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D_Wess

Making a partial payment of claim for small business

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This last summer we had an incident where fully operated logging equipment under hire through an Emergency Equipment Rental Agreement was destroyed on a wildland fire.  The contractors were in full compliance with their agreement; the Government however failed to provide adequate direction, control, communication, and oversite to assure the safety of the equipment on a wildfire incident.  Claims have been submitted for all lost equipment.  The actual replacement cost for the logging equipment is fairly straight forward but what we're struggling with is loss of use costs.  These companies had open logging contracts; loggers routinely suspend their logging contracts to make their equipment available for fire suppression support.  Upon release from a fire assignment loggers resume their logging contract work.  The equipment that was burned over was a complete loss; both companies have since replaced their equipment but there was idle time for each company due to the burnover.  These are both small businesses.

My question is, can we make a partial payment on this claim to cover the known replacement costs?  We're working with both of these companies to determine the impact of any idle time, but we would like to process at a minimum the equipment replacement costs.  Is there such a thing as a partial payment of a claim?  A partial release?  Any guidance would be greatly appreciated.  

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I'm not aware of anything in the FAR or statute that would preclude you from making a payment to a contractor for part of a claim.  It may even be the prudent thing to do if the CO has determined the contractor is entitled to the cost and if the amount of interest is significant.  If you can get the contractor's agreement to that portion of their claim, I'd execute a bilateral modification that includes release of claims language for that portion of the claim.  If the contractor did not agree to the cost for that portion or the claim, I would consider issuing a CO's final decision and make payment to the contractor for that portion.

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I am at a distance and haven't read the contract, but I recommend you pay nothing until you are at agreement on the total amount to be paid.  Don't be so quick to pay before knowing all the facts, and don't be so quick to give up whatever negotiation leverage you might have.

 

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I don’t agree with ji.  

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18 hours ago, D_Wess said:

This last summer we had an incident where fully operated logging equipment under hire through an Emergency Equipment Rental Agreement was destroyed on a wildland fire... The Government... failed to provide adequate direction, control, communication, and oversite to assure the safety of the equipment on a wildfire incident. Claims have been submitted for all lost equipment...

My question is, can we make a partial payment on this claim to cover the known replacement costs?

Emphasis added.

@D_Wess:

Are the claims contract claims or independent tort claims? Contract claims are settled under the Contract Disputes Act. Tort claims are decided under the Tort Claims Act. Do you know the difference between a contract claim and a tort claim?

What you described sound to me like they might be independent tort claims, because you seem to be saying that the claims are for property damage that was due to government negligence, not for a government act or omission in violation of a contract. Compensation for loss of use under other contracts definitely sounds like a tort claim. Has the CO obtained a government legal opinion in this regard?

If you know the difference, and if the claims are contract claims, did the contracting officer issue final decisions? Did the CO decide entitlement, damages, causation, and quantum based on the terms of the contract and in favor of the contractor?

Based on what you've said, I agree with ji20874, because if the matter involves tort claims the CO does not have authority to settle and the cognizant board of contract appeals or the Court of Federal Claims do not have jurisdiction. Moreover, if the claims are contract claims, you've said nothing about a CO final decision.

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I'm sorry I wasn't clearer.  Agencies with resource protection authority routinely contract services to assist in wildfire suppression activities.  Here in the north west we primarily contract logging equipment to provide this service.  An emergency equipment rental agreement is awarded under the service contract act.  In addition to 52.212-5, an EERA has general clauses attached; the specific clause addressing loss, damage or destruction of fully operated equipment states: "For equipment furnished under this EERA with operator, the Government shall not be liable for any loss, damage or destruction of such equipment, except for the loss, damage or destruction resulting from the negligence, or wrongful act(s) of Government employee(s) while acting within the scope of their employment.  The operator is responsible for operating the equipment within its operating limits and responsible for safety of the equipment." 

In this case, the operator is responsible to bring to the table industry expertise and the ability to operate the equipment up to manufacturer limitations safely.  The Government is responsible for fire line supervision, provide lookouts/communication/escape route/safety zone (LCES); the Government is the fire experts, the contractors are the industry experts.  In the case of the burnover, the Government neglected to provide LCES and fire line supervision sufficient to safeguard the equipment; because of this, all equipment had to be abandoned.  There is no question as to this. 

