Jump to content
The Wifcon Forums and Blogs

490

Fixed Price Services Extending Beyond PoP

Recommended Posts

We are a telecommunications provider to the US Government and provide terrestrial data circuits to remote, and sometimes hostile, regions in the world.  Under a 12-month contract, the Government requested a proposal for 12 months of service.  The circuit is not considered accepted and billable until the Government performs its testing IAW the acceptance criteria.  Given the regions we deliver service to, it is normal for circuit activation and testing to take three or more months from execution of a subcontract agreement to the activation and testing of the circuit.

 

The salient points are:

1.       The Government contracted for a terrestrial data circuit with a certain number of Megabits per second (Mbps) at a certain location specified in the SOW.

2.       The period of performance was 5/1/15 – 4/30/16.

3.       In Section B, the Unit specified was “EA,” and the quantity is “From 0.0000” “By 1.0000” to “To 1.0000”

4.       The contract type was fixed price incentive in accordance with FAR Part 16.202.

5.       We provided the Mbps to the locations specified in the contract beginning in November 2015.

 

There are opinions internally whether we can bill the full amount based on service being provided for twelve months, even though the service was only accepted at month six or not. Terrestrial carriers (e.g. Verizon, Level3, etc.) typically require a 12 month commitment, so even though this firm price, severable service, extends beyond the PoP we will be billed for the full twelve months.

 

The stronger and most likely reading of the contract is that the full amount of the annual service should not be charged unless the service was provided for the full 12-month period. However, reading the FAR suggests we may be able to bill for 12 months of service.  Nonetheless, based on my experience with post hoc reviews by stakeholders OTHER THAN the contracting officer (such as inspectors general), a pro rated invoicing approach rather than invoicing the full amount, may be the correct interpretation.

 

The contract does not state if it contemplated “immediate” commencement of performance, it is notable that the documents clearly provide that the period of performance was to be 5/1/15-4/30/16, which is exactly one year.  (clause 152.211-705).  In addition, the Statement of Work provides that the period of performance was to be “12 months from contract award.”  Whether or not it is of note, there is no feasible way for service to commence immediately after order, and we are not billed by our subcontractor until the circuit is tested and accepted by the Government.

 

The question then becomes whether “performance” in this context means (a) to begin to build the required communications capacity, or (b) to actually provide the required communications capacity.   If “performance” requires only working on the development of the promised capacity, as opposed to actually providing the promised capacity as a service, then it appears that the fixed fee would have been owed. The contract does not offer any indication as to what it intended. I would also note that nothing in the contract appears to require a pro rating of the price to reflect the timing of the in-service dates (or acceptance dates). 

 

Nonetheless, there does not appear to be any language in the contract indicating that the customer can be charged for anything other than an operable network service that meets all of the speed and other technical parameters, and that this service is subject to a fixed price for a full 12-month service period.

The task order has ended, but there is some discussion if we are entitled to invoice and be paid the fixed price established in the contract. The incentive monies are secondary, and will be determined and paid in accordance with the terms of the contract.

The task order has ended, but there is some discussion if we are entitled to invoice and be paid the fixed price established in the contract. The incentive monies are secondary, and will be determined and paid in accordance with the terms of the contract.

 

As a follow-on question:

The Government awarded a single source follow-on contract for this service to begin 1 May 2016 – 30 April 2017.  If the guidance is that we can bill for the full twelve months, should there be concern about billing, effectively, twice for the same service (trailing six months after PoP end, and first six months of follow-on)  even though the same service is being provided under a different contract?

Share this post


Link to post
Share on other sites

If you don't understand your own contract while holding it in your hands, I don't know how anyone here can be expected to understand it sight unseen.

You need to decide the question.  Is the contract for the development of capability, and you had one year to do it?  Or is the contract for one year of performance at the specified level?  If you can't tell, you can ask the contracting officer.

Share this post


Link to post
Share on other sites

My question is not understanding my contract, it is regards to invoicing.  The Government ideally wanted the service for the full twelve months, but there is no way to activate the service on the first day of the PoP.  We can submit the invoice, and the COTR and CO may approve the invoice and we may be paid.  However, that does not eliminate an auditor coming through a few years from now and disagreeing with our position and requesting funds back.  Therein lies the heart of my question.

