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Just awarded a construction contract.  NTP will not occur for another 1 1/2 months due to scheduling conflicts on both sides.  Contractor wants to purchase a large quantity of raw material (over $1M)  prior to NTP.  Is this allowable?  any reason not to? 

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Sure its allowable, just give a NTP to procure the material that you approve to procure.  Is it a good idea?  That depends on tons of factors we have no knowledge of.  Why has the NTP been held up?  How sure is everyone that the project will go forward?  etc.   

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The NTP gives the contractor access to the work site.  That's all.  The contractor may buy materials, make product submittals, lease equipment, and otherwise incur costs before the NTP is issued.  I don't think the contractor needs the Government's permission to make the purchase -- I'm assuming a FFP construction contract with the standard construction clauses.  However, a contract term might require advance permission.  

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12 hours ago, ji20874 said:

The NTP gives the contractor access to the work site.  That's all.  The contractor may buy materials, make product submittals, lease equipment, and otherwise incur costs before the NTP is issued.  I don't think the contractor needs the Government's permission to make the purchase -- I'm assuming a FFP construction contract with the standard construction clauses.  However, a contract term might require advance permission.  

Assuming that contract clause 52.211-10 Commencement, Prosecution and Completion of Work is in the Contract, the Notice to Proceed normally starts the performance period clock ticking, unless  the clause has been modified. 

(Edit): I assume that the contractor wants to be assured that it will be paid for the materials, if ordered and delivered as stored materials or if an obligation is incurred when ordered before the construction NTP is issued, particularly if the contract is terminated at some point.   

I would suggest a limited notice to proceed to order the materials as part of a no cost supplemental agreement that the specified performance period won't begin until a full NTP is issued (anticipated date?).

(Edit): Both parties would receive some value or consideration for an agreement that the delayed NTP is excusable and noncompensable.  It appears that there is a concurrent gov't/contractor delay here. The contractor can also lock in material prices to mitigate delay impact costs. The contractor may be able to prosecute the work in a shorter time with materials on hand at NTP or shortly thereafter.  That should also benefit the government.  Win/win possible. 

Edited by joel hoffman
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Beginner,

Is there any term in your contract that requires the Government's permission before the contractor buys materials?  YES   NO

If not, the general principle is that the contractor is allowed to incur reasonable costs in reasonable preparation for performance, so the contractor can make its own decision regarding the purchase of the material.  If a termination occurs before the Government issues the NTP, those material costs might be allowable in the settlement.

If the contract does not require the Government's permission, then I would advise a contracting officer not to grant permission -- leave the matter as the contractor's decision.  If the contract does require permission, then grant the permission by letter, not by a partial NTP.  Remember, we're talking about permission for the contractor to purchase the material, not permission for the contractor to submit an invoice for the material -- please do not confuse these very different matters.

I also advise caution about creating some sort of partial NTP, and I advise against waiting for the contractor to declare its readiness before issuing the NTP.  The CBCA wrote in CBCA 982-C(50), "[N]othing in the FAR or the contract authorizes the creation of an 'offsite' notice to proceed. Likewise, the contract does not give the Government the right to delay the issuance of the notice to proceed until it determined that [the contractor] was ready to begin construction operations."  If the Government is ready for work to begin, issue the NTP.

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Guest Vern Edwards
On May 24, 2016 at 4:31 PM, ji20874 said:

The NTP gives the contractor access to the work site.  That's all.

That's not true. What an NTP does is direct the contractor to commence work. See FAR 52.211-10.

Assuming that the contract is a standard firm-fixed-price construction contract and contains all of the required FAR construction contract clauses and no special clauses of which we have no notice, then an NTP does not give a contractor access to anyplace or anything unless the contract or the NTP expressly says so. The term "notice to proceed" appears in 9 places in the FAR. In none of those places is there anything that associates a notice to proceed with access to any location.

Most agencies will not (should not) grant the contractor operational access to the site until they have received required bonds and issued an NTP, but issuance of an NTP does not necessarily grant complete or partial access. Access may require more. Express authorization to enter a site might be required after issuance of an NTP and prior to the commencement of certain operations, as, for example, when the work is to be on energized transmission lines, at locations at which livestock are located, or at certain kinds of military installations.

Now, as to the original question, which was:

On May 24, 2016 at 2:48 PM, Beginner said:

Just awarded a construction contract. NTP will not occur for another 1 1/2 months due to scheduling conflicts on both sides.  Contractor wants to purchase a large quantity of raw material (over $1M)  prior to NTP.  Is this allowable?  any reason not to? 

Under a standard firm-fixed-price construction contract, the contractor does not need the Government's authorization to spend money prior to receipt of an NTP, because buying materials does not, in and of itself, entitle the contractor to any payment. See FAR 52.236-5(b)(2). Payment is due based on progress in the performance of the work. Measures of progress may include material purchases only with CO authorization.

So if all the contractor wants to do is buy stuff against its own account, then yes, it is permissible, with or without the CO's assent. Why? Because mere purchase would not make the Government liable for payment. Any reason not to assent? A better question would be why bother? An appropriate response to a request for assent would be: You don't need our permission to spend your money, unless you want to charge that expenditure to us. But if what the contractor wants is authorization to count the purchase of materials toward progress for purposes of earning progress payments, then the CO had better ask some questions and think about the answers from a business perspective.

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I agree that the contractor may order materials on its own account without the government's input or assent prior to NTP.  I should have said that.  As I said, my assumption was that the contractor was asking so that it could be paid for materials prior to NTP.  However, that would probably be unlikely if the NTP is only delayed for 45 days.

If that is the reason, then I suggest the government should advise the contractor that there would be no payments made for stored materials prior to issuance of NTP and that the contractor would be fully responsible for storage and safekeeping the materials.  

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