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Adding Cost-Reimbursement CLINs to a 52.217-9 Extension

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I currently have a request to extend what was initially a 6-month fixed-price delivery contract using FAR 52.217-9, with the reason being the host country was not yet ready for receiving the items (the contractor has performed satisfactorily and had the items ready to ship when the contract required).

Because the exact amount of time the contractor will have to hold onto the items is not known, I was going to add a funded cost-reimbursement CLIN, de-obligating the amount not used once the items are delivered. Another CS informed me the FAR does not allow adding CLINs to an extension, but could not find the citation. I also looked throughout the FAR, Wifcon, and asked other CSs and have not found anything stating this is not allowed. The effort to be expended is the exact same as under the original fixed-price contract, so there is no change in scope, just using cost-reimbursement. Before completing the modification, I want to ensure the addition of the CR CLINs is allowable. 

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FAR 17.207(f) states "Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6" (emphasis added).  Options must be exercised in strict accordance with their terms.  When exercising this unilateral right, the clauses does not give the CO the authority to unilaterally change other terms in the contract, unless a separate clause gives the CO such a right.  If you want to change other terms, do so prior to or after the option is exercised through a bilateral modification.

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Thanks Todd. So even though the CLINs are doing the exact same thing that the original fixed-price CLINs are, the FAR is saying because they were not on the initial contract they need to be added separately. Good insight, much appreciated.

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I'm not especially clear on your situation other than the fact that you intend to take work that is currently a fixed price CLIN and convert it to a cost-reimbursable CLIN...not only is that is a cardinal change (which requires a J&A and a bilateral modification), but you also have to comply with the requirements/limitations provided by FAR 16.301 regarding the usage of cost-reimbursement contracts.

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22 hours ago, pcojt10 said:

I currently have a request to extend what was initially a 6-month fixed-price delivery contract using FAR 52.217-9, with the reason being the host country was not yet ready for receiving the items (the contractor has performed satisfactorily and had the items ready to ship when the contract required).

Good grief. You don't use FAR 52.217-9 to solve this kind of problem. And you sure as heck don't need a cost-reimbursement CLIN.

Just negotiate a brief supplemental agreement to change the delivery date and adjust the price to pay the contractor what it wants to store the item until shipment. Include a sentence saying that if the delivery date changes again the parties will negotiate an equitable adjustment to compensate the contractor for any additional storage charge and change in shipping costs. We're talking three or four sentences, at most.

And no, you don't need a sole source justification. Just put a memo in the file that explains the situation. Stuff happens.

And no, it's not a cardinal change.

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34 minutes ago, Vern Edwards said:

And no, you don't need a sole source justification. Just put a memo in the file that explains the situation. Stuff happens.

And no, it's not a cardinal change.

Are those two sentences in response to your alternative solution and not the proposed solution by the OP to change the contract type from fixed price (FP) to cost reimbursement (CR)?

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As my hair grays, thins and falls out, I notice that my memories are thinning and falling as well. However, my stronger memories in life involve my experiences in procurement. Since I can recall experiences relevant to pcojt10’s circumstance, I will share the ones involving modifications of firm-fixed price contracts.

I was fortunate enough to find a job in an organization that emphasized OJT. The OJT involved training sessions on specific procurement circumstances, and it took the form of case assignments that exposed me to various types of supplies and services and various types of contracts.

My first assignment was to a branch that used firm-fixed-price contracts for machine tool construction and repair. I competed, awarded and administered dozens of contracts. In a significant number of contracts, issues arose after the contract was awarded. The customers revised specs, delivery dates and delivery locations, and details of government furnished property (GFP); contractors made erroneous interpretations of contract terms, presented non-compliant machine tools or made errors in delivery.

Whenever an issue involving specs or delivery arose, I would modify the contract to change specs, or to shift delivery dates or locations. In so doing, either I changed the specs in Section C, or the schedule and locations in Section D, or I changed both Sections C and D. Sometimes, I also changed the prices in Section B to reflect increases or decreases in prices associated with the revisions to specs, delivery or GFP.

The contract mod was very simple and straightforward and within the scope of the contract: increase or decrease prices, adjust specs, shift delivery dates and sites, and/or modify the GFP.

As is the case with pcojt10’s circumstance, there was no need to add options or cost reimbursement line items. Modification of the contract was simple and straightforward.  

