Postaward Scenario

[Guest Vern Edwards]

Ending up in default might be the lesser of two evils for the contractor if the defective widgets are high value items.

The monetary loss might not be too bad; it depends on the government's damages. But the past performance rating might be devastating.

[Guest Vern Edwards]

For example, in Vern's solution, we demanded the old, broken widgets back which the OEM says it is unable to repair.

Get your facts right. We were not told that the widgets were old, and we were not told that the contractor could not repair them, only that it could not repair them within the delivery schedule.

My solution is better than any that have been posted. It's the simplest and it's the quickest. If you think you have a better one, tell us about it.

[Guest Vern Edwards]

Don:

I think I figured out what happened in the real case.

The scenario is based on a true story. In the story, the program office was the first to receive the offer of the new widgets from the contractor. Thinking this was a good solution, one of the program folks informed the contracting officer and asked if it could be done. Backed by legal counsel, the contracting officer refused--saying that such a change would be outside the scope of the contract. She didn't offer an alternative, either.

The CO looked at the thing as a contract change, probably under the Changes clause, and decided that such a change would be out of scope. The lawyer agreed. I can hear them now, trying to figure out what to put into block 13 of SF 30. But that was the wrong approach

The transaction should have been handled as a “settlement agreement,” “alternative to termination for default,” or even as a dispute resolution, citing, preferably, “mutual agreement” or, alternatively, the Default or Disputes clause as authority. It should have been considered what it really was -- not a change, but an agreement to accept a substitute performance instead of having to partially T for D. The CO could have handled it as a final decision on a Government claim.

For an example and brief discussion of accord and satisfaction, see Sikorsky Aircraft Corp. v. United States, 105 Fed. Cl. 657, 674 and 676 (2012):

“A claim is discharged by the doctrine of accord and satisfaction when ‘some performance different from that which was claimed as due is rendered and such substituted performance is accepted by the claimant as full satisfaction of his claim.’ ” O'Connor v. United States, 308 F.3d 1233, 1240 (Fed.Cir.2002) (quoting Case, Inc. v. United States, 88 F.3d 1004, 1011 n. 7 (Fed.Cir.1996)). “In its most common form, an accord and satisfaction exists as ‘a mutual agreement between the parties in which one pays or performs and the other accepts payment or performance in satisfaction of a claim or demand which is a bona fide dispute.’ ” Id. (quoting Nevada Half Moon Mining Co. v. Combined Metals Reduction Co., 176 F.2d 73, 76 (10th Cir.1949)). An effective accord and satisfaction requires four elements: “(1) proper subject matter; (2) competent parties; (3) a meeting of the minds of the parties; and (4) consideration.” Holland v. United States, 621 F.3d 1366, 1382 (Fed.Cir.2010) (quoting O'Connor, 308 F.3d at 1240). See generally Restatement (Second) of Contracts § 281 (1981).

* * *

While “an agent of the [g]overnment may not bind the [g]overnment to an agreement when such an act is directly forbidden by U.S. law or regulations,” Texas Instruments, 922 F.2d at 815 (citing Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947)), “[c]ourts have consistently afforded a wide degree of latitude to contracting officers in their ‘authority to enter into, administer, or terminate contracts,’ ” Thomas Creek Lumber, 36 Fed.Cl. at 238 (quoting NKF Eng'g, Inc. v. United States, 805 F.2d 372, 377 (Fed.Cir.1986)). That authority stems from the government's policy to “try to resolve all contractual issues in controversy by mutual agreement at the contracting officer's level” and to make “[r]easonable efforts ... to resolve controversies prior to the submission of a claim.” FAR § 33.204. Thus, “contracting officers are authorized, within any specific limitations of their warrants, to decide or resolve all claims arising under or relating to a contract.” FAR § 33.210; see also FAR § 1.602–1; FAR § 2.101 (defining “contracting officer”); cf., e.g., Compliance Corp. v. United States, 22 Cl.Ct. 193, 201 (1990) (upholding a contracting officer's decision to disqualify a bidder even though not expressly authorized by any statute or regulation because the action was “inherent in his duty to ‘safeguard[ ] the interests of the United States in its contractual relationships' ” (alteration in original) (quoting NKF Eng'g, 805 F.2d at 377 (in turn quoting FAR § 1.602–2 (1985)))). This wide authority includes the power to enter into an accord and satisfaction related to a CAS-covered contract without making a formal cost-impact determination.

The claim in this case would have been the Government’s demand for timely performance. The consideration would have been the fact that the widgets being given were new and of greater value than the old widgets that could not be timely repaired and that the contractor was giving them in exchange for the price of the repair, which, presumably, would have been less than the purchase price.

If the CO had been able to understand that she wouldn’t be changing the contract -- the description of the work could have remained the same -- but entering into an accord, she would have avoided the scope of the contract issue. But I’ll bet that CO had never heard of such a thing. The lawyer may not have heard of such a thing, either. That lawyer may have known nothing more about contracts than what she learned in first year law school or in some DAU course.

I suspect that Carl, too, may be thinking of the problem as one of a change, which would explain his concerns about small business, supplies versus services, and scope, which I have not been able to understand. If so, then I apologize for not explaining my solution in greater detail at the outset. I assumed that everyone had either heard of it or would investigate if they hadn’t. That's why I provided references.

