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Olga

Limitation of Funds Clause and Cost Overrun on CPFF

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I would like some help with the probable outcome for this question.  A CPFF term contract for $60MIL incrementally funded.  The Government funds only $30MIL and extends the contract twice to continue performance, but still does not reach the full obligation.  Now the contract is ending and no more funding will be obligated.

The Schedule Obligated Amount clause says that the funds are allotted for "allowable costs (and fee if any)" (emphasis added).  The contract includes the LOF clause 52.232.22.

The Contractor realizes it has made an accrual mistake in the accruals of incurred costs and has a deficit of $1MIL over the obligated amount if you include the earned fee.  Without counting the earned fee (CPFF term = LOE delivered x fee per day), the Contractor has incurred costs within the obligated amount.

The performance was accepted and lauded by the client as Exceptional.  The Contractor mistakenly relying on available funds numbers offered  to the Government and with acceptance performed more work than originally planned for the same obligated amount.

The Government argues that since no timely notification under the LOF clause was provided, the costs would not be reimbursed since the obligation covers costs and fee and the Government is not obligated to reimburse above the obligated amount.

Cost Reimbursement Contracting (Cubinic and Nash) states under Control of Funding Limitation of Funds clauses, that if the "funds are allotted in a single figure, it has been held that the contractor can apply the full allotment to performance costs".

Would this argument work in the scenario above?  If the Government refuses, is this a legitimate claim argument?

Many thanks.

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If you are the contractor, you need to contact an experienced government contracts attorney who can advise you of your options after reviewing the contract and contract related documents.

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Olga,

Barring some unknown factors, the Contractor is out $1m.

CPFF may be a low risk to the contractor, but, low risk assumes adequate accounting system and trained personnel to accurately accrue costs as well as make timely notification (75% burn) to the Government.

In this case, Contractor is seemingly entitled to 100% of the funded value and not more.

Beantown

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The question is does the funded value cover only costs or costs AND earned fee?  The LOF clause 52.232-22 states at 

(b) 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.

If the Contractor incurred costs up to the obligated funding, can it still recover earned fee above the obligated funding limit?

 

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Ji, the discussion at the link you provided is somewhat helpful in understanding the operation of the LOF clause.  The problem we have here is that the contract appears to contain what Olga calls the "Schedule Obligated Amount clause" which, from the supposed extract she quoted, appears to be at variance with the LOF clause.  Whether it is in fact inconsistent with the LOF clause, we do not know.  Further, we do not know if the Schedule Obligated Amount clause constitutes a deviation from the FAR and if so whether a deviation was granted.  If Olga is considering filing a claim, I think these and other issues need to be addressed by a competent government contracts attorney.

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The Schedule Obligated Amount clause, simply refers to the obligated amount in accordance with the LOF clause.  The LOF clause refers "The Schedule specifies the amount parentally available"...   So if you go to the Schedule, the only place where it is specified is Cost, Fee and Obligation Clause, that says what it says "funding is available for costs (and fee of any".     It is at odds with the LOF clause itself, which says the obligation is for costs and not fee.   No deviation approved.    Since the obligation specified in the schedule does not have separate amounts for costs and fee, I am wondering how this obligated amount would be applied if dispute occurs.  Would it cover all performance costs up to the limit per the LOF clause and then the fee would be paid proportionately to the work delivered (the exceptional performance is relevant in that the work was delivered and accepted) above the obligation?  The bigger question is as a Contracting Officer, when obligating the money under the CPFF contract, do you obligate costs and fee separately or do you make a reserve for fee without putting that amount in the contract?  Thanks

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The courts have ruled in two cases that if the Schedules specifies express allocation for costs and fees, the contractor would be held to those allocations. Textron Defense Systems v. Widnall, 143 F.3d 1465, 1469 (1998)

But if the schedules does not specify express allocation by cost and fee and simply has one amount, the contractor can recover up to the total obligated amount for costs and is entitled to fee above the obligated amount. John J. McMullen Assocs., Inc., ASBCA No. 22450, 79-1 BCA 13,818 and Allied Signal Aerospace Co., ASBCA No. 46890, 95-1 BCA 27,462.

 

So in this case, the Schedule does not make such specific allocation between cost and fee, but simply says the total amount is "for costs (and fee if any)".  Do you think an argument can be made for the McMullen case or do you think the "and fee if any" would be considered "express allocation"?

  

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Retreadfed,

I noticed in the original posting that the contract apparently specified that the funds alloted covered both cost and fee.  I agree entirely this this is a matter for the attorneys.  No one here knows what the contract actually says (except Olga).

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On April 13, 2016 at 1:16 PM, Olga said:

The CLIN estimated budget states fee separately but the obligation give one amount to cover costs (and fee if any).  I guess there is no way of knowing how this would play out since "and fee if any" may be interpreted as an allocation....

 

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A point to interject here.  In the initial post, Olga identified the calculation method for the fee.  I think that her company could have used that calculation to determine the amount of funding for the fee, within the obligated amount.

If one reads the contract as a whole, the amount of the fee seems to be inclusive within the total funds obligated, whether stated once or five times. And it is possible to determine the fee or an approximation of the fee.  It may have required some management of the spending trends and/or length of service (number of days). 

If there is an patent conflict or ambiguity between the contract terms, the Contractor should have requested clarification before reaching that ceiling limitation, in my opinion.  Of course, I don't have the contract to read, as a whole.

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Yes, but Retreadfed's point is still valid. The clause could be an unauthorized deviation from the LOF clause. If it is, it may not be enforceable.

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