I guess I don't see the CO final decision as separate than a claim determination, they appear hand in hand to me.  The CO has done a D&F addressing the actual equipment loss but we're struggling to find direction on how to assess idle time, what to consider, especially since it's the Governments fault they lost their equipment.  It would be great if we could pay part of this claim, close that portion out and spend time figuring out the rest that may or may not be allowable.  These are small companies that really don't have the ability to float the Government so we're hoping a two tier decision is acceptable.  Neither one of us believe this will put the Government in a negative negotiating position; it's just that we can't find anything like it. 

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49 minutes ago, D_Wess said:

In addition to 52.212-5, an EERA has general clauses attached; the specific clause addressing loss, damage or destruction of fully operated equipment states: "For equipment furnished under this EERA with operator, the Government shall not be liable for any loss, damage or destruction of such equipment, except for the loss, damage or destruction resulting from the negligence, or wrongful act(s) of Government employee(s) while acting within the scope of their employment.  The operator is responsible for operating the equipment within its operating limits and responsible for safety of the equipment."

Okay, well, the clause brings the claim for property damage under the contract and makes it subject to the CDA. Thanks for that info. (Although I'm very surprised that the government is admitting to negligence. More power to you.)

You used the word "claims" and not the term requests for adjustment. Thus I presume that the claims are certified claims submitted in accordance with the contract Disputes clause. Correct? If so, if I were the CO I'd write a final decision on the entitlement and amount of compensation for the equipment loss, but not the idle time, and get legal to look it over. The law does not excuse a CO from issuing a written decision in response to a properly certified claim just because the government decides that the contractor is entitled to what it asks for. Moreover, a written decision (other than a supplemental agreement) would explain and document who, what, when, where, why, and how and the basis for the contractor's entitlement. It will also set a time limit on the contractor's right of appeal, thereby severing that settlement from the claim for "idle time."

I'd withhold a decision on the "idle time" issue pending agreement on quantum. You can reserve settlement on that issue for later. 

After writing the decision on equipment loss and having it reviewed, I'd cut a settlement mod. Once that mod is signed I wouldn't hesitate to authorize a payment on that basis. That would save interest on the claim, if in fact a "real" claim was submitted.

 

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Generally, the contracting officer's final decision on the entire claim is due within 60 days of receipt of the claim.  So do it -- one decision within 60 days -- just do it.

The contractor's small size status does not entitle it to a faster claim resolution -- 60 days.

Again, I strongly advise paying nothing until you are at agreement on the total amount to be paid.  Don't be so quick to pay before knowing all the facts, and don't be so quick to give up whatever negotiation leverage you might have.  For example, have you ascertained whether the contractor's equipment loss was covered by insurance?  If the contractor's loss was covered by insurance, there might not be any basis for a claim against the Government, especially if the contract required the insurance or the Government paid for the premiums directly or indirectly.

And being a former Forest Service contracting officer, and knowing how the Forest Service works, I still advise not being too hasty to give away our money.  60 days isn't too long.  And if it really takes longer than 60 days, it is better to take the longer time and pay a small interest charge than to agree too hastily at too high an amount.

The above is my general preference.  In the real world, you have to do what works best, and Vern gives good advice.  But please, before you agree to the equipment loss, follow-up on the insurance lead.

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14 hours ago, ji20874 said:

Generally, the contracting officer's final decision on the entire claim is due within 60 days of receipt of the claim.  So do it -- one decision within 60 days -- just do it.

Specifically, the rule, which is stated at FAR 33.211(a), (c), (d), and (e), is as follows:

Quote

(a) When a claim by or against a contractor cannot be satisfied or settled by mutual agreement and a decision on the claim is necessary, the contracting officer shall...

*     *     *

(4) Prepare a written decision that shall include.

