EXCEEDING CPFF TASK ORDER AT END

[wayforward]

We were awarded a 5 year IDIQ to a Joint Venture. The managing partner is attempting to submit a final closeout invoice which incorporates audited final indirect rate adjustments from the various partners. This final invoice is under a CPFF task order (s), and totals approx. $100k. The Govt Agency is basically saying "sorry charlie", you should have informed us of this adjsutment sooner (i.e., that the task order ceiling would be exceeded). In fact, they say, we should have informed them in the last 75% letter under the limitiation of cost clause. We have not seen final indirect rate adjustments being addressed in a 75% letter. Is this place for us to notify the Govt of our expectation that our audited indirect rates will be greater than anticipated thus, we will exceed the Task Order ceiling?. Final audited rates are an unknown for several years so how can this matter be addressed in a final 75% letter ?. Especially, when 5 JV partners are involved? We feel the Agency should pay the final indirect rate adjustment invoice under these CPFF task orders ---there was no ceiling on the indirect rates in IDIQ. Who has the stronger case? the Agency or us?

[HCuffage]

I believe the clause at 52.232-20(d)1 tells you that the Government is not obligated to reimburse the contractor for costs incurred in excess of the estimated cost specified in the Schedule, which I believe refers to the total estimated contract cost. In paragraph (a) of this same clause, the contractor agrees to use its best efforts to perform all work within the estimated cost. It is interesting that you use the term "task order ceiling" which I take to mean the total estimated contract cost. Intersting because in another post on CPFF contracts, Vern Edwards stated "Ceiling" is not proper terminology for CPFF contracts. You also later make a statement that there was no ceiling on indirect rates. The problem is if the Government always reimburses based on application of final indirect rates, it may well find many situations where application of the indirect rates against final direct costs send the total actual cost above the estimated cost, which is the only amount for which the Government should have funds obligated. You are the party with control over the costs of your operation, including indirect costs. The Government should not be liable for funds it told you up front that it did not have and would not pay. Otherwise, you could fail to exercise due diligence in controlling costs to the Government's detriment. That is why an estimated cost is established. The Government is not liable for payment beyond that amount and you are not obligate to perform work beyond those costs. The parties can mutally agree to increas the estimated total cost, but that should be done before performance ends.

[wayforward]

Thanks for setting me straight on the terminology---I didn't have the exact languge of the task order in front of me. I guess we are not use to 1) addressing indirect costs in a final 75% letter and 2) several of us assumed that whatever the final audited indirects are down the the road at closeout phase, the additional amount can be invoiced and reimbursed. Perhaps, several of us are use to having the total estimated cost not exceeded even when the final indirect rates are adjusted & billed.

[here_2_help]

wayforward,

I don't have the legal cites in front of me, but the case law is fairly clear that you must notify your customer in advance of exceeding cost limitations, to include impacts from final indirect cost rate adjustments. The only exception I can think of is when the company had no reasonable way of foreseeing what the final indirect rates would be.

That last bit does not happen very often, and from your post I don't think it would apply here.

A contractor knows its actual YTD rates as costs are incurred during the year; it knows its year-end rates when the books close. And it knows the (certified) rates it submitted to the government for audit. Given the above, why do you think that anticipated rate adjustments are unknown? Sure, in this case there were 5 contractors to manage, but I think the job was feasible--if somebody had known what they were doing and made sure that the team managed rate variances and timely reported the estimated impacts to provisional biling rates.

This issue was just discussed on LInkedIn. The consensus was that a contractor should request a rate adjustment at year-end and again when it submits (certified) final indirect rates. (See FAR 42.704(e).)

Also, 52.216-7(e) requires that (provisional) billing rates be adjusted as necessary so as "to prevent substantial overpayment or underpayment." How did the JV comply with that requirement?

Finally, think about this. What if the rate impact had gone the other way and everybody had been overbilling the government customer? Have you looked at the requirements of 52.232-25(d)? If you and the rest of the JV team had been found to be in noncompliance with those requirements, do you think it would have gone well? (Hint: Check out the WIFCON's news links from earlier this week, or just Google "Calnet settlement".)

I am usually on the side of the contractor. But in this case, I don't see any argument to be made other than that the JV's Managing Partner failed to properly manage the contract and to comply with contract terms and conditions. Hold the Managing Partner accountable; make that firm cover any losses suffered by the other JV members from its incompetence.

Hope this helps (though I suspect it won't).

[wayforward]

Thanks all. I still learn something new everday.

[Guest Vern Edwards]

What have you learned? What you need to learn is that when money is at stake you don't rely on what you're told at a website by people you don't know. here_2_help is an extremely knowledgeable Wifcon contributor, but you should seek professional advice from someone you're paying to provide it.

To quote the late Professor John Cibinic in the January 1993 edition of The Nash & Cibinic Report:

The legal rule is that the Government may not refuse to fund an overrun solely on the ground of lack of notice if the contractor had no reason to believe that an overrun would occur. The leading case for this proposition is General Electric Co. v. U.S., 194 Ct. Cl. 678, 440 F2d 420 (1971), 13 GC ¶ 170, where the Court of Claims stated:

In summary, we hold that a contracting officer abuses his discretion under paragraph ( of the Limitation of Cost clause if he refuses to fund a cost overrun where the contractor, through no fault or inadequacy on his part, has no reason to believe, during performance, that a cost overrun will occur and the sole ground for the contracting officer's refusal is the contractor's failure to give proper notice of the overrun.

The General Electric decision is cited in about 100 other decisions.

As stated in Government Contract Costs and Pricing 2d., by Karen Manos, at 85:7:

In Moshman Associates, Inc., the ASBCA held that no notice is required in circumstances where “(1) the contract terminates during, rather than at the end of, the contractor's accounting fiscal year; (2) the contract provides for the use of provisional indirect overhead rates for billing purposes; (3) the contract provides for the negotiation of final indirect overhead rates at the end of the contractor's fiscal year; and, (4) this final reconciliation of the contractor's actual indirect overhead rates causes an overrun of the funding limitation.” The board in that case expressly rejected the Government's argument that the contractor “should have foreseen the possibility that the expected new business might not materialize; and, thus the appellant should have provided the notice required by the LOF clause.”

Seek professional advice. All you have told us is that you did not notify the CO that you were going to exceed the limitation of cost. You have not said why you didn't provide the notification. Without that information, no one can say what your chances are for recovery. As here_2_help said, there are circumstances, however rare they might be, in which you might be able to get the reimbursement even though you failed to give the notification.

If you want the money, seek the advice of a paid professional before you reach any conclusion.

[Retreadfed]

Wayforward, for future reference, the Limitation of Cost clause applies at both the contract level and task order level. See, George G. Sharp, ASBCA Nos. 55385, 55386 (October 3, 2007).

[Guest Vern Edwards]

And see the final resolution in that case: George G. Sharp, Inc., ASBCA No. 55385, 09-1 BCA para. 34117 (Apr. 9, 2009). The contractor did recover much of the money sought, but not all, despite having failed to provide the required notice.