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Gabriel Ho

H - clause vs FAR/DFAR

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The contractor is not providing Final Voucher, property clearance, or other closeout documents due to the H-Clause: both PCO and ACO agreed that H-clause is for production shut down not (closeout).  This has been on going for 2+ years. Need your understanding of what take precedence, FAR/DFAR VS local clause. Read your

The following H - clause in question in the contract.
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H003 - The parties understand and agree that there are no costs included in the price of this SBC contract, and no requirement for the performance of, packing, crating, handling, removal or restoration, storage, shipment, destruction, scrap, sale, demilitarization, close-out or other disposition of any Government-owned or furnished tooling, equipment, material or other government property, or any residual material, inventory, data or documentation used in the performance of this contract. In the event of a termination for convenience, the Contractor is to be directed in the performance of these tasks and reimbursed in accordance with FAR 52.249-6, Termination for the Convenience of the Government. In the event that there is, for any reason, no follow-on contract (e.g. SBC extension or PBL), then the Contractor is to be directed by the Contracting Officer in the performance of these tasks and reimbursed in accordance with FAR 52.243-2, Changes – Cost reimbursement.
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The contractor statement below when we request property clearance
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XXXX believes that the H clause as referenced in the email chain, excludes the tasks to disposition Government Property and the intent of the clause when agreed to by the USAF was that a subsequent and separate contract action would fund the work required to complete the close out tasks.  As a clarification, the clause is not linked to only contracts that face a termination.  Accordingly, these tasks were not bid or contracted for on this effort.  Similar to the response provided on the BOA contract, XXXX needs a source of funds to perform the work required to execute these tasks.  In this case, as added scope, XXXX would be seeking contract value. Pertaining to order of precedence, if there are conflicting terms on the contract, FAR 52.215-8  lists the Order of Precedence. The Schedule as defined by FAR Part 14.201-2 or to FAR 14.204-1 consists of :  

Section A - Solicitation/contract form 

Section B - Bid Schedule 

Section C - Description/specifications (and one is referred to Part 11) 

Section D - Packaging and marking 

Section E - Inspection and Acceptance 

Section F - Deliveries or performance 

Section G - Contract administration data 

Section H - Special contract requirements

 

The subject clause, H003  Disposition and Closeout Costs (Apr 2008) is in Section H.  It takes precedence over the Section I, Contract Clauses,  where contract clauses 52.245-1 Government Property (Deviation) (June 2007) and 52.245-2 Government Property Installation Operation Services (June 2007) are listed.  
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H003 - The parties understand and agree that there are no costs included in the price of this SBC contract, and no requirement for the performance of, packing, crating, handling, removal or restoration, storage, shipment, destruction, scrap, sale, demilitarization, close-out or other disposition of any Government-owned or furnished tooling, equipment, material or other government property, or any residual material, inventory, data or documentation used in the performance of this contract...

Quote

In the event that there is, for any reason, no follow-on contract (e.g. SBC extension or PBL), then the Contractor is to be directed by the Contracting Officer in the performance of these tasks and reimbursed in accordance with FAR 52.243-2, Changes – Cost reimbursement.

I agree with thee contractor.  The cost of closeout documentation isn't included in the contract price and will be separately funded. It appears that this clause specifically states that  the closeout procedures will be directed and paid for separately.

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the contract was not terminated, and there been follow-on contracts (with similar H- clause) . ACO/PCO impetration that the H clause is for production shutdown. production is this ongoing.

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The problem with the ACO/PCO interpretation is that the first sentence of the H clause doesn't limit its applicability:

Quote

The parties understand and agree that there are no costs included in the price of this SBC contract, and no requirement for the performance of, packing, crating, handling, removal or restoration, storage, shipment, destruction, scrap, sale, demilitarization, close-out or other disposition of any Government-owned or furnished tooling, equipment, material or other government property, or any residual material, inventory, data or documentation used in the performance of this contract.

"No requirement" means no requirement. The second and third sentences discuss how the contractor is to be compensated in two specific situations where the Government will require performance of the listed tasks. It's silent on requiring performance of the tasks in other situations. I think it's unreasonable to interpret the clause to mean the contractor won't be compensated for performing closeout tasks unless the contract is terminated or there's no follow-on. 

The contractor is right about the order of precedence. 

