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Cat 5 Hurricane Michael--increase in pricing

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7 hours ago, kathilou said:

We agree...thanks, Joel!

kathilou, I should clarify that I was referring to the contractor’s slight share of the total increased costs being reasonably allocated to the contractor by the terms of the contract - not shifted to the government. Approval of a 50.1 relief action wouldn’t be realistically  likely for a slight share of impact costs...

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I’ve worked with agencies dealing with FAR 50.1.  The timelines and effort to get through the hurdles are tremendous.  Generally things get bogged down so much, everyone gives up. 

As an intern in the government, I helped with processing a request under PL 85-804.  The contractor suffered so much financially forcing to perform, they were close to going out of business.  We processed the case and it got to DepSec DoD. Justification that the company was essential to national defense got referred to each branch.  It took six months to turn it down. The company declared bankruptcy. 

When you get to FAR 50.1, everything becomes visible and bureaucratic and no one wants to stick their neck out.  

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Other than Pub.L. 85-804, I am aware of no authority to increase the contract price for severe weather impact for a construction contract using the standard FAR clauses.

Contracting officers are not supposed to play Santa Claus with taxpayer dollars.

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It’s rare that contracting officer decisions involve black/white issues.  Lots of gray areas with lots of discretion and judgement involved.  

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In the event that storm caused substantial increases in cost that was unforseeable, and the Government terminates the contract for cause, the  government contractor may be successful in a commercial impracticality defense to such termination. I would hope that government personnel are aware of this and take that possible disruption into account by weighing all the factors before making decisions such as denying disaster driven equitable adjustment claims that are adequately supported.

Edited by Neil Roberts
sp

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2 hours ago, Don Mansfield said:

I think @ji20874 is the only one thinking like a contracting officer.

I beg your pardon...

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31 minutes ago, joel hoffman said:

I beg your pardon...

joel,

No offense intended. I have no problem with what you wrote. I think ji is responding as a contracting officer should when being asked for a price increase on a FFP contract. The first question should be "what entitles the contractor to a price increase?" Under the standard FAR clauses, severe weather alone does not. End of story. If the contractor wants a price increase, they need to present a different argument. Cold hard logic.

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On 8/13/2019 at 9:31 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.  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.

 

17 hours ago, kathilou said:

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

Based upon the limited information here, It appears to me that :

1: The contractor says that it won’t complete performance of a task order  without a price increase due to impacts caused by Hurricane Michael. 

2. The “supervisory contracting officer”(?)** agrees and says it is “fair and reasonable”.

3. kathilou might agree with the “sco”(?)

4. kathilou’s “sco”(?) office tried to process a modification but the Finance and Accounting office won’t certify funds availability (speculating based upon DoD mod procedures)  

5.  Kathilou sent the request “upward”, presumably for KO determination.

6. The majority of the request involves additional work (change work - not differing site conditions, etc.) , which should be ok.

7. There is no relief for the impact or delay costs under the terms of the contract. 

8. Additional time may be warranted pursuant to the Defaults Clause for delays due to unusually severe weather. 

9. Extraordinary Relief pursuant to PL 85-804 and E.O. 10789 (see FAR 50.1 ) is unlikely under the outlined circumstances. That’s why it is referred to as “Extraordinary Relief”. 

10. Both the “sco”(?) and the KO should check with legal and advise the contractor that abandoning the job would put it in default (breach of contract). 

** is the “sco” an administrative contracting officer in kathilou’s office or is she referring to the PCO (or maybe another KO assigned to administer the contract or task order under the contract)?  I forgot to ask who she refers to as the “sco”. 

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Joel, I agree with your no. 9 conclusion.  But I would add a couple of items to your listing of apparent facts.

8 1/4.  The contractor elected not to purchase insurance or otherwise cover the risk it agreed to bear when the contract was formed in the contract clause at FAR 52.236-7, Permits and Responsibilities, and now seeks to shift the liability for that risk back to the Government.  There has been no discussion of the contractor's seeking relief from other sources, such as SBA loans or other disaster relief.

8 1/2.  Government employees in the local office seem eager to accept this liability, which is essentially a modification without consideration, without following the procedures for such an action as codified in Pub.L. 85-804 and regulated in FAR subpart 50.1.

8 3/4.  No contract clause or other legal basis has been cited for the proposed increase in contract price, contrary to the constitutional stipulation that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."  No one in favor of making the contractor whole has cited any authority for their proposed generosity with appropriated funds.

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Hurricane Michael occurred ten months ago in October 2018.  I wonder when the task order was issued, when in the period of performance the Hurricane struck, how much work remains to be accomplished, when the price impact became an issue, etc. just curious...

