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siwilliams

Cost Overruns vs Scope Creep

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I have a CPFF Contract that was competitively awarded. During the proposal phase some items identified in the spec as optional which others identified as required. My company won with our proposal clearly not including one of the optional specifications. During kick-off, our customer's customer strongly suggested that the optional specification we decided not to include should be included in our product. PM to PM, the decision was made to make it happen. I found out later and sent notification to the KO that this was being requested and asked for concurrence, explaining that this would be a change for which we would seek equitable adjustment. We submitted our proposal for the change...including an agreement to absorb some of the costs. However, the customer was very sensitive about us identifying this as any type of scope creep which 95% of the increase was directly related to their identification as an option as now a requirement. I have been sure in every communication to explain that this cannot be identified as cost overrun because we have not exceeded our labor hours or material costs for any of the work we proposed to do. The proposal was approve for award and now the government PM is suggesting that the contract is also modified to include language to identify percentage of funding responsibility should we "overrun the contract again". I believe he's looking for language which sets in stone a 60/40; 70/30 or better split for ANY cost growth with us taking on the majority of costs because they want to make sure that the program doesn't die on the vine due to funding concerns. I responded that the FAR already has provisions related to responsibility for cost growth and that those provisions are based on the reasons for growth. If it is a change in scope then that would be the govts responsibility but if we overrun our costs we can send notification and the government will determine if they want to fund it or not. And if not the program would end. I've not had a situation where the govt wanted us to sign up to take on responsibility for all cost growth especially when PM to PM / Eng to Eng conversations are creating the growth. After I spoke up the KO told the PM they would have the discussion off line and that growth should be handled on a case by case basis. I do expect them to come back with something. I'm just curious as to under what authority they could include such a provision and if they do, would it make sense to agree to split funding on true overruns only and up to a certain dollar amount?

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Guest Vern Edwards

I'm just curious as to under what authority they could include such a provision and if they do, would it make sense to agree to split funding on true overruns only and up to a certain dollar amount?

I assume that the "provision" you are asking about would be a contract clause (or tacit agreement) stipulating some kind of cost-sharing arrangement. They have no "authority" to impose such an arrangement on you. This is a matter of whether they can talk (or bully) your company into accepting such an arrangement or not.

It looks like your company might have to make a business decision. Only you can decide whether it would make sense to share the cost. Do you have anything to gain by doing it? If so, how much is it worth?

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