I could resolve something like this in a day, with a few phone calls, emails, and a two-page, no-cost supplemental agreement.

[here_2_help]

I know the DOD favors fixed-price contracting. I know the contractor had a choice to accept the contract type with the associated risks. On the other hand, I have been puzzled for a long time as to how a contractor can estimate unknown repair costs with any accuracy. Each repair is unique. Some widgets will arrive neatly packed in boxes and others will arrive haphazardly packed, after having travelled long distances. Sometimes one widget will arrive and other times 15 or 20 will show up and strain capacity. Replacement parts may be tough to obtain (obsolescence). I have never understood how a contractor can accept a fixed price per repair under those circumstances, unless it throws in huge contingencies.

Is it simply a matter of averaging expected repair costs (some easy repairs and some hard repairs)?

Thanks for any insight.

H2H

[Guest Vern Edwards]

I had to edit my post. Sorry if I did it while you were reading it.

[Guest Vern Edwards]

Help:

It might be like auto repairs. They have a book of standard repair times for various types of problems.

[Guest Vern Edwards]

By the way, there would have to be at lease three simple stipulations as part of the deal, in addition to any I have already mentioned:

1. that the new widgets were identical to the old in terms of form, fit, function, and performance;

2. that any warranty applicable to the items in the original acquisition contract would be applicable to the new items; and

3. the new items would be included among the items covered by the repair contract under which the accord was being made.

[joel hoffman]

Get your facts right. We were not told that the widgets were old, and we were not told that the contractor could not repair them, only that it could not repair them within the delivery schedule.

My solution is better than any that have been posted. It's the simplest and it's the quickest. If you think you have a better one, tell us about it.

I agree with you and agree that this is simply a solution to a performance problem, involving accord and satisfaction. As for returning the broken widgets, after I saw Vern's post (he posted while I was typing mine) I started editing mine to explain how that could also be a win-win solution but the possible alternatives could have needlessly over complicated the scenario. If you think about it, the contract involves repairing widgets plus shipping back and forth. As part of the solution, the company could maintain possession until the next order. The government could include said delinquent widgets in the next order. This would save shipping costs for both parties on the next order. It is likely that the company would not have any use for the broken widgets other than to fix and return them. They probably don't sell used widgets otherwise, but who knows. Depends upon the details.

The point is that they would probably return them if directed to but it could be a win-win for both parties just to include them in the next order. Saves time and shipping costs.

[joel hoffman]

Of course, this involves thinking outside the box to save the taxpayers money and to minimize problems for the contractor. After viewing many of the posts, wrapping oneself around the axle to cover oneself under FARs and extra time and effort seems to be the modus operandi in government contracting.

[Guest Vern Edwards]

If you think about it, the contract involves repairing widgets plus shipping back and forth. As part of the solution, the company could maintain possession until the next order. The government could include said delinquent widgets in the next order. This would save shipping costs for both parties on the next order. It is likely that the company would not have any use for the broken widgets other than to fix and return them. They probably don't sell used widgets otherwise, but who knows. Depends upon the details.

The point is that they would probably return them if directed to but it could be a win-win for both parties just to include them in the next order. Saves time and shipping costs.

Great suggestion, Joel. I wish I'd thought of it.

[joel hoffman]

Great suggestion, Joel. I wish I'd thought of it.

Vern, you found the breakthrough solution. By talking together, the parties could have come together to add my alternative. Apparently many people in acquisition arena don't like to do that. Witness the actual scenario. I have been a negotiator for many years and was taught and learned to negotiate to "win-win or no deal" whenever Possible.

[Guest Vern Edwards]

Of course, this involves thinking outside the box to save the taxpayers money and to minimize problems for the contractor. After viewing many of the posts, wrapping oneself around the axle to cover oneself under FARs and extra time and effort seems to be the modus operandi in government contracting.

Actually, I think it is (or should be) inside the box thinking. We (and I include myself in that "we") have gotten so used to looking at everything through a regulatory lens that the older among us have forgotten things that our teachers taught us about how to get things done under contract. As soon as I saw Don's problem I knew what I would do and was startled by some of the suggestions I was reading. I even teleconned with some of my friends about it and we all agreed about what to do. But I thought sure that Don had laid an ambush, so, coward that I am, I didn't post until after he said, in #5, that there is no right answer.

We old contracting guys -- me, you, Napolik, Navy, former fed retread, and the others -- knew about these kinds of solutions at one time, and still do on a good day. Our sin is not teaching them to the newbies. Of course, it would help them out to read some books.

[joel hoffman]

I'm in total agreement with Vern.

[C Culham]

Perfect conclusion by Vern and would add that somehow it should include that quick conclusions about a CO's actions should be tempered.

Again just like many original posts in this forum we only see a small portion of the facts. When Don offered the route taken by the CO I myself thought it was harsh and not a win-win but then I thought I do not even know what the total contract experience with both the Program Office and the Contractor was. It could very well be that the CO finally had enough of a whole bunch of stuff and simply said no more and used "scope" as the out. So the rhetorical question that no one needs to answer is - Have you ever found a way out in similar fashion? I will admit I have and would submit it is inside the box thinking as well.