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FP construction contract, Mob & Prep costs


rs4j

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My question is hopefully a simple one :-) In a fixed price construction contract, when a lump sum is awarded for the Mob and Prep line item, can the awarding agency require cost breakdown for the Bonds and Insurance before reimbursing for them? It was my impression that whether the actual costs were higher than the bid amount or lower, its the responsibility of the contractor in a FP contract? Thank you for any input you guys can provide!

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Guest Vern Edwards

An agency can ask for (require) anything, but does the contract say that the contractor must provide such a cost breakdown?

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There is no specific language in the contract other than the references to the Mob and Prep clauses from FAR and the agency-specific reg. My concern is that this agency has taken several fixed price contracts that we've done with them in the past, and have asked us to de-scope certain line items in the contract since, for instance, an on-call line item wasn't used (although the on-call status was complied with). It just seems to me that since the full risk is on the contractor for whatever the cost of the bonds and insurance is, the agency awarded that line item and should reimburse it as fixed price.

Would a confirmation statement from the bonding and insurance companies suffice for the reasons they're requesting it?

Not sure if this makes sense to you? VERY much appreciate your response!!!!

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Guest Vern Edwards

I'm confused by your post. You're asking about bonds and insurance, right?

Does the contract have a line item for bonds and insurance?

If so, does the line item stipulate a fixed price or reimbursement at cost for bonds and insurance?

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Sorry for any confusion......yes, I am asking about bonds and insurance. Those 2 costs are included in the Mobilization CLIN and the quantity/unit is 1 Lump Sum, as shown in the measurement and payment bid item table. It is a fixed price construction contract as I mentioned before. Where would the stipulation be for those costs to be paid, if not in measurement&payment?

Again, thanks so much for your help!

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My question is hopefully a simple one :-) In a fixed price construction contract, when a lump sum is awarded for the Mob and Prep line item, can the awarding agency require cost breakdown for the Bonds and Insurance before reimbursing for them? It was my impression that whether the actual costs were higher than the bid amount or lower, its the responsibility of the contractor in a FP contract? Thank you for any input you guys can provide!

See 52.232-5 -- Payments Under Fixed-Price Construction Contracts.

"...(b ) Progress payments. The Government shall make progress payments monthly as the work proceeds, or at more frequent intervals as determined by the Contracting Officer, on estimates of work accomplished which meets the standards of quality established under the contract, as approved by the Contracting Officer.

(1) The Contractor’s request for progress payments shall include the following substantiation:

(i) An itemization of the amounts requested, related to the various elements of work required by the contract covered by the payment requested."

See also:

"(g )Reimbursement for bond premiums. In making these progress payments, the Government shall, upon request, reimburse the Contractor for the amount of premiums paid for performance and payment bonds (including coinsurance and reinsurance agreements, when applicable) after the Contractor has furnished evidence of full payment to the surety. The retainage provisions in paragraph (e) of this clause shall not apply to that portion of progress payments attributable to bond premiums."

If this is a Corps of Engineers construction contract, unless the contract specifically mentions that bond premiums are included under Mobilization and Prepatory Work, it is typically assumed to be a cost distributed to all line items. In that case, we normally reimburse the actual paid bond premium up front and liquidate the up front payment as the work is earned and paid in subsequent pay estimates. As the progress payments increase, the up front bond premium backs out out, because the premium is distributed over all line items. For example, when progress is 10%, the bond premium under totals is backed to 90%. when progress is 90%, the bond premium is 10%, etc.

If the contract states that bond premiums are specifically included under the mob and prep line item, then paragraph (b ) would apply. In that case, the contractor must break down the CLIN into what is included in the CLIN. The KO reviews the breakdown for reasonableness and may apply some judgement to what to allow in the progress payment, if the amounts requested dont seem to represent reality. In that case, the remainder of the Mob and Prep Work line item is usually paid at 100% completiion of that item.

I suppose also that the KO could apply paragraph (g ) to bond premiums paid under a specific line item, too to " reimburse the Contractor for the amount of premiums paid for performance and payment bonds (including coinsurance and reinsurance agreements, when applicable) after the Contractor has furnished evidence of full payment to the surety." In that case, you will eventually get paid the remainder of the Mob and Prep work line item when it is 100% complete or with final payment. In the mean time, you'd be limited to the actual premium paid. I'd have to know all the facts plus what agency it is to make a more specific response.

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In Forest Service construction contracts, we normally specify in our contracts that we will pay the bond premium from the mobilization line -- we require evidence of actual payment to the surety, and we make payment for that exact amoount. The remainder of the mobilization line is paid as the contract directs (usually 50% of the mobilization line when 5% of the contract work is completed and 100% when 10% of the work is completed).

We pay the exact amount of the premium the contractor paid to the surety.

This is also the FP-03 method for federal highways projects.

We don't reimburse for normal insurance.
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Thanks to everyone who commented, all the info was excellent! I think the info I was most looking for was whether or not the KO will still pay 100% of the Mob and Prep once the bond and insurance proof of payment is provided? Joel, if you would like more specific info, I can provide that to you via an email message. In fact, I do have a couple other questions if you have a minute and can reply non-forum? I don't recall what the protocol is for these discussions but am sure I don't want to air all the dirty details in a public forum :-)

Thanks again very much to each of you who responded, I always know where to look when I have a contracting question, WIFCON is just the best! Thanks again.

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RS4j, I'm travelling across country to my TDY assignment, Monday. You can contract me but it might be a couple of days before I can check my WIFCON e-mail address.

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