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Vern Edwards

Interesting Decision

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An interesting decision by the Armed Services Board of Contract Appeals: Space Gateway Support, LLC, ASBCA No. 55608, January 29, 2013. (Google: <ASBCA 55608>.)

It's 236 pages long. Most of it is tedious, but in a fascinating bit of excess the judge wrote a densely annotated 151 page history of government contracting from the time of the Continental Congress to the present (pages 9 - 160). It's a very fast read and very informative. You'll be amazed. Where, oh where did he find the time?

Note: Instead of simply concurring or dissenting, which is the norm, the other judges, in a separate opinion, concurred only with the result. That indicates, I presume, that they did not concur with the ratio decidendi. Unfortunately, they did not explain themselves, else I simply did not find their explanation.

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What a horrible precedent - loosely apply the definition of Facilities to avoid paying a reasonable profit under a CPAF Services Contract.

The Judge's ramblings about the history of profiteering was ridiculous as no one said the profits were unreasonable or exceedingly high. This case also had nothing to do with Contractor changing it's price or raising fees when the Government was in need - it simply wanted the profit it reasonably expected during the performance of a "services contract".

Also, what a horrible job by the Contractor's legal team.

This was just stupid on Contractor's part: "SGS alternatively asserts that NASA cannot rely upon FAR 45.302-3© as a bar to the payment of fee (profit) on the cost of facilities SGS purchased for NASA pursuant to the change orders because the regulation is not expressly incorporated into or included in the parties' contract."

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I have a different view.

A contractor working under a cost-plus-award-fee contract was told to buy some equipment for the government. He did and paid about $900,000 for the stjff, including overhead and G&A, for which he was entitled to reimbursement. The rate of fee already on the contract was 4.5%, so the contractor asked the government to increase the size of the award fee pool by 4.5% of what it paid for the equipment. The CO, relying on a subsection of FAR that no longer exists, denied the request. The contractor appealed on the ground that the regulation did not apply to its contract. The ASBCA denied the appeal, finding that the regulation did apply.

As contracting officer I would never have agreed to what the contractor wanted, even without the regulation. The contractor wanted to treat fee as if it were a sales tax, assessing it "on" the cost of the equipment. Any CO who would adjust fee on that basis would be a fool, because it would encourage the contractor to pay as much for the equipment as it could get away with.

The contractor did not charge any direct cost for the work of making the purchase, only for the cost of the things purchased and allocable overhead and G&A. Apparently, the cost of making the buy was included in overhead and/or G&A, for which the contractor was reimbursed and on which the CO agreed to additional fee.

Unfortunately, the CO, instead of taking a position based on sound business principles, relied on a regulation for a reason not to do what no sensible businessperson in the CO's position would ever have done, regulation or no regulation. The result was a dispute over the interpretation and application of the regulation. Had the CO simply said, No way am I going to pay fee based on the cost of what you bought for me and that I paid. I will pay fee based on the effort that you put into making the buy, but the cost of the buy is not a reasonable measure of that effort.

I would not have mentioned the regulation. Why would I? Even if it had not existed I would not have paid fee "on" the cost of the purchase, only on the work of making the buy. If the contractor took me to a board or court I would have won in a walk. That having been said, the amount that the contractor wanted might have been reasonable based on my principles. I don't know. However, I doubt it based on the facts presented by the Board.

The outcome of the decision was correct. As I pointed out, the other judges concurred in that outcome, but not with the reasoning behind it.

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I have a different view.

A contractor working under a cost-plus-award-fee contract was told to buy some equipment for the government. He did and paid about $900,000 for the stjff, including overhead and G&A, for which he was entitled to reimbursement. The rate of fee already on the contract was 4.5%, so the contractor asked the government to increase the size of the award fee pool by 4.5% of what it paid for the equipment.

So facilitating this purchase under the Contractor's contract vehicle lowered its profitability. Why make these purchases for the government?

I'm not sure of the Contractor's requirements here but if I received a request to supply ~900k with no fee I simply wouldn't respond to the request unless I absolutely had to.

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I agree with Vern's initial assessment -- the decision is fascinating and also bizarre in the lengths taken by the Judge to bolster his position that the Christian Doctrine should apply. It felt excessive and, honestly, petulant.

A new standard has been set for dicta.

H2H

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FAR Fetched:

The Government directed the contractor to make the purchase under the Government Property clause, which entitled the contractor to an equitable adjustment pursuant to the Changes clause.

When making an equitable adjustment there is no requirement that the rate of profit or fee in the adjustment match the overall rate of profit or fee under the contract. In any case, see FAR 15.404-4( c)(3), which says, in pertinent part:

Before applying profit or fee factors, the contracting officer shall exclude from the pre-negotiation cost objective amounts the purchase cost of contractor-acquired property that is categorized as equipment, as defined in FAR 45.101, and where such equipment is to be charged directly to the contract.

It is a shame that it is necessary to include such an instruction in the FAR. No self-respecting CO would do anything else.

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I get that Vern, I guess I'm hung up on the Government's ability to push almost 1M in revenue through a company while restricting any type of profit.

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Well, frankly, I think that the government went through the company to avoid the procurement rules. I wonder if the government could legitimately use the old Government Property clause to do that. But the contractor did not object to that, just to the method of calculating profit.

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In FAR 16, my absolute favorite type of contract is the CPPC -- cost plus percentage of cost.

I can't seem to find the exact FAR cite, but it used to be quite popular, didn't it ?

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Brian, you can read about CPPC and concerns, as well as devising means and methods to avoid it, dating nearly back to the beginning of US Government contracting, at http://www.asbca.mil...3 PUBLISHED.pdf

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