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BigMac

What payment method is proper?

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I have a pretty unique situation and am not quite sure how to handle it:

I am the CO on a Commercial Services Contract and the third option year was effective on 12/01/2016 (option was awarded unilaterally in late October IAW with FAR 52.217-9). The contractor had been performing per the contract up until that point. However, they decided on 12/01/2016 that they wanted something removed from the contract. I refused (not in the Gov. best interest), and they stopped performing the first day of the third option year. The COR and I only found this out in late December when we called them for some work to be done. They refused to work per the contract, and because of the nature of this contract we had to give them a separate method of payment before they would arrive and work (of course this was our last option but this contract is for medical equipment used in surgeries and was done as a sole-source, one and only to the OEM...they really had us over a barrel at this point).

Since that day, there have been three other times where they refused to work until a separate method of payment, outside of the contract, was agreed upon. Since late December we have been working with the firm to get them back to work per the contract (Show Cause, Cure Notice, our legal counsel threatening termination...all these things were done). I was ready to Terminate for Cause this week, but finally the contractor backed down and went back to work....here is my question.

The contractor wants to refund us the four separate purchases we made to them for emergency service and then invoice us per the contract. I think that we should actually refuse the four refunds and I want to mod the money off the contract from which they weren't performing, essentially mod the money from 12/01/2016-the date they agreed to work per the contract.

How can we pay them per the contract for services they didn't perform in the contract?

 

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You said the contract is for services and that it's for medical equipment. Is it for rental, purchase, maintenance and repair? Please clarify.

Also, you ask how you can pay them for services they didn't perform "in the contract." Do you mean that they didn't provide the service at all or that they performed, but not in accordance with the contract? If the latter, was it the service itself that was defective or their refusal to seek payment in accordance with the contract terms?

If the problem was the method of seeking payment, then to what, exactly, did they object?

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Sorry for the ambiguity....the contract in question is for maintenance and emergency repair on several pieces of medical equipment. The pieces are all of one type, but there are 5 different models of that type. The contract is a "full-service" contract which involves an annual PM and ALL emergency repair service. If one of the pieces of equipment is defective or malfunctioning the contract dictates first a phone call to see if the contractor can walk our own technician through the repair. If that process doesn't resolve it, then the vendor has 72 hours to show up and repair it. For the first three years all has been hunky-dory.

However, after 12/01/2016 they would only respond to our defective piece of equipment if we authorized a separate method of payment (which is the exact way we would handle this if these pieces of equipment were not covered under any contract). The vendor told us flat out, that until we removed something they weren't going to acknowledge option year 3.

But yes Vern, your question gets to the issue here....they first refused to perform IAW with the contract, but would then agree to perform if we assured them of payment outside of the contract. Certainly the work they performed under the separate purchase order (four in total) is identical to the work required of the contract.

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3 hours ago, Vern Edwards said:

What didn't they like about the method of payment? Was it Wide Area Work Flow? iRAPT?

They had no issue with the contract's stipulated method of payment and have been submitting electronic invoices for three years prior. 

The stated reason they stopped performing is that they wanted one of the models removed from the contract (they sold the rights to that piece of equipment to another firm). I informed them that they signed this contract with all pieces of equipment on it and the Government was under no obligation to modify our contract. I suggested a solution would be for them to subcontract the work for that one piece of equipment to the firm they sold the rights to and they refused. I then asked why I should spend the Government's resources doing a partial termination of this contract and then a new procurement to another firm for that one piece of equipment?

It took our legal counsel threatening a termination of the entire contract for them to back down and they are now performing per the contract (and they are indeed subcontracting work for the one piece of equipment to the firm they sold the rights to).

The four times we required emergent work since 12/01/2016 they demanded method of payment outside the contract because they didn't recognize the most recent option year with the contested item included....their position from 12/01/2016 until last week was that the contract wasn't valid.   

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Thanks.

If I understand the situation correctly, the contractor ultimately did perform under separate agreements and was paid, and now they want to do a paper transaction to redo the payment transactions so they can be paid under the original contract. You're thinking that since they didn't actually do the work under the original contract you cannot see how you can redo the transactions and pay them under that contract and, besides, you don't want to. Is that right? Sounds like they might be wanting to get out from under the cloud of default.

You make sense to me, and I think your concern is valid. I think now it's a matter of how much time you want to devote to this. If I understand the situation correctly, I'd tell them, Look, you did the work under those other agreements and we paid you under them and that's that. On the other hand, it may be that doing what they ask won't break any rules, is easily done, and is up to you. It was a misunderstanding. Forgive and forget.

Let me say that I think you were ill-advised to make a fuss about the items that they had transferred to another firm. I understand how you feel, but you have a commercial item transaction and commercial firms are usually a little more flexible. It's possible that this whole thing could have been avoided at the cost of less time and nuisance and without the sabre rattling. But I'm NOT saying you were wrong.

Let me know if I haven't understood the situation correctly. 

 

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Thanks so much for your time Vern and you described the situation to a T. I was a little curious why their counsel was so quick to state how the payments should be done. Getting out from the "cloud of default" could very well be the reason. A prudent move on their part.  

If I had to do it again I would probably acquiesce to their contract modification from the outset. I just didn't like the idea of the Government spending resources doing another procurement because of a commercial transaction outside of this contract. I suppose that if the CO takes a bird's-eye view of these situations they become part of the cost of doing business. To be honest, I never thought it would go as far as it did. Perhaps this is a time when forgiving and forgetting is in the best interest of all parties involved.

Thanks so much again Vern...although a native Midwesterner, I'm an alumnus of Oregon State University and envious of your locale. I miss wandering the aisles of Powell's immensely!!

 

 

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I'm going to go wander those aisles this afternoon!

By the way, a very famous and very interesting article was written about commercial contracting years ago by a law professor named Stewart Macaulay, entitled, "Non-Contractual Relations in Business: A Preliminary Study," which appeared in American Sociological Review, Vol. 28, No. 1, February 1963.

Prof. Macaulay interviewed businessmen to find out how important contract law was to them. One of the businessmen told him: "You can settle any dispute if you keep the lawyers and accountants out of it. They just do not understand the give-and-take needed in business."

You can find the article here:

http://masonlec.org/site/rte_uploads/files/Macaulay class 2 background.pdf

The quote is on page 41. It had quite an impact on me. It's not entirely fair, but it's fair enough, and it's a good tip.

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