Follow Monsieur Vern’s advice.

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2 hours ago, Matthew Fleharty said:

Are those two sentences in response to your alternative solution and not the proposed solution by the OP to change the contract type from fixed price (FP) to cost reimbursement (CR)?

The sentences were:

3 hours ago, Vern Edwards said:

And no, you don't need a sole source justification. Just put a memo in the file that explains the situation. Stuff happens.

And no, it's not a cardinal change.

I expected them to arise from my proposed solution. The OP's proposed solution is unthinkable.

The first sentence was in anticipation of a question from the OP that I thought likely to be next. You mention "supplement agreement" and some people start thinking "sole source."

The second was in anticipation of a question from the OP that I thought likely to be prompted by your earlier mention of a cardinal change, which I thought might plant an idea in the OP's head. You mention "supplemental agreement" and some people start thinking "out of scope."

We live in strange times in the contracting profession.

BTW, I don't agree that changing a fixed-price CLIN to a cost-reimbursement CLIN is necessarily a cardinal (out of scope) change, especially under the circumstances described. It would be a stupid change under the circumstances, but not cardinal. Moreover, even if the contractor thought it was cardinal, it would be very unlikely to prompt the contractor to complain.

Now, the really interesting thought to come out of this thread is what we should think about an OJT program that would leave the OP thinking of the kind of solution originally envisioned. What kind of training would make a person think of something as convoluted as (1) exercising 52.217-9 and (2) adding a cost-reimbursement CLIN?

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Got it, glad to see we're primarily on the same page though I'd like to hear your thoughts more on the following issue:

5 hours ago, Vern Edwards said:

BTW, I don't agree that changing a fixed-price CLIN to a cost-reimbursement CLIN is necessarily a cardinal (out of scope) change, especially under the circumstances described. It would be a stupid change under the circumstances, but not cardinal. Moreover, even if the contractor thought it was cardinal, it would be very unlikely to prompt the contractor to complain.

Scope considerations generally include (1) the nature of the work, (2) period of performance, (3) contract cost/price, & (4) the scope of the competition.  For purposes of my position that conversion from FP to CR is a cardinal change, I'll only discuss "(4) the scope of the competition" for which the consideration is "whether the modification is of a nature which potential offerors would reasonably have anticipated under the changes clause" (Neil R. Gross & Co., 69 Comp. Gen. 247 (B-237434), 90-1 CPD ¶ 212).

One test for that question is whether or not the change would have impacted the pool of potential offerors. In the case of moving from an FP to a CR environment, I can think of no clearer way to do that as CR environments by their nature change/limit the pool of potential offerors due to limitations such as the requirement for an adequate accounting system (FAR 16.301-3(a)(3)).

Additionally, "a literal reading of the Changes clause would not permit the government to change the terms and conditions of the contract" Administration of Government Contracts 4 ed. (pg. 391) and moving from a solely FP environment to add a CR one would require the addition of numerous clauses (terms and conditions) that were not present or contemplated by the original solicitation or at the time of award.

As such, I consider changing from FP to CR a cardinal change based on that standard, but, as always, I'm all ears to hear yours and others' thoughts.

Lastly, while you're probably right that such a change would be very unlikely to prompt the contractor to complain, a cardinal change due the exceeding the scope of the competition opens the door for competitors to protest.  This particular situation seems too small to warrant such a complaint, but one never knows...as you said yourself, "we live in strange times in the contracting profession."

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I am at a complete loss of ideas and words.

Why in the world would one convert a FFP contract to cost reimbursement type when the Gov't delays the delivery? You extend the delivery period, and, if necessary, you increase the price to reflect the increase costs to the contractor associated with the delay in delivery.

Even less comprehensible is the introduction of an option! An option for what?

Please explain before the falling gray hair obscures all the letters on the keyboard!

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3 hours ago, Matthew Fleharty said:

Additionally, "a literal reading of the Changes clause would not permit the government to change the terms and conditions of the contract" Administration of Government Contracts 4 ed. (pg. 391) and moving from a solely FP environment to add a CR one would require the addition of numerous clauses (terms and conditions) that were not present or contemplated by the original solicitation or at the time of award.

The fact that a contract modification cannot be made under the Changes clause does not mean that it is outside the scope of the contract. The passage that you quoted just means that you can't change terms and conditions using a change order. 

