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Our team over ran our T&M contract prior to alerting our CO.  Our CO is now not wanting to pay these costs.  I know FAR 52.232-7 states the Government is not obligated to pay in excess of the ceiling price.  Our position is that they received a benefit for this support and with it being T&M, this was an estimate and we put forth best efforts to stay within the contract ceiling.  Is there anywhere in the FAR we can point to for payment?  Or would we need to go through a claim or REA process?

Thanks,

BAT

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A contractor exceeds the ceiling price at its own risk.

A contractor who fails to give the Government the notice it promised to give before approaching the ceiling price robs the Government of the opportunity or space to make a decision on finding more money or curtailing the work — by keeping silent and continuing to incur costs, and then seeking reimbursement for those costs, the contractor robs the Government.  The boards and courts have strictly enforced the notice requirement and refused payment to contractors for these reasons.

You failed in your contractual commitment to give timely notice of the impending overrun.  You have no entitlement.  The Government’s CPARS report (if your contract is eligible for CPARS) should reflect your failure to comply with the contract and your cost overrun.

This would be my starting point if I were the contracting officer.

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1 hour ago, BAT said:

Our team over ran our T&M contract prior to alerting our CO.  Our CO is now not wanting to pay these costs.  I know FAR 52.232-7 states the Government is not obligated to pay in excess of the ceiling price.  Our position is that they received a benefit for this support and with it being T&M, this was an estimate and we put forth best efforts to stay within the contract ceiling.  Is there anywhere in the FAR we can point to for payment?  Or would we need to go through a claim or REA process?

There is no contract type in which the government must pay for a contractor's overrun. Not even a cost-type contract requires the government to reimburse a contractor's costs that exceed the funding provided.

I understand your position that the government received a benefit but I'm not liking your chances of getting your costs covered, regardless of whether you file an REA or claim. I'm sorry to say, I think ji20874 is correct. Your "best efforts to stay within the contract ceiling" were insufficient and now there is a financial consequence.

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4 hours ago, Ibn Battuta said:
 

The protections of cost ceilings and cost limitations are not absolute. See Manos, Government Contract Costs & Pricing, § 85.7:

Footnotes omitted. The contract to which that quote pertained was cost-reimbursement, not T&M. The General Electric Company decision cited by Manos has itself been cited 274 times. (The "Court of Claims" was the old court, now the Federal Circuit.)

See also "Notice of Cost Overruns: Tell It Like It Is," The Nash & Cibinic Report, January 1993:

Emphasis added. The rest of that article goes on at length to discuss the circumstances in which a contractor might be entitled to reimbursement despite failure to give notice of an overrun. See also 43 GC ¶ 55, Feb. 1, 2001, "'LOC Clause Did Not Bar Contractor's $16 Million Insurance Cost Claim":

I could find only four BCA decisions about T&M contracts, ceilings, and failure to give notice, but no COFC decisions. The contractor did not recover in any of the board cases. But see Michael Weller, Inc. v. Office of Navajo and Hopi Indian Relocation, GSBCA 11411-NHI, 94-2 BCA P 26849, which pertained to a T&M contract, and in which Judge Vergilio, in a dissent from the majority ruling, gave reasons why strict interpretation of the ceiling price limitation  and notice requirement might not be justified.

Steven Feldman included an extensive discussion of the topic of excuses for failing to give notice in Cost Overruns, 03-98 Briefing Papers 1 (July 2003).

I am NOT saying that the OP is entitled to payment of its excess costs. I have no idea whether it could recover. I suspect its chances are between slim and  none. I am saying that contractors have recovered overruns under contracts despite failing to give notice and that the legal principle that has sometimes worked to allow such contractors to recover under cost-reimbursement contracts might also apply to T&M contracts, although I think it would be more difficult to invoke successfully given the nature of the T&M pricing arrangement.

The OP asked only two questions. The answer to the first is No. The answer to the second is Probably.

Ibn, you are correct -- of course you are. I was hoping to avoid a discussion of the rare exceptions to the rule that failure to comply with LoC/LoF notification requirements was excusable. I should have been more careful with my language. A parenthetical "(with very limited exceptions)" would have sufficed. I went for impact versus technical correctness, which is never a good choice in this forum.

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I had a strange variation on this theme arise this week. A contractor notified a contracting officer as required, but stated that even though they expected to overrun the ceiling price (T&M type GSA order) by $six figures, they were not requesting additional funding and planned to finish the effort (about six more months of effort) within the ceiling price. I know a good deal when I see one--the contractor here is effectively eating some costs in order to receive a non-negative "cost control" rating in CPARS. (The total order value is in the low eight figure range.)

