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T4C for failing to invoice?


gittist

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A two part question concerning contractors who don't submit invoices on FFP awards, and don't return phone calls or emails (incommunicado).

Does anyone know of any REDBOOK, case law, or other authority that addresses:

1. The contractor's duty to submit invoices (timely?), or

2. The extent of the Government's duty to pursue invoices?

I was able to get our local counsel to approve a termniation for convenience on one that had a large ULO (but no evidence of receipts) dating back to FY11 but even some of my own people are shaking, twitching and acting like someone put a curse on them. Finance is especially troublesome and is refusing to record the de-obligation modificaiton.

I know this tends to go against the grain but something needed to be done. Less than desirable ratings on CPARS/PPIRS won't do any good since we deal with a limited number of vendors.

Thanks in advance for any helpful information.

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Guest Vern Edwards

Did the contractor complete the work?

Did the government accept the work? If not, is the government going to accept it?

Have you determined if the business is still in operation and existence by checking with sources other than the company itself?

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Did the contractor complete the work?

Did the government accept the work? If not, is the government going to accept it?

Have you determined if the business is still in operation and existence by checking with sources other than the company itself?

In order to answer the first two questions there would have to have been adequate contract administration. Many things could have happened since we are dealing with awards that sometimes include the rental/lease of several hundred office devices scattered over large geographic areas including other countries, and now at sea. Maybe the vendor was a few months behind on installation and no one told the contract specialist, maybe they did, maybe the vendors billing is so messed up they missed a few months. All I can say with any certainty is that there are many awards with large ULOs for which the vast majority have no evidence of receipts. Some of these awards need a full time COR/ CA but that's not in the cards.

Yes, 99% of the businesses are still in operation

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gittist:

First time I have seen the acronym ULOs. What does it mean? In context I assume it means unliquidated obligations, but couldn't find the use in the FAR or DAU's glossary of defense acquisition acronyms & terms.

*DFARS uses unliquidated obligation at 204.7106[3][ii].

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How about a letter (certified, with return receipt) saying something like the period of performance has long ended and the Government wants to close out the contract, and unless the contractor responds with an invoice within 30 days after receipt, the Government will consider the last invoice as the final invoice and the last payment as the final payment.

Then do it. If the contractor claims a right to payment, evaluate it when you get it.

A T4C is a dumb idea, in my opinion. It opens the Government to payments for settlement expenses and so forth that may go beyond the price of the contract, and the contractor has a full year to submit its settlement proposal.

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Guest Vern Edwards

Well, you have a mess on your hands.

Here's a thought: Under the Contract Disputes Act of 1978, a contractor's right to submit a claim expires six years after its accrual. See FAR 33.206(a) and 52.233-1(d)(1).

If we figure that the right to payment accrued upon successful performance (there is no right to payment without successful performance), then I say that if a contractor has not sought payment by the end of the sixth year after the contract or task order was or should have been physically complete, then it cannot claim payment. You can deobligate any remaining funds and close out the contract or order without termination.

I would not T for C, because that might trigger a new right to payment. T for D would be pointless if the contract was physically complete more than six years ago, because the government could not pursue any claim against the contractor.

To show good faith I would send each contractor whose right to submit a claim has not yet expired a certified letter telling them to submit an invoice within 30 days of receipt. I would do nothing else and send no other notice. Set a date for the end of the sixth year of each such contract and on that date close out the contract and deobligate the funds.

I'm sure there are other solutions, but since your agency didn't devote any time to doing its job properly, i don't think anyone should devote any more time to helping it out now. It sounds like you inherited this mess. Tough luck.

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I would not send any more letters if you already have done that. Let the six year period for claims expire then administratively close out the contracts. Why? For one thing, what are you going to do to verify an invoice, if you receive one or more? How would you know that any items invoiced for have been received - or if received, whether or not have already been paid for? Can you distinguish between those already paid for and any not paid For?

Don't compound the previous incompetence by inviting firms to invoice for payments that can't be validly confirmed.

Void the De-obligation mod if it isn't proper.

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Guest Vern Edwards

Joel:

How do you "void" a mod?

The government does not have to "verify" an invoice. The contractor must provide proof of performance and acceptance. If the evidence is not satisfactory to the CO, the CO should reject the invoice.

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A suggested alternative…..that fits of sorts with a couple of suggestions already provided.

(FAR 49.101 & 49.104-4) Send a letter indicating in general the circumstances, the Government is terminating the contract(s) in its best interest and provide that rather than a termination notice the letter is a proposed “no cost settlement” of the contract(s), give the contractor a reasonable amount of time to respond to the letter and if a response is received continue through the termination effort as appropriate.