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so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

 

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16 minutes ago, Gabriel Ho said:

so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

 

Need source of funds looks like:   "XXXX needs additional funding to perform the work required to execute these tasks."

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Gab, I do not think the Order of Precedence clause is relevant to this discussion.  That clause tells the parties how to resolve conflicts between terms in the contract.  The H clause is not in conflict with any of the standard FAR clauses you have cited. 

As for the meaning of source of funds, we can all speculate as to what the contractor meant (my guess is that the contractor was asking for a fund cite to be added to the contract providing funding for the activities requested by the contracting officer) however, the best thing to do is simply ask the contractor.

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Retreadfed,

Paragraph (f)(1)(x) of the applicable version FAR 52.245-1 states:

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Property closeout. The Contractor shall promptly perform and report to the Property Administrator contract property closeout, to include reporting, investigating and securing closure of all loss, damage, destruction, or theft cases; physically inventorying all property upon termination or completion of this contract; and disposing of items at the time they are determined to be excess to contractual needs.

Pursuant to the H clause, the contractor doesn't have to do that. How is that not a conflict?

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1 hour ago, Gabriel Ho said:

so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

 

I think it does. The Government instructed the contractor not to include the costs for property closeout in its price. Now that the Government wants the contractor to perform property closeout, the contractor wants to be compensated for these costs. I wouldn't submit a final voucher until that matter was settled, either.

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Agree with Don. GFR are unaccounted.

52.245-1

(3) Submission requirements. 

(i) The Contractor shall submit inventory disposal schedules to the Plant Clearance Officer no later than-

(A) 30 days following the Contractor's determination that a property item is no longer required for performance of this contract;

(B) 60 days, or such longer period as may be approved by the Plant Clearance Officer, following completion of contract deliveries or performance; or

(C) 120 days, or such longer period as may be approved by the Termination Contracting Officer, following contract termination in whole or in part.

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the contractor is noncompliance to term and conditions.
 

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See e.g., SUFI Network Services, Inc. v. U.S. --- Fed. Cl. ---, 2012 WL 5448957, Nov. 8, 2012:

"The “Performance Period” clause, found at section H.29 of the contract, states as follows... ."

System Planning Corp. v. U.S., --- Fed. Cl. ---, 2012 WL 2856070, July 12, 2012:

"[T]he DFARS does not describe what rights the Government has with respect to the source code that could be obtained through exercise of the option clause at Section H.9 of the contract... ."

Dynamics Corp. of America v. U.S., 17 Ct. Cl. 60, May 18, 1989:

"Paragraph g.(1) of the EPA clause, contract section H-6, provides... ."

Fluor Intercontinental, Inc. v. Department of State, CBCA 490, 2012 WL 1144972, Mar. 28, 2012:

"Section H, identified as "Special Contract Requirements," contained the following clauses concerning temporary facilities and services... ."

the intention of the H-Clause by the PCO is for program shutdown. I am trying to get  legal interpretation. Why cant the contractor do the work and ask for REA.

was precedence set with these cases where, H clause was denied?

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14 minutes ago, Gabriel Ho said:

Why cant the contractor do the work and ask for REA.

They probably would do that. Did you ask them?

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yes we told him. they said no!

one incident where a BOA has NO H clause, but the contractor assumption that H clause is implied. the contractor is asking PCO for $750K of "source of funding" not "funding" to provide FV on only 20 DOs. we have rejected their CAP (corrective action plan) already.

 

 

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2 hours ago, Gabriel Ho said:

so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

 

The contractor may be asking for evidence that funding will be available to be reimbursed for the efforts, if directed pursuant to the H-Clause.. 

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Don- but that will require additional funding. PCO is firm that no additional funds will be provided. contractor has agreed that the H-clause is a production shutdown, but will not put on paper. this disagreement has been kick down the road for over 3-4 yrs. the contractor has provided a guestimate that it will cost $10B for closing out these contracts.. high visibility program. contractor compliance officer know that they are in non-compliances but willing to allow their contracting dept to stand their ground.

source funding to me mean allowablity for contractor to double charge. direct/indirect.  thoughts??

closeout process should and most time are indirect charge. but in this situation the contractor want direct charge. (my opinion) (source of funding)

 

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If you're at a stalemate with the contractor, then issue a final decision pursuant to FAR 33.211 setting forth the Government's interpretation of the contract and directing the contractor to perform the property closeout tasks. Does the contract include FAR 52.233-1, Alternate I? If so, paragraph (i) states:

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The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under or relating to the contract, and comply with any decision of the Contracting Officer.

