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Pricing deletion of work


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Type of Contract and Performance Period:

My question pertains to the deletion of some work on a cost plus award fee services contract. Contract has a 4 year base period and 2 one-year options.

Background information includes:

In accordance with contract clause FAR 52.242.15 “Stop Work”, a stop work order was issued for maintenance of facilities 6 months into year 2 of the contract. There is 2 years and 6 months remaining on the 4 year base period and 2 one-year options. In accordance with contract clause FAR 52.243-2 “Changes – Cost Reimbursement”, the contractor was requested and provided a cost proposal. Proposed costs include: (1) deletion of cost for work not yet performed, (2) actual costs incurred for work already performed, and (3) proposed minimal costs to tie up loose ends (closeout).

For the deleted work not yet performed the contractor projects historical costs as the current estimate to complete the work.

FAR Requirements:

Table 15-2, Section III B, Change Orders, Modifications, and Claims, of FAR 15.408 specifies the format for an adequate change proposal. The instruction states to include the current estimates of what the cost would have been to complete the deleted work not yet performed (not the original proposal estimates), and the cost of deleted work already performed. Basically deletions (reductions in work) must be priced based on current estimates to complete the work. Therefore, proposals must be priced using current estimates for deleted and added work, rather than the amounts original proposed and negotiated.

Other Considerations:

The contract includes an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor cannot exceed (except at its own risk) without the approval of the contracting officer and includes the clause FAR 52.232-22 limitation of funds.

Question:

The contractor’s proposal for deleted work is less than the estimated cost included in the contract. Since the contract already includes the estimated cost for the out years (estimated cost/fee ceiling), then why would the Government not reduce those years for what was initially proposed which is incorporated as estimated costs under the contract? This seems to be a reasonable baseline to reduce the work based on what is priced in the contract. Otherwise if we accept the contractor’s proposal of the reduction of work they are entitled to the additional fee. Had the contractor’s estimate for the out years been more than the contracts estimated cost/fee, the Government would not reduce the estimated contract value that was never included in the estimated cost to begin with. It seems like the appropriate methodology to reduce the contract value would be to use the estimated contract cost for the year priced, less actuals, plus estimated cost to close out the work, and all other years be based on the estimated contract cost priced in the contract…

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Question:

The contractor’s proposal for deleted work is less than the estimated cost included in the contract. Since the contract already includes the estimated cost for the out years (estimated cost/fee ceiling), then why would the Government not reduce those years for what was initially proposed which is incorporated as estimated costs under the contract? This seems to be a reasonable baseline to reduce the work based on what is priced in the contract. Otherwise if we accept the contractor’s proposal of the reduction of work they are entitled to the additional fee. Had the contractor’s estimate for the out years been more than the contracts estimated cost/fee, the Government would not reduce the estimated contract value that was never included in the estimated cost to begin with. It seems like the appropriate methodology to reduce the contract value would be to use the estimated contract cost for the year priced, less actuals, plus estimated cost to close out the work, and all other years be based on the estimated contract cost priced in the contract…

Let me introduce you to the "Would have cost" rule, which dates back (at least) to a 1958 court decision. Courts and boards have consistently held that the proper starting point for pricing deleted work is the best estimate at the time of the change. Read more about it under "Deductive Changes" (p.663) here:

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