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15 hours ago, joel hoffman said:

kathilou, I should clarify that I was referring to the contractor’s slight share of the total increased costs being reasonably allocated to the contractor by the terms of the contract - not shifted to the government. Approval of a 50.1 relief action wouldn’t be realistically  likely for a slight share of impact costs...

I understood what you were saying. thanks

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Oh, one other thing -- why hasn't the contractor contacted its surety for assistance?  There is a performance bond, right?  If the contractor does default, the performance bond will come into play, but the surety can look after its interests before a default occurs.

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17 minutes ago, ji20874 said:

Joel, I agree with your no. 9 conclusion.  But I would add a couple of items to your listing of apparent facts.

8 1/4.  The contractor elected not to purchase insurance or otherwise cover the risk it agreed to bear when the contract was formed in the contract clause at FAR 52.236-7, Permits and Responsibilities, and now seeks to shift the liability for that risk back to the Government.  There has been no discussion of the contractor's seeking relief from other sources, such as SBA loans or other disaster relief.

8 1/2.  Government employees in the local office seem eager to accept this liability, which is essentially a modification without consideration, without following the procedures for such an action as codified in Pub.L. 85-804 and regulated in FAR subpart 50.1.

8 3/4.  No contract clause or other legal basis has been cited for the proposed increase in contract price, contrary to the constitutional stipulation that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."  No one in favor of making the contractor whole has cited any authority for their proposed generosity with appropriated funds.

Agreed.  

Please note that Builders Risk insurance only covers damage to work, stolen or damaged materials, etc. I think also that hurricane coverage is excluded unless there is a rider for that.  i don’t think that it covers cost escalation impacts due to labor shortages and material price increases. 

To the extent that the contractor may be able to recover anything applicable under its BR policy,  the government sympathizers should recognize that and remind the contractor. In my experience, many govt contract administrators did not know anything about BR because it ain’t specifically in the contract or in the FAR cookbook.

P.S., ji, I corrected my paragraph numbering - sorry. You might want to edit your numbering for consistency. 

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I’m not a cold-hearted person.  Maybe one day we can have a discussion on ways contracting officers can be helpful to contractors in difficult situations — there are many.  But a Santa Claus contract modification to increase the contract price because of an unusually severe weather event isn’t one of those ways.

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14 minutes ago, ji20874 said:

Oh, one other thing -- why hasn't the contractor contacted its surety for assistance?  There is a performance bond, right?  If the contractor does default, the performance bond will come into play, but the surety can look after its interests before a default occurs.

Probably because nobody has informed the contractor that abandoning completion of the task order would put it in risk of default or breach ( check with legal).  I would copy the surety In any government correspondence  concerning failure to perform  or threat of abandonment.  The surety would likely contact the contractor and remind it that the surety will  one after it to collect any expenses if the contractor defaults.

good point, ji! 

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2 minutes ago, joel hoffman said:

Hurricane Michael occurred ten months ago in October 2018.  I wonder when the task order was issued, when in the period of performance the Hurricane struck, how much work remains to be accomplished, when the price impact became an issue, etc. just curious...

October 10 to be exact.  I realize that to some, ten months seems like a long time.  Not that some on this feed actually care, but recovery from the storm damage will take years, possibly decades.  There are people whose homes are completely destroyed or uninhabitable (hundreds if not thousands). Businesses closed. Many moved away to find work. Insurance payments are a nightmare, just as they were with Hurricane Katrina. Reliable, ethical, honest, and reasonable contractors are hard to come by. Affordable housing is impossible to find for those who chose to remain. I used to live in the Northeast and never knew what the aftermath of a major hurricane was like until Katrina. Now that I've experienced both hurricanes, I can tell you, this one was horrific. Yes, the death toll was low--but that doesn't mean the damage wasn't as, or even more, extensive.  

Now, to answer your question, the design-build task order was issued in June 2018.  The contractor has been delayed on a number of occasions due to untimely responses to RFIs and design review, the hurricane and closure of the base, remobilization, an environmental design change that ended up not actually being needed, but held up the design process again until that was remedied, etc.  The additional work is to work not yet completed, and the cost of the materials and labor has risen considerably. The prime is asking no additional markup.

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kathilou, I understand and do care. That’s why I suggested checking for DoD or other guidance on any relief that might be afforded the contractor.  Others have suggested the possibility of considering commercial impracticability.  But, if the DoD or Service hasn’t considered such as a possibility for implementation,,  the contractor may have to develop that argument as applicable here, I think.

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1 hour ago, ji20874 said:

Joel, I agree with your no. 9 conclusion.  But I would add a couple of items to your listing of apparent facts.

