Jump to content
The Wifcon Forums and Blogs
kathilou

Cat 5 Hurricane Michael--increase in pricing

Recommended Posts

One of our finance people is arguing with our contracting officer over a request for additional funds on an FFP task order.  Hurricane Michael decimated our area and has caused an increase in labor and materials (in addition to labor shortages).  In order for our prime to continue performance, he has requested an increase to the contract price. He supplied quotes from a few subcontractors. The supervisory contracting officer deemed it fair and reasonable, but finance will not approve the funds. Has anyone run into this? This was not a "weather delay," or a condition that could have been foreseen.  This hurricane came in unexpectedly as a category 4+ and was reclassified as a 5. There is additional work as well due to damage.

Share this post


Link to post
Share on other sites

What clause in your contract authorizes more money for a hurricane?

This may seem like a harsh question, but it is entirely fair. 

You said FFP, but you didn't say if the contract was for supplies, services, or construction (or something else).  You also didn't say the dollar amount of the task order, or whether the task order is for commercial items.  All of this is important information for anyone here to be helpful to you. 

But really, the key question:  What clause in your contract authorizes more money for a hurricane?

[Edit:  Generally, based on the standard FAR clauses (but of course depending on the terms of your contract), a hurricane that goes far beyond normal expectations might permit the agency to allow additional time, but not additional money.  But we don’t know the terms of your contract.]

Share this post


Link to post
Share on other sites

While awaiting your answers to ji's questions, I worked with contractors who were severely impacted by Katrina.  I can identify with your problems.  When Katrina came in, many contractor employees evacuated.  Because of the damage caused by the storm, they could not return for several weeks or even months.  When workers started to return, FEMA was issuing reconstruction contracts.  Anyone who was breathing could get hired on to a reconstruction company.  Because of labor shortages due to evacuations and inadequate housing, the wages these new hires could command were much higher than what they were receiving at their old employer, the earlier contractor.  Thus, companies were trying to compete with reconstruction contractors for labor.  Obviously, the old contractors had to pay more to get employees, even employees who evacuated and were now returning.  This same situation applied to many types of material as well.  Unfortunately, there is no standard FAR clause that addresses these types of situations for other than for cost reimbursement contracts.  In the case of Katrina, the contractors I know of had to eat the cost increases on other than cost reimbursement contracts although they did receive schedule increases. 

Share this post


Link to post
Share on other sites

kathilou, I am not sure what role you have and who your employer is. Do you work for a state or U.S. government agency? Are you the agency rep for the work and are you in contact with the contracting officer? Did the contracting office issue a solicitation and/or change notice to the prime contractor for the impact of Hurricane Michael? What rationale did government finance give for the denial? Was this a payment request by the prime contractor? Was it denied because there is no line item for that work at that price? Does the contract include FAR 52.249-8 Default, FAR 52.249-14 Excusable Delays?       

Share this post


Link to post
Share on other sites
14 hours ago, kathilou said:

One of our finance people is arguing with our contracting officer over a request for additional funds on an FFP task order.  Hurricane Michael decimated our area and has caused an increase in labor and materials (in addition to labor shortages).  In order for our prime to continue performance, he has requested an increase to the contract price. He supplied quotes from a few subcontractors. The supervisory contracting officer deemed it fair and reasonable, but finance will not approve the funds. Has anyone run into this? This was not a "weather delay," or a condition that could have been foreseen.  This hurricane came in unexpectedly as a category 4+ and was reclassified as a 5. There is additional work as well due to damage.

The others have addressed the lack of cost impact contractual remedies for the work that was required to be performed, as of the date of  Hurricane Michael  

However, if there is additional work due to damage, this might be considered a change to the original scope of work and might even be considered outside the scope of the original contract, depending upon the extent or amount, type of work, etc. 

In that case, the additional work should be compensable and additional time should be provided to complete the extra work if it would require an extension to the schedule. 

Without full details and context, I can’t generalize on how the work and time should be compensated. 

Share this post


Link to post
Share on other sites

There is a few problems here.  

Why is the contracting officer eager to increase the contract price?  If the contract had the standard FAR clauses, then there is probably no basis for a price increase.  Maybe additional time, but not additional money, is the general principle in the standard FAR clauses for an unusually severe weather impact.  Nothing in the original posting suggests anything other than the standard FAR clauses, so I am relying on those standard principles.

Thankfully, the finance office is saying NO to the contracting officer’s apparently unjustified generosity with taxpayer dollars.  Maybe the finance office understands contract principles better than the contracting officer?

If the contractor wants more money, it needs to file a claim and make a case for its entitlement.  

