Jump to content

CPFF Term and Contract Close out


J_S_K

Recommended Posts

Example: CPFF Term/LOE Navy Contract which ended December 2007.

Standard Navy LOE clause in contract states; "If the total level of effort specified in paragraph (a) above is not provided by the Contractor during the period of this contract, the Contracting Officer, at its sole discretion, shall either (i) reduce the fee of this contract as follows Fee Reduction = Fee (Required LOE - Expended LOE)/Required LOE or (ii) subject to the provisions of the clause of this contract entitled "LIMITATION OF COST" (FAR 52.232-20) or "LIMITATION OF COST (FACILITIES)" (FAR 52.232-21), as applicable, require the Contractor to continue to perform the work until the total number of man-hours of direct labor specified in paragraph (a) above shall have been expended, at no increase in the fee of this contract.

The payment clause has allowed the billing to be % of allowable cost of each invoice.

Indirect rates have been audited and now it is time for final invoice. LOE has not been met and a significant refund is due for the variance between % of cost and LOE incurred.

Questions? 1) Is it up to the Contractor to automatically refund the fee billed in excess of the LOE calculation at close out or wait until the CO reduces the fee? 2) Is there any recourse penalites on the Contractor for not refunding the fee earlier at contract end when it was known the LOE was not met?

Link to comment
Share on other sites

So nobody bit on this one? ** Sigh **

I'm not a government employee, and am biased toward the contractor's viewpoint. That said --

1. The contractor's final invoice should be compliant with contract terms. If contract terms call for a fee adjustment, the contractor should make it.

2. No. The same could be said of the government -- why did the CO not deobligate funds when it was known the LOE was not met? Let it go because it is gone.

Hope this helps.

Link to comment
Share on other sites

Guest Vern Edwards
Questions? 1) Is it up to the Contractor to automatically refund the fee billed in excess of the LOE calculation at close out or wait until the CO reduces the fee? 2) Is there any recourse penalites on the Contractor for not refunding the fee earlier at contract end when it was known the LOE was not met?

J_S_K:

I didn't bite because to me this is just a matter of ordinary business sense.

You're dealing with the government. Okay? Nothing good can come from your company sitting on the money until somebody from the government calls you and demands that you to give it back. Penalties? Probably not. Maybe. Who knows?

The thing a smart person would do is call the contracting officer and say, Here's what's happened. What do you want to do? I'd like instructions.

Send the CO a letter to the same effect and get a delivery receipt. Follow up periodically if you don't get a prompt response, and document the record.

Link to comment
Share on other sites

1 I would agree with H2H's response to the first question. I suspect that the contract says not to over bill and also tells the contractor what to upon discovery of overbilling.

2. Possible recourse ( not necessarily penalty) may depend upon what prompt payment and payment clauses are in the contract. I say possible because even when interest is due for overpayments, I doubt if government employees know it or know how to assess or care to bother processing a collection. It takes a Philadelphia lawyer to be able to understand the prompt payment clauses, if applicable.

Link to comment
Share on other sites

Joel - The billing of the contract clearly states that we are to bill fee at a % of cost. "The Government shall make payments to the Contractor, subject to and in accordance with the clause in this contract entitled "FIXED FEE" (FAR 52.216-8) or (FAR 52.216-10), as applicable. Such payments shall be equal to X% of the allowable cost of each invoice submitted by and payable to the Contractor...........The fee(s) specified in SECTION B, and payment thereof, is subject to adjustment pursuant to paragraph (g) of this special contract requirement entitled "LEVEL OF EFFORT"..........If the fee(s) is reduced and the reduced fee(s) is less than he sum of all fee payments made to the Contractor under this contract, the contractor shall repay the excess amount to the Government. If the final adjusted fee exceeds all fee payments made to the contract under this contract, the Contractor shall be paid the additional amount subject to the availability of funds".

While I think we have been billing in accordance to the contract terms, and it appears that the adjustment of fee is to be made by the Contracting Officer, we are unsure if on our final invoice should include the fee adjustment if the Contracting Officer has not already made the fee adjustment. I would assume that DCAA would trigger the LOE adjustment to the Contracting officer if we did not include the adjustment.

Retreadfed - Cost did not exceed ceiling. Cost of performance is fully covered within the cost ceiling, just missed the LOE requirements. Hired higher salaried employees to fill contract requirements with less headcount than what was originally proposed causing the LOE miss.

Feedback has been helpful, thanks.

Link to comment
Share on other sites

Guest Vern Edwards

In other words, you experienced a cost overrun. The LOE cost more than expected, you reached the estimated cost ("ceiling"), and the government is not going to fund the overrun to allow you to reach the LOE.

Right?

