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FAR 15 Mistake After Award

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7 minutes ago, joel hoffman said:

Obviously you operate in a much more combative and confrontational sphere than I have. Even my most difficult super-contractor didn’t act that way.

Joel, I work mostly with small business contractors.  Maybe you tried to treat them fairly, but my experience is that many contracting officers, DCAA and prime contractors try to push them around thinking that they do not have the resources or knowledge to resist.  Pushing back hard is a way to deter bullying.  If you think it does not happen, come over to my side for a while.

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38 minutes ago, Retreadfed said:

The contractor disclosed certified cost or pricing data that was current, complete and accurate before award of the contract.  How can that be defective pricing? 

What are you trying to say here?  Clearly the contractor's cost or pricing data was not accurate as they erroneously used 4% instead of 0.4% for the bond percentage.

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1 hour ago, here_2_help said:

(b) bilaterally modify the contract to reduce the price to what it would have been, had the mistake not been made?

We tried this approach. Sadly it failed...

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1 hour ago, Matthew Fleharty said:

Clearly the contractor's cost or pricing data was not accurate as they erroneously used 4% instead of 0.4% for the bond percentage.

You missed the point.  Joel and I were speaking of a hypothetical situation to demonstrate how cost or pricing data works.  In any event, we do not know what data was available to the contractor and at what point in time.  The fact that it may have used 4% in its proposal does not mean that defective pricing occurred.  As I have said before and the ASBCA in the UTC case, a proposal is not cost or pricing data.  Joel is assuming that the contractor knew what the bonding rate would be before the agreement on price.  However, we do not know that for a fact.  TheLaw has not been very clear on what the actual facts are.

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21 minutes ago, Retreadfed said:

You missed the point.  Joel and I were speaking of a hypothetical situation to demonstrate how cost or pricing data works.  In any event, we do not know what data was available to the contractor and at what point in time.  The fact that it may have used 4% in its proposal does not mean that defective pricing occurred.  As I have said before and the ASBCA in the UTC case, a proposal is not cost or pricing data.  Joel is assuming that the contractor knew what the bonding rate would be before the agreement on price.  However, we do not know that for a fact.  TheLaw has not been very clear on what the actual facts are.

Well no wonder everyone is talking past one another on this thread...

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2 hours ago, TheLaw said:

We tried this approach. Sadly it failed...

Well, then. Not sure how big the contractor is ... but if 252.215-7002 is in the contract, you have options. If the dollars are big enough, you have options. If the dollars are small, you have CPARS and FAPIIS.

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If cost or pricing is required, the action is at least $750k (Award on or before June 2018)?The difference in the price, using a discrepancy of 3.6% over charge would be at least $27,000. For a contract awarded affer June 2018, the threshold is $2 million. Thus, 3.6% of $2 million is $72,000. 

For the actual rate to be as low as 0.4%, the task order would probably exceed $2,000,000. 

“The cost of a performance bond usually is less than 1% of the contract price; however, if the contract is under $1 million, the premium may run between 1% and 2%. Bonds may be more costly, depending upon the credit-worthiness of the contractor.
Labor and Material Payment Bonds”

Source: National Society of Professional Engineers

https://www.nspe.org/sites/default/files/resources/pdfs/Licensure/FTC/FTC-Jun-02-GuideSuretyBonds.pdf

Matthew et al :  The reason I think that the contractor knew what the rate was - but must be verified, as I said several times, is that the contractor has admitted the mistake. But it wants to use a defense that doesn’t pass muster when one reads the Statute. It did not claim that the cost or pricing data was not defective or result in an increased price.

Edited by joel hoffman

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On 4/11/2019 at 10:48 AM, TheLaw said:

“...because this is a firm fixed price contract that was negotiated, and he already lowered his price twice during negotiations.”

 

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19 hours ago, here_2_help said:

Well, then. Not sure how big the contractor is ... but if 252.215-7002 is in the contract, you have options. If the dollars are big enough, you have options. If the dollars are small, you have CPARS and FAPIIS.

52.215-10 (a) (3):

“(3) Any of these parties furnished data of any description that were not accurate, the price or cost shall be reduced accordingly and the contract shall be modified to reflect the reduction.”

It’s not an optional choice on the part of the government. If the contract price was negotiated on the basis of cost, that bond cost wasn’t and NEVER would have been incurred - if the contractor knew what the bond rate would be. I  know that it would not have been anywhere near 4%.  EDIT: A mistake in the data entry would still result in inaccurate data or basis of calculating the cost.  Even if the general information in the proposal may have stated that the rate was 0.4% (we don't know that ), the actual cost reflected a 4% rate.  From my experience in reviewing construction proposals in computer spreadsheet program formats,  I'm just guessing that the general information indicated "4%" and was a global entry used in the proposal spreadsheet or cost estimating program. It's like making a math error such as adding 2+2 = 40.

