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Fara Fasat

government recovery

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Hypothetical: government awards contract for large equipment and 10 years of maintenance. Government will operate it. Contractor installs, government accepts and pays. Equipment operates correctly. At year 5, equipment fails, is damaged, and must be replaced. Government and Contractor disagree over who is responsible, i.e. was the maintenance faulty or was it operated incorrectly.

What courses of action are available to the government? I'm not asking about theories of recovery; I'm asking how. What contractual methods does it have to recover the cost of replacing the equipment, which exceeds the annual price it is paying the contractor for the maintenance? I'm from the contractor side, so I know how a dispute unfolds for a contractor and what its courses of action are.

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Fara Fasat,

Yes, your question is a hypothetical, but I still ask the question: What's in the contract, clause 52.245-1, or maybe 52.245-1 with its Alternate 1? 

If so, what have your read in the clause? It's easy to overlook the Government's default position in so many contracts (see 52.245-1), which is assumption of the risk for loss of Government property with few caveats.  I view this practice as a sensible outgrowth of Government's monopsony status, which results in the Government's systemic reluctance to trade dollars on property insurance covering its own interests and an unwillingness for Government to pay the premium for a contractor who will for  some kind of fee indemnify the government for loss of its (Government's) own property.  

Or perhaps you are beyond all this and the real hypothetical issue is contract performance and the Disputes Clause...well, I begin again pressing on about the fact set, asking, what's in the contract?

 

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I had a Government customer years ago that would consistently insist that they did not want, and would not pay for a warranty. OK, fine with us. But once something happened with the equipment, they (rightly or wrongly) claimed it was a latent defect.

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5 hours ago, Fara Fasat said:

What courses of action are available to the government? I'm not asking about theories of recovery; I'm asking how. What contractual methods does it have to recover the cost of replacing the equipment, which exceeds the annual price it is paying the contractor for the maintenance?

The CO would make a government claim against the contractor. If the parties couldn't settle the CO would issue a final decision demanding payment, which would create a contract debt, and the CO would commence collection procedures. See FAR Subpart 32.6. The contractor would then have to decide whether to pay or appeal to a board or to the Court of Federal Claims.

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In addition to what Vern wrote, unless the contractor and government entered into a deferment agreement, the government could collect the debt through offset on any contracts the contractor has with the government that do not include a no offset provision.

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Far-flung: this is not government property subject to 245-1 or 2.

Vern, Retread: thanks. My initial thought had been a government claim, but could find nothing on that topic in my N&C materials. In addition, the only thing I could find in Part 33 was a statement in 33.206 that "The contracting officer shall issue a written decision on any Government claim initiated against a contractor within 6 years ...." I assume the CO issues a claim letter, the contractor responds, and the CO then issues a final decision?

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Readers may want to check out the recent ASBCA decision in Assessment and Training Solutions Consulting Corp. (No. 61047. Oct. 3, 2017). It discusses an interesting argument between government negligence versus faulty contractor maintenance.

Quote

The law of bailment imposes upon the bailee the duty to protect the property by exercising ordinary care and to return the property in substantially the same condition, ordinary wear and tear excepted. Id. When the government receives the property in good condition and returns it in a damaged condition, a presumption arises ‘that the cause of the damage to the property was the Government's failure to exercise ordinary care or its negligence.’ … However, when the parties enter into an express written contract, the rights and obligations of the parties are determined by the provisions of the contract. … In this case, contrary to the Navy's argument, the criteria for government liability are the same under the common law of bailment and the express contract -negligence. The Board has applied the common law presumption when an express written contract exists if the common law is consistent with the written contract. (Internal citations omitted.)

 

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1 hour ago, Fara Fasat said:

I assume the CO issues a claim letter, the contractor responds, and the CO then issues a final decision?

Fara, isn't that essentially what I described? Do you have the answer to your question?

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Yes. Just wasn't sure what form the government claim takes. Sounds like a claim letter is it. Too bad there's no requirement to certify entitlement, amount, etc., like the contractor has to do. Might make the CO think about it a little bit. 

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Yes, but I don't see in there an equivalent to the contractor's certification at 33.207(c). At the risk of this going off on a tangent, there's a reason why Congress thinks it's important that a contractor should be required to put its signature to the words "I certify." 

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Fara:

The Contract Disputes Act does not require the government to certify its claims. If your point is that it should, well, write to your representative and your senator. It will be a fine symbolic gesture.

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