Allow me to boil down the question to a simplified scenario and question.  The Government issued us a 12 month FPIF contract to install Internet access at one of their buildings for 12 months.  Because this building was in a war zone, the service was not activated and accepted until month six. That means for only six months of the 12 month PoP did the Government have their service.  Am I entitled to invoice the Government for 12 months of service even though service was only provided for six months of that?  

Reading the FAR for Fixed Priced services suggests that I can, especially given that my contract provides no requirement precluding this.  Is this the opinion of other forum members as well?

 

Share this post


Link to post
Share on other sites

A question has been posed to the CO.  He is unsure himself, but is looking into the matter.  A week prior to the end of the PoP, the previous CO rotated out and he was assigned.  My concern is that if a CO approves an invoice, it does not necessarily mean the costs should have been paid.  If that were the cause, an auditors job would be pretty easy. 

Under 16.202-1, it states "A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract."  My question pertains to the interpretation of this clause as it pertains to my charges.  While I thank you for your replies, I am looking for opinions on this matter given the information provided beyond asking the CO. 

Share this post


Link to post
Share on other sites

490,

It really depends on what the contract says. You may get some opinions here, but if this is important to your company you should seek a professional opinion.

Share this post


Link to post
Share on other sites

Don,

We did seek the advice of an attorney, who thought invoicing for the full amount was not the safest interpretation.  However, he also went on to say it may be possible to invoice for the full amount.  For him, the heart of the issue is what the Government intended.  Was performance a) to begin to build the required communications capacity, or (b) to actually provide the required communications capacity.  The contract is not well written, and this question is not addressed, or mentioned at all in the contract.  Seeking the advice of an attorney was not offered in my original posts above because I was looking for opinions of individuals that may have run across this before.  Had I stated that we consulted an attorney, I expected the consensus to be listen to the attorney. 

Last night I read through dozens of threads on this forum looking for similar issues.  I frequently saw your name addressing other questions and learned some things about items I was not researching.  Given my research, the answer from our attorney, and the CO's uncertainty, I guess I should feel better about not having a firm answer myself.  There is not likely a clear answer here given the ambiguity of the contract, and what it may ultimately result is us thoroughly documenting our decision and rationale for inclusion into the program folder for audit purposes.  

Share this post


Link to post
Share on other sites

490,

In matters of contract interpretation, I do not agree that the heart of the issue is what the Government intended--I would say that it's what the parties intended. When you get a response from the CO, their interpretation is not necessarily binding on you.

I don't think I would be comfortable invoicing for the whole amount and hoping the auditor was persuaded by the rationale in the file. I would try to get a decision by the contracting officer agreeing with my interpretation before invoicing. Settle the matter sooner rather than later. 

Share this post


Link to post
Share on other sites

I need to ruminate on your point of what the parties intended vice what the Government intended.  My concern is as you state, the CO is not the final opinion that matters when it comes to payment.

My position was that we should not invoice for the full amount, and pressed for the attorney's read.  Should the CO side with us, we will request a written response for our files, and will discuss invoicing at the point.  If the CO does not believe we should invoice, we will not likely invoice.  Regardless of the decision, I want to understand both sides in case a similar situation comes up in the future and I can apply lessons learned from this..

Your responses are appreciated, thank you.

Share this post


Link to post
Share on other sites

490, In your initial post, you stated that this is a fixed price incentive contract (you stated in a later post that it is "FPIF"), yet you also indicated that it was in accordance with FAR 16.202., which is a contradiction.   FAR 16.202 covers firm-fixed-price contracts.  A fixed price incentive contract with a target cost and target profit or fee is described in 16.403 and 16.403-1. 

A FFP contract is not subject to adjustment based upon the contractor's actual cost to provide the specified service, as you stated. However, it doesn't appear to me that you provided the full services specified.  If this is a FFP contract, the government should perhaps modify the scope of work to reflect the actual period of service provided.  If there were any cost savings for providing less than the specified period of Internet services, the government might be entitled to a credit based upon the direct cost savings, if any, plus applicable overheads and profit. 

If this is a fixed price incentive contract with firm targets, it becomes more complicated. The final cost is to be negotiated and target fee is adjusted based upon differences between final and target costs.  If the full service wasn't provided, it might warrant some fee reduction but we don't have all of the facts or the contract available.

490' how did you conclude that this is a fixed price incentive contract that is, as you stated in your original post, "in accordance with FAR Part [sic] 16.202" (actually, Part 16, subpart 2, section 02)?