Link to comment
Share on other sites

Vern - The contracts period of performance ended in 2007. We still have unused cost ceiling. Employees were hired at higher salaries than proposed, however less FTE's were needed to perform the work. Did not have a cost overrun, just missed LOE because of the lower employee count created less hours to incur against LOE.

We billed as a % of cost... the issue is that we now have to refund a substantial amount of fee that was billed once the LOE adjustment is made... or maybe upfront at close out. That is what I am not sure about. Do we initiate the refund or wait for the CO to de-obligate?

Link to comment
Share on other sites

Guest Vern Edwards

J_S_K:

What I am going to say is intended to help you communicate more clearly and settle your mind about all this.

First, you have repeatedly used the term "ceiling." That's not the proper term. The proper term is "estimated cost." That's the proper term because that's the term used in the Limitation of Cost clause, FAR 52.232-20, which should be in your contract if it's CPFF. If the contract is incrementally funded, then it should contain FAR 52.232-22, Limitation of Funds, in which case the proper term is "amount allotted." The term "ceiling" is not used in those clauses. When used with reference to a CPFF contract, "ceiling" properly refers to a limitation ("cap") on indirect cost rates or labor rates. Otherwise, the term is used in time-and-materials and labor-hour contracts, not CPFF contracts. It's slang, not professional terminology.

Second, you say that you "missed" the LOE. That's an odd choice of phrasing. You did not "miss" the LOE. The LOE is a contract deliverable. You failed to deliver the LOE, apparently because you finished your work without having to use that many hours.

Since the final fee due to you is correlated with the LOE and not the incurred cost, it was a mistake on the part of the government and you to provide for you to invoice fee as a percentage of cost. (Actually, it was not a mistake, it was a dumb decision. I was being nice when I said mistake.) Okay, it's not abnormal in such cases to have to repay the excess fee paid. No big deal.

You asked whether you should return the excess fee payment on your own initiative or wait for the CO "to de-obligate." Deobligation is not the issue. Deobligation is an internal government accounting operation. Assuming that you have been paid for all incurred costs and fee to which you are entitled, deobligation will not affect you and is not an issue for you. The issue is not deobligation. Forget deobligation. Don't mention it again.

The issue is that you owe the government a "contract debt." See FAR 32.601. Under FAR, it is up to the CO to determine the amount of the debt and demand payment. See FAR 32.602. You may have to pay interest on the your debt. See FAR 32.608-1.

Now, if the contract does not prescribe a procedure for paying the contract debt, and if you are not sure what the right thing to do is, then do what I suggested in Post #3. Alternatively, do nothing and wait for the CO. Whatever.

There is no point in you hanging around here any longer waiting for nirvana and answering irrelevant questions from the pointlessly curious, unless you don't have enough to do or the member known as "here_2_help" has something to say, in which case I would read what he posts carefully if I were you.

Now, while you're waiting to see if H-2-H has something to say, do yourself a favor and buy a copy of Cost Reimbursement Contracting, 4th ed., by Cibinic, Nash and Knight, which is just out, and read it.

Link to comment
Share on other sites

I don't have anything to add (but thanks for the kind words).

Actually I do have something to say ... thanks for recommending the new edition of Cost Reimbursement Contracting. I just ordered it.

H2H

Link to comment
Share on other sites

1) Is it up to the Contractor to automatically refund the fee billed in excess of the LOE calculation at close out or wait until the CO reduces the fee? 2) Is there any recourse penalites on the Contractor for not refunding the fee earlier at contract end when it was known the LOE was not met?

FAR 32.908 ( c ) (3) says to use clause 52.232-25, Prompt Payment with with its Alternate I, "(i)f the contract is a cost-reimbursement contract for services".

1. Assuming that this clause is in the contract, I think that, as a minimum, you should now contact the government and prerpare and/or correct your final invoice to reflect the reduced fee per paragraph ( d ) of the Clause. Once you know or think you know that you are not due the total fee, you should not reflect the excess fee in your final invoice. In my opinion, that might constitute an act that IS subject to a "penalty".

See paragraph ( d ) of the clause concerning overpayments:

(d) Overpayments. If the Contractor becomes aware of a duplicate contract financing or invoice payment or that the Government has otherwise overpaid on a contract financing or invoice payment, the Contractor shall—

(1) Remit the overpayment amount to the payment office cited in the contract along with a description of the overpayment including the—

(2) Provide a copy of the remittance and supporting documentation to the Contracting Officer.

  • (i) Circumstances of the overpayment (e.g., duplicate payment, erroneous payment, liquidation errors, date(s) of overpayment);

    (ii) Affected contract number and delivery order number if applicable;

    (iii) Affected contract line item or subline item, if applicable; and

    (iv) Contractor point of contact.

2. This prompt payment clause doesn't prescribe contractor paid interest for overpayments.

Link to comment
Share on other sites

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