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53 minutes ago, Don Mansfield said:

The fact that a contract modification cannot be made under the Changes clause does not mean that it is outside the scope of the contract. The passage that you quoted just means that you can't change terms and conditions using a change order. 

Touche Don - I drop that portion of the argument.  Do you find the other half sound?

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Hopefully not a run away thread and most likely no impact but the questions that occurred to me with the first post by the OP were -

Is the 52-217-9 clause already in the contract?  Not clear that it is.

Is the contract for a commercial or non-commercial item?   Again not clear.

The above have no specific impact on the best option proposed in the thread but do have impact on what I will call the side discussions that have occurred.

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Matthew:

On 2/10/2017 at 3:55 PM, Matthew Fleharty said:

I consider changing from FP to CR a cardinal change based on that standard, but, as always, I'm all ears to hear yours and others' thoughts.

I presume that you think GAO would find such a change to be outside the scope of the competition. Is that right?

If so, let me first say that I try to be hesitant about making such broad assertions about issues determined by case law. Here is what I said that prompted your next to the last post:

On 2/10/2017 at 2:57 PM, Vern Edwards said:

BTW, I don't agree that changing a fixed-price CLIN to a cost-reimbursement CLIN is necessarily a cardinal (out of scope) change, especially under the circumstances described.

Note that I hedged my bets. But I wasn't careful when constructing the above sentence, because the OP was not proposing to change an FP CLIN to a CR CLIN. The OP was proposing to add a CR CLIN to cover the work of storing the item that the contractor had produced until the customer was ready to receive it. According to the OP, the contractor had satisfactorily completed the work, except for shipment. The OP wanted to use a CR CLIN for the storage because he wasn't sure when the customer would be ready and thus how long the contractor would have to store it. The OP was not proposing to change the contract type in the sense of repricing the contract work. The OP was proposing to add work and price the additional work on a CR basis. A protester's issue would not be a change in contract type. The issue would be adding the work of storing the item until the customer is ready to receive it. The issue would be whether the OP could do that without a J&A and whether a sound J&A could be written.

But let's ignore all that and address your question of whether a change in contract type would be outside of the scope of the competition. Let's begin by understanding that the scope of the competition test is grounded in the CICA requirement for full and open competition. The test is designed to prevent the government from avoiding its obligations under CICA through the use of a contract modification. 

What do I mean by "change" in contract type? When I was a CO at your agency's predecessor, I negotiated an agreement with Hughes Aircraft to change a CPAF R&D contract that had been underway for at least a year to FPI(F) going forward. In one case, the Department of Transportation negotiated an agreement with General Dynamics Corp, to change an FPI(F) supply contract that was on the brink of a T for D to cost reimbursement with a cap going forward, at which amount the contract would convert to FFP. (That turned out to be a disaster. See General Dynamics Corp. DOTCAB 76-9A, 78-2 BCA ¶ 13415, reconsid. denied, 78-2 CPD ¶ 13281.) I think that such changes in contract type, while not frequent, are not altogether uncommon. There is nothing inherently illegal about it, unless GAO or the COFC, in deciding a bid protest, determine that the change is outside of the scope of the original competition and thus violates CICA. In such a case the GAO would probably recommend T for C and a new competition.

The scope of the competition test or "doctrine" (if we can call it that) has a long history. See Edwards, The Scope of the Competition Test: Is it valid?, The Nash & Cibinic Report (March 2013), cited last year in Agustawestland North American, Inc. v. U.S., 127 Fed. Cl. 793 (August 24, 2016). But "scope of the competition" has been the subject of very few protests.

A Westlaw search for "scope of the competition" produced 20 such decisions since 1964, some of which are about other issues. a search for "scope +5 competition" found only nine GAO sustained protests. The most I could find in the GAO data base were 41 decisions, sustained and denied, but I got that number by configuring a complex search using every combination of "scope," "competition," and "cardinal" that I could think of, and most of the decisions produced were not about what we're discussing. A search in COFC decisions produced 15 decisions. (I did not include protests about whether a task or delivery order is within the scope of the underlying IDIQ contract. I focused on protests against contract modifications.)

So, when would a change in contract type be outside of the scope of the original competition? I'm not sure. As far as I have been able to determine, neither the GAO nor the COFC have ever dealt with such a protest and made such a determination. I cannot find a single case in which either tribunal has had to decide whether a change in contract type was beyond the scope of the original competition. There really is no case law to go on with respect to changes in contract type. The fact that there is no case law on point makes me very reluctant to take a strong position one way or another. That's why I hedged my bets, and it's why I would have done so if I were you.