To handle the circumstance that the contractor may not respond to the letter state in the letter that “failure to respond to this letter within the time stipulated is the Contractors consent and agreement to the no cost settlement”, and when no response is received then move to the processes necessary to close out the contracts and get rid of the ULOs.

The only question that lingers, are there subcontractors that need to be considered? If so then a different strategy may be in order.

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C. Culham,

I think Vern's point -- that a T4C can create a new right for the contractor, and possibly "reset" the Statute of Limitations -- is worth considering. If Vern is right, then a T4C would be the wrong tactic.

I've been watching this thread with interest because I cannot conceive of any entity that would go through the headache of winning a government contract, only to fail to submit invoices. On the other hand, I know of an SDB firm that won a commercial item contract from an FFRDC, and performed very well. The firm was so busy performing that it failed to keep records of who did what for whom, and it failed invoice because the firm (quite literally) didn't know how much to invoice for. It's hard to believe, but more than an year went by before anybody noticed the situation.

Hope this helps.

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Joel:

How do you "void" a mod?

The government does not have to "verify" an invoice. The contractor must provide proof of performance and acceptance. If the evidence is not satisfactory to the CO, the CO should reject the invoice.

From the information provided, the deobligation mod appears to be in an internal processing status. The OP didn't say that it had been issued to the vendor.

There should be procedures for the vendor to "substantiate" (provide evidence to prove) delivery and performance of the (rental?) as part of the invoicing process.

The government should "verify" (confirm) that the contractor should be paid (and confirm that the vendor hasn't already been paid) for what it is invoicing the government under the contract prior to making further or final payment. From the OP's limited information, it appeared that there may already have been some performance and some payments. It is possible that the OP is referring to several contracts/purchase orders.

At any rate, from gittist's post #4 above, it might not be possible to verify whether or not the vendor has been paid for whatever rental or service it might invoice for in response to further government requests to submit invoice(s).

I was asking if the government was in a position to do that.

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Guest Vern Edwards
A two part question concerning contractors who don't submit invoices on FFP awards, and don't return phone calls or emails (incommunicado).

See the principal payment clause for FFP contracts, FAR 52.232-1.

The fact that the OP is concerned that the contractors have not submitted invoices suggests that the contractors have fulfilled their contractual obligations and the agency wants to pay them off. Why else worry about invoices under an FFP contract?

If the contracts are physically complete, what is the point of termination? The contractor has, in theory, six years to invoice from the date that it is entitled to invoice. I know of no standard contract term that obligates the contractor to seek payment any sooner. The OP wants to close out the agency's files, but that's no contractual concern of the contractor, is it, except for the practical reason that if the contractor messes around for too long there won't be anyone in the government who knows anything about the contract?

Assuming that the above statements are true, then T for C would be a lot of unnecessary paperwork and, potentially, a legal hassle.

Send each of the dilatory contractors a certified letter, in order to show good faith. Wait until the six year deadlines have passed. Then close the things out.

As for subs, the government has no obligation to them, neither contractual nor moral. COs are not sub-nannies.

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Guest Vern Edwards

Joel:

You didn't answer my question. I asked: "How do you 'void' a mod?" I asked that because you suggested that course of action and I wanted to know what you meant.

If a CO has signed a mod and distributed it in accordance with FAR 4.201, then the mod has taken effect, unless the mod says otherwise. If the CO has signed it, but has not yet distributed it, then it has not taken effect.

If the CO has signed the mod, but not yet distributed it, and if she no longer wants to mod the contract, then she can just tear it up. But if the CO has signed and distributed the mod, how does she "void" it?

The only way that I know how to undo a mod that has been signed and distributed is to write, sign, and distribute another mod. If a CO deobligated funds with the mod and wants to restore them, she'll need another funding document before she do it.

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I agree with you. I was under the assumption that the mod is still in processing and has not been distributed or might not even be signed yet due to internal differences.

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I am personally aware of instances of ineptitude, or worse, on the part of government personnel, whose job included the duties of verifying quantities where a contractor was paid more than once for the same raw materials and for deliveries of readi-mixed concrete. That's why i brought it up. Our Resident DCAA auditor, whose wife was Korean, noted many duplicate delivery tickets, which were written in Korean. The "mistake" amounted to several hundred thousand dollars.

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H2H - I do not disagree with Vern. My read of FAR 49.101 could be too literal with my alternative based on this language from the reference…..

