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When does a contract actually end?

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I am faced with what I once thought was a simple question, which is when does a contract end? We are having a difference of opinions on this topic in my office. Some believe that if you have a contract for a specific period of time and you don't get what you paid for then the contract is still valid and can be modified. I believe that the contract ends when the period of performance ends and any modifications to the period of performance have to occur prior to the period of performance ending.

Here is an example, a contract for repair of a boat has a period of performance of 12 months and the repair is not complete at 12 months and at month 15 it is discovered that more parts are needed to complete the repair and therefore more money is needed on the contract, can you do a mod to the contract to add more money at month 15 when the period of performance ended at month 12?

I would think that the period of performance is part of the scope and therefore any work outside of the period of performance unless modified before hand is out of scope and would require a J&A but that may not be correct.

I have searched extensively to get a definitive answer on this, can anyone help?

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A contract continues in effect until it has been "discharged" in one way or another, e.g., by fulfillment, accord and satisfaction, or breach. See Cibinic, Nash, and Nagle, Administration of Government Contracts 4th, p. 1202, which describes discharge as "extinguishment of all or part of the continuing rights and obligations of the parties under the contract." See also Restatement of the Law, Second, Contracts 2d, Ch. 12.

Being discharged is not to be confused with being "physically complete" or "closed out." See FAR 4.404-4.

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Vern,

Would you please clarify a little further? Does that mean that if the work is not complete and therefore not discharged then we can still issue modifications against it to add more money or within scope changes or does it just mean that we can still receive what we originally contracted for?

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The situation is as follows: We have a contract for ship repairs with a period of performance that ends on 15 March. The repairs are expected to take an additional two months and a modification was not done to extend the period of performance. On 16 April, the contractor detected a repair that requires more material and a modification is needed in order to complete the ship repair. Can we do a modification on 16 April to add more money for a within scope change to a contract with a period of performance that ended on 15 March?

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Yes.

The contract is still "alive" in the sense that the contractor has not discharged its responsibilities (see Vern above) and your are forbearing the exercise of your rights to terminate for the contractor's default -- you are allowing the contractor to continue performance.

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The situation is as follows: We have a contract for ship repairs with a period of performance that ends on 15 March. The repairs are expected to take an additional two months and a modification was not done to extend the period of performance. On 16 April, the contractor detected a repair that requires more material and a modification is needed in order to complete the ship repair. Can we do a modification on 16 April to add more money for a within scope change to a contract with a period of performance that ended on 15 March?

If you have not accepted and paid for all the line items of repair work that were due to be completed by 15 March, the contractor cannot object if you issue the change order adding the additional work and extending the date(s) for the completion of the work.

Even if you have accepted and paid for the work, chances are, the contractor is not going to object to getting the change order now.

A question from my curiosity: was/ were the line item(s) of work due to be completed on 15 March an “open and inspect” task(s)?

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Thank you all, I thought we had to do a modification before the POP ended to keep the contract valid in order to be able to mod it. I appreciate the clarification. napolik - I am not familiar with the term "open and inspect" task. The line item is for vessel repair and requires final acceptance if that is what you mean.

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ji20874 and napolik are correct. Now do yourself a favor and set a new completion date.

Vern, you stated that napolik is correct, but I'd like to ask if the proper way to accomplish this is through the issue of a change order, as napolik stated. Can a unilateral change order, under these circumstaces, be used to extend the period of performance of a contract? This has been discussed in the past on Wifcon and I clearly remember reading that change orders cannot be used to extend the period of performance on a contract. Period of performance isn't mentioned in the change order clause as an element of a contract that can be changed unilaterally.

Could you clarify?

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I admit that I don't know what Changes clause is used in ship repair contracts. DFARS 217.7104 prescribes a Changes clause at 252.217-7003 for use on Master Agreements to be used for ship repair job orders. That clause does specifically allow for changes in the time of completion of the work (see paragraph (a) (4) below) or any other requirement of the job order (see (a)(5) below).

In this case there appears to be a combination of excusable or unexcusable delays by the contractor plus some late discovered additional, changed work. The changed work appears to require additional time to perform than the original, incomplete work. In that event, it seems that the equitable adjustment for the change should extend the period of performance at least the number of days required to perform the change. For that, paragraph (b ) of the Changes clause would seem to apply here, based upon the information provided.

I believe that most of the Changes clauses contain similar wording to the effect that if a change causes an increase or decrease in the cost of, or time required for performance of the work, whether or not changed by the order, the Contracting Officer shall make an equitable adjustment in the price or date of completion, or both. It doesn't matter whether or not the clause specifically authiorizes the KO to change the time of performance under paragraph (a) if the change itself requires an increase in the time of performance.

Here are excerpts from 252.217-7003 for Master Agreements for ship repairs.

"(a) The Contracting Officer may, at any time and without notice to the sureties, by written change order, make changes within the general scope of any job order issued under the Master Agreement in—

(1) Drawings, designs, plans, and specifications;

(2) Work itemized;

(3) Place of performance of the work;

(4) Time of commencement or completion of the work; and

(5) Any other requirement of the job order.

(b ) If a change causes an increase or decrease in the cost of, or time required for, performance of the job order, whether or not changed by the order, the Contracting Officer shall make an equitable adjustment in the price or date of completion, or both, and shall modify the job order in writing."