Hopefully the government will know that next time and will actually examine and evaluate that aspect of a construction contract proposal. It can call the bonding agency to verify the rate, if necessary. If the organization does other construction contracting, there should be some examples of actual bond rates available by reviewing other invoices for reimbursing premiums paid. In our organization, it is usually the first progress payment or included in the first progress payment without any retention.

EDIT: It would be nice if the contractor would agree to a bilateral mod . However, the government is required to ("shall")  adjust the price, and  shall modify the contract - unilaterally, if necessary, to reflect the reduction due to the error in the proposal. Unfortunately, a claim by either party would cause both parties to expend unnecessary costs and resources. I recommend discussing the proposed action with the contractor from the perspective that, in accordance with the terms of the contract and the law, the government is required to reduce the price due to the error. Emphasize that it's not personal or bullying.

 

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...and for the benefit of the contractors here, TheLaw won't need to take any legal action. It is an administrative contract action, not a civil or criminal investigation. It is totally unnecessary to investigate or accuse anyone of malfeasance, intent to deceive, cheat or misinform, etc., here. In fact, TheLaw has been pursuing a bilateral remedy via a "mutual mistake" action. That isnt bullying or personal.  

EDIT:  But I acknowledge that the TINA has obviously been used to bully or pursue other investigations and actions. In my first exposure to TINA, in contract admin classes,  I was taught, among other things, that it was intended to provide an administrative alternative, within the contract, to having to accuse, investigate, pursue and prove negligence, false statements (lying), intent to decieve, cheat, etc.   Hyman Rickover DID want an administrative  hammer in his epic battles with the BIG Boys and a fairer playing field.  Unfortunately, small contractors suffer fallout from that history. and from a misunderstanding by government officials of the administrative intent of the clause.

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3 hours ago, joel hoffman said:

It’s not an optional choice on the part of the government. If the contract price was negotiated on the basis of cost, that bond cost wasn’t and NEVER would have been incurred - if the contractor knew what the bond rate would be. I  know that it would not have been anywhere near 4%.   ...

It would be nice if the contractor would agree to a bilateral mod . However, the government is required ("shall")  to adjust the price, and  shall modify the contract - unilaterally, if necessary, to reflect the reduction due to the error in the proposal. Unfortunately, a claim by either party would cause both parties to expend unnecessary costs and resources. I recommend discussing the proposed action with the contractor from the perspective that, in accordance with the terms of the contract and the law, the government is required to reduce the price due to the error. Emphasize that it's not personal or bullying.

This makes perfect sense to me.

If the CO wants to "punish" the contractor, it should request a DCAA full-scope review of the contractor's estimating system, since obviously the controls to prevent errors did not function. The government should be able to rely on the contractor provide good estimates, and in this case it cannot.

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We deal with matters like this all the time...most of the time the Ktr agrees to price adjustment bilaterally.  If not; we issue the price adjustment mod unilaterally.  Ktr can challenge following Disputes clause 52.233-1 procedures, but none ever have thus far.  It's nothing personal - just the nature of doing business with USG.

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15 minutes ago, here_2_help said:

This makes perfect sense to me.

If the CO wants to "punish" the contractor, it should request a DCAA full-scope review of the contractor's estimating system, since obviously the controls to prevent errors did not function. The government should be able to rely on the contractor provide good estimates, and in this case it cannot.

Non-defense appropriated activities have limited access to DCAA audit services.I know that USACE has been required for years to fund DCAA audits of Civil Works.  contracts.  https://www.cbh.com/new-guidance-limited-role-for-dcaa-audit-of-non-dod-contracts/ 

A few years ago, they weren't even available for auditing $43 million proposal on a civil works contract that I was assigned to negotiate, regardless of whther or not we reimbursed them.

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On ‎4‎/‎11‎/‎2019 at 10:48 AM, TheLaw said:

The Government believes it should be entitled to a correction in the contract price for the difference between 0.4% and 4%

On what basis does the government think it is entitled to a "correction?"

On ‎4‎/‎12‎/‎2019 at 10:52 AM, TheLaw said:

The project was sent to the MATOC but only one contractor bid (we were expecting more).

Have you considered what impact FAR 15.403-1(c) may have on this fact?