In response to your second question in the original post, there isn't enough information available, but it would seem to me that you can't bill the government for the same service twice. However, if the first contract is FPI, you presumably wouldn't be billing for the cost of 12 months of Internet service but only for the cost incurred for what service you actually provided under that contract. 

Share this post


Link to post
Share on other sites

490,

Yoir company is an equal party in the contract -- you should be able to articulate a firm statement of your belief regarding the intent of the parties -- it is a sign of weakness that your company has no idea of the intent of the parties.  I think you need to take a stand.  What was your company's intent when you entered into the contract?  Does the contract text support your stand?

Share this post


Link to post
Share on other sites

Joel,

Initially I thought the same thing about FFP and incentive fees.  When I checked FAR Part 16, subpart 2, it seems the Government can use FFP contracts in conjunctions with performance incentives under 16.402-2. Despite including incentive fees, the contract is still considered FFP. (http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/16.htm#P66_12044).  The Government included 16.402-2 incentives in the contract.

I am not the PM, but our PM stated he tried to get the CO to extend the PoP, but the CO stated they were unable to do so.  Not being present in those meetings, I do not know the reasons why.  Why the six month extension could not be invoked or other common methods not used is not known to me, and with the old CO gone, that information may be lost to history.

Your insight and answers are appreciated and certainly in line with my thoughts.  Thank you for your time and reply.

 

Share this post


Link to post
Share on other sites

Ji,

Our pricing file stated our subcontractors required a commitment of 12 months, but our proposal was not incorporated into the award.  Our PM has stated he verbally told the COTR of the issue with the PoP after acceptance of the service, but the contract PoP could not be extended, the Government's reason's are not known, but believe they should have had methods available to them.  We should have done more to document our communication and position at that time, but unfortunately we did not.

Our belief and intent is clear, the concern is if our intent is enough to withstand a potential audit down the road.  The RFP provides no guidance whatsoever on the issue.  Given the location of the work, there is no way to deliver 12 months of service in a 12 month PoP.  We are awaiting a discussion and read from the CO which will be telling as to the direction we choose.

Thank you for your follow-up response.

Share this post


Link to post
Share on other sites

490, thanks for the clarification. An FFP contract under 16.202 may include incentives.  I have used and have seen award fee incentives in FFP construction contracts and have seen extended periods as incentives for superior performance. But FPI contracts under 16.403 are not  FFP and are different than FFP contracts. 

50 minutes ago, 490 said:

Joel,

Initially I thought the same thing about FFP and incentive fees.  When I checked FAR Part 16, subpart 2, it seems the Government can use FFP contracts in conjunctions with performance incentives under 16.402-2. Despite including incentive fees, the contract is still considered FFP. (http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/16.htm#P66_12044).  The Government included 16.402-2 incentives in the contract.

I am not the PM, but our PM stated he tried to get the CO to extend the PoP, but the CO stated they were unable to do so.  Not being present in those meetings, I do not know the reasons why.  Why the six month extension could not be invoked or other common methods not used is not known to me, and with the old CO gone, that information may be lost to history.

Your insight and answers are appreciated and certainly in line with my thoughts.  Thank you for your time and reply.

 

What "16.402-2 incentives" were included in the contract? 

I'm not certain at this point that the K0 who issued the contract knew what they were drafting, if 12 months Internet service is impossible to provide under the circumstances and if the contract mixes FFP with FPI 

Edited by joel hoffman

Share this post


Link to post
Share on other sites

 Dyslexia has set in.  

Share this post


Link to post
Share on other sites

Joel,

When I read the FAR's description for FFP contracts and inclusive of performance incentives, I interpret the wording differently.

16.202 -- Firm-Fixed-Price Contracts.

16.202-1 -- Description.

A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties. The contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives.

Please don't think I'm am trying to argue semantics, I am just trying to understand.  The last line (bolded and underlined) is taken from the FAR and says it would still be considered FFP.

The Government included performance incentives for meeting availability (e.g., the service has no outages longer than a set period of time).

Share this post


Link to post
Share on other sites
6 hours ago, 490 said:

Please don't think I'm am trying to argue semantics... .

You are arguing semantics, and there's nothing wrong with that. Everyone should be arguing about semantics all the time. If there was more arguing about semantics, there would be fewer lousy regulations, like the first sentence in FAR 16.202-1.