How much additional time extension is granted may depend upon the specific circumstances. In construction contracts, a time extension for a late change might represent only the excusable portion of the overall delay after the required period of performance, not the whole period after the required completion date. I admit that I don't know how ship repair contracts are administered.

I do know that the sophisticated contract scheduling systems were initially developed for the Navy's ship building program, before they were used for construction contracts.

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Thank you Joel. So if I understand correctly, the change order that napolik suggested does not directly extend the period of performance of the contract. Instead it directs the contractor to perform the additional work, but since this additional work will require additional time to complete, the Government is required to make an equitable adjustment to the date of completion.

Would I be correct in assuming that the equitable adjustment would require additional consideration for the added work? Also, if the contractor was at fault for the delay (not completing the repairs prior to the end of the POP), should the Government seek some sort of consession from the contractor, such as in the price it'll pay for the services?

Now I have another question; napolik stated that "If you have not accepted and paid for all the line items of repair work that were due to be completed by 15 March, the contractor cannot object if you issue the change order adding the additional work and extending the date(s) for the completion of the work."

Why can't the contractor object to a change order issued after the period of performace on the contract ended? Is it because the contract hasn't been discharged, thus still allowing the CO modify it?

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Vern, you stated that napolik is correct, but I'd like to ask if the proper way to accomplish this is through the issue of a change order, as napolik stated. Can a unilateral change order, under these circumstaces, be used to extend the period of performance of a contract? This has been discussed in the past on Wifcon and I clearly remember reading that change orders cannot be used to extend the period of performance on a contract. Period of performance isn't mentioned in the change order clause as an element of a contract that can be changed unilaterally.

Could you clarify?

Ask napolik.

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Now I have another question; napolik stated that "If you have not accepted and paid for all the line items of repair work that were due to be completed by 15 March, the contractor cannot object if you issue the change order adding the additional work and extending the date(s) for the completion of the work."

Why can't the contractor object to a change order issued after the period of performace on the contract ended? Is it because the contract hasn't been discharged, thus still allowing the CO modify it?

I have been somewhat confused by the emphasis on the period of performance rather than on the items of work. In my experience, the focus has been on the successful completion of the line items of work. If the work could not be completed during the period of performance (i.e. the number of days the ship would be in port), either the work line item was terminated or the period of performance was extended.

The ship repair contracts I issued contained multiple line items which were performance based. Sometimes, there would be “open and inspect” items which required the contractor to assess a condition and to provide reports. Once the reports were received, the contracting officer would issue a change order(s) – generally bi-laterally – with a performance based spec to correct the conditions identified during the performance of the “open and inspect” item.

If all the line items of work could not be completed during the period of performance, the contracting officer would do 1 of 3 things: 1) terminate for default the uncompleted line items, 2) terminate them for convenience, 3) or extend their performance period. In many cases, the extension of the performance period could be substantial as the work could not be performed until the ship returned to port.

In an earlier post, I said "If you have not accepted and paid for all the line items of repair work that were due to be completed by 15 March, the contractor cannot object if you issue the change order adding the additional work and extending the date(s) for the completion of the work." I said this because the performance based line item of work is not completed until you inspect, accept and pay the contractor. Sometimes, there would be a warranty issue that extended the contractor’s performance obligations. Thus, you can issue the change order.

In my experience, even if the work has been fully competed, inspected, accepted and paid, I have never known a ship repair contractor to refuse a change order.

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Thank you for the information napolik. I did not direct the question to you initially because Vern had stated you were correct. I wanted to know why it was correct to issue the change order, but now you've clarified that. Thanks!

It seems that contracting for ships can be quite complex and challenging. I spent a few years on an aircraft carrier during my Navy days in the '90s and never considered the intricacies that went into having contractors working onboard.

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According to Nash & Feldman, Government Contract Changes 3d, § 7:20, the boards and courts have generally held that the government may issue a change order at any time prior to final payment. They say, however, that some agency lawyers believe that changes may not be issued after acceptance of the work.

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napolik, thanks for the info on ship repairs. What type of contract is used for ship repairs? Are you using job orders against master agreements under DFARS? Thanks.

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napolik, thanks for the info on ship repairs. What type of contract is used for ship repairs? Are you using job orders against master agreements under DFARS? Thanks.

When I did ship repair contracts, I was overseas. We used MSRAs. I believe they are still in use.

In CONUS, I believe SUPSHIPs and MSC use them also.

Typically, we would issue FFP orders against the MSRAs.

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In CONUS, ship repair contracting in the Navy is predominantly done under multi-ship multi-option (MSMO) contracts awarded by the Naval Sea Systems Command (NAVSEA). These are cost-plus award-fee/incentive fee contracts covering an entire class of ship at a particular homeport over a period of five years. For example, NAVSEA will award a MSMO contract covering all DDG-class ships homeported in San Diego. In terms of dollars spent, I would say that more is spent on these contracts than under the master agreements described in the DFARS.

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Thanks, folks. Then, the Changes clauses for MSRA's and for cost type repair contracts would provide for time adjustments if warranted.

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All of the changes clauses in FAR provide for time adjustments when warranted. The CO need not wait for the contractor to request a time adjustment in order to make one.

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