On ‎4‎/‎12‎/‎2019 at 10:52 AM, TheLaw said:

Negotiations were held, final price agreed upon, and then we asked for a certificate of current cost or pricing data, which was provided

Did you ask for submission of certified cost or pricing data?  If so, at what point in the order issuing process?

I don't expect an answer to these questions, but I think you need to consider the answers before proceeding. 

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On ‎4‎/‎16‎/‎2019 at 10:15 AM, TheLaw said:

The bond percentage was shown in a "general requirements" portion of the certified cost & pricing data, so the Government never saw it here.

So the contractor did submit current, complete and accurate data regarding the bond rate.  If that is the case, what is the defective pricing?  The fact that the government did not see the submitted data does not mean the contractor did not meet its submission burden.  The statutory definition of defective cost or pricing data is "For the purposes of this section, defective cost or pricing data are cost or pricing data which, as of the date of agreement on the price of the contract (or another date agreed upon between the parties), were inaccurate, incomplete, or noncurrent."

These are just some thoughts to consider for your next step.

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@Retreadfed Your posts are confusing this issue - I think you're either missing or ignoring the information provided by the OP and the piecemeal posting plus the pseudo hypothetical debate you're having with joel is not providing coherent information or advice for the OP.

14 hours ago, Retreadfed said:

So the contractor did submit current, complete and accurate data regarding the bond rate. 

Emphasis added above - how did you arrive at this conclusion?  The contractor listed the incorrect bond percentage of 4%...why are you considering that "accurate" cost or pricing data?  I think you need to reread the OP's clarifying post:

On 4/16/2019 at 10:15 AM, TheLaw said:

Here is the timeline:

The contractor submitted a proposal with the mistaken bond percentage.

The contractor then submitted certified cost & pricing data with the mistaken bond percentage.*

After award, when the contractor was submitting the bonds, it discovered the error.

*The bond percentage was shown in a "general requirements" portion of the certified cost & pricing data, so the Government never saw it here.

Also, clause 52.215-10 is in the contract.

I will have to look into the case law, it appears.

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6 hours ago, Matthew Fleharty said:

I think you need to reread the OP's clarifying post

You are correct that I misread the complete post and focused on the *.  Upon rereading the entire post, it raises the issue of reliance which TheLaw should think about.  If the government did not notice the erroneous bond data, how did the government rely on that supposed defective data?

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Good question. I am speculating here that the government could have relied on the identified cost of the bond in the proposal, which was based upon the incorrect data that they didn’t read. 

10 USC 2306a

e) Price Reductions for Defective or Pricing Data.—

“...(3)It is not a defense to an adjustment of the price of a contract under a contract provision required by paragraph (1) that—

...B. ) the contracting officer should have known that the cost and pricing data in issue were defective even though the contractor or subcontractor took no affirmative action to bring the character of the data to the attention of the contracting officer;”

Im speculating here that the government didn’t know what the bond should cost,.

Thus, they may have simply accepted at face value what the contractor indicated the cost would be. 

From the above Statutory language, I don’t think government ignorance of what a bond should cost would be a defense for a price reduction due to defective cost or pricing data. If the contractor mistakenly said the bond cost would be 4% of the marked up subtotal contract cost or if the contractor said it would cost 0.4% but the amount of the bond cost was mistakenly ten times that much in the cost proposal, it was defective cost or pricing data.

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The following is also not a defense :

“(C) the contract was based on an agreement between the contractor and the United States about the total cost of the contract and there was no agreement about the cost of each item procured under such contract; “

I’m guessing that this would also apply to agreed total cost without agreement on individual cost elements.  

 

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13 hours ago, joel hoffman said:

I am speculating here that the government could have relied on the identified cost of the bond in the proposal, which was based upon the incorrect data that they didn’t read. 

This gets back to the fundamental question of what is a contractor's obligations in regard to certified cost or pricing data.  There is simply no requirement for a contractor to base its proposal on cost or pricing data.  In this regard, as I have stated before, the ASBCA informed us that a proposal is not cost or pricing data.  The contractor's obligation is to disclose the data to the government.  If that data is not current, complete and accurate, the government is entitled to a price reduction if the defective caused  an increase in contract price.  To show that the defective data caused an increase in the contract price, the government must show that it relied upon the defective data.  If the government did not rely upon the defective data, the government is not entitled to a price reduction.

The statutory language quoted by Joel does not change this burden of showing reliance.  What that language means is the contractor cannot rebut the government's assertion of reliance by arguing that the government should have known the data was defective therefore the government should not have relied on that defective data.

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