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The1102

Scenario Challenge: What remedies are available?

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CPFF, completion type contract for R&D. Contract contains FAR 52.232-20. Effort includes a prototype as final deliverable, a demonstration of that prototype, and several data deliverables along the way (including reports). During performance, contractor was months late on delivering several important reports. The contractor does not dispute this fact, but argues that it gave its best effort overall under the contract.

Oversight was not as thorough as it should have been, but the COR asked the contractor for the missing reports several times during performance. The contracting officer was not made aware of the late deliveries until one month before the contract expired; as a consequence, perhaps some good opportunities to issue show cause notices were missed.

The contracting officer wants consideration for the late deliveries, and has explained his position to the contractor in detail. Why relax the delivery schedule for nothing in return? The contractor will absolutely not provide any form of consideration.

Despite being late, all deliverables have been received except for the demonstration. The demonstration is scheduled for two weeks after contract expiration. As the contracting officer, you're considering an extension to allow the demonstration to take place. You'd prefer to formalize the consideration in this modification, but again, the contractor absolutely refuses to provide any.

What contractual remedies are available to you?

Note: Termination will not accomplish anything for you, because the contract is near completion and you still want to receive the upcoming demonstration. You just want some consideration.

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What consideration do you want? Reduction of fee?

If there is a dispute over the amount of consideration, the CO can issue a final decision and modify the contract accordingly. The contractor may then appeal the CO's decision.

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If the contractor in this scenario were my client I would advise it to stop all work at the expiration of the period of performance or the LOF/LOC limits. If it chose to continue performance, then it would be working at risk. I would expect DCAA to question any/all costs incurred after the expiration of the PoP.

You want consideration. Why? You've gotten what you want from a programmatic perspective. Issue the PoP mod and get the demo. Handle the late deliverable situation in your CPAR, if you want. But remember there is "blame" on both sides here, per your own admission. Expect the contractor to push back if the CPAR is overly negative.

Don has told you what you CAN do, but why WOULD you do that? Do you enjoy depositions?

Water under the bridge. Let it go.

Hope this helps.

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here_2_help gives good advice.

I don't understand the concept of "consideration for late deliveries" -- I do understand exchanging consideration for a change in contract terms and conditions, but that isn't the case here. If it's a fact the deliveries were late, then record the fact in CPARS. Is "consideration for late deliveries" intended to mean "penalty for late deliveries"? or "prerequisite to allowing the demonstation to occur"? Did the original contract contemplate these penalties? Why weren't the penalties imposed immediately upon the occurence of the lateness?

here_2_help gives good advice.

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Thank you for your help and advice.

What consideration do you want? Reduction of fee?

If there is a dispute over the amount of consideration, the CO can issue a final decision and modify the contract accordingly. The contractor may then appeal the CO's decision.

Let's assume the Contracting Officer wants a reduction in fee, but he/she is open to other forms. The contractor was given the opportunity to propose the type/amount of consideration but absolutely refuses to provide consideration in any form. In this case, would you still support the "final decision" approach?

If the contractor in this scenario were my client I would advise it to stop all work at the expiration of the period of performance or the LOF/LOC limits.

Assume that the contractor wants to prove this technology at least as much as the Government wants to see it demonstrated. This technology shows a lot of potential and could generate a lot of future business for the firm. It's not in your interest as the contractor to stop work.

You want consideration. Why?

As Vern noted in one post, if the "CO decides to waive the default and pay the original price, then he or she arguably is not fulfilling his or her obligation to protect the taxpayer. Why should the taxpayer pay the price of timely delivery for untimely delivery?" Full thread is at: http://www.wifcon.com/discussion/index.php?/topic/581-termination-for-default-consideration/

Also, assume this contractor has shown a pattern of failing to meet delivery schedules. It insists that it can disregard its contractual obligations. As the Contracting Officer who may be dealing with the contractor in the future, you want to establish that there will be penalties for over-promising and under-delivering.

But remember there is "blame" on both sides here, per your own admission. Expect the contractor to push back if the CPAR is overly negative.