(i) A description of the claim or dispute;

(ii) A reference to the pertinent contract terms;

(iii) A statement of the factual areas of agreement and disagreement;

(iv) A statement of the contracting officer’s decision, with supporting rationale;

(c) The contracting officer shall issue the decision within the following statutory time limitations:

(1) For claims of $100,000 or less, 60 days after receiving a written request from the contractor that a decision be rendered within that period, or within a reasonable time after receipt of the claim if the contractor does not make such a request.

(2) For claims over $100,000, 60 days after receiving a certified claim; provided, however, that if a decision will not be issued within 60 days, the contracting officer shall notify the contractor, within that period, of the time within which a decision will be issued.

(d) The contracting officer shall issue a decision within a reasonable time, taking into account.

(1) The size and complexity of the claim;

(2) The adequacy of the contractor’s supporting data; and

(3) Any other relevant factors.

(e) The contracting officer shall have no obligation to render a final decision on any claim exceeding $100,000 which contains a defective certification, if within 60 days after receipt of the claim, the contracting officer notifies the contractor, in writing, of the reasons why any attempted certification was found to be defective.

As a matter of good practice, when a CO receives a claim he or she should prepare a decision document even if the parties agree.

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I think that ji’s suggestion to check for insurance coverage that might be available to offset some of the contractor’s costs is a good idea.  

However, I don’t necessarily agree in purposely delaying settlement of a known liability in a sum certain amount in this case,  where you are uncertain of entitlement or possible amount for “loss of use”,  in order to gain a perceived advantage in the overall negotiations. 

I am assuming that the contractors can substantiate their claimed replacement costs and that some reasonable depreciation of the destroyed equipment has been considered. 

 

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55 minutes ago, joel hoffman said:

I don’t necessarily agree in purposely delaying settlement of a known liability in a sum certain amount in this case,  where you are uncertain of entitlement or possible amount for “loss of use”,  in order to gain a perceived advantage in the overall negotiations. 

In extreme cases, such behavior might be considered a form of "economic duress" and evidence of a lack of good faith and fair dealing. I don't think that ji20874 was suggesting it in that way. He was merely recommending caution and due diligence. However, I agree with Joel that if claim issues are severable, and one issue can or effectively has been settled, then partial settlement and payment is just and appropriate. 

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1 hour ago, joel hoffman said:

I am assuming that the contractors can substantiate their claimed replacement costs and that some reasonable depreciation of the destroyed equipment has been considered. 

The Department of Agriculture clause, 452.237-70, reads as follows:

Quote

Loss, Damage, Destruction or Repair (FEB 1988)

(a) For equipment furnished under this contract without operator, the Government will assume liability for any loss, damage or destruction of such equipment, not to exceed a total of $ ___* except that no reimbursement will be made for loss, damage or destruction due to (1) ordinary wear or tear, (2) mechanical failure, or (3) the fault or negligence of the Contractor or the Contractor's agents or employees.

(b) For equipment furnished under this contract with operator, the Government shall not be liable for any loss, damage or destruction of such equipment, except for loss, damage or destruction resulting from the negligent or wrongful act(s) of Government employee(s) while acting within the scope of their employment.

(c) All repairs to equipment furnished under this contract shall be made by the Contractor and reimbursement, if any, shall be determined in accordance with (a) or (b) above. Repairs shall be made promptly and equipment returned to use within ___* * hours. In lieu of repairing equipment, the Contractor may furnish similar replacement equipment within the time specified. The Contractor may authorize the Government to make repairs upon the request of the Contracting Officer. In such case, the Contractor will be billed for labor and parts costs.

(End of clause)

I have bolded what I think is the pertinent paragraph.

What strikes me about that clause is how broad and indefinite it is. There is no clear statement of precisely what the government's liability will be in cases of loss. Undepreciated value? Replacement value? What other liabilities? I found no interpretive guidance in the agency's FAR supplement. The clause says that the government is responsible for loss, damage, and destruction "of equipment." What does that include? "Idle time"? The equipment is not idle. It's gone. "Idle time" is lost business opportunity.

It seems to me that what the OP is calling "idle time" might be considered consequential damages. See Cibinic, Nash, and Nagle, Administration of Government Contracts 4th, 719-20, pointing out that contractors have found it hard to recover consequential damages based on destruction of their business or lost business opportunities.

