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Contractor in Default/Breach of Contract - Able to receive IDIQ minimum Guarantee?


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Hey WIFCON, 

Trying to see if there is any good advice from WIFCON experts, GOA cases, or other written decisions out there with regards to a Contractor, in breach/default/about to be terminated from an IDIQ contract, and that contractor's right to receive the minimum guarantee. Without going into a ton of details, performance on a service task order is well below sub-par, the Government awarded the task order competitively via a MA-IDIQ, the requirements/funding on TO award was enough to satisfy the minimum guarantee, however due to a complete breach of contract/lack of performance the contractor hasn't actually fulfilled the minimum guarantee due to various performance/management issues. If the contract is terminated/IDIQ contract is terminated as well, what if anything is the contractor entitled to in terms of the minimum guarantee? I am sure the contractor can submit a claim etc, but regarding that minimum guarantee can the Contractor file a claim against that and actually receive payment when in clear default of their own contract?  

FYI- All performance related issues have been well documented and communicated to the contractor. 

All instances I have been able to find in GAO case search and other court decisions are all when the Gov't fails to order the minimum. 

 

Thanks! 

 

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The minimum guarantee is for the Government to order -- that has already happened.  If the contractor fails to perform, the Government may terminate both the order and the contract for the contractor's default (or for cause, if a commercial item contract).

Forget trying to search for cases.  If the contractor deserves a default termination, do it.  Just do it.  If a claim comes later, deal with it later.

Do it.

It's not a minimum payment -- it is a minimum order.  You err if you think of the minimum guarantee as a minimum payment.

We only pay contractors for work in accordance with whichever FAR 52.232-x payments clause is included in the contract.

Edited by ji20874
to add the last two lines
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Retreadfed - T&M

Ji20874 - I hear you. Its an absolute mess of a project and with no easy solution. However, I'm trying to analyze all potential risk to the Government. In my office there appears to be some idea that the vendor would be able to file a claim for the full amount of the minimum guarantee (of which the contractor hasn't satisfied on their end), but that doesn't seem nowhere near sane to me. How can a contractor in breach/default be allowed to receive the minimum guarantee? Just sounds wrong wrong wrong to me. Maybe its one of those things where case law etc doesn't exists because the answer is obvious?   

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You and they don’t seem to understand that the minimum guarantee is not an amount OWED or to PAY . It is a minimum AWARD guarantee. The contractor would still have to perform in accordance with the order to be paid. 

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Joel is right.  You’re still thinking of the minimum guarantee as a payment guarantee.  It isn’t.  It is a minimum order guarantee, and you said you already issued an order that covers the minimum.

So, don’t argue the wrong argument. 

The contractor’s only entitlement to payment is under the appropriate Payments clause in the contract.  The contractor only gets paid if it meets the conditions of that clause.

The discussions you are having in your office display the sickness and unprofessional rot that exist among so many contacting personnel and their pitiful attorneys across the federal government.  It is sad.  I am glad you are able to see.  Coming to WIFCON can help as part of the cure to our cultural sickness and professional rot.  We need far more sunshine and open discussion.

If you are delaying your default termination action because of this discussion, well, as I said, professional rot.

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Retreadfed asked a good question.  If it is a cost-reimbursement contract that you terminate for default, you will pay allowable incurred costs according to the appropriate Payments clause — not because of a claim and not because of any minimum guarantee, but because that’s how a cost-reimbursement contract works according to the appropriate Payments clause.

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13 minutes ago, ji20874 said:

Retreadfed asked a good question.  If it is a cost-reimbursement contract that you terminate for default, you will pay allowable incurred costs according to the appropriate Payments clause — not because of a claim and not because of any minimum guarantee, but because that’s how a cost-reimbursement contract works according to the appropriate Payments clause.

I agree. 

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So keep in mind that was never in agreement of how others were interpreting the minimum guarantee. Unfortunately the "others" are high up the flagpole and any rebuttals need to be well supported. Came to WIFCON for a sanity check and based on the responses, I received it! I agree with what everyone is saying. What led me down this rabbit hole is that someone told me there was case law that somewhat stated otherwise. However, I am unable to find the case law and the person that told me has left the agency (probably a good thing) so I have no way to ask "where does that case law exist?" 

 

Thanks for the response! 

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If your higher-ups think a minimum guarantee under an IDIQ contract is a minimum guaranteed payment to the contractor, their professional rot might be too severe to be open to professional rebuttal.  But if you want to try, look at FAR 16.504(a)(1).  

I am okay with contracting professionals not knowing everything at any moment in time — that’s why professional dialogue is so important, and we all can be susceptible to learning.

But this is the wrong argument.  If the contractor has failed to perform on a task order and a default termination is in order, do it!  Let the claim process handle any claim that comes.  That’s a battle for another day.  To delay the default termination while your higher-ups wring their hands about an impossible claim based on their own misunderstanding of correct principles is professional rot and mispractice (maybe even malpractice).  You can terminate both the order and the contract for the contractor’s default (or for cause, if this is a commercial item contract).

