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FFP Payment

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My firm has a Firm Fixed Price service contract which entered its final year in October, 2012.

The contract requires a fixed number of annual productive hours of severable services. The Schedule describes for each contract period, a "Firm Fixed Price Work" CLIN for each of several labor categories; the unit is Labor Hours at an hourly Labor Rate, and extends to an annual total price for each CLIN. There's also a "Firm Fixed Price - Other Direct Costs" CLIN; there's no unit or unit rate for the ODC CLIN.

The Invoice Requirements provide for invoices "not more frequently than monthly". Historically, at the agency's direction, usually pursuant to a contract modification exercising an Option, the annual extended Price for each CLIN has been divided by 12 months, totalled, and invoiced monthly in arrears. The Option 4 exercise mod didn't contain invoice specifications.

Commencing in November, 2012, the latest CO requires invoicing of actual monthly productive hours worked (not an issue, it will "come out" by the end of the period to the annual Price). However, she has stated that she will reject invoices which reflect 1/12 of the ODC CLIN Price, that are not supported by receipts. Though there are occasional, minimal monthly ODC expenditures, the vast majority of ODC expenditure for this type of service occurs during start-up. There are no contractual requirements for support documentation (though we provide timesheets), but at the CO's demand, we're attempting to support the 5-year ODC CLIN with "receipts" (printouts aren't acceptable). As luck would have it, some portion of hard copies of paid invoices are flood damaged.

In the interim, I've been trying to convince the CO that hard copies of paid invoices (which probably won't match the accepted ODC Price anyway), are irrelevant to our entitlement to the Price accepted by the Government, and the Invoice Requirements condition allows us to invoice it monthly. However, I can't find anything addressing a contractor's entitlement to the Fixed Price regardless of cost experience (I don't have the ability to research cases). I've referred her to FAR 16.202-1 (which is, however, merely a description) - and the contract's payment clause, 52.232-1, which she says refers to proper invoices, which she maintains ours aren't absent the "receipts" she's asked for.

Is there a seminal (or not seminal) case I can point the CO to, that establishes a contractor's entitlement to the accepted Firm Fixed Price, regardless of cost experience? Or a FAR that I haven't found that might help clarify?

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My firm has a Firm Fixed Price service contract[.]

There's... a "Firm Fixed Price - Other Direct Costs" CLIN; there's no unit or unit rate for the ODC CLIN.

The Invoice Requirements provide for invoices "not more frequently than monthly". Historically, at the agency's direction... the annual extended Price for each CLIN has been divided by 12 months, totalled, and invoiced monthly in arrears.

[T]he latest CO... has stated that she will reject invoices which reflect 1/12 of the ODC CLIN Price, that are not supported by receipts...

I've been trying to convince the CO that hard copies of paid invoices... are irrelevant to our entitlement to the Price accepted by the Government, and the Invoice Requirements condition allows us to invoice it monthly. However, I can't find anything addressing a contractor's entitlement to the Fixed Price regardless of cost experience (I don't have the ability to research cases). I've referred her to FAR 16.202-1 (which is, however, merely a description) - and the contract's payment clause, 52.232-1, which she says refers to proper invoices, which she maintains ours aren't absent the "receipts" she's asked for.

Is there a... FAR that I haven't found that might help clarify?

I edited your question to get rid of the extraneous information. It looks like the issue is whether you have to support ODC costs with receipts in order to get paid.

See the definition of "proper invoice" in FAR 2.101 and 32.905(B). Do they support her demand for receipts? If they do not (if the contract does not require that you provide receipts), then it boils down to what the CLIN says and the language of the payment clause, which says that you are entitled to the price stipulated in return for services rendered and accepted. If the CLIN description and the payment clause support your demand for payment and do not support her demand for receipts, then tell her that you don't have to provide them. If she rejects your invoice, convert the invoice to a claim pursuant to the terms of the Disputes clause and demand a final decision within 60 days if the amount invoiced is less than $100,000. Submit a separate claim for each invoice rejected.

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I love when agencies make up their own definition of FFP. Be prepared to take a hard stance or get runover. I'll share an email chain that led to me going over the CO's head, to the Director who agreed with me and moved my contract to another CO. I haven't had a problem getting paid since and we've won follow-on work after. It should also be noted that this CO refused to discuss anything on the phone or in person and wanted everything in writting.

This was several years ago but still my favorite:

(the emails go top to bottom)

(First email) To: FAR Fetched (Contractor)

FAR Fetched,

I am rejecting your invoice. I can only document the labor category providing 35 hours of service in (month) based on the sign-in log. Your invoice indicates 50 hours. Please update the invoice and resubmit.

- CO

To: CO

This is FFP Contract. We bid and were awarded FFP Contract to provide (services) for (dollar amount) a month. Please explain why we’re being required to provide backup that is typically associated with a T&M or Labor Hour contract.