I could not find any litigation of the clause.

Interesting.

 

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35 minutes ago, Vern Edwards said:

In extreme cases, such behavior might be considered a form of "economic duress" and evidence of a lack of good faith and fair dealing. I don't think that ji20874 was suggesting it in that way. He was merely recommending caution and due diligence. However, I agree with Joel that if claim issues are severable, and one issue can or effectively has been settled, then partial settlement and payment is just and appropriate. 

No disagreement with that.  Since this is a topic under the "For Beginners Only" Forum category, I would also suggest caution and due diligence.  However, I don't recommend automatically taking a full 60 days to render a "decision" on the merit of a claim - which doesn't necessarily include final settlement or payment  of the amount within that time. The government  shouldn't unnecessarily drag out the reimbursement process.

As D_Wess has indicated, "[t]hese are small companies that really don't have the ability to float the Government, so we're hoping a two tier decision is acceptable."

EDIT: Posted before I saw Vern's post immediately preceding this.  I agree that the  clause is indefinite and the third paragraph mixes reimbursing the contractor for repairs and charging the contractor for government repairs.

In reading the clause think that it would be reasonable to expect reimbursement to be for loss, damage or destruction similar to an insurance company's liability to another driver's vehicle in the event of an accident involving it's insured client.  

I've been able to get the other driver's company to reimburse me for what it would take to buy a similar replacement vehicle, considering age, condition, etc.  , market availability, etc.   I couldn't get reimbursed for a new replacement vehicle, nor didn't settle for ACV or trade-in value of my car.  I was able to negotiate the cost of a one year newer replacement vehicle than mine because it wasn't possible to find one of the same year and model in the same condition as my vehicle. 

 

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Thanks, Vern.  Joel, we're only talking about up to 60 days.  In a claim situation, as we're discussing here, it is perfectly reasonable to address everything in a single final decision within 60 days.  So the contracting officer need not bifurcate the claim to deal with the easy portion, for example, 10 days after receipt and the difficult portion 60 days after receipt.  But if the contractor thinks there is any undue delay by the contracting officer in rendering a decision on a claim, FAR 33.211(f) already provides the remedy.  

I have learned from experience that some contracting officers are too eager, too hasty, to give away money to contractors, with or without an understanding of correct principles.  I don't know that this is the case here, but I do advise caution and due diligence in these matters.

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I would love to know how Department of the Interior COs interpret the clause at 48 CFR 252.237-70 when settling claims of loss.

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31 minutes ago, Vern Edwards said:

I would love to know how Department of the Interior COs interpret the clause at 48 CFR 252.237-70 when settling claims of loss.

good question.

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38 minutes ago, ji20874 said:

Thanks, Vern.  Joel, we're only talking about up to 60 days.  In a claim situation, as we're discussing here, it is perfectly reasonable to address everything in a single final decision within 60 days.  So the contracting officer need not bifurcate the claim to deal with the easy portion, for example, 10 days after receipt and the difficult portion 60 days after receipt.  But if the contractor thinks there is any undue delay by the contracting officer in rendering a decision on a claim, FAR 33.211(f) already provides the remedy.  

I have learned from experience that some contracting officers are too eager, too hasty, to give away money to contractors, with or without an understanding of correct principles.  I don't know that this is the case here, but I do advise caution and due diligence in these matters.

ji, are you saying that a CO decision within 60 days,  must include the final settlement or that the settlement is unilateral?  I don't think so.

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1 minute ago, joel hoffman said:

ji, are you saying that a CO decision within 60 days,  must include the final settlement or that the settlement is unilateral?  I don't think so.

Joel, please don't put words in my mouth.  There is no reason for that.  Why don't you address what I actually wrote?

The listing of what must be included in a contracting officer's final decision are in FAR 33.211(a)(4).  This includes the pertinent contract terms and a statement of the factual areas of agreement and disagreement.

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While the questions and thoughts regardng the OPs refereced terms and conditions might be good ones I am confused how the AGAR clause has entered into this thread.  It is not a clause in the standard T&Cs of a EERA with no FAR or supplement stated.  It is in an EERA as simply Clause 9 and reads in part  as stated by the OP.

