it seems almost impossible to get it out. Even people who ought to know better harbor that idea.

I agree with Retread that different consequences follow from submitting an REA that is a claim and submitting an REA that is not a claim. But that is a different matter.

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One of the more persistent and aggravating notions in government contracting is that there is a categorical difference between an REA and a claim. There is no such difference. But some people have that notion in their heads and it seems almost impossible to get it out. Even people who ought to know better harbor that idea.

I agree. I think the confusion stems from the fact that the distinction that is made between REA and claim is practical--not official. There is no word or term that, by definition, describes something that requests a contract adjustment, but that is not a claim. In practice, many refer to such a thing as an REA. However, "request for equitable adjustment" is not officially defined, so there is no basis for saying that an REA is not a claim.

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I think the notion of a distinction comes from the belief that there cannot be a claim unless there is a dispute, which is true only in the case of routine requests for payment, like invoice payments for deliveries or services. Also, claims are addressed in the "Disputes" clause, FAR 52.233-1, which leads people to think that claims must be about matters in dispute, which, again, is true only of routine requests for payment.

People see an REA as routine or as something that precedes a disagreement and so they think that an REA and a claim are different things. Reflectone put an end to that idea 19 years ago, but most COs don't know that. Some COs who are shown Reflectone seem to be unable to accept the ruling, because it goes against long-held beliefs. Most contractors don't know any better.

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Verbatim -

I'm more curious about the time lag in these two statements:

(1) "The contract minimum guarantee is $2500 per contract and is applicable to the base year of performance only" and

(2) "If the contractor does not receive a Task Order prior to contract expiration, they may submit an invoice for the minimum guarantee amount immediately following the expiration of the contract."

Statement 1 indicates the minimum guarantee is only applicable to the base year of the contract and makes me assumes the IDIQ has a base plus options (not arguing here the pros and cons of that decision)

But Statement 2 says you cannot invoice for the $2500 until the end of the contract - which could be much longer than the base year if the option(s) are exercised. Unless there is language elsewhere stating that vendors must receive a task order award in the base period in order to have the option exercised, it would be possible for a vendor to be eligible for the minimum guarantee because they didn't get an award during the base period (only period where it's applicable) but not be able to invoice for it until several years later because they got IDIQ options exercised and their contract hasn't ended.

Might want to clean that up a little.

I know what NIH NITAAC did on CIOSP2 was to put in purchase requests in their finance systems with an issue date of the end of the FY (award made in Dec and said minimum guarantee payable at end of FY in which award was made). Then as awards were made, they cancelled the PRs for the vendors who got awards and any remaining PRs were issued around 11PM on 30 Sept to pay out the remaining minimum guarantees.

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