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A recent COFC opinion offered what I thought to be a rather unique definition of a contractor's standard recordkeeping system for purposes of determining the amount of money owed during a Term for Convenience of a commercial item/service contract.


(l) Termination for the Government’s convenience. The Government reserves the right to terminate this contract, or any part hereof, for its sole convenience. In the event of such termination, the Contractor shall immediately stop all work hereunder and shall immediately cause any and all of its suppliers and subcontractors to cease work. Subject to the terms of this contract, the Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system, have resulted from the termination. The Contractor shall not be required to comply with the cost accounting standards or contract cost principles for this purpose. This paragraph does not give the Government any right to audit the Contractor’s records. The Contractor shall not be paid for any work performed or costs incurred which reasonably could have been avoided.

 I had always believed that the above bolded phrase was intended to distinguish the systems of commercial entities from the systems of traditional government contractors, who invest in developing government-unique systems (including accounting systems) to meet the myriad of requirements for contracts awarded outside of Part 12 procedures.

Silly me.


As the court understands the regulation, however, a regular, organized method for tracking relevant costs is required. The method chosen need not be 'elaborate[,] costly[,] and burdensome,' as plaintiff argues it necessarily would be. Id. Here, the problem is that plaintiff merely describes a vast collection of documents, some of which reflect post hoc estimates, rather than a systematic or organized method of tracking costs relevant to a particular project. Indeed, it appears that plaintiff has pieced together the voluminous evidence in its possession precisely because no standard system for tracking the relevant data was in place.

In fact, as the Judge noted, the plaintiff had an accounting system (Quickbooks). Apparently, the plaintiff failed to show the Judge how its system was used to track costs.

Anyway, I thought this opinion was ... interesting. I would have thought that Quickbooks would have been sufficient for a commercial item/service contractor.

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Thanks for sharing. Bookmarking to read the full document soon. I haven't processed many commercial terminations for convenience but considering the text in 12.403, this is an interesting take to me as well.

12.403(d)(2) ..."the parties must balance the Government's need to obtain sufficient documentation to support payment to the contractor against the goal of having a simple and expeditious settlement." (emphasis mine)

With legal support, this has always panned out as "get enough info to support a price that makes sense" and is usually a combination of receipts/invoices and payroll data. Perhaps I've been making it too simple and expeditious...



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