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Steveatus

Fee Included with Limitation of Funds?

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I disagree with my Contracting Officer on the requirements pertaining to FAR 52.232-22. We are "reserving" funding to cover the fee we believe we would be entitled to in the event of a termination for convenience. My PCO says that fee would be funded separately as part of the termination settlement.

The PCO is basing her interpretation on the clause language wherein it always refers to "cost" and makes no mention of "fee".

This is an incrementally funded cost type contract with award fee weighted more toward the end of the contract. Accordingly, the fee we have earned to date would not be a reasonable fee for work performed should we be terminated. Our contract says that in the event of a termination, the fee earned would be a reasonable fee on work performed (not just the award fee up to that point.

I believe the Government, in the event of a termination is only liable up to the amount of funding provided on the contract. If we don't protect ourselves for the fee would get in a termination, we could be short on our recover.

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The PCO is correct. The Limitation of Funds clause, 52.232-22 deals only with costs. In the event of a termination, fee is covered by the Termination clause, 52.249-6. Also, if this is a CPAF contract as you have indicated, award fee should be determined in accordance with the award fee plan in the contract.

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The operative language in FAR 52.232-22 is paragraph (f)(1) and (h):

(f) Except as required by other provisions of this contract, specifically citing and stated to be an exception to this clause—(1) The Government is not obligated to reimburse the Contractor for costs incurred in excess of the total amount allotted by the Government to this contract.... (h) In the absence of the specified notice, the Government is not obligated to reimburse the Contractor for any costs in excess of the total amount allotted by the Government to this contract, whether incurred during the course of the contract or as a result of termination.

Emphasis added. The clause does not shield the government from its obligations to pay fee due.

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Thanks for the help on this.

I would assume that the Government would have to set aside funding to cover their fee liability that would be above what is covered by their funding for cost under the Limitation of Funds clause? In other words, to avoid anti-deficiency act concerns, they would provide funding for costs under the contract subject to Limitation of Funds and then keep funding reserved to cover any fee that would be due pursuant to the specific fee terms of the contract.

As I mentioned, the award fee pools are back loaded, so if a termination occurred early in the program, the amount earned based upon award fee determinations would not be reasonable based upon work actually performed. There is a clause in the contract that states in the event of a termination, additional fee above what had been earned in award fee periods might be payable based upon a determination of a reasonable fee for work performed.

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In DOD, when the government awards an incrementally funded CPFF contract, which is what I believe that you have, the CO must obligate funds to cover the government's maximum liability, an amount that must include fixed fee. See the DOD Financial Management Regulation, Vol. 3, Ch. 8, Sec. 080403.

The contract should state an estimated cost, a fixed fee, and a total amount allotted under the Limitation of Funds clause, FAR 52.232-22. The obligation must cover the total amount allotted and the associated portion of the fixed fee.

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You probably will not see a fund cite for the complete obligation that has been recorded for the contract, but will likely see a fund cite to cover the amount currently allotted to the contract.

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You probably will not see a fund cite for the complete obligation that has been recorded for the contract, but will likely see a fund cite to cover the amount currently allotted to the contract.

In my experience, the total amount allotted to the contract is the same as the amount recorded as an obligation. This is consistent with the terms of the Limitation of Funds clause, paragraph (B) of which reads, "The Contractor agrees to perform, or have performed, work on the contract up to the point at which the total amount paid and payable by the Government under the contract approximates but does not exceed the total amount actually allotted by the Government to the contract." The total amount payable by the Government would certainly include some fee. Thus, the contractor must reserve an amount on account of any fee "payable by the Government under the contract."

I have never seen any incrementally funded contract - CPFF, CPAF or otherwise - that has any amount recorded separately as an obligation to cover fee that might become payable in the event of termination.

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Navy:

The DOD FMR says what it says, right? I quoted it and cited the source.

Read the Limitation of Funds clause:


The Schedule specifies the amount presently available for payment by the Government and allotted to this contract, the items covered, the Government's share of the cost if this is a cost-sharing contract, and the period of performance it is estimated the allotted amount will cover. The parties contemplate that the Government will allot additional funds incrementally to the contract up to the full estimated cost to the Government specified in the Schedule, exclusive of any fee. The Contractor agrees to perform, or have performed, work on the contract up to the point at which the total amount paid and payable by the Government under the contract approximates but does not exceed the total amount actually allotted by the Government to the contract.

* * *

(l) If the Government does not allot sufficient funds to allow completion of the work, the Contractor is entitled to a percentage of the fee specified in the Schedule equalling the percentage of completion of the work contemplated by this contract.

The total amount allotted is the amount allotted toward the estimated cost of the work. The total amount "allotted" is not the same as the total amount obligated.The clause expressly states that the amount allotted does not include fee. But if the contractor performs up to the total amount allotted, then the government will have to pay fixed fee proportional to the percentage of completion covered by the amount allotted. That's an obligation, and obligations must be recorded when made. Right? Thus, the total amount obligated must equal the total amount allotted plus the fee obligation.

​As for award fee, it is a contingent liability, not an obligation, until a fee determination has been made. The obligation is made and must be recorded when the fee determination is announced. See DOD FMR Vol. 3, Ch. 8, Sec. 080411D.

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