The scenario noted that the Government's oversight was not as thorough as it should have been -- but insufficient tracking of performance by the Government does not absolve the contractor of its contractual duties, does it? How is the Government to blame? Assume the Government did not delay the work.

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here_2_help gives good advice.

I don't understand the concept of "consideration for late deliveries" -- I do understand exchanging consideration for a change in contract terms and conditions, but that isn't the case here. If it's a fact the deliveries were late, then record the fact in CPARS. Is "consideration for late deliveries" intended to mean "penalty for late deliveries"? or "prerequisite to allowing the demonstation to occur"? Did the original contract contemplate these penalties? Why weren't the penalties imposed immediately upon the occurence of the lateness?

here_2_help gives good advice.

In this case, the "change in contract terms and conditions" is the change in delivery schedule, does that help?

See Vern's discussion at: http://www.wifcon.com/discussion/index.php?/topic/581-termination-for-default-consideration/.

I pulled some excerpts that might help explain the concept.....

As the authors of Administration say, "The preferred method of establishing a new schedule would be the negotiation of a time extension supported by consideration from the contractor,"

...

Untimely delivery without a legally viable excuse is a breach of contract (default). Under the American common law of contracts, which applies to government contracts, if a party to a contract (the seller) materially breaches that contract without a legally viable excuse, the other party (the buyer) is freed of its obligations to the seller and is entitled to compensation for its damages. Thus, the buyer need not pay for any late-delivered goods and can recover any damages that it has suffered.

...

The buyer has a choice, however. It does not have to seek damages in court. It has options. It could negotiate a new bargain and modify the contract--e.g., agree to a later delivery date in exchange for a reduced price. Or it could simply waive the default, accept the late-delivered goods, and pay the original price. If the buyer decides to negotiate a new delivery date and modify the contract, the common law requires that he or she obtain something of value in return in order to seal the deal. In our legal system, that something of value is called "consideration."

...

If the CO decides to negotiate a new delivery date and modify the contract, then he or she is required by our legal system to obtain something of value, called "consideration," in return for the time extension. See Cibinic and Nash, Formation of Government Contracts 3d, 248 - 49:

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The1102,

I think Joel has the right of it. You want to penalize the contractor for its late deliveries. Your contract may not provide for that remedy. The proper remedy is CPARS.

The consideration received is that you get your demo that you would otherwise not get. That's not to say you don't have negotiating leverage -- you do, based on your comment about the contractor wanting the demo as much as the customer. But it strikes me (perhaps based on my inherent bias) that you are taking an adversarial approach to this situation. If both parties could have estimated technical progress and costs with precision, you would not have used the cost-type contract. Accept the fact that the scheduled slipped, mod the contract, get what everybody (including the taxpayer) wants, and move on.

I wish you the best.

H2H

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And in the process let yet another contractor not fulfill their obligations to Government while the Government is still stuck paying them full price - weak. The Government didn't get what they contracted for at the time they contracted for it - bottom line. Relaxing requirements is what makes acquisition programs look like jokes! It's nice to see someone in this profession try to keep a contractor accountable.

52.216-8 Fixed Fee - I assume this is in the contract - states, " The Contracting Officer shall release 75 percent of all fee withholds under this contract after receipt of an adequate certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements."

They haven't satisfied all other contract terms and conditions. Coordinate with DCMA to withhold payment of the fee - notify the contractor of this. Execute the modification extending the PoP for the demo. Wait for them to submit a claim under the disputes clause. Meanwhile they don't collect any fee until they negotiate consideration.

Document CPARS if applicable.

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The1102,

I think Joel has the right of it. You want to penalize the contractor for its late deliveries. Your contract may not provide for that remedy. The proper remedy is CPARS.

The consideration received is that you get your demo that you would otherwise not get. That's not to say you don't have negotiating leverage -- you do, based on your comment about the contractor wanting the demo as much as the customer. But it strikes me (perhaps based on my inherent bias) that you are taking an adversarial approach to this situation. If both parties could have estimated technical progress and costs with precision, you would not have used the cost-type contract. Accept the fact that the scheduled slipped, mod the contract, get what everybody (including the taxpayer) wants, and move on.

