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Consideration in exchange NCE?

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Hello, 

Can someone direct me to the FAR provision that spells out the requirement for Contractors to provide consideration to the Govt. in exchange for granting  no cost extension requests? (Specifically, the requests I am primarily involved in are NOT due to any Govt. cause) 

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Guest Vern Edwards

The FAR states no such requirement. The requirement for consideration is a requirement of the American common law of contracts. See Restatement of the Law, Second, Contracts, Chapter 4, Topic 1, The Requirement of Consideration. See also Administration of Government Contracts, 5th ed., by Cibinic et al., p. 11.

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24 minutes ago, Hilarity_Follows said:

Hello, 

Can someone direct me to the FAR provision that spells out the requirement for Contractors to provide consideration to the Govt. in exchange for granting  no cost extension requests? (Specifically, the requests I am primarily involved in are NOT due to any Govt. cause) 

Since this is the beginner's forum I just wanted to point out how frequently the above highlighted text is misused (whether it is in this case or not, I cannot say for certain because I do not have enough facts about the situation, but based on my experiences I'd bet it is wrong).  I'm sure the phrase is used either to make extensions more palatable or out of a lack of understanding, but it's incorrect nevertheless.  Unless the contractor is no longer charging costs to the contract during the extension period, it is not a "no cost extension."  Absent some additional term, that extended work period will still cost the Government money.

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Thank you! I administer federal awards and have been pushing our PM Director to provide consideration with each extension request I facilitate with the Government. He's been refusing to give it to me up front and wants to wait to address it until the Govt. asks for it.... just in case they don't notice or ask. 

I feel it is (in its very best light) bad form on my part and ultimately delays the extension and makes my job harder when the KO notices that we are not offering consideration in the formal request for extension. Then I have to go back and get it from the team, redo the request.... To prevent this practice going forward, I am working on writing a formal policy and process governing extension requests for the organization and wanted to reference the consideration requirement, in whatever text it comes from, to further solidify the requirements I am including in the policy.

Thanks again. 

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4 minutes ago, Matthew Fleharty said:

Since this is the beginner's forum I just wanted to point out how frequently the above highlighted text is misused (whether it is in this case or not, I cannot say for certain because I do not have enough facts about the situation, but based on my experiences I'd bet it is wrong).  I'm sure the phrase is used either to make extensions more palatable or out of a lack of understanding, but it's incorrect nevertheless.  Unless the contractor is no longer charging costs to the contract during the extension period, it is not a "no cost extension."  Absent some additional term, that extended work period will still cost the Government money.

Yes! Thank you for pointing that out. That is true, we just call them NCEs internally and it is a misnomer. If they were truly at no cost I would not have a consideration issue.  As often as I need to request them, if they were at no cost to the contract it is also likely my employer would go out of business so I wouldn't have a job either haha.

When I formally request extensions, I state that the current funds remaining on the contract will support the requested revision to the period of performance and no additional funds are being requested .. not that it is actually "at no cost". 

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1 hour ago, Hilarity_Follows said:

I feel it is (in its very best light) bad form on my part and ultimately delays the extension and makes my job harder when the KO notices that we are not offering consideration in the formal request for extension. Then I have to go back and get it from the team, redo the request.... To prevent this practice going forward, I am working on writing a formal policy and process governing extension requests for the organization and wanted to reference the consideration requirement, in whatever text it comes from, to further solidify the requirements I am including in the policy.

Thanks again. 

Perhaps your company policy should state that absent excusable delay, it is also potentially an indication to the Government that per FAR 49.401, Contractor is actually or is about to be in default of its contract and may be terminated. Asking for an extension is not something a Contractor should take lightly. Aside from consideration, Contractor should be prepared with a catch back schedule and rationale for why this request is being made. Furthermore, failing to perform on time can affect the Contractor reputation and may adversely affect rating for future awards. I believe this type request should be approved internally by the same level company executive that was the highest level required approval of the initial contract. I would hope this level approver would want to know the Program Manager needs an extension.    

Edited by Neil Roberts
eliminate a word

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Guest Vern Edwards
2 hours ago, Hilarity_Follows said:

I administer federal awards and have been pushing our PM Director to provide consideration with each extension request I facilitate with the Government. He's been refusing to give it to me up front and wants to wait to address it until the Govt. asks for it.... just in case they don't notice or ask.