-FAR Fetched

To: FAR Fetched

The contract was written as a fixed rate labor hours (600) with a fixed rate labor rate of $X which (Company) quoted would take to manage the program for Firm Fixed Price of $X. Therefore you can only bill for direct materials and the hourly rate that you actually worked against the contract, which according to (COTR), your personnel only logged in 35 hours during the month of April.

-CO

To: CO

What you’re describing is a T&M contract.

-FAR Fetched

To: FAR Fetched

No, it’s a "Firm Fixed Price Labor Hour contract". Therefore if you exceed the hours authorized per your proposal due to a change in the requirement by the Government you are required to request additional hours. However if the Government doesn’t change the requirement and Company exceeds the hours proposed then Company is responsible to continue to perform the effort at its own cost.

I recommend that we renegotiate CLIN X to change the requirement to a FFP – LOE, this will alleviate any invoicing issues with regard to the number of hours being invoiced.

-CO

To: CO

What is your definition of a ‘Labor Hour contract’? The FAR defines Labor Hour contract under Subpart 16.6 Time-and-Materials, Labor-Hour, and Letter Contracts but you’re still calling it Fixed Price. “Fixed hourly rates”, as you mentioned in your email below are also defined in 16.6 Time-and-Materials, Labor-Hour, and Letter Contracts.

Subpart 16.2—Fixed-Price Contracts, states that (B) “Time-and-materials contracts and labor-hour contracts are not fixed-price contracts”

This is the problem we’re having; we’re not operating by the same set of guidelines. I’m willing to renegotiate the contract to Labor Hour contract but this will impact our originally proposed price because Company bid and was awarded a Firm Fixed Price contract.

Company can perform any type of contract but we have to have a consistent understanding of the contract’s type.

-FAR Fetched

To: FAR Fetched

Refer to FAR 12.207 (a) which states that Labor Hour contracts shall use firm-fixed price contracts which is why I am referring to fixed rates.

-CO

(Last email)

To: CO

FAR 12.207(a) is direction to Government acquisition personnel to use FFP contracts (part a) unless exceptions in part b apply. It doesn’t say anything about Labor Hour contracts using FFP.

12.207 (a) “Except as provided in paragraph (B) of this section, agencies shall use firm-fixed-price contracts or fixed-price contracts with economic price adjustment for the acquisition of commercial items.”

I am going to reach out to the Director of your Contracts branch. This is a real problem.

-FAR Fetched

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I love when agencies make up their own definition of FFP. Be prepared to take a hard stance or get runover. I'll share an email chain that led to me going over the CO's head, to the Director who agreed with me and moved my contract to another CO. I haven't had a problem getting paid since and we've won follow-on work after. It should also be noted that this CO refused to discuss anything on the phone or in person and wanted everything in writting.

Wow.

My understanding, from the new CO in my scenario, is that the new requirement comes from the Director. On the contract we're discussing, we've had upward of 6 COs that I can think of. At times the contract's been managed by supervisors, lead specialists and directors; for fairly lengthly periods of time, we haven't known exactly who the CO for the contract was. During that time we've had to file claims for every option year wage increase (and appeal two of them) and to retain title to our inventory, among other problems. We've had similar challenges with other contracts of recent years. Well. As the saying goes, "If it was easy, they'd all be doing it".

Your responses in your email string weren't jerky. A little bluntness can be forgiven given the level of frustration you must have been experiencing.

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There are two species of firm-fixed-price contract: (a) lump sum and (B) unit priced. A lump sum contract line item does not specifies a single unit of something and stipulates a fixed price for it. For example:

Item 0001, 1 JOB, $1,000,000

A unit priced contract specifies an item, a unit of measure, and a number of units:

Item 0001, 100 HOURs, Unit Price: $100, Total Amount: $10,000.

Under a unit price contract, each hour is a separate deliverable.

You can also have a contract that calls for a rate, such as 100 hours per month for 12 months. In such a case you have units within units.

Now read the standard fixed-price payment clause, FAR 52.232-1:

The Government shall pay the Contractor, upon submission of proper invoices or vouchers, the prices stipulated in this contract for supplies delivered and accepted or services rendered and accepted, less any deductions provided in this contract. Unless otherwise specified in this contract, payments shall be made for partial deliveries accepted by the Government....

When the contract is lump sum for a job, the Government generally will accept the work and pay the price when and only when the job has been completed on time and in accordance with the specification. It will not make partial payments. If the specification says that the job consists of 100 hours doing a certain thing, then the Government ordinarily will accept the work only when the contractor has spent 100 hours doing the thing. The contractor is not entitled to payment if it delivers only 98 hours.

When the contract is unit priced, the Government generally will accept the units delivered and pay at the unit price when and only when the units have been delivered on time and in accordance with the specification. In short, if you agree to unit pricing, you get paid by the unit and only for acceptable units timely delivered.

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A unit priced contract specifies an item, a unit of measure, and a number of units:

Item 0001, 100 HOURs, Unit Price: $100, Total Amount: $10,000.

