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Cost Overrun and Period of Performance Extended


Ron999

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I have research project that I am working on and need some advice.

We have a CPIF contract with a cost ceiling share ratio that changes to 0/100 when ceiling is reached. The period of performance was orignially for 2 yrs. The contractor has blown through the cost ceiling in which the contract converts to a fixed price type contract. It gets better wait. The work has not been completed by contractor and it looks like it will not be completed for 6 months to a year. The estimated value the contractor will have to pay for is around $100M!!

One of the senior level folks in my Agency thinks we could charge the contractor for for our oversight/admin costs for over seeing the contract. Is that possible?

My two cents-

I think the contract is for workstated in the contract with a dollar/ceiling amount. The government had costs for administring the contract anyway. Yes the performance period is longer because of poor performance but I don't see how we could chanrge the contractor any $$$$. If the contractor walked away we would be able to potentially charge reprocurement costs but that is only if he walked.

ANy help or experience/advice would be greatly appreciated.

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Guest Vern Edwards

It does compute. The contractor gets its share of the cost plus any fee, or the price ceiling, whichever is less. The complicated part is switching from cost-reimbursement clauses to fixed-price clauses at the price ceiling.

As for charging for "oversight/admin" costs, I don't see how you could do that unless (a) you have a clause that provides for it or ( b ) you somehow seek them as breach damages. However, depending on how you worked the clause switch at the ceiling, you might look at the fixed-price inspection clause, FAR 52.246-2(e).

I want to be on record: This is a stupid contracting arrangement, but one the lawyers might end up being happy about.

Dumb. Dumb. Dumb.

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Concur with Vern - as usual. We have apparently learned nothing from the Lockheed bailout and the A-12 "train wreck". This "research project" has litigation written all over it.

H2H

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It did not compute for me because it sounded exactly like FPIF, not CPIF.

  • FPIF: Contractor receives cost plus profit, with profit adjusted according to application of share ratio to costs over/under target cost. At point of total assumption (cost + profit as adjusted by share ratio = ceiling price) share ratio switches to 0/100. When cost = ceiling price there is no profit, and additional costs are losses. Contractor is required to complete performance when price ceiling is breached.
  • CPIF: Contractor receives cost plus fee, with fee adjusted according to application of share ratio to costs over/under target cost. Fee is subject to min/max. When fee as adjusted by share ratio = min/max, share ratio switches to 100/0 (Government pays all additional costs or receives 100% of all additional savings). Contractor is not required to continue performance when funding level is (b)reached.

The primary difference between FPIF and CPIF is what happens when you reach price ceiling/funding. Can you have a CPIF that "converts" to FPIF, which is what the contract arrangement in the original post sounded like to me?

What termination clause is in the contract? Suppose you realize half-way through that the contactor will never be able to complete. You want to terminate for default, but your remedies are very different if you terminate a cost contract or a fixed-price contract.

I agree with the comment on recovering admin costs. Those are typically breach damages.

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Guest Vern Edwards

It would not be exactly like FPI(F).

Under the arrangement as described, the Government could stop funding the contract or terminate the contract before the ceiling is reached and it would be handled under the LOC or LOF and cost-reimbursement termination clauses. Once the ceiling were reached, assuming that the clauses were changed, the result would be very different. It's not clear to me why they would do it that way, but they might have their reasons.

If an FPI(F) is terminated before the ceiling is reached, the result is pretty much the same as with any fixed-price contract, depending on whether the termination were for convenience or default.

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Guest Vern Edwards

If you want to read a fun case that describes one of the kinds of conflicts that can ensue when the parties mix alien contract types, read General Dynamics Corp. v. U.S., 671 F. 2d 474 (Ct. Cl. 1982). In that case the agency awarded an $18.2M FPI(F) supply contract for radar sets. The contract went south and the parties negotiated a settlement in which they changed the contract type to cost-reimbursement with a cost ceiling and an obligation to complete (!). That, too, went south and the government terminated the contract for default before the cost ceiling was reached, using the fixed-price default clause (!). The contractor said that the termination had to be handled under the cost-reimbursement termination clause and appealed to the Department of Transportation Board of Contract Appeals, where it won. The government appealed the board's decision to the old Court of Federal Claims, which affirmed the board's decision.

I used to teach that case, long ago, to show the differences between fixed-price and cost-reimbursement. A very fun case and decision. The government lost a bundle. The court named the CO. A great quote:

Mr. Connors, the government's contracting officer, stated that the government wanted a fixed-price clause because “under a cost-type termination clause,” if the plaintiff did not complete the contract, “the government could not recover the funds that were paid to General Dynamics.” Mr. Connors, however, was “unsuccessful in trying to put this clause in the contract” because the plaintiff “refused to take it.”
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