However, another CO and our agency counsel believes that this would be accepting voluntary services and therefore not allowed. They've pointed me to the inspection/acceptance section of 52.212-4 Alt 1, but I'm not persuaded that those paragraphs cover what is contemplated here. They've also pointed me to B-324214 at GAO, which really has nothing to do with contracting. They both believe that I should be able to point to something in the FAR that allows us to accept these services, but I think they have the standard of evidence backwards.

I might be wrong, but I keep asking why we are trying so hard not to take a good deal. Thoughts?

 

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If the offeror invoices for the ceiling price, and can validate it that it has worked all the hours it charges, then that is what the Government pays.

You accept the services because they are required by the contract.  They are required services, not voluntary services.

You did not contract for a certain number of hours — you contracted for a job with a ceiling price, and you agreed to pay contractor invoices monthly or bi-weekly provided the hours were actually worked up to the ceiling price.  If the contractor charges 100 hours to your contract, you pay for 100 hours.  If the contractor charges an additional 10 hours somewhere else or declares it a loss, what do you care?  Pay the 100 hours and give the contractor an Exceptional CPARS rating.  If the contractor invoices for 100 hours, you cannot pay for 110 hours.

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2 hours ago, ji20874 said:

If the offeror invoices for the ceiling price, and can validate it that it has worked all the hours it charges, then that is what the Government pays.

You accept the services because they are required by the contract.  They are required services, not voluntary services.

You did not contract for a certain number of hours — you contracted for a job with a ceiling price, and you agreed to pay contractor invoices monthly or bi-weekly provided the hours were actually worked up to the ceiling price.  If the contractor charges 100 hours to your contract, you pay for 100 hours.  If the contractor charges an additional 10 hours somewhere else or declares it a loss, what do you care?  Pay the 100 hours and give the contractor an Exceptional CPARS rating.  If the contractor invoices for 100 hours, you cannot pay for 110 hours.

I'm trying to broker a compromise based on this. If we fund it but the contractor never invoices for it, great. No worries. The funds are two year money so as long as we do our jobs efficiently, the un-invoiced for funds will got back to the program office. In short, we can't make them invoice for hours they don't want to invoice for.

 

 

2 hours ago, Ibn Battuta said:

@KeithB18 Did your contractor notify the CO in writing that it would keep working at no additional cost to the government? If so, ask your other CO and agency counsel if they understand the distinction between voluntary services and gratuitous services.

 

 

This is an issue I'm working. Will update the thread if I can get to resolution.

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I have been doing this a long time (on the contractor's side of things, mostly) and I've never encountered the distinction between voluntary and gratuitous services. Based on Ibn's posts I've done some googling and feel much more informed on the subject. I just wanted to express my appreciation for our peripatetic wanderer who has brought back such knowledge to this forum. Perhaps my note of appreciation is gratuitous, but it's nonetheless sincere.

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11 hours ago, Ibn Battuta said:

The issue is that contractual enforcement of specifications and clauses would be limited to the work done up until the point at which the contractor reached the ceiling. That's because any work beyond that point would be gratuitous and thus, presumably, not subject to the contract terms. The work is not gratuitous if the contract still applies.

Ibn, why would an implied in fact contract not exist in this circumstance?

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Half baked idea: Could Keith B18 have the Contractor sign a gratuitous services agreement for the last chunk of the work referencing the terms of the existing Contract? 

I had to get a Contractor to sign one long ago, but that was for a small, discrete job. It wasn't integrated with other paid work.

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15 minutes ago, Ibn Battuta said:

"Referencing" the terms of the existing contract? What's "referencing"? Do you mean incorporating?

Yes, but I suppose that creates a problem since you'd be incorporating the ceiling price in along with everything else.

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13 hours ago, Ibn Battuta said:

The issue is that contractual enforcement of specifications and clauses would be limited to the work done up until the point at which the contractor reached the ceiling. That's because any work beyond that point would be gratuitous and thus, presumably, not subject to the contract terms.

I was trying to tackle the problem you described in this quote.  If I keep going down this road, though, it may become a de facto conversion to a firm fixed price. 

