Jump to content
The Wifcon Forums and Blogs

Recommended Posts

I have a contract that expired three months ago and the Guaranteed Minimum wasn't ordered under it. Does anybody have an idea what I should do? Do I just pay the contractor the guaranteed minimum? Should I cut a P.O. for some of the product to meet the Guaranteed Minimum so the Government at least gets something for the money?

Share this post


Link to post
Share on other sites

Do you mean we should ask them to submit an invoice for the G. Min? We are trying to close-out this old contract and, while I'd be happy not to pay them the G. Min, the way the FAR is written, it looks like we have no choice.

Share this post


Link to post
Share on other sites

If you have an attorney, please have them research the case law on figuring damages for not meeting the guaranteed minimum. I remember reading about a Decisio (there is probably as thread here in the Forum) that discussed paying only the damage or loss to the contractor - which wasn't necessarily the entire minimum guarantee. However, I don't have time to research it today. I suggest asking your lawyer or trying a google search. If the contract is expired, you would not necessarily have the right to order the product at the contract price.

Share this post


Link to post
Share on other sites

A few questions:

1) If the minimum guaranteed ordering amount was obligated at the time of award of the IDIQ, what was the bona fide need tied to the obligation via the first delivery order, beyond the need to make the contract binding through consideration?

2) If the minimum guaranteed ordering amount is representative of work to be performed, how much profit would have been associated with the work?

3) If the Contractor invoices for the full amount, what was the benefit to the Government and what did the Government receive?

I suspect that the answer is that the first delivery order was issued for something like $2,500 with a TBD scope of work and this was never modified to actually order anything. My general feeling is that the Contractor should only invoice for a small percentage of the minimum guaranteed ordering amount which represents the profit that it would have made, if they invoice for anything at all. Most contractors won't invoice for work they didn't perform. I would nonchalantly obtain a release of claims that indicates zero dollars for the contract, then quietly close the contract out and deobligate the funds.

Share this post


Link to post
Share on other sites

I strongly recommend you coordinate, in advance, with legal before deciding to pay the guaranteed minimum. The leading case in the area, particularly concerning paying the full contract price for the guaranteed minimum, is Maxima Corp. v. U.S., 847 F.2d 1549. It was described (by the ASBCA) as follows in Hermes Consolidated, 02-1 BCA 31767:

A contractor is entitled to recover the contract price for unordered supplies or services required by the minimum purchase obligation of an IDIQ contract only if the contractor “was required to and did maintain the capability of providing the minimum services set in the contract.” See Maxima, 847 F.2d at 1554, cited in Delta Const. International, Inc., ASBCA No. 52162, 01-1 BCA ¶ 31,195 at 154,028, recon. granted, 01-1 BCA ¶ 31,242, appealed, Fed. Cir. No. 01-1253 (15 March 2001).

In my view, paying the contractor the contract price for the guaranteed minimum provides the contractor a windfall. The contractor should receive, at most, the costs it incurred in being ready to perform the quantity that was not ordered (which may be difficult to establish, and there is an argument for being paid all costs incurred, plus profit, minus what was paid for delivered items), reasonable profit on those costs, and perhaps anticipatory profit if the failure to order the minimum is considered a breach of contract rather than a termination for convenience. Paying the guaranteed minimum pays the contractor for costs it never incurred, a windfall because it provides much more to the contractor than payment for the damages caused by the government's potential breach of contract.

Share this post


Link to post
Share on other sites

js, what do you think of the above advice?

Share this post


Link to post
Share on other sites

I have a contract that expired three months ago and the Guaranteed Minimum wasn't ordered under it. Does anybody have an idea what I should do? Do I just pay the contractor the guaranteed minimum? Should I cut a P.O. for some of the product to meet the Guaranteed Minimum so the Government at least gets something for the money?

Regardless of what you have to pay for the failure to order the minimum, I do not see how you can issue a PO to meet the minimum. The contract is expired; what is the authority to issue a PO?

Share this post


Link to post
Share on other sites
Guest Vern Edwards

If the contractor submits a claim based on the government's failure to order the minimum, I think the CO can settle the matter under the authority of the Disputes clause and issue an order against the contract notwithstanding the fact that it has expired. There may be funding issues to be resolved, such as bona fide need, but that is a different matter.

Share this post


Link to post
Share on other sites

Last year's story in the Post re: Guaranteed Minimums under a GSA contract.

http://www.washingtonpost.com/business/on-small-business/exclusive-gsa-failed-to-pay-thousands-of-small-government-contractors-since-2008/2013/05/15/305c4422-bd93-11e2-9b09-1638acc3942e_story.html

As to the current issue, if there is clearly a binding contractual obligation for a guaranteed minimum order or payment (perhaps included to induce sellers to undergo the proposal effort), the issuance of these payments is legally required before the contract is closed. No partials, no profit only, simply cut a payment to fulfill a contractual obligation. (Assuming the contractor was a going entity within the PoP and reasonably capable of performance).

As to the practice of guaranteed minimums...IMHO, useage should be extremely limited. This minimum (by any other name) contradicts the standard (Comm or GVT) business practice of 'seller shall not be reimbursed for proposal costs'.

BC

Share this post


Link to post
Share on other sites

Beantown

The Washington Post article concerned GSA Federal Supply Schedule contracts which had clauses providing that the minimum amount would be paid. That promise is not part of the standard IDIQ contract (which includes a promise to order a specified amount, but there is no promise of payment if the promise to order is breached).

How does the promise to pay the minimum quantity relate to paying proposal costs? Assuming we order the minimum, the contractor is paid for goods delivered or services provided. Where are proposal costs included in that?

If usage of guaranteed minimums should be extremetly limited, what do you propose should be done where our needs are indefinite and cannot be put on a definite quantity contract? Remember, the guaranteed minimum is required to make an IDIQ contract enforceable (the contract fails for lack of consideration without such a promise).

Share this post


Link to post
Share on other sites
Guest Jason Lent

FAR 16.504(a) addresses this issue (emphasis mine):

(1) The contract must require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services. In addition, if ordered, the contractor must furnish any additional quantities, not to exceed the stated maximum. The contracting officer should establish a reasonable maximum quantity based on market research, trends on recent contracts for similar supplies or services, survey of potential users, or any other rational basis.

(2) To ensure that the contract is binding, the minimum quantity must be more than a nominal quantity, but it should not exceed the amount that the Government is fairly certain to order.

(3) The contract may also specify maximum or minimum quantities that the Government may order under each task or delivery order and the maximum that it may order during a specific period of time.

I think this seems to argue against the sentiment that guaranteed minimums are something to be avoided as an IDIQ requires a minimum (and maximum) to be set.

EDIT: A thread in deep within the halls of WIFCON: http://www.wifcon.com/arc/forum304.htm

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×
×
  • Create New...