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dmuir

Can the contractor terminate a contract?

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We have a situation of a 2 year old contract whereby the employment situation has radically changed from award and now personnel are multiple times as expensive as originally anticipated.  The CO refused to relax requirement that personnel perform on base and despite completed deliverable still gave us a bad CPAR rating because one position was unfilled. This is FFP labor. (Yes, we tried to explain that's not how FFP works...)

The situation is so bad we are looking for a way out. But I can't find anything that allows a contractor to petition for adjustment based on a change in labor force situation.

I've looked at:
Changes 52.24-01

Breach of contract claim 52.233-04

Termination for Convenience: 52.249-04

Disputes 52.233

 

Default: 52.249-08

Also, if we go into Default Does

(b) If the Government terminates this contract in whole or in part, it may acquire, under the terms and in the manner the Contracting Officer considers appropriate, supplies or services similar to those terminated, and the Contractor will be liable to the Government for any excess costs for those supplies or services. However, the Contractor shall continue the work not terminated.

This mean that we would have to pay for the difference between our contract and any new contract? The whole point is that the work cannot afford personnel. 

 

Any suggestions on what to research? new route to pursue?

 

Thank you!

 

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Guest PepeTheFrog

This is an unfortunate situation, but not unprecedented. Here are some possible routes:

negotiate with the contracting officer for a modification (sounds like this is not a possibility)

deal with it, eat the losses, and never make the same mistake again

raise your issue(s) to a level (or several) above the contracting officer, on the phone at first, and then in writing with copies through the chain of command

submit a request for equitable adjustment (REA)

file a claim under the Contract Disputes Act

beg the Government not to exercise the next option, and eat it until then to preserve your past performance/CPARS

perform as you think the contract requires (knowing the Government may disagree, and being prepared to fight any threats of termination for default)

breach the contract purposefully (fail to perform, stop doing any work, wait to get terminated for default)

above option, but right before you actually get terminated for default, negotiate a termination for convenience because it will be "easier" and "less messy" for the Government

two options above, get terminated for default, then litigate your way into having it reformed as a termination for convenience

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It is okay to have a FFP contract with very specific labor requirements -- for example, a FFP contract for guard services might require one guard at each post for X hours per day, and the agency might rigorously count hours.

To your case:  What changed?  The labor market?  Or your company's labor force?  Did you make a mistake in your offer?  It sounds like the Government requirement has not changed.

Maybe (weak, but maybe) you might find something to help in FAR 17.202( c ).

 

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38 minutes ago, dmuir said:

We have a situation of a 2 year old contract whereby the employment situation has radically changed from award and now personnel are multiple times as expensive as originally anticipated.  The CO refused to relax requirement that personnel perform on base and despite completed deliverable still gave us a bad CPAR rating because one position was unfilled. This is FFP labor. (Yes, we tried to explain that's not how FFP works...)

The situation is so bad we are looking for a way out. But I can't find anything that allows a contractor to petition for adjustment based on a change in labor force situation.

Any suggestions on what to research? new route to pursue?

Here's where my head is at. I think I'm with ji20874 to a large extent.

When you look at the original proposal, what do you see? Do you see a labor forecast and associated cost estimate that was reasonably achievable, or do you perhaps see a management "buy-in" situation, one where headcount was minimized and so were the associated labor costs? To me, that's where the rubber meets the road. Was the original proposal and contract price negotiated based on that proposal reasonable, or did management intend to "invest" in order to win the work?

If you conclude that the original proposal was reasonable and the associated price was reasonably achievable, then you need to answer ji'20874's questions -- what changed over the past two years? Your statement "the employment situation has radically changed" is too general to let us give you any good advice. You may as well follow PepetheFrog's advice.

If you conclude that management "bought in" to the original bid, then they need to suck it up. Perform and quit trying to get well from the original buy-in.

*****

Some of my clients have been faced with a recent realization that their independent contractors are actually employees. That is causing lots of angst because the payroll withholdings are going way up. In addition to the FICA and other withholdings the company now has to make, there are suddenly additional benefits available to the employees, such as paid leave and healthcare.

I wonder if this could be your situation? Having to incur all those unplanned-for costs would certainly impact any financial models used for FFP labor pricing.

Just idle speculation....

*****

Hope this helps.

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Guest Vern Edwards
1 hour ago, dmuir said:

We have a situation of a 2 year old contract whereby the employment situation has radically changed from award and now personnel are multiple times as expensive as originally anticipated. 

Your costs are greater than you expected. The government is not the cause. The contracting officer is not willing to let you off the hook. Right?

Based on what you've said, I cannot see any contractually viable way out. You can perform and suffer or you can default and suffer.

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dmuir - I see no mention of you reaching into applicable labor clauses (FAR 52.222-XXX)  that may be in your contract.  Depending on nature of work and make up of labor force and the applicable allowances for "price adjustment" under the Service Contract Act there may be possibility there.

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