But let's speculate. The answer would undoubtedly depend on the specific nature of the change, the circumstances that encompass it, its timing, and its effect on performance. In the case of my negotiation with Hughes, the contract had been well underway for at least a year before I took over and realized that the government had screwed up the award fee process. I made the change in order to avoid a dispute with Hughes and get the program office out of a tough spot. In the case of the Department of Transportation's deal with General Dynamics, the parties negotiated a new arrangement in order to avoid a dispute over whether the contractor had defaulted or the government had impeded its performance. It was an attempt to salvage a procurement that had gone very badly wrong.

I doubt that the GAO and the COFC would have sustained a protest in either of those cases. In both cases the specific changes were unforeseeable. T for C and a new competition were not practical, because too much had already been done and what remained to be done was not readily segregable for purposes of a new acquisition. I think they would have found those changes to be matters of contract administration outside of the scope of their protest jurisdiction. 

On the other hand, suppose that the government competitively awarded an FFP contract, decided early in performance that it had selected the wrong contract type, and wanted to change it to CPFF and keep going with the original contractor, with most of the work remaining to be done. I think that a protest based on scope of the competition in such a case would have a good chance of succeeding. I think that the same might be true of a contract well along in performance under which the remaining work is readily segregable for new acquisition.

Bottom line: Whether GAO or COFC would sustain a scope of the competition protest based on a change in contract type will depend upon what, exactly, the agency is doing, when in the course of performance it is doing it, and the circumstances under which it is being done. For that reason, I will not agree with any general assertion that a change in contract type is, per se, a "cardinal change" under CICA.

 

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Nice post, Monsieur.

Do you understand why pcojt10 is trying to add a cost reimbursement line item and to exercise an option to extend the delivery date of a fixed price contract?

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2 hours ago, napolik said:

Do you understand why pcojt10 is trying to add a cost reimbursement line item and to exercise an option to extend the delivery date of a fixed price contract?

Yes, I think so. 

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Matthew,

Too add to what Vern said, I don't think that applying the "scope of the competition" test necessarily tells you whether a change is a "cardinal" change. Theoretically, you could have a change that is outside the scope of the competition, but not a cardinal change and vice versa. The focus of the analysis is slightly different. There's a good discussion in Administration of Government Contracts, Chapter 4, B. 1. (In the discussion of "Meaning of “Within the General Scope”). The reading starts:

Quote

Most decisions defining the coverage of the Changes clause are resolved on the basis of the interpretation of the contract limitation that changes must be "within the general scope of the contract." This phrase is somewhat vague and has been subject to considerable judicial and administrative interpretation. Because of the slightly different focus of the analysis, the following discussion of these cases separates the cases dealing with disputes between the contractor and the government from those cases dealing with protests of competitors. In the former type of litigation, the Court of Claims coined the term "cardinal change" to describe those changes that are beyond the scope of the contract.

I recommend you read the rest of that section and know the difference.

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Don,

Thanks for pointing that out - I missed that nuance/distinction, but that makes sense because the "scope of the competition" test looks outside the four corners of the contract whereas a "cardinal change" (aka a breach) is concerned with what is inside the four corners of the contract.

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Note that the GAO sometimes uses the term "cardinal change" to describe a change that is outside the scope of the competition. I consider that careless.

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12 minutes ago, Don Mansfield said:

Note that the GAO sometimes uses the term "cardinal change" to describe a change that is outside the scope of the competition. I consider that careless.

After what I've read this weekend, I agree.  The article Vern referenced, Scope of the Competition Test: Is it valid?, The Nash & Cibinic Report (March 2013), was quite helpful in gaining a better understanding of the history of the scope of the competition standard and its merits (or lack thereof).

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On Sunday, February 12, 2017 at 3:04 AM, Vern Edwards said:

In both cases the specific changes were unforeseeable.

I will have to study this thread, but I am having trouble reconciling the statement above.

In review: it appears that the application of cardinal change principles require the contracting officer to consider whether or not the change is within the scope of the contract. A subset of this is if the change is within the scope of the competition conducted to achieve the original contract 

In determining the materiality of a modification GAO and presumably COFC consider whether the solicitation for the original contract adequately advised offerors of the potential for the type of changes during the course of the contract.

