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Contract Financing Change - Consideration

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Has anyone had experience with a having to determine 'adequate consideration' under FAR 32.005, when the change involved only a change in non-commercial item contract financing terms? (Presume no other changes are being made.) As I read FAR 32, it seems like determining adequate consideration is somewhat of an art. Would the contractor have to provide a FAR-15 compliant proposal in order for the CO to determine whether the consideration was "adequate"?

Thanks.

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So my thoughts....

Yes, but……

Can’t tell if the change you reference is with regard to a proposal on a not yet awarded contract or an existing contract.

Are you asking because the FAR Part 15 reference is directed toward issues of certified cost or pricing data?

Is the CO directing the change to the financing or is the contractor simply requesting for some reason?

You have not identified the contract financing that is being changed and to what. Different financing or none at all?

If a current contract what stage, in general terms, is the contract in currently?

Knowing a little more about the above may help with a more specific response but quick thought is if the reference to FAR Part 15 is not connected to matters of cost or pricing data then I would submit yes it porbably is an art specific to the contract at had in that it is a proposal to change the contract and that adequate information specific to the contract would be shared to evaluate the consideration be contemplated.

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govtacct02,

Are you referring to the profit consideration associated with use of Performance Based Payments (PBPs)? If so, the DOD provides a tool to use (not sure if it's available to contractors) that's supposed to calculate the consideration associated with enhanced cash flow.

(My head about exploded when DOD took the stance that use of PBPs requires consideration, since FAR calls it the "preferred" contract financing method. But I digress.)

Anyway, you shouldn't need a specific proposal for the consideration; it should simply be part of the negotiations.

On the other hand, if I've incorrectly presumed what you're asking about, please clarify.

Hope this helps.

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(My head about exploded when DOD took the stance that use of PBPs requires consideration, since FAR calls it the "preferred" contract financing method. But I digress.)

H2H,

A CO would not have the authority to modify a contract to provide contract financing, regardless of form, without consideration. That would be an extraordinary contractual action.

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Don,

I suspect you misunderstood me. Sorry for my lack of clarity.

If PBPs are to be used, the solicitation should contain 52.232-28. The offeror would propose PBPs and the contract would be awarded that way. No mod would be required.

Dr. Carter announced in Sept. 2010 that he intended to "reverse a decade of practice and restore DOD’s preference for using customary progress payments based on cost incurred, with other contract financing options being agreed-upon only with a commensurate reduction in contractor profit, based on increased cash flow." And indeed, in April 2011, Shay Assad implemented that policy change. He wrote:

the contractor should be instructed that if PBPs are desired, a proposed PBP schedule should be submitted which includes all PBP events, completion criteria and event values along with the contractor’s expected expenditure profile. … The contracting officer must clearly identify the consideration received in the post negotiation clearance document whenever a payment schedule more favorable to the contractor than customary progress payments is negotiated. … The negotiated consideration must be specifically approved by the clearance official or one level above the contracting officer, whichever is higher.

I suspect the consideration request that prompted the Original Post in linked to the foregoing policy guidance. It's an assumption I'd like to see govtacct02 confirm.

Hope this helps to clarify.

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H2H,

The discussion of adequate new consideration at FAR 32.005(a) and the DoD policy you quoted doesn't apply to situations where the Government is inviting offerors to propose PBPs in a solicitation through use of the provision at FAR 52.232-28. Pursuant to FAR 32.005(a), adequate new consideration would be required if the contract were modified to include PBPs after award. The DoD policy reinforces this FAR policy--it doesn't create a new policy.

I hope this makes your head feel better.

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Appreciate everyone's input. Here are some answers:

Can’t tell if the change you reference is with regard to a proposal on a not yet awarded contract or an existing contract.

This is an existing contract.

Are you asking because the FAR Part 15 reference is directed toward issues of certified cost or pricing data?

Yes. Question is regarding disclosure requirements when financing is only element changed. Base contract was competitively awarded.

Is the CO directing the change to the financing or is the contractor simply requesting for some reason?

Contractor is requesting it.

You have not identified the contract financing that is being changed and to what. Different financing or none at all?

It would involve acceleration to payment schedule.

If a current contract what stage, in general terms, is the contract in currently?

It is a few months into a 4 year period of performance.

Knowing a little more about the above may help with a more specific response but quick thought is if the reference to FAR Part 15 is not connected to matters of cost or pricing data then I would submit yes it porbably is an art specific to the contract at had in that it is a proposal to change the contract and that adequate information specific to the contract would be shared to evaluate the consideration be contemplated.

That is what my initial thoughts were. But would like some feedback, understanding that it is not Legal Advice.

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govacct02, each new answer you provide raises additional questions. You say the contractor is asking for an acceleration to the payment schedule. What kind of contract financing is the government providing now? Exactly what does acceleration of the payment schedule mean? What is the size status of the contractor?

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govtacct02,

If you are attempting to modify the terms of non-commercial contract financing, and the CO is asking for consideration, I would not expect you to have to provide a TINA-compliant proposal. I would expect the type and amount of consideration to be a matter of negotation between the CO and the contractor.

H2H

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