I wish you the best.

H2H

H2H, I appreciate your insight. But I'm trying to understand why you'd view this as a penalty. Did you read Vern's post about consideration for late delivery? Technically, the contractor is in default. But because termination is undesirable for both parties, the more reasonable option would be to renegotiate the deal. Under this new deal, the contractor gets to deliver something late, and the Government gets a reduced price (or another report, or any other form of consideration). This makes sense to me, doesn't seem aggressive or adversarial at all.

The disagreement in the scenario is not over the quality of the deliverables, the technical progress, or the cost. It is over the timely deliverable of reports. Under a cost reimbursement contract, even if you recognize uncertainty in technical performance, you can still schedule with certainty the delivery of reports. You might not be able to produce a flux capacitor for my time machine, I get that, but at least you can tell me how your research is going every month and give me a plan on how you're going to test the technology. Does that make sense?

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The 1102, consideration can take the form of the contractor doing something it is not required to do. If the contract has "expired" (whatever that means) so that the contractor is no longer obligated to perform, extending the contract and paying the contractor its allowable incurred cost for providing the demonstration in exchange for the contractor's continued performance would be the consideration provided by the contractor.

Don't get confused by the remedies available to the government for a late delivery under a fixed price contract and a cost reimbursement contract. Remember, under a cost reimbursement contract, the contractor is entitled to be reimbursed its allowable cost of performance subject to the LOC/LOF clauses.

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Chris M is not correct. The contractor submitted the reports and has fulfilled its obligations. CPARS is the place to document the late delivery.

The1102, I appreciate your intent, but the fact is that it was not until "one month before the contract expired" that the CO officially took notice of the late deliverables. In other words, many months (and many late receipts) had passed, establishing a course of dealing in which the government effectively waived timely delivery.

At this point, the demonstration will take place if the CO modifies the PoP. If there is no modification, the demo will not take place. The contractor will still receive its full fixed fee and be reimbursed allowable costs of performance.

I am suggesting that the government not cut off its nose to spite its face.

Best

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H2H,

Why would the contractor receive its full fixed fee under a completion form CPFF if it did not complete the contract? Before answering, you may want to consider FAR 52.249-6(h)(4).

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H2H - the contractor has delivered the reports it said it would deliver, however, it did not deliver them when they said they would deliver them. Therefore they did not fulfill their contract obligations. The item delivered is only one part of their obligation, timliness is the another. In this case the CDRL apparently said submissions monthly, or a specific date, and the contractor did not meet that date. Why should the Govt continue to allow a contractor to deliver at their convienance vice the contracted time period without adequate consideration?

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The 1102, consideration can take the form of the contractor doing something it is not required to do. If the contract has "expired" (whatever that means) so that the contractor is no longer obligated to perform, extending the contract and paying the contractor its allowable incurred cost for providing the demonstration in exchange for the contractor's continued performance would be the consideration provided by the contractor.

Thanks for chiming in. Picture the original deal, now compare that to your suggested outcome -- the Government would pay the same price but receive several deliverables late. How would that deal be fair to the Government? Sorry if I'm missing something here, but I just don't see it. I understand you're getting the demonstration under your proposed solution, but you were promised a demonstration upon contract award anyway. This doesn't seem like an added benefit to the Government when compared to the original deal.

The1102, I appreciate your intent, but the fact is that it was not until "one month before the contract expired" that the CO officially took notice of the late deliverables. In other words, many months (and many late receipts) had passed, establishing a course of dealing in which the government effectively waived timely delivery.

Thanks again for your thoughts -- this discussion has been helpful. But I still respectfully disagree with this position. You're saying that because the Contracting Officer found out about the late deliveries after the fact, he has entirely waived his right to timely delivery? Back to the original scenario, the COR did ask the contractor for the deliverables several times throughout performance of the contract. In my view, those requests should at least be enough to maintain the Government's rights. If you disagree, what exactly do you think the Government would have to do to maintain those rights?

