Jump to content

CPIF over target cost past RIE


mtnberi

Recommended Posts

I administer a CPIF contract that has a target cost of $13M, target fee of $1.6M. The min fee is 5% and the max is 21%.

The scope is R&D medical related. The work is not complete and has not increased nor decreased. The contractor has billed costs up to the target costs of $13M and fee of $1.5M. We have encountered extensive overruns, which is not uncommon in this work scope.

I am adding $4.7M of funds for the work to continue, but this passes the RIE point of $16.4M. I know adding the $4.7M in funds increases my estimated cost but not my target cost. My question is related to the invoicing of fee on the remaining contract.

The contractor will only be entitled to the minimum fee of 3% of the TC ($13M), but has already been paid at the target fee rate (minus the reserve of $100k). Does the contractor not invoice for fee for any costs past the RIE, which is what seems like common sense to me other than the contractor really has no reason to continue at all? Or does the contractor invoice at the min fee % and then the money paid out in fee at closeout is recouped by the Treasury, to me this seems to set up the contractor with the opportunity to file bankruptcy after collecting fee for x number of years?

I've searched all over and have not been able to find anything regarding this situation. As I previously stated, this work is extremely difficult to propose a good estimated cost at time of award due to the developmental nature.

I appreciate any insight anyone can provide.

Link to comment
Share on other sites

Guest Vern Edwards
The contractor will only be entitled to the minimum fee of 3% of the TC ($13M), but has already been paid at the target fee rate (minus the reserve of $100k). Does the contractor not invoice for fee for any costs past the RIE, which is what seems like common sense to me other than the contractor really has no reason to continue at all? Or does the contractor invoice at the min fee % and then the money paid out in fee at closeout is recouped by the Treasury, to me this seems to set up the contractor with the opportunity to file bankruptcy after collecting fee for x number of years?

The FAR does not say how to pay fee under a CPIF contract. The parties should have made an agreement about that and written it into their contract. See FAR 52.216-10, "Incentive Fee (JUN 2011)", para. ( a ) and ( c )(1) and (2):

(a) General. The Government shall pay the Contractor for performing this contract a fee determined as provided in this contract.

* * *

( c ) Withholding of payment.

(1) Normally, the Government shall pay the fee to the Contractor as specified in the Schedule. However, when the Contracting Officer considers that performance or cost indicates that the Contractor will not achieve target, the Government shall pay on the basis of an appropriate lesser fee. When the Contractor demonstrates that performance or cost clearly indicates that the Contractor will earn a fee significantly above the target fee, the Government may, at the sole discretion of the Contracting Officer, pay on the basis of an appropriate higher fee.

(2) Payment of the incentive fee shall be made as specified in the Schedule; provided that the Contracting Officer withholds a reserve not to exceed 15 percent of the total incentive fee or $100,000, whichever is less, to protect the Government’s interest...

Emphasis added. So... what does the contract schedule say about the payment of fee? Hmm? Whatever it says, that's the answer to your question.

Let me guess: The contract doesn't say anything about it.

As soon as you realized that the contractor was not going to make target, you should have taken measures to ensure that the contractor was not paid more fee that it would earn. It appears that you did not do that, so now you have to take corrective measures to recoup any overpayment of fee. As for RIE -- "range of incentive effectiveness" -- what does that have to do with anything? RIE is not a contractual term, unless you said something about it in the contract schedule. Did you say anything about it in the contract schedule?

You said that the contractor cannot now earn more than the minimum fee, but that you have already paid more than that. Okay, demand that the contractor return the excess IMMEDIATELY. TODAY. NOW. Handle the contractor's debt in accordance with FAR Subpart 32.6. There is nothing more for you to do at this point but protect the taxpayer as best you can.

If the contractor knowingly invoiced for more fee than it knew or should have known it could earn you might have a false claim on your hands. What are you going to do about that?

Link to comment
Share on other sites

That's what I thought, regarding recouping the overpaid fees. Where the hesitancy comes in is that the final rates and closeout audit and negotiations will not be done for years, so it "could" be said that we don't have the official actual costs, and therefore cannot are unable to conclusively state that the actual costs are high enough to only warrant the min fee.

My common sense keeps warring with the standard operating procedures.

You would agree then Vern that for the remaining life of the contract no fee would be available.

BTW- in my post, I'm using the RIE as my point of actual costs in which the contractor no longer can earn anything above or below the min fee. It's not a contractual term, but in this situation is the highest amount that can be accrued in actual costs before the warning bells go off, so to speak.

Just to summarize, I will be issuing a mod to increase the estimated costs and add incremental funds. I would start the process for recouping the overpaid fee, and any future invoices would be cost only (no fee available or paid). Do you think this sounds right?

I imagine that without fee, the contract performance will diminish significantly and the contract will end up being terminated.

Link to comment
Share on other sites

Guest Vern Edwards

mtnberi:

Just to summarize, I will be issuing a mod to increase the estimated costs and add incremental funds. I would start the process for recouping the overpaid fee, and any future invoices would be cost only (no fee available or paid). Do you think this sounds right?

Yes. I think you must (1) pay no more fee as long as the allowable incurred cost is equal to or exceeds the cost at which the contractor is down to min fee and (2) recover any overpayments of fee to date. Consider any pending demands for equitable adjustment. And don't forget the withholds paragraph of the Incentive Fee clause.

I imagine that without fee, the contract performance will diminish significantly and the contract will end up being terminated.

If you start to see diminishment of the quality of performance, you might want to gently remind the contractor that it could be taken as evidence of failure to make its best effort, as required by the Limitations of Funds clause, which could affect its past performance rating and, in an extreme case, result in termination for default.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...