Do have it right so far?

If yes, do you know of any unforeseeable changes that were determined, by GAO or COFC, to be matters of contract administration?

*I think by unforeseeable changes, I mean changes not covered by a clause or doctrine.

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Ever hear of expect the unexpected? That's why we have changes clauses, differing site condition clauses, government caused delay clauses, stop work order clauses, etc. When I said that the specific changes were unforeseeable, I meant that there was no way for the government to plan for them. But contractors should have anticipated that such events might happen and that the government might have to resort to unexpected measures to prevent or resolve a dispute.

Matthew actually asked the same question privately a couple of days ago and I gave him pretty much the same answer. Here is more that I said to him:

 

Quote

The best way for you to learn this business is to think things through on your own. At some point you have to stop asking questions and think about what you've read and been told--work it out in your head. Anyone peppered with a series of questions from an interlocutor is going to get tired of it at some point and resent continued calls for information service.

Think about the "scope of the competition rule" (SCR). What purpose does it serve? Well, it implements CICA. What is CICA about? Control over the way the government buys supplies and services. Congress wants the government to get competition when it buys. Well, then, if all an agency is doing is changing the terms of a contract that was awarded competitively, and is not buying additional stuff, why should the SCR come into play? Changing a contract's terms is not a buying action. If I've already had competition, and all I want to do is change the pricing arrangement of a contract that was awarded competitively, how is that getting around the requirement for competition? I've already gotten competition. 

As far as I have been able to determine, GAO has not explained that in clear terms.

Presumably, the explanation is that changing a contract's terms can be tantamount to conducting a new acquisition. A change can be so great that it effectively invalidates the competition that was held and awards a new contract on a sole source basis. But wait a minute. What if the contract is nearly complete and the parties are doing it because things happened during performance that have led to a problem, a dispute, or a near dispute and must do something in order to resolve the problem.

Now, at some point, logic might have to yield to experience. Applying the SCR as if it were axiomatic could create serious problems that are not in the government's best interests. Terminating the contract and recompeting the work might make sense if done before performance has progressed very far, but not when performance is well underway and the government's investment of time, money, and experience in progress would be lost. At some point contract administration has to take priority over competition in contracting.

The GAO and the COFC are more pragmatic than doctrinaire. They are a bunch of lawyers, after all, and as Justice Holmes said more than a century ago in The Common Law (1881):

Quote

The life of the law has not been logic: it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed. The law embodies the story of a nation's development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics. In order to know what it is, we must know what it has been, and what it tends to become. We must alternately consult history and existing theories of legislation. But the most difficult labor will be to understand the combination of the two into new products at every stage. The substance of the law at any given time pretty nearly corresponds, so far as it goes, with what is then understood to be convenient; but its form and machinery, and the degree to which it is able to work out desired results, depend very much upon its past.

I would put it this way: Litigation and judicial decision-making are more matters of rhetoric than of logic. There is logic in there, but it is not necessarily determinative, even when some lawyer or judge invokes it in an argument or decision.

The SCR is not a fully worked out doctrine. It is GAO's response to what it considers a certain kind of circumvention of the competition rules. It's application is clearest when the government tries to add work to an existing contract. It's application is somewhat fuzzy when the government is not trying to add work, but wants to change the terms of purchase of work already included. In the latter situation, the SCR can conflict with the authority of the CO to resolve disputes. See FAR 33.204, 33.205, and 33.210.

Offerors shouldn't be expected to anticipate that the government will add new work without competition, but offerors rightfully can be expected to anticipate that the parties may encounter unexpected problems and have to make adjustments, including adjustments to pricing arrangements. Would changing from FFP to CPFF justify invocation of the SCR? Would changing the share ratio, target cost, and/or ceiling price of an FPI(F) justify it? I don't know, but I presume that the answer will depend on the circumstances of performance and the rationale. See American Apparel, Inc. v. U.S., 108 Fed. Cl. 11 (2012):

Quote

Because every situation in which parties enter into a contractual relationship is unique, there is no definitive test for determining whether a change is beyond the scope of a particular contract.

The problem is not mathematical. There is no equation for determining whether a change is within or beyond the scope of the contract.

Vern

I don't have the time to discuss this further. Those of you who still have questions and doubts will have to do your own research and think things through.

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