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JoAnn Brown

Allowable Costs under CPFF

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We have a CPFF with a government agency and a CPFF with subcontractor that we received consent on by the government customer which included in the subs proposal "in the event of a cancellation of a suite, there will be a cancellation charge"; if the government T for C the contract and therefore the "suite" is not used, wouldn't that be an allowable cost?   Government states reimbursment for this expense  is  not reasonable, allocable, or allowable; and they don't have privy of contract with our subs, therefore they will  not reimburse us for this?   Any suggestions on how to respond to the government?

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Guest Vern Edwards

See FAR 31.201. Your agreement in principle with the sub to pay a cancellation charge is one thing. The government's determination of the reasonableness and allocability of the charge, of the allowability of the charge, and of its contractual obligation to reimburse you for it is another thing entirely. 

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JAB, we do not know is in your prime contract or subcontract.  Therefore, we cannot speak with specificity to your situation.  However, assuming your contract contains FAR 52.249-6, and the termination was accomplished under that clause, you would be required to terminate your subcontract and reach a settlement with the subcontractor.  See FAR 52.249-6(c)(3) and (6).  This would be an allowable cost that is allocable to the terminated contract.  The question is whether the agreed amount would be reasonable.  If not, you still should be able to recover some part of the agreed amount.  Privity of contract between the government and subcontractor is irrelevant to a prime's recovery of subcontract settlement costs under a T4C. 

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Did you terminate the subcontract and already include payment for the cancellation charge? Did you issue a final change notice that closed out the subcontract at the  amount already paid? Did you include FAR 52.216-7 in the subcontract suitably modified to indicate that the Government determines final allowable cost and payment? Did you request a Government audit of the subcontractors termination claim and allowable costs? Did the subcontractor grant your firm access to the subcontractors financial books and records and did your firm do a review of allowable costs that found the charge to be allowable? What was the reasoning?

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9 minutes ago, Neil Roberts said:

Did you terminate the subcontract and already include payment for the cancellation charge? Did you issue a final change notice that closed out the subcontract at the  amount already paid? Did you include FAR 52.216-7 in the subcontract suitably modified to indicate that the Government determines final allowable cost and payment? Did you request a Government audit of the subcontractors termination claim and allowable costs? Did the subcontractor grant your firm access to the subcontractors financial books and records and did your firm do a review of allowable costs that found the charge to be allowable? What was the reasoning?

Interesting questions. I would boil 'em all down to: what was your rationale for issuing a CPFF subcontract? Did you know what you were doing when you did so?

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