Claim rising for cost incurrred during negotiations

[JLchief55]

The procurement started out as a negotiated 8a sole source for the construction of a bridge. The contractor had requested approval to do some value engineering, which we agreed to, but could not accept after it was submitted. After months of trying to reach an agreement, the contractor stated he could not submit pricing as it was originally designed so the project was cancelled. Two months later he submitted a claim under the Contract Disputes Act for cost incurred on "value engineering". My position is that since a contract was never issued there is no legal authority for which to file a claim. Is that correct?

[ji20874]

The contractor's claim should include a citation of its legal authority. Does it?

Did you have an advance agreement (see FAR 31.109)?

Bid and proposal costs are allowable as indirect expenses. See FAR 31.205-18( c ). Should this be called a bid and proposal cost? If so, the claimant errs in submitting a claim asking for payment as a direct cost.

Have you read FAR 33.203? The Contract Disputes Act process of FAR Subpart 33.2 covers express and implied contracts. You don't have an express contract, but maybe you have an implied contract?

Hopefully, you are raising this matter with your attorney. He or she will give you better advice than you will get here. But, since you asked (and I support robust discussion among contracting professionals), if the claimant's claim doesn't include a citation of its legal authority, and you didn't have an advance agreement, and the claimant was doing the value engineering in an effort to secure the contract, and you didn't create an implied contract, and based only on the very little shared in the original posting, if you were the contracting officer, I would recommend that you deny the claim. See FAR 33.211. If the claimant doesn't agree, it will file an appeal. That's the process.

It sounds to me like the path to a contract was unsuccessful. Usually, when that's the case, both parties walk away and look for other contracting partners. That's why bid and proposal costs are allowable but only as an indirect expense. But satisfy yourself that you don't have an implied contract -- go back and look at the correspondence when the "value engineering" request was approved -- can someone else interpret it as direction to the claimant to do some work for which reasonable parties would expect payment to occur?

NOTE: You referred to the other party as the contractor; I refer to it as the claimant. That's because I am supposing there is no contract. If I were writing it, my written decision (see FAR 33.211( a )( 4 ), I would refer to the other party as the prospective contractor or the claimant.

[JLchief55]

Good info, thank you. I'm having a call with the solicitor tomorrow and just wanted to make sure I was thinking correctly.

[Guest Vern Edwards]

If there was a contract to construct a bridge, and if the contractor submitted a value engineering change proposal under that contract, then it could be submitting a claim for costs under that contract.

[here_2_help]

Yes, what Vern said. The chronology of events puzzled me as well.

Typically "value engineering" is undertaken pursuant to a contract clause that authorizes / requires the activity, making the effort a direct contract costs. I would be surprised to hear that the activity could take place outside of a contract vehicle. If it were outside of a contract vehicle, why would the government need to authorize it? The contractor would simply be acting on its own for its own purposes.

What deliverable or other consideration did the government expect to receive after "authorizing" the contractor's effort? Why couldn't the government accept the contractor's deliverable?

We seem to be missing several important facts here.

Hope this helps.

[C Culham]

JL - I am reminded in reading this thread that the FAR provides for solving a dispute at the level of the CO and that in effect the CO for an 8(a) is the SBA , even when a MOU/Partnership agreement exists with SBA. In part reference FAR 33.204, FAR 19.8, and an agency MOU if one exists that carries wording that suggests strongly working with SBA on matters related to release of 8(a) sole source procurements and even issues like disputes by my read.

To me the "process" of attempting to resolve the dispute starts with getting SBA involved. Have you discussed the strategy of the 8(a) contractor with the SBA 8(a) representative that represents the District from where the contractor is from? While an 8(a) can submit the claim I too am puzzled by what facts have been shared and the strategy of the firm in filing a claim. There very well could be assistance and intervention that the SBA could provide to bring the matter to a close.

.

[Guest Vern Edwards]

JL - I am reminded in reading this thread that the FAR provides for solving a dispute at the level of the CO and that in effect the CO for an 8(a) is the SBA , even when a MOU/Partnership agreement exists with SBA.

See FAR 52.219-11, "Special 8(a) Contract Conditions (FEB 1990)," paragraph ( c):

The Small Business Administration agrees to the following:

( c) Except for novation agreements and advance payments, delegate to the [insert name of contracting agency] the responsibility for administering the subcontract to be awarded hereunder with complete authority to take any action on behalf of the Government under the terms and conditions of the subcontract; provided, however, that the [insert name of contracting agency] shall give advance notice to the SBA before it issues a final notice terminating the right of a subcontractor to proceed with further performance, either in whole or in part, under the subcontract for default or for the convenience of the Government.

See also FAR 52.219-12, "Special 8(a) Subcontract Conditions (FEB 1990)," paragraph ( b )(2):

( b ) The [insert name of subcontractor], hereafter referred to as the subcontractor, agrees and acknowledges as follows:

(2) That the SBA has delegated responsibility, except for novation agreements and advance payments, for the administration of the subcontract to [insert name of contracting agency] with complete authority to take any action on behalf of the Government under the terms and conditions of this subcontract.

[C Culham]

"13 CFR 124.516 Who decides contract disputes arising between a Participant and a procuring activity after the award of an 8(a) contract?

For purposes of the Disputes Clause of a specific 8(a) contract, the contracting officer is that of the procuring activity. A dispute arising between an 8(a) contractor and the procuring activity contracting officer will be decided by the procuring activity, and appeals may be taken by the 8(a) contractor without SBA involvement."

I acknowledge the post by Vern as well as the above reference which I loosely noted in my original post.

Yet I am still puzzled as to whether a contract existed noting this from the original post “since a contract was never issued” and note as well that if a contract was not awarded regulation quotes like the one above do not apply.

Simply stated there is information that is not clarified that would have a bearing on the matter as ji has noted. If no contract and hoping for a progressive SBA office that provides assistance to both the firm and the agency as implied by the 8(a) Program SOP, policy and regulation as a “business development” program reaching out to SBA on the matter may very well be an assist to cause the claim to be withdrawn. Effort I would take.

[joel hoffman]

The procurement started out as a negotiated 8a sole source for the construction of a bridge. The contractor had requested approval to do some value engineering, which we agreed to, but could not accept after it was submitted. After months of trying to reach an agreement, the contractor stated he could not submit pricing as it was originally designed so the project was cancelled. Two months later he submitted a claim under the Contract Disputes Act for cost incurred on "value engineering". My position is that since a contract was never issued there is no legal authority for which to file a claim. Is that correct?

JL said that there was no contract. The parties were negotiating. The prospective contractor submitted a VE that the parties could not agree upon or that the Government could not accept. The firm said it could not propose for the contract as designed. The government "cancelled the project". We don't exactly know what that means. But when I was negotiating 8(a) contracts, if we couldn't reach agreement with a firm, we would request that the SBA replace the firm. Period. We didn't owe the firm anything g for estimating and a failed negotiation.

Here we don't know what action the government is next taking. Are they admitting that the design is faulty and fixing it? Are they incorporating the firm's proposed design solution? We don't know.

[Cajuncharlie]

One of the concerns with this topic is imprecise language, and "value engineering" is something that has a specific meaning in U.S. Government contracting that few people in the wider world of contractors and contracting recognize. The vast majority of contractors take "value engineering" as simply working to find a more cost-effective way to accomplish the goal.

"The contractor had requested approval to do some value engineering..." appears to use the general sense of the term rather than the narrower FAR sense, in view of "... since a contract was never issued...".

On the other hand, as noted above, the CDA covers implied contracts, which could be the case depending on the specific wording of "The contractor had requested approval to do some value engineering, which we agreed to...".