If I were in your company's shoes, I probably wouldn't submit an invoice against the Government contract unless I had in hand a written legal opinion that I am contractually entitled to payment for services rendered. Submitting an invoice when unsure about entitlement is asking for trouble.

Share this post


Link to post
Share on other sites

490, do your concerns about an audit relate to an audit of your company or an audit of the government's administration of the contract?  If the former, what clause in your contract gives the government the right to audit you in this circumstance?

Share this post


Link to post
Share on other sites

Ok, now it is clearer that this is a firm fixed price contract for services that includes some type of incentives tied to meeting service availability metrics.  It is not a "fixed price incentive" contract as described in FAR 16.4. Those types of contracts must include incentives for cost performance. A FFP contract with an award fee for performance remains FFP because the price is not adjusted based upon the COST of performance.

Here, I tend to agree with Vern's post above to the extent that I probably wouldn't invoice for more than the services that I provided unless I had in hand a written legal opinion that I am contractually entitled to full payment. "Submitting an invoice when unsure about entitlement is asking for trouble." 

 

 

 

Share this post


Link to post
Share on other sites
27 minutes ago, Retreadfed said:

490, do your concerns about an audit relate to an audit of your company or an audit of the government's administration of the contract?  If the former, what clause in your contract gives the government the right to audit you in this circumstance?

My concern is related to an audit of the Government's administration of the contract due to it dollar value.

Share this post


Link to post
Share on other sites
4 hours ago, Vern Edwards said:

You are arguing semantics, and there's nothing wrong with that. Everyone should be arguing about semantics all the time. If there was more arguing about semantics, there would be fewer lousy regulations, like the first sentence in FAR 16.202-1.

If I were in your company's shoes, I probably wouldn't submit an invoice against the Government contract unless I had in hand a written legal opinion that I am contractually entitled to payment for services rendered. Submitting an invoice when unsure about entitlement is asking for trouble.

Vern,

That is how I felt, but I was the odd man out.  However, I have convinced everyone to that we need to get something in writing from the CO before any decision is made.  Thank you for your opinion.

Share this post


Link to post
Share on other sites
26 minutes ago, joel hoffman said:

Ok, now it is clearer that this is a firm fixed price contract for services that includes some type of incentives tied to meeting service availability metrics.  It is not a "fixed price incentive" contract as described in FAR 16.4. Those types of contracts must include incentives for cost performance. A FFP contract with an award fee for performance remains FFP because the price is not adjusted based upon the COST of performance.

Here, I tend to agree with Vern's post above to the extent that I probably wouldn't invoice for more than the services that I provided unless I had in hand a written legal opinion that I am contractually entitled to full payment. "Submitting an invoice when unsure about entitlement is asking for trouble." 

 

 

 

Joel,

Your input is appreciated.  We are waiting to talk to the CO and get their opinion before we decide what to do.

Share this post


Link to post
Share on other sites

So.....

On ‎5‎/‎24‎/‎2016 at 4:40 PM, 490 said:

He is unsure himself

Holy Moly!

On ‎5‎/‎24‎/‎2016 at 9:29 AM, 490 said:

There are opinions internally whether we can bill the full amount based on service being provided for twelve months, even though the service was only accepted at month six or not. Terrestrial carriers (e.g. Verizon, Level3, etc.) typically require a 12 month commitment, so even though this firm price, severable service, extends beyond the PoP we will be billed for the full twelve months.

So is your contract a "commercial item" contract and what does the payment clause say no matter what type of contract it is?

Share this post


Link to post
Share on other sites
9 hours ago, C Culham said:

So.....

Holy Moly!

So is your contract a "commercial item" contract and what does the payment clause say no matter what type of contract it is?

Holy Moly indeed.  This is for a service, and we can only submit invoices once the service is accepted by the Government.  The service was not accepted until month six. 

Share this post


Link to post
Share on other sites

490 -    So is that what your payment clause in the contract actually says?   No need to convince me but the discussion about contract type and reference to the FAR are misguided in my view.  Your payment is dictated by what the contract says.

I will leave "commercial item" alone other than to say "commercial item" as defined in the FAR includes service and if your contract is for a commercial item defined as a service the payment terms and conditions of the contract would usually emulate the private sector.  

I am going to admit that my questions are digression to a point in that I agree with everyone that the CO should be consulted but I am very surprised that there has been nothing in this thread that queries or relates exactly what the payment provisions of the contract are.  They are important to your question.

 

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×