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13 hours ago, Ibn Battuta said:

@KeithB18 The prohibition against voluntary services is designed to prevent violations of the Antideficiency Act. The contractor has said (in writing, I hope) that it will continue to work without compensation, which means that the government is not obligated. The Comptroller General has said that there is no risk of an ADA violation if the contractor commits in advance to work without compensation. Such services would be gratuitous, not voluntary, which would be okay. See Denali Commission---Statutory Pay for Commissioners, B-322832, March 30, 2012:

If your contractor notified the CO in writing that it would continue to work beyond the ceiling price at no charge to the government, all the CO need do is respond in writing that the government agrees on the condition that it will not be obligated beyond the ceiling price, and ask the contractor to confirm in writing. Then you would have the agreement that the GAO would look for. Written agreement is necessary in order to document that the work is free of charge and to preclude the possibility of a misunderstanding and a legitimate claim by the contractor.

The issue is that contractual enforcement of specifications and clauses would be limited to the work done up until the point at which the contractor reached the ceiling. That's because any work beyond that point would be gratuitous and thus, presumably, not subject to the contract terms. The work is not gratuitous if the contract still applies. Can the government live with that? If the government is willing to accept that condition in the hopes of getting the job finished for free, then go for it. If the government wants to continue to enforce the terms of the contract after the ceiling is reached, then it must increase the ceiling price as provided for in the T&M payment clause and pay the contractor for the additional work.

Do you still want the freebie?

Think this through before you go back to your general counsel. Be ready with answers to his or her questions. When looking to the future, lawyers ask, What if? The key question for the counsel should be whether the government might be obligated if the contractor continued working. Saying, Why worry if the contractor does not invoice? does not answer that question.

 

Thank you for sharing your knowledge here. Based on what has been said here and some additional research on my end, I am comfortable receiving the "gratuitous" services. I'm not overly concerned about the lack of contractual enforcement of specifications and clauses--it hasn't been the sort of work that those things have come into conflict. What I don't think make sense is to issue a modification saying that the contractor is going to provide $xxx,xxx in "gratuitous" services as that would imply that the terms and conditions of the contract cover the gratuitous portion. Confirming via email seems like it would suffice.

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I think ibn battuta (pbuh) is making this too hard.  I don't want to stir his ire, but I really don't think a discussion of voluntary versus gratuitous services is needed for this situation.  I haven't read the contract and I haven't read the offeror's notice under para. (i)(2) of the contract clause at FAR 52.214-1 with its Alt. I, but the submitter said the contractor intended to complete its contract obligations within the ceiling price.  If that's what the contractor said in its notice, and its promise was unambiguous, I think we can rely on it.  The contractor is not being asked to do any additional services -- the services it will do are already promised under the contract.  The contractor wants to complete rather than letting the contract die or face a termination for convenience (a real possibility if it insisted on more money).  The contract does not say the contractor must stop work when it reaches the ceiling price; rather, it says the contractor "...shall not be obligated to continue performance..."  I think the offeror can choose to continue performance, if it wants to.

So I see the notice (if it unambiguously makes the promise) as the contractor's pledge that it will complete its contract obligations without charging the Government beyond the ceiling price, and a waiver of its privilege of stopping work.  If the contractor incurs costs in excess of the ceiling price, the clause does not say the Government must stop the work; rather, it simply says that the Government will not be obligated to pay any amount in excess of the ceiling price.  I am in favor or reading the contract, and doing what the contract says.

The submitter said the ceiling price is in the low 10 digits and the overrun might be in the six digits -- an overrun of $100,000 (six digits) on a a ceiling price of $10,000,000 (ten digits) is one percent.  Big deal.  I would not call these gratuitous services.  There is no anti-deficiency act problem.  There is no freebie.  The contractor is simply fulfilling its contractual duties. 

If the contractor's notice is wishy-washy, you might want to ask for its firm promise to perform all of its contract obligations within the ceiling price.

At least, that's my perspective, offered to the original submitter.

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24 minutes ago, Ibn Battuta said:

While we're discussing this, another thought.

Emphasis added.

I'm not sure, but that quote could be interpreted as suggesting that failing to finish the work within the T&M ceiling price might merit a negative CPARS rating on cost control.

A T&M contractor does not promise to finish the work within the ceiling price, and failure to do so, in and of itself, does not merit a negative CPARS rating. The parties entered into a T&M contract because they could not estimate the cost of performance with the certainty needed for firm-fixed pricing. A negative CPARS rating should be based on documentation of poor cost control or other mismanagement.

I shouldn't have included that line regarding CPARS--pure speculation on my part. They didn't tell us why they planned to provide gratuitous services.