The contracting officer shall effect a no-cost settlement instead of issuing a termination notice when…”

My conclusion under my alternative is that I have not issued the “termination notice” therefore I have not issued a T4C or a T4D but rather a proposal for the contactor to consider that I am ending the contract with a “no cost settlement”.

Hope this helps understand my suggestion.

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I was able to get our local counsel to approve a termniation for convenience on one that had a large ULO (but no evidence of receipts) dating back to FY11 but even some of my own people are shaking, twitching and acting like someone put a curse on them. Finance is especially troublesome and is refusing to record the de-obligation modificaiton.

I think that your Finance office is wise not to record a deobligation of funds. Creating an obligation and recording an obligation are two different things. From what you described, the obligation created by the contract has not been reduced in any way.The "recording statute" (31 USCA § 1501) requires that the amount of funds recorded as obligated must be the same as the amount of the obligation that was created. Reducing the amount recorded as an obligation does not mean that you have reduced the amount of the obligation created by the contract. However, it may mean that you have under-recorded the Government's actual obligation.

For more on this subject, see the discussion beginning on p. 7-6 of the GAO Redbook (Criteria for Recording Obligations (31 USCA § 1501)),

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A point on which I am not clear is whether the OP is talking about contracts or purchase orders where a contract is formed through contractor performance. If it is the latter and the contractor never delivered anything in response to the purchase order, there would be no contract and no funds would have been obligated.

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Guest Vern Edwards
A point on which I am not clear is whether the OP is talking about contracts or purchase orders where a contract is formed through contractor performance. If it is the latter and the contractor never delivered anything in response to the purchase order, there would be no contract and no funds would have been obligated.

​Retread, are you saying that a purchase order under which a contract is formed through contractor acceptance by performance does not constitute an obligation until the contractor delivers? If so, can you cite anything authoritative in support? A GAO decision? Something in the Red Book?

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Guest Vern Edwards
A point on which I am not clear is whether the OP is talking about contracts or purchase orders where a contract is formed through contractor performance. If it is the latter and the contractor never delivered anything in response to the purchase order, there would be no contract and no funds would have been obligated.

I don't think either part of the second sentence of that quote is true.

According to the Court of Federal Claims in Davis Precision Machining, Inc. v. U.S., 35 Fed. Cl. 651, 661 (1996), the beginning of performance of a purchase order creates an irrevocable option contract, and substantial performance constitutes contractor acceptance of the option offer.

When there is no written acceptance of the purchase order, suppliers may accept the Government's offers by delivering the requested supplies in accordance with the specified terms and conditions. A supplier may also indicate its mutual assent by beginning performance and, thus, “accept” an option contract, and the Government's offer becomes irrevocable. Rex Sys., Inc., ASBCA No 45,301, 93-3 BCA ¶ 26,065, 1993 WL 190365. The beginning of performance, however, does not amount to acceptance of an offer that results in the creation of a supply contract. Although the beginning of performance is sufficient to establish an option contract that makes the Government's offer irrevocable, it does not amount to acceptance of the offer for a supply contract. Once the contractor has substantially performed under the option, however, that contractor has accepted the Government's offer and a supply contract exists, because the supplier has proceeded with the work “to the point where substantial performance has occurred.” Acceptance under FAR Part 13 is the completion of substantial performance. Whether a supplier is entitled to compensation is dependent on compliance with the delivery provisions, line item specification requirements, and requirements of provisions incorporated by reference.

That being the case, I say that an obligation occurs and must be recorded when a purchase order is issued. This seems to be confirmed by the third sentence of FAR 13.302-2[c], which concerns unpriced purchase orders. See also 13.302-4. Moreover, I have never heard of modifying a purchase order after issuance in order to record an obligation of funds upon substantial performance.

I think it's clearly wrong to say that there is no obligation until the contractor has actually delivered, but Retread might know something that I don't or he might have meant something else.

I found nothing about this in the Red Book, but I may have missed something.

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Guest Vern Edwards
Isn't it a contract upon PO issuance? No performance needs to take place to create a contract. Both parties are obligated.

No. That is very wrong. Read Davies Precision Machining, cited above. See also the definition of purchase order in FAR 2.101.

Issuance of a purchase order is an offer from the government to buy something.

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I'm still trying to resolve this passage from the Davis Precision Machining decision cited above:

Once the contractor has substantially performed under the option, however, that contractor has accepted the Government's offer and a supply contract exists, because the supplier has proceeded with the work to the point where substantial performance has occurred. Acceptance under FAR Part 13 is the completion of substantial performance.

What is the significance, if any, between Accepted vs. Acceptance; and Substantial performance occurred vs. Substantial performance completion?

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