8 1/4.  The contractor elected not to purchase insurance or otherwise cover the risk it agreed to bear when the contract was formed in the contract clause at FAR 52.236-7, Permits and Responsibilities, and now seeks to shift the liability for that risk back to the Government.  There has been no discussion of the contractor's seeking relief from other sources, such as SBA loans or other disaster relief.

8 1/2.  Government employees in the local office seem eager to accept this liability, which is essentially a modification without consideration, without following the procedures for such an action as codified in Pub.L. 85-804 and regulated in FAR subpart 50.1.

8 3/4.  No contract clause or other legal basis has been cited for the proposed increase in contract price, contrary to the constitutional stipulation that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."  No one in favor of making the contractor whole has cited any authority for their proposed generosity with appropriated funds.

These are working capital funds.  The contractor has not refused to continue; we are still in the design stage, and construction has not yet begun.  No, the government is not Santa Claus, but we shouldn't be the devil either.  I appreciate everyone's input and opinions.  I am well versed in alternate disaster relief programs, as I came from FEMA.

We had a different contractor try to recover sixty days of per diem and lodging because they "had to keep paying rent or else they would have lost the housing due to the shortage after the storm."  I want him to tell me which lottery numbers are going to hit next.

 

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kathilou,

Actually, we do care. 

  • "The contractor has been delayed on a number of occasions due to untimely responses to RFIs and design review, the hurricane and closure of the base, remobilization, an environmental design change that ended up not actually being needed, but held up the design process again until that was remedied, etc."

Every one of these (except the unusually severe weather event) provides you with an opportunity to generous and helpful, if the contractor provided the appropriate notices contemplated by the appropriate contract clauses that would provide for equitable adjustment.  But a Santa Claus contract modification to increase the contract price because of the unusually severe weather impact cannot be justified.

It isn't a matter of caring.  It is a matter of professionalism and correct principles.

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10 minutes ago, joel hoffman said:

kathilou, I understand and do care. That’s why I suggested checking for DoD or other guidance on any relief that might be afforded the contractor.  Others have suggested the possibility of considering commercial impracticability.  But, if the DoD or Service hasn’t considered such as a possibility for implementation,,  the contractor may have to develop that argument as applicable here, I think.

Thank you! That's why I sent the decision up the chain.  It's up to them.

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4 minutes ago, ji20874 said:

kathilou,

Actually, we do care. 

  • "The contractor has been delayed on a number of occasions due to untimely responses to RFIs and design review, the hurricane and closure of the base, remobilization, an environmental design change that ended up not actually being needed, but held up the design process again until that was remedied, etc."

Every one of these (except the unusually severe weather event) provides you with an opportunity to generous and helpful, if the contractor provided the appropriate notices contemplated by the appropriate contract clauses that would provide for equitable adjustment.  But a Santa Claus contract modification to increase the contract price because of the unusually severe weather impact cannot be justified.

It isn't a matter of caring.  It is a matter of professionalism and correct principles.

Thanks for your edit and comments. The contractor was timely with requests.

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I fear to step into this discussion but this, to me, highlights an interesting difference between government and commercial contracting. During the great recession of 2008 - 2011 (which, if you recall, was global), Airbus was forced to renegotiate the fixed-price deals it had with some of its suppliers. The suppliers were struggling financially. Either Airbus stepped-in or it would lose its supply chain. So it did. The old contracts were torn up and new, more favorable, contracts were negotiated.

I'm not advocating a similar approach here; I'm just noting that, in the commercial marketplace, contract terms can be renegotiated when the need arises. The next time somebody says the government should operate more like the commercial marketplace, perhaps somebody should point out what that might mean.

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On 8/14/2019 at 8:32 AM, kathilou said:

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.

 

On 8/14/2019 at 9:33 AM, kathilou said:

Most of the amount I mentioned in my reply to ji is for the additional concrete work, which is a change order.

Let me add more.  The REA is 12% of the contract value and most is covered by a change order?  So what’s left is very small compared to the overall effort.

Why not get something from the contractor as consideration for the agreement?  Some upgrades, quicker delivery, nicer features, etc.

To answer your question, no there’s nothing in the FAR that precludes allowing that.   I remember several court and BCA decisions saying operation of existing contract clauses in similar situations only allow for time but no money, but new provisions to the contracts reflecting agreement of the parties can. 

The issue with pursuing FAR 50.1/PL 85-804 remedies is the administrative time and expense will blow everything away.  I’ve been involved with several and it’s staggering.  Check with your legal counsel and senior management.  I think you can make a very convincing case to just settle this yourselves between the contractor and CO.  Get the contractor to give you something in value and it’s done. 

 

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