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Don, per the Original Post it was a "best efforts" CPFF and not Completion. Obviously we don't have the contract in front of us but that is the rationale for my position.

The1102, You failed to identify the breach and issue a timely cure notice. Regardless of what the COR said, officially the government accepted the late deliverables, which established the parties' course of dealing. At least, that's what I suspect the contractor's attorney will argue. Which brings me back to my first post. Do you really LIKE being deposed?

H2H

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Don, per the Original Post it was a "best efforts" CPFF and not Completion. Obviously we don't have the contract in front of us but that is the rationale for my position.

The1102, You failed to identify the breach and issue a timely cure notice. Regardless of what the COR said, officially the government accepted the late deliverables, which established the parties' course of dealing. At least, that's what I suspect the contractor's attorney will argue. Which brings me back to my first post. Do you really LIKE being deposed?

H2H

Don's right about completion. Also, I think you're confusing "best efforts" with "level-of-effort." They are two different concepts.

I'm confused about your rationale here...you think that because the Government accepted something late, they are waiving their right to timely delivery? I don't agree. If 20 helmets arrive at the shipping department late, does the Government need to leave them outside of the warehouse to preserve their right to timely delivery? Can't they open the boxes and use them, and negotiate consideration on the side with the contractor?

Of course, any Contracting Officer doesn't like being deposed. But they also don't like getting bum deals for the taxpayer.

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Okay I see I misread the OP -- Don is right about the FF.

Look, I'm not an attorney (though I deal with them quite a bit and also read a few cases from time to time). Obviously, you can try to negotiate whatever you want to. That's your job.

If I were advising the contractor, I would negotiate back using the points I raised. That's all.

I stand by my point that the goal of the program is to get a successful demo. The parties need to negotiate a PoP extension -- nothing more -- to achieve that goal. It has to be a bilateral agreement. I stand by my suggestion that it appears (from my admittedly biased point of view) to be penny wise and pound foolish to scuttle the potential bilateral agreement over an insistence that financial consideration must be paid in order to compensate the customer for reports it has already received and used, albeit late. Especially when the program has CPARS recourse. That's my point of view. Others are free to disagree.

H2H

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The 1102, let's look at your scenario from the contractor's perspective and the clauses that we can expect to see in your contract. If the assumption about the clauses is incorrect please let us know. As a cost reimbursement R&D contract it should have 52.246-8, 52.249-6, 52.216-7, 52.216-8, and 52.232-20. You say you do not want to terminate the contract. Therefore, the remedies available under 52.249-6(h) would not be available. In any event, you say the contract has expired. I take that to mean that the period of performance has lapsed. Considering an R&D contract to be one for services, the contractor would be under no obligation to provide the demonstration because the period in which the services are to be performed has lapsed.

As regards 52.246-8, paragraph (g) of that clause gives the government the right to reduce fee if the contractor does not replace or correct rejected work. It does not give the government the right to deny the contractor reimbursement of its costs. In your scenario, no rejection has occurred so this clause does not apply.

FAR 52.216-7 requires the government to reimburse the contractor for its allowable costs incurred in attempting to perform the contract. For a service contract, the costs must be incurred within the period of performance of the contract unless pre-contract costs are authorized. This right of reimbursement is not contingent upon the contractor successfully completing the contract. Note that even in the case of a default termination the contractor receives its allowable costs incurred up to the effective date of the termination. However, this right of reimbursement is subject to 52.232-20. Under that clause, the contractor is not required to incur costs in excess of the estimated cost of the contract. If it does, the government is not obligated to reimburse the contractor for those costs, regardless of whether they are otherwise allowable. A corollary to the concept that the contractor is under no obligation to incur costs above the estimated cost of the contract is the notion that the government cannot force the contractor to incur such costs. Considering the requirements of these clauses, the government cannot refuse to reimburse the contractor for the costs of performing the demonstration.