The contractor is not entitled to payment if it delivers only 98 hours.

Vern

This was basically the way the CO viewed it. The problem was it was not what was clearly stated in the RFP, my proposal and the contract I signed. The hours were the "bases" for my FFP. The Gov wanted a "monthly service". For this service, I bid 1 CLIN at 12 Units (months) for say $X a Unit to deliver a specific level of service each month (not hours).

To put the Service in perspective and to protect the innocent: The Gov wanted to pay 1 price per month to cover unlimited oil changes in all their GCars. The Contractor estimates based on the number of cars that it will use on average about 50 man-hours a month. My proposal is for 12 Units for $100 each Unit; the 50 hours a month is my bases for my FFP (not my proposed price).

Award Doc: CLIN 001 Units 12 -- Price per Unit $100 -- CLIN Total $1200

The Gov after award decided that if they had a lot of oil changes in a month they would only pay $100 Monthly Unit Price. If they had very few oil changes in a given month, the Gov would decide how many hours we actually worked and only pay "actual hours". Hence my tirade.

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Did the contract mention 50 hours? Did it say or suggest that a "month" involved the performance of 50 hours? Under an FFP contract, any mention of units anywhere in the contract might raise questions about the basis for payment.

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Did the contract mention 50 hours? Did it say or suggest that a "month" involved the performance of 50 hours? Under an FFP contract, any mention of units anywhere in the contract might raise questions about the basis for payment.

Not at all. In fact, the only time the "fixed labor rate" came up, as the CO described, was the pricing back up they required during the proposal phase which was never incorporated into the contract. They had an IGCE that estimated the service price per month at $75; we were the lowest bidder at $100 per month. They asked us to support our estimate and we did (estimated X number of oil changes per month * estimated time to change oil * cost of labor to change oil = monthly FFP).

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Well, in that case the CO was clearly off base. But I'm not surprised. I suspect that many if not most COs believe that there is a necessary link between the cost of performance and the price that can be charged for performance. It is one of the most pervasive misunderstandings in contracting. There are many who believe that if a contractor says it will cost $100 and asks for a price of $110, that if after award the contractor finds a way to perform for $75 it has cheated the government in some way and is not entitled to payment of the agreed-upon price.

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My firm has a Firm Fixed Price service contract[.]

There's... a "Firm Fixed Price - Other Direct Costs" CLIN; there's no unit or unit rate for the ODC CLIN.

The Invoice Requirements provide for invoices "not more frequently than monthly". Historically, at the agency's direction... the annual extended Price for each CLIN has been divided by 12 months, totalled, and invoiced monthly in arrears.

[T]he latest CO... has stated that she will reject invoices which reflect 1/12 of the ODC CLIN Price, that are not supported by receipts...

I've been trying to convince the CO that hard copies of paid invoices... are irrelevant to our entitlement to the Price accepted by the Government, and the Invoice Requirements condition allows us to invoice it monthly. However, I can't find anything addressing a contractor's entitlement to the Fixed Price regardless of cost experience (I don't have the ability to research cases). I've referred her to FAR 16.202-1 (which is, however, merely a description) - and the contract's payment clause, 52.232-1, which she says refers to proper invoices, which she maintains ours aren't absent the "receipts" she's asked for.

Is there a... FAR that I haven't found that might help clarify?

I edited your question to get rid of the extraneous information. It looks like the issue is whether you have to support ODC costs with receipts in order to get paid.

See the definition of "proper invoice" in FAR 2.101 and 32.905( B). Do they support her demand for receipts? If they do not (if the contract does not require that you provide receipts), then it boils down to what the CLIN says and the language of the payment clause, which says that you are entitled to the price stipulated in return for services rendered and accepted. If the CLIN description and the payment clause support your demand for payment and do not support her demand for receipts, then tell her that you don't have to provide them. If she rejects your invoice, convert the invoice to a claim pursuant to the terms of the Disputes clause and demand a final decision within 60 days if the amount invoiced is less than $100,000. Submit a separate claim for each invoice rejected.

If I submit a separate claim for each monthly invoice as it is rejected, each Contracting Officer's Final Decision will become appealable at roughly 60-day intervals. I don't find a mechanism that isn't awkward in either the CBCA or COFC Rules to roll appeals of the later claims into an appeal of the first claim. If we wait until all invoices have been rejected to file any claim(s), would it still be preferrable to submit a separate claim for each invoice rejected?

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Thank you Mr. Edwards. I understood CBCA Rule 2.d to provide that consolidation is a Board-discretionary option when more than one case has been filed. (Please correct me if I err.) We're hoping to avoid having to file more than one case, hence the thought that we may wait until the total price has been invoiced. I'd appreciate knowing whether, under that circumstance, you believe that filing a separate claim for each invoice would be preferrable to filing one claim for the total of the unpaid invoices.

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