Share this post


Link to post
Share on other sites
7 hours ago, joel hoffman said:

The others have addressed the lack of cost impact contractual remedies for the work that was required to be performed, as of the date of  Hurricane Michael  

However, if there is additional work due to damage, this might be considered a change to the original scope of work and might even be considered outside the scope of the original contract, depending upon the extent or amount, type of work, etc. 

In that case, the additional work should be compensable and additional time should be provided to complete the extra work if it would require an extension to the schedule. 

Without full details and context, I can’t generalize on how the work and time should be compensated. 

Joel, there is additional work, and we already have that covered, thanks.

Share this post


Link to post
Share on other sites
8 minutes ago, kathilou said:

Joel, there is additional work, and we already have that covered, thanks.

👍

Share this post


Link to post
Share on other sites
41 minutes ago, ji20874 said:

There is a few problems here.  

Why is the contracting officer eager to increase the contract price?  If the contract had the standard FAR clauses, then there is probably no basis for a price increase.  Maybe additional time, but not additional money, is the general principle in the standard FAR clauses for an unusually severe weather impact.  Nothing in the original posting suggests anything other than the standard FAR clauses, so I am relying on those standard principles.

Thankfully, the finance office is saying NO to the contracting officer’s apparently unjustified generosity with taxpayer dollars.  Maybe the finance office understands contract principles better than the contracting officer?

If the contractor wants more money, it needs to file a claim and make a case for its entitlement.  

Good grief. We certainly are not eager to increase the contract price and we are not unjustifiably being "generous with taxpayer dollars." However, we all went through this catastrophic storm and work every day trying to recover--and that includes our local contractors and their subs.  Many of the labor force left since there is an extreme shortage of housing. Primes have had to go out and get new quotes from new subs (and have provided multiple quotes to substantiate).  Materials and labor have risen. For the contract in questions, the REA amount is $78,900.  The contract price is ~$650K. Yes, the contractor can submit a claim, but that will cost far more to the government in labor and time, while the clock keeps ticking on a project that is underway and needs to be completed.  Isn't it more prudent to address the REA for less money?  Is there anything in the FAR that precludes us from allowing this? I don't think so.

Share this post


Link to post
Share on other sites
Quote

The thirteenth named storm, seventh hurricane, and second major hurricane of the 2018 Atlantic hurricane season, Michael originated from a broad low-pressure area that formed in the southwestern Caribbean Sea on October 1. The disturbance became a tropical depression on October 7, after nearly a week of slow development. By the next day, Michael had intensified into a hurricane near the western tip of Cuba, as it moved northward. The hurricane strengthened rapidly in the Gulf of Mexico, reaching major hurricane status on October 9. As it approached the Florida Panhandle, Michael reached Category 5 status with peak winds of 160 mph (260 km/h)[1] just before making landfall near Mexico Beach, Florida, on October 10, becoming the first to do so in the region as a Category 5 hurricane, and as the strongest storm of the season. As it moved inland, the storm weakened and began to take a northeastward trajectory toward Chesapeake Bay, weakening to a tropical storm over Georgia, and transitioning into an extratropical cyclone over southern Virginia late on October 11. Michael subsequently strengthened into a powerful extratropical cyclone and eventually impacted the Iberian Peninsula, before dissipating on October 16.

Wikipedia.

I'm adding the Wikipedia blurb about Hurricane Michael as background.

Share this post


Link to post
Share on other sites
17 hours ago, Neil Roberts said:

kathilou, I am not sure what role you have and who your employer is. Do you work for a state or U.S. government agency? Are you the agency rep for the work and are you in contact with the contracting officer? Did the contracting office issue a solicitation and/or change notice to the prime contractor for the impact of Hurricane Michael? What rationale did government finance give for the denial? Was this a payment request by the prime contractor? Was it denied because there is no line item for that work at that price? Does the contract include FAR 52.249-8 Default, FAR 52.249-14 Excusable Delays?       

US Gov. 1102.

 

1 minute ago, bob7947 said:

Wikipedia.

I'm adding the Wikipedia blurb about Hurricane Michael as background.

Thanks!  Yes, if you weren't here, you wouldn't know the damage and subsequent effects.  Fun fact--(not really) I also went through Katrina in Mississippi.

Share this post


Link to post
Share on other sites

I was wondering what effect this Hurricane Michael National Interest Exemption has on anything.  I've added this FEMA item a little later than my post.  

I'm also wondering if FEMA's reconstruction efforts can be used to support a claim against the government for increased costs.

kathilou:

I don't want to intrude on your discussion.  If you feel I am, tell me and I will go away.

 

Share this post


Link to post
Share on other sites

There should be some internal DoD, Air Force or USACE legal guidance on impacts due to Michael. I am retired so don’t have access to current policy guidance.  For an REA or claim, that is a question for the Agency legal and Finance resources. The contract generally allocates certain risks between the parties. 