Based on what you've written, I think the Government's position is unreasonable.

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Now we get information that Gabriel should have provided in the first post.   Kicked down the road for 4 years and $10B involved?  Plus I read about a BOA (what has that to do with the contract).  Sounds like the legal departments need to hash this out. Or do as Don suggested and issue a final decision before the legal teams fight it out. $10B would make me do everything in my power to push Section H at the Governement.    

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This sounds a lot like the KBR situation. (Which one? I hear you asking. Granted, there have been quite a few.)

On LOGCAP III, the Army wanted to have KBR propose its LOGCAP III demobilization and contract close-out efforts on a firm, fixed-price basis—as opposed to every other task order on that contract, which were proposed and awarded on a cost-reimbursement basis. According to a report at the time, KBR felt forced to file its own lawsuit (as plaintiff instead of defendant) “seeking to keep to the existing cost-reimbursable terms” of its contract, and arguing that “closeout tasks can’t be estimated, citing costs stemming from litigation with subcontractors and tort cases filed against KBR by military and civilian personnel as well as future unresolved audits.” Apparently KBR filed a bid protest at the Court of Federal Claims, which Google tells me was dismissed in August, 2014.
 

Quote

 

... the U.S. has disputed KBR’s assertion that the closeout phase of the contract represents a new and separate procurement, saying that KBR’s beef should be settled as a claim under the Contract Disputes Act.

Judge Victor Wolski agreed with the U.S., dismissing the suit on Wednesday for failure to raise the kinds of competitive concerns that bid protests are designed to address. Since KBR is the only source for the closeout work sought by the government, and because the work is based on its existing contract, the dispute over costs should be handled through the contract claims process, Judge Wolski said.

....

KBR had also argued that the closeout work was “related to” but “not under” the LOGCAP III contract, alleging that additional tasks were performed under separate, implied-in-fact contracts after LOGCAP III expired.

But because the Contract Disputes Act governs claims "arising under or relating to the contract,” merely “relating to” the LOGCAP III contract is enough trigger CDA jurisdiction, Wednesday’s opinion said.

 

Regardless of the outcome, the dispute led DPAP to issue a Class Deviation (2013-O0017) regarding demob costs.

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As the details are dribbled out to us, it becomes obvious that there is much more to the story that we don't know, including an apparent history of prior dealings and interpretations.  It's like asking your counsel for a legal opinion based upon generalities  

If this is such a large dollar value, the program ought to have access to appropriate advisors that can research and provide advice, instead of asking for lightly researched opinions and speculation in a forum, when proper answers require a thorough review and understanding of all relevant documents, content and history.

Finally, if you don't understand what the contractor is asking for ASK for an explanation, ORALLY, if necessary. 

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joel- most times, I find too much information muddy the outcome. 1) I am here to ask if H-clause take precedence over the FAR/DFAR clause, 2) does it negates the contractor's responsible to follow the FAR/DFAR clauses "terms and conditions" when it comes to do closeout?

PCO/ACO interpretation of this H-clause is closing down production(shutting down production) not (overall closeout process). legal are involve, but as lameman thrusting into the fire I want to know why is contractor and Govt digging in for the long haul.  as the Govt i see no benefit in paying twice (direct/indirect) for closeout documents.

your help is greatly appreciated.

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Don, I do not read the H clause as saying the contractor does not have to do what is required by the Government Property clause or any other clause in the contract.  Instead, I read it as saying that the price of the contract does not include the activities listed in the H clause.  However, the clause goes on to state that in certain circumstances the government will add funding to the contract to cover the cost of these activities.  This interpretation harmonizes the H clause and GP clause so that no conflict is present.  Such harmonization is the preferred way of interpreting the contract.

Gabriel, why are you concerned with paying twice for close-out costs?  It seems like you are accusing the contractor of attempting to defraud the government.

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We don't know how the contract(s) was formed or in what detail it (they)was (were)  priced  - was it negotiated? Line items? How could the government miss ten billion dollars worth of costs in evaluating proposed prices? 

If this is an issue on multiple contracts or orders, how long have the parties been aware of the other's interpretation?  Etc., etc.? 

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