You might point out to your director that if the contracting officer signs an extension mod without obtaining adequate consideration the contracting officer's boss, the boss's boss, or a new contracting officer could refuse to honor the extension after the fact on the grounds that the contracting officer who signed the mod did so without proper authority.

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Guest Vern Edwards

See Aviation Contractor Employees, Inc. v. U.S., 945 F.2d 1568, 1573 (Fed. Cir., 1991):

Quote

The government does not deny that CO Bullock had general authority to bind the government with respect to the contract at hand. Its sole basis for arguing that Bullock was without authority to enter into Mod 41 is that the government received no consideration in return for agreeing to renegotiate the contract price on the basis of additional cost factors. Numerous decisions of one of this court's predecessors, the Court of Claims, indicate that government officers lack authority to enter into contracts under which the government receives nothing. See, e.g., Flippin Materials Co. v. United States, 312 F.2d 408, 417, 160 Ct.Cl. 357 (1963); Vulcanite Portland Cement Co. v. United States,74 Ct.Cl. 692, 705 (1932); Burke & James, Inc. v. United States, 63 Ct.Cl. 36, 57, cert. dismissed, 274 U.S. 764, 47 S.Ct. 660, 71 L.Ed. 1328 (1927)...

One treatise discusses the problem of lack of consideration in government contracts as follows:

In Government contracts, [lack of consideration] most often occurs when the Government modifies a contract to benefit the contractor but receives no additional or different promise or performance in return. Under Restatement, Second, Contracts § 73 (1981), such modifications are without consideration since they involve performance of a pre-existing duty which is neither doubtful nor the subject of honest dispute.

J. Cibinic & R. Nash, Formation of Government Contracts 189 (2d ed. 1986).

 

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I am under the impression that consideration for modifications (NCEs, for example)   apply to Fixed Price type contracts,   As Cost/T&M type contracts are considered "best efforts", consideration would not be needed.   Have I been operating under an urban legend?  

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On 8/3/2018 at 5:49 PM, Vern Edwards said:

You might point out to your director that if the contracting officer signs an extension mod without obtaining adequate consideration the contracting officer's boss, the boss's boss, or a new contracting officer could refuse to honor the extension after the fact on the grounds that the contracting officer who signed the mod did so without proper authority.

Vern, are you applying this to the situation where the contractor experiences an excusable delay and the government and contractor negotiate an extension to account for the delay period?  If so, what is the consideration the government receives?  It has been my experience that the contractor generally receives no monetary compensation for such an extension.  Further, the government does not reduce the contract price.  

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Guest Vern Edwards
3 hours ago, styrene said:

I am under the impression that consideration for modifications (NCEs, for example)   apply to Fixed Price type contracts,   As Cost/T&M type contracts are considered "best efforts", consideration would not be needed.   Have I been operating under an urban legend?  

I don't know about any urban legend, but you have been misinformed.

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Guest Vern Edwards
1 hour ago, Retreadfed said:

Vern, are you applying this to the situation where the contractor experiences an excusable delay and the government and contractor negotiate an extension to account for the delay period?  

No.

Recognition of excusable delays is usually provided for by a contract clause and does not require consideration, because the government isn't giving up something to which it is entitled. When a contractor has experienced an excusable delay it is entitled to a time extension pursuant to the terms of the original contract. See Administration of Government Contracts, 5th ed., pp. 487 - 521.

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Guest Vern Edwards

Similarly, when the government issues a change order that increases the time required to perform, and the parties enter into a supplemental agreement to equitably adjust the period of performance, no additional consideration is needed, because the change order and the equitable adjustment were done pursuant to the terms of the original contract.

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No intent to extend this thread I just remember this discussion from a long time back and thought it might help the OP.  I have referred to it on occasion to help me.....

 

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Guest Vern Edwards

Something I don't think we explained in that thread is that waiving the delivery date simply means doing nothing when the contractor defaults. It's not a contract modification, it's just doing nothing about it when the contractor fails to perform on time. That's why you don't need consideration when you waive a delivery date.

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