Suggest reading iClause 9 and referencing it only.

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Thank you all for your input, it's painfully apparent we've been approaching this "claim" process in a very cavalier way!  Mr. Edwards, we found your post from 2012 re "REAs and Claims: Is There A Difference?", very helpful for understanding the whole process, but speaking to this particular issue I'm not sure if either apply.  I don't have Black's 9th edition but 4th edition defines Demand as "A peremptory claim to thing of right, differing from a claim, in that it presupposes that there is no defense or doubt upon question of right."  Since there is no dispute as to the Governments actions (the Gov't did the FLA that questions decisions and points out failures in consideration) is the portion of this issue that addresses the actual cost of lost equipment (easily supported by commercial retail sales of used logging equipment) just a demand?  Would that be a better term?

As to the idle time or inconsequential damages, we're still struggling with what that would look like and if even allowable.  When the equipment was lost, it immediately closed out the order it was under for the fire assignment, an invoice was processed for the days the equipment operated on that fire.  They did have another non-federal contract that, had we released them from the fire as per normal, they would have gone back to work on.  Their fire daily rate doesn't apply, their normal contract rate doesn't apply since they technically don't have equipment operations cost isn't there.  Something we're working on. 

Regardless, we are planning on trying to put together some training on this...which should be telling..

C_Culham - commercial item clauses are attached in addition to the EERA T&Cs.

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D_Wess,

Is there expertise within your agency that you can call on to help you understand whether or not you actually have an actionable contract claim?  Should the SF-95 be used instead?  How do the cost principles in FAR Subpart 31.2 apply to your situation?  And so forth?  This is a great learning opportunity for you.

Has the contractor made a claim (or demand) for idle time?  Or is this something you want to give the contractor?

Your actions must not be solely based on being nice to the poor small business contractor -- your agency should give you guidance -- I hope you ask for it.  But, as I wrote earlier, I am a former Forest Service contracting officer and I understand that help might be far away.

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6 hours ago, D_Wess said:

Mr. Edwards, we found your post from 2012 re "REAs and Claims: Is There A Difference?", very helpful for understanding the whole process, but speaking to this particular issue I'm not sure if either apply.  I don't have Black's 9th edition but 4th edition defines Demand as "A peremptory claim to thing of right, differing from a claim, in that it presupposes that there is no defense or doubt upon question of right."  Since there is no dispute as to the Governments actions (the Gov't did the FLA that questions decisions and points out failures in consideration) is the portion of this issue that addresses the actual cost of lost equipment (easily supported by commercial retail sales of used logging equipment) just a demand?  Would that be a better term?

No. And throw away your 4th edition. The current edition of Black's, the 10th, defines demand (n.) as follows:

  1. The assertion of a legal or procedural right.
  2. Parliamentary law. A request, usu. invoking a right, that must be granted on a single member's motion. See REQUEST. 
  3. A request for payment of a debt or an amount due.
  4. In economics, the intensity of buyer pressure on the availability and cost of a commodity or service.

In your case, the term "request for equitable adjustment" is not appropriate, because the clause in question does not call for either an adjustment or an equitable adjustment. The clause is not clear about the contractor's entitlement. It was written by someone who should not have been writing clauses.

Claim is an appropriate term in your case if what the contractor submitted meets the criteria for a claim in the definition of claim in FAR 2.101. Otherwise, I'd call it a non-claim request or demand for compensation or payment.

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7 hours ago, C Culham said:

While the questions and thoughts regardng the OPs refereced terms and conditions might be good ones I am confused how the AGAR clause has entered into this thread. 

It entered in because the OP quoted clause language without reference. I went looking for matching text and found it in the AGAR. I guessed (perhaps wrongly) that the OP was with the Forest Service, which is part of the Department of Agriculture. The OP has not mentioned a Clause 9. Perhaps the OP should confirm the provenance of the clause and quote the <<bleeping>> thing it in its entirety. Then we wouldn't have to guess.

Anyway, several of us have responded to the original question, and D_Wess has different answers from which to choose.

I'm done.

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