This brings us to 52.216-8. Under that clause, the government is entitled to withhold 15% of the fixed fee or $100K which ever is less. Presumably, that withholding has occurred. If the contractor does not provide the demonstration, you can continue to withhold the fee. However, if the contractor does provide the demonstration, withholding of fee for failure to complete the contract is no longer applicable.

With these considerations in mind, what consideration do you want and what is your basis for demanding it? Is your position strong enough to make defending a contractor appeal a cost effective option?

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H2H wrote:

If the contractor in this scenario were my client I would advise it to stop all work at the expiration of the period of performance or the LOF/LOC limits. If it chose to continue performance, then it would be working at risk. I would expect DCAA to question any/all costs incurred after the expiration of the PoP.

I would question this advice based on expiration of the period of performance (I agree with respect to the LOF/LOC limits). The contract is a CPFF completion, and the contractor is required to deliver the contract deliverables. I do not expect DCAA to question costs incurred after the delivery date. See the DCAA Contract Audit Manual, which says

6-202.3 Procedure Where Contract Specifies a Completion or Delivered Product

A completion or delivered product specified in a cost-type contract normally commits the contractor to complete and deliver the specified product within the estimated cost. In the event the work cannot be completed within the estimated cost, the Government may require more effort without an increase in fee [see FAR 16.306(d)(1)]. Also, under FAR 52.249-6(a), the contracting officer could terminate the contract prior to full expenditure of the estimated cost. However, unless the contract is terminated, or exceeds stated contract limitations, the contractor is normally obligated to continue to perform under the contract up to the estimated total contract cost. Therefore, questioning costs based only on the fact that they were incurred after the performance period would be inappropriate.

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There have been some comments about imposing a penalty on the contractor for failing to deliver on time. The Government may be allowed to recover its damages (e.g., excess reprocurement costs, equitable adjustment for delivery of nonconforming item), but I am not aware of any authority of the contracting officer to penalize a contractor except as may be authorized by a contract clause. See, e.g., the defective data clause with respect to a penalty based on knowing submission of defective data; see also, e.g., the prohibition on establishing liquidated damages so excessive as to become a penalty. It is one thing if by penalty you meant recover damages, but keep in mind that penalty and damages are NOT synonymous.

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The1102 wrote:

Also, assume this contractor has shown a pattern of failing to meet delivery schedules. It insists that it can disregard its contractual obligations. As the Contracting Officer who may be dealing with the contractor in the future, you want to establish that there will be penalties for over-promising and under-delivering.

A contracting officer is not powerless when there is a history of unsatisfactory performance. If the contractor is not sole source, the contractor can be found non-responsible and denied an award. In more extreme cases, a history of unsatisfactory performance may be the basis for debarment (see FAR 9.406-2(B)(1)(B)), though I probably should not say extreme cases since the FAR allows debarment based on a "history" of one contract. If you are in a sole source situation, good luck in getting a contractor to agree to any kind of penalty provision for late delivery.

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wvanpup,

Yep. Too bad most DCAA auditors do not follow their own CAM direction.

H2H

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Chris M wrote:

H2H - the contractor has delivered the reports it said it would deliver, however, it did not deliver them when they said they would deliver them. Therefore they did not fulfill their contract obligations. The item delivered is only one part of their obligation, timliness is the another. In this case the CDRL apparently said submissions monthly, or a specific date, and the contractor did not meet that date. Why should the Govt continue to allow a contractor to deliver at their convienance vice the contracted time period without adequate consideration?

Why should the Government allow late delivery without receiving adequate consideration? The short answer is that if the Government is unwilling to terminate the contract for default the contracting officer, in the absence of a liquidated damages clause, has no authority under the contract to reduce the contract price. The contracting officer has three options: terminate for default, negotiate consideration for a contract extension, and waive the delivery. Is there anything else under the contract that the contracting officer can do? Keep in mind that under standard contract law, the remedy for breach of contract (late delivery) is either termination of the contract or payment of damages. Since termination is not an option, what damages (other than annoyance with the contractor) has the Government sustained as a result of the late delivery? Note that it is the difficulty of proving actual damages that is the basis of a liquidated damages provision in a contract.

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