I believe that there is a possible agency level remedy under FAR 50.1 Extraordinary Contractual Relief.

Share this post


Link to post
Share on other sites
8 minutes ago, bob7947 said:

I was wondering what effect this Hurricane Michael National Interest Exemption has on anything.

I'm also wondering if FEMA's reconstruction efforts can be used to support a claim against the government for increased costs.

kathilou:

I don't want to intrude on your discussion.  If you feel I am, tell me and I will go away.

 

Definitely not intruding!  Thank you.

Share this post


Link to post
Share on other sites
17 minutes ago, joel hoffman said:

There should be some internal DoD, Air Force or USACE legal guidance on impacts due to Michael. I am retired so don’t have access to current policy guidance.  For an REA or claim, that is a question for the Agency legal and Finance resources. The contract generally allocates certain risks between the parties. 

I believe that there is a possible agency level remedy under FAR 50.1 Extraordinary Contractual Relief.

Thanks again, Joel.  I'll head there now for more research.  It just seems wrong to not allow for a slight increase due to unanticipated escalation from a catastrophic event.  Most of the amount I mentioned in my reply to ji is for the additional concrete work, which is a change order.

Share this post


Link to post
Share on other sites

kathilou, Glad that the major cost is part of a change. “Slight” share of.additional costs would seem to be reasonably part of contractually allocated risks, absent some Agency level authorization. 

Share this post


Link to post
Share on other sites
20 minutes ago, bob7947 said:

I added another blurb to my post showing costs associated with FEMA efforts.  It's in bold italics.

Thanks again.  It was a doozy.

Share this post


Link to post
Share on other sites
3 minutes ago, joel hoffman said:

kathilou, Glad that the major cost is part of a change. “Slight” share of.additional costs would seem to be reasonably part of contractually allocated risks, absent some Agency level authorization. 

We agree...thanks, Joel!

Share this post


Link to post
Share on other sites
On ‎8‎/‎13‎/‎2019 at 7:31 AM, kathilou said:

One of our finance people is arguing with our contracting officer over a request for additional funds on an FFP task order.

Dumb question - Where is the program or resource organization in this argument?  I mean after all I know the finance folks have some interest but it would seem the program folks who have been provided a budget have some say as well, or should have in my view.   Its not the CO's or finances project it is the program offices so what do they want to happen?

Share this post


Link to post
Share on other sites

I’m going to say something different here and that’s the agency should be reasonable.  Damage and impact of the storm is obvious.  Agencies have to be reasonable and fair.  This situation and debating by agency personnel is why some companies don’t want to do business with the government.

Resolution should not be a contracting officer, supervisory KO, or a finance person responsibility.  The contractor should make a case and the KO should escalate it to senior agency management.  Budget, finance, program and legal need involved.  If the agency decided to go ahead, a contract modification covering the impact is all it takes.  This isn’t just caused by a contractors negligence or not exercising due diligence.  It’s beyond their control or expectation.  

Share this post


Link to post
Share on other sites

formerfed,

Why not just follow the terms agreed to by the parties when they formed the contract?  Being reasonable and fair means implementing the agreement for which the parties bargained, as reflected in the T&Cs of the contract.

A construction contract using the standard FAR clauses apportions risk as part of the bargain.  For unusually severe weather beyond reasonable expectations, the contract provides for more time (but not more money).  That is fair.

What you are suggesting already exists for many agencies — it is called Public Law 85-804.  A distressed contractor may petition for relief under Pub.L. 85-804, but this is neither a REA nor a claim.

Share this post


Link to post
Share on other sites
15 minutes ago, formerfed said:

I’m going to say something different here and that’s the agency should be reasonable.  Damage and impact of the storm is obvious.  Agencies have to be reasonable and fair.  This situation and debating by agency personnel is why some companies don’t want to do business with the government.

Resolution should not be a contracting officer, supervisory KO, or a finance person responsibility.  The contractor should make a case and the KO should escalate it to senior agency management.  Budget, finance, program and legal need involved.  If the agency decided to go ahead, a contract modification covering the impact is all it takes.  This isn’t just caused by a contractors negligence or not exercising due diligence.  It’s beyond their control or expectation.  

Thank you for your input.  I sent the request upwards. :)

Share this post


Link to post
Share on other sites
13 minutes ago, kathilou said:

Thank you for your input.  I sent the request upwards. :)

FAR subpart 50.1 might be helpful to you.

Share this post


Link to post
Share on other sites
21 minutes ago, ji20874 said:

FAR subpart 50.1 might be helpful to you.

Thank you, although, IMHO, it would not apply in this situation. 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


×
×
  • Create New...