Not to Exceed Clause???

[Troy]

I am in the process of closing out a contract I inherited a few months ago and I have run into two critical issues I would like to get feedback on. First let me preface this scenario. We are dealing with a Department of Veterans Affairs contract which is a commercial firm-fixed price IDIQ medical service contract that includes the clause 52.212-4.

The first issue I encountered was a reimbursement claim from the contractor for services they failed to bill which they rendered from FY10 up to FY13. The total amount being claimed is $640,836.32 which they have supporting documentation that service was rendered.

The second issue I encountered is that after adding the total expenditures made under all task orders issued, the amount paid ends up being $7,829,834.71. If you factor in the unbilled services being claimed the total then becomes $8,470,671.03.

The problem here is that the schedule of services has what I interpret to be a not to exceed clause. It states “the maximum contract amount, including the base year and any option years exercised, shall not exceed $7,800,000.00.”

My concern here is simply whether it is appropriate for me to interpret the blurb cited in the schedule of services as having the enforceability of a FAR clause? I am centering this interpretation on the clause 52.212-4 at Para. (s) Entitled Order of Precedence where in the hierarchy of inconsistency resolution, the schedule holds top preference.

The implications here are certainly not favorable to the contractor. Not only would their reimbursement claim be unallowable but they would also owe the difference of $29,834.71 to the Government in overpayments.

Any thoughts on this issue would be appreciated.

[Guest Vern Edwards]

Two thoughts:

First, you use some confusing terminology. You say that the contract is a commercial items, firm-fixed-price, IDIQ contract, yet you say that the contractor is seeking "reimbursement" and you refer to the possibility that the request would be "unallowable." "Reimbursement" and "unallowable" are terms usually associated with cost-reimbursement and time-and-materials contracts. Under a fixed-price contract the contractor is entitled to payment of the stipulated prices for the items or services specified, delivered or rendered, and accepted. Additionally, under an IDIQ contract the items or services must have been ordered. So please clarify: Is the contractor seeking reimbursement of incurred costs or is it seeking payment of agreed upon prices for services (1) specified and ordered, (2) rendered, and (3) accepted?

Second, if the contractor is seeking payment for services (1) specified and ordered, (2) rendered, and (3) accepted, as opposed to reimbursement of costs incurred, and if it has presented acceptable evidence that the services were rendered, then do you have evidence that the services were ordered and accepted?

Assuming for the moment that you have evidence that the services were (1) specified and ordered, (2) rendered, and (3) accepted, then the question is whether the "not to exceed" term of the contract would excuse the government from having to pay. I doubt it, but you haven't quoted that term in its entirety or in context, so I cannot say with confidence one way or another. "Not to exceed" could be a limit on the government's authority to buy, or it could be a limit on the contractor's entitlement to payment, or it could be both. We'll need more information from you in order to be able to say more, except this: If the government specified and ordered the service, received the service, and accepted the service under an FFP/IDIQ contract, and if the government's order did not violate a statute or regulation having the force and effect of law, then I think it highly unlikely that a board of contract appeals or the U.S. Court of Federal Claims would deny a contractor claim for payment on the basis of a "not to exceed" contract term.

[Troy]

Clarifications:

First, the contractor is seeking payment of agreed upon prices for services (1) specified and ordered, (2) rendered, and (3) accepted.

Second, I have evidence that the services were ordered and accepted.

Ultimately my question is whether the "not to exceed" term of the contract would excuse the government from having to pay. The quoted term in its entirety is as follows:

"The guaranteed minimum contract amount, including the base year and any option years exercised, is $300,000.00 and the maximum contract amount, including the base year and any option years exercised, shall not exceed $7,800,000.00."

This term appears in the schedule of services right before the CLINs.

[Guest Vern Edwards]

That sounds to me like the standard "maximum quantity" that must be stated in IDIQ contracts. See FAR 16.504(a)(1) and (4)(ii), and 52.216-22(b ).

It sounds to me like you have an IDIQ contract and that the government ordered more than the maximum quantity, which was a violation of FAR Part 6 unless done in accordance with FAR Subpart 6.3. Oh well, it's been done and can't be undone. I don't think that the contractor did anything wrong in accepting an order that exceeded the maximum. Whoever issued the order, even if a CO, made an unauthorized commitment. Since the government received and accepted the service, follow the ratification procedures in FAR 1.602-3 and then pay the contractor.

[Troy]

Thanks Mr. Edwards for such quick responses and for the invaluable feedback as well.