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  • 6 months later...

One might suggest that the cost of the work beyond the T&M ceiling is a type of business development cost, and thus should be classified as business development costs (G&A presumably overhead maybe).

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Unallowable direct costs can’t otherwise be charged to overhead or G&A for back door recovery. See, for instance 31.110   Indirect cost rate certification and penalties on unallowable costs. See also, 31.201-6   Accounting for unallowable costs. See also 31.202 Direct Costs, 31.203 indirect costs,  31.204   Application of principles and procedures.

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3 hours ago, joel hoffman said:

Unallowable direct costs can’t otherwise be charged to overhead or G&A for back door recovery. See, for instance 31.110   Indirect cost rate certification and penalties on unallowable costs. See also, 31.201-6   Accounting for unallowable costs. See also 31.202 Direct Costs, 31.203 indirect costs,  31.204   Application of principles and procedures.

Absolutely correct. See also 31.205-23. 

In a related historical anecdote, many years ago a contractor (General Dynamics) had a contract to develop a prototype Division Air Defense (DIVAD) weapon. The contract awarded was a hybrid FFP/"best efforts" type -- quite unusual. The contractor expended the funds without delivering the prototype, which it was allowed to do by contract terms. However, it informed DoD that it was going to continue development of the prototype using its own IR&D/B&P funds. 

Quote

Apparently not understanding the difference between a firm-fixed-price contract and a firm-fixed-price (best efforts) contract, the DCAA erroneously determined that General Dynamics had mischarged over $8 million of DIVAD contract costs and reported it as suspected fraud to the Naval Investigative Service and the DOJ. The DOJ, in turn, launched a three-and-a-half year criminal investigation, subpoenaing millions of documents, interviewing numerous witnesses, and obtaining a grand jury indictment against the contractor and four of its employees. After belatedly determining the significance of the fact that the contract was a fixed price (best efforts) contract and not a firm-fixed-price contract, the DOJ voluntarily dismissed the case.

(Quoting Karen Manos' Briefing Papers article from 2003.)

The lesson to be taken from the DIVAD case is that a contractor may be able to stop work when its funds run out and then continue work using another "color" of internal funding; however, unless it is very very careful it may find itself in a world of hurt. As I recall, General Dynamics spent more than $25 million dollars in attorney's fees associated with its defense.

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  • 3 weeks later...
On 8/20/2020 at 7:08 AM, joel hoffman said:

Unallowable direct costs can’t otherwise be charged to overhead or G&A for back door recovery. See, for instance 31.110   Indirect cost rate certification and penalties on unallowable costs. See also, 31.201-6   Accounting for unallowable costs. See also 31.202 Direct Costs, 31.203 indirect costs,  31.204   Application of principles and procedures.

Is not a direct cost if it is for things outside of the contract.  If 1000 hours were in the contract, and 1100 delivered, the last 100 were outside the contract and hence not direct.  They were a type of business development or marketing costs.

Edited by lotus
typo
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2 hours ago, lotus said:

Is not a direct cost if it is for things outside of the contract.  If 1000 hours were in the contract, and 1100 delivered, the last 1100 were outside the contract and hence not direct.  They were a type of business development or marketing costs.

This is a very dangerous line of reasoning not supported by (or in direct conflict with) applicable FAR and/or CAS regulations. Contractors that follow this line of reasoning should expect, as a minimum, questioned costs. I wouldn't be surprised to see a CAS 402 noncompliance thrown in for good measure. In extreme cases it could imperil the adequacy of the accounting system.

I would strongly urge readers to ignore this reasoning.

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On 1/28/2020 at 6:43 PM, BAT said:

Our team over ran our T&M contract prior to alerting our CO.  Our CO is now not wanting to pay these costs.  I know FAR 52.232-7 states the Government is not obligated to pay in excess of the ceiling price.  Our position is that they received a benefit for this support and with it being T&M, this was an estimate and we put forth best efforts to stay within the contract ceiling.  Is there anywhere in the FAR we can point to for payment?  Or would we need to go through a claim or REA process?

 To the contrary, the Anti-Deficiency Act, FAR 32.702, would seem to prohibit the contracting officer from creating or authorizing such payment at this time.

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Neil, Since we don’t know whether or not funds were available to the Agency  pay for the overruns, I’m not sure that 32.702  (31 USC 1341) is directly applicable  here.

Edited by joel hoffman
Deleted reference to 31 USC 1342 prohibition against Accepting Voluntary Services
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