Do you have an attorney with some common sense and understanding of correct basic principles who can confirm for your higher-ups that the minimum guarantee is a minimum order guarantee and not a minimum payment guarantee?  Can he or she confirm that there is no such thing as a minimum payment guarantee, and that payments are made only as authorized by the contract’s Payments clause?  I hope the answer to both questions is YES.

The case law your higher-ups might be thinking about is a situation where the Government fails to order the minimum, which is not your situation.  Even so, that case law is mixed — some decisions say the Government must pay the minimum after failing to order the minimum, and some decisions say the Government only pays demonstrated actual damages up to the minimum.  But this is not your situation, because you ordered the minimum already.

All this said, you have to exist in your environment.  If your higher-ups are not susceptible to learning, you have to do whatever you can within their permission.  Best wishes.

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Keep in mind that FAR 33.204 states that "The Government’s policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer’s level. Reasonable efforts should be made to resolve controversies prior to the submission of a claim."

I understand that your higher-ups have an opinion, but what is the contractor's understanding regarding:

1. Minimum Guarantee

2. Inspection/Acceptance

3. Invoicing/Payment

If the contracting officer and contractor are in agreement with the rules it should be easy to move forward without dispute.

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Consider....

T4D - The first step is settlement agreement not claim.  There might be facts not shared here that might, again might, suggest that in settlement the issue of the minimum guarantee is addressed. To this point I agree just do the T4D if warranted but address the minimum in the settlement process first with hope a claim will not result.

After my own research I wonder if the higher ups have T4C versus T4D in their memory path?

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There is no need to “agree” to anything regarding the “minimum obligation”, assuming 1) that the government has satisfied that in the amount of the awarded order and 2) the contractor has failed to perform and has breached the contract to the extent that it is to be terminated for default. 

I think those are the two points that the OP stated. 

Edit: Carl, could you please explain what you meant about specifically addressing the minimum guarantee in the settlement agreement?  My thoughts are that it would only be addressed if the contractor asserts that the government hasn’t met the minimum obligation. Then , the contractor can reserve the issue for separTe resolution. 

According to the OP, it is a fact that the government has met the minimum ordering obligation.In the Indefinite Quantity clause, 52.216-22 (b):

Quote

The Government shall order at least the quantity of supplies or services designated in the Schedule as the minimum.”

 

 

Edited by joel hoffman
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20 hours ago, FARmer said:

So keep in mind that was never in agreement of how others were interpreting the minimum guarantee. Unfortunately the "others" are high up the flagpole and any rebuttals need to be well supported. Came to WIFCON for a sanity check and based on the responses, I received it! I agree with what everyone is saying. What led me down this rabbit hole is that someone told me there was case law that somewhat stated otherwise. However, I am unable to find the case law and the person that told me has left the agency (probably a good thing) so I have no way to ask "where does that case law exist?" 

 

Thanks for the response! 

Here is your specific support for those sitting on top of the flagpole

10 hours ago, joel hoffman said:

According to the OP, it is a fact that the government has met the minimum ordering obligation.In the Indefinite Quantity clause, 52.216-22 (b):

Quote

The Government shall order at least the quantity of supplies or services designated in the Schedule as the minimum.”

Another way to support your position The contract requires that  the government shall order and the contractor shall deliver at least the quantity of supplies or services designated in the Schedule as the minimum.

And here is the actual situation: The government has ordered and the contractor has failed to deliver at least the quantity of supplies or services designated in the Schedule as the minimum.

 

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10 hours ago, joel hoffman said:

Carl, could you please explain

You bet Joel. 

No matter what the government may think or know my suggestion is it is open for discussion in settlement.  Facts will of course determine both the governments and terminated contractors final position on settlement inclusive if a minimum is owed.  Likewise should a claim be made following the settlement facts will help determine a final order of the court or BCA.

Essentially trying support that there should be no concern over a implied potential claim, T4D them if facts support the T4D is appropriate and work through the process of a T4D to address.

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I generally agree with what has been said concerning the government's obligation being to place an order(s) that satisfies the minimum requirement.  That is a contractual obligation under the ordering clause.  What happens after the order is placed depends on other clauses in the contract that are applicable to the order.  Ji has already mentioned the appropriate payments clause.  If you are considering a T4D, then you have to also consider the application of FAR 52.249-6 Alt IV in this case since the order is a T&M order.  Under that clause, you will pay the contractor for the hours expended under the order using the hourly rate under the contract.  However, you may be able to deduct the profit element from the hourly rate in accordance with Alt IV.  In addition, the contractor is entitled to recover other costs under the Termination clause.  Thus, as a practical matter, the amount the contractor can recover under a T4D may equal the amount of the order.

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