Jump to content
The Wifcon Forums and Blogs

Recommended Posts

I am new to this forum and first time posting, so I will do my best!

Prime Contract is an IDIQ with DO's consisting of Testing NRE Costs, hardware, drawings/specs, software and associated data deliverables.  All DO's are FFP. Although the hardware has not been previously produced in this form, it is being classified as NDI. All subcomponents were commercial items at their base, but they are being enhanced with military upgrades for this effort.  

The contract requires that a number of units be delivered to undergo verification testing, and upon passing production units will be delivered in relatively short order.  

Contractor experienced a number of delays (from subcontractors) in getting the hardware, which has pushed out deliveries for 7-9 months from the original contract due date. These delays are not due to any action from the Government. In order to salvage as much schedule as possible, the Contractor verbally proposed a faster approach for testing from what is currently on contract during a joint working meeting approximately 6 months ago. There was no formal agreement from Contracts for this new approach, just a "its sounds great technically, but we will have to assess what will need to change contractually." There are weekly telecons; quarterly PMRs; and monthly CDRL Reports that have notated the change in approach.  However, approximately 1.5 months ago, rejection of the proposed path (that we have been executing to) was received from the Government, along with a request for consideration of the delay in deliveries.

The Govt has provided a dollar amount that they believe is equal to the 7 month delay (current outlook).  Additional information from the Govt was requested to better analyze the cost estimate for consideration.  The Govt will not provide any insight into the calculation of that estimate, only a statement that it includes labor expended and funding dispersed for services on contract, representing a loss in value.

There is no liquidated damages clause incorporated on this contract. The "Changes" clause and "termination for default" are both included.  

So here is/are my question(s):

I understand (from reading various other posts) that when a delay occurs or the Contractor requests an extension, consideration has to be provided...which can be in the form of cost reduction or other items of value to the Government.  But if a price reduction is requested, is that party not required to provide sufficient data to support review or analysis of that figure.  I know that claims and REA's submitted by contractors have to include pricing data or other than cost and pricing data, so is that not applicable if the Government is the party requesting a downward adjustment of price?

Thanks in advance for your help and insight.

Link to post
Share on other sites

The Government does not have to justify its figure.  You can accept it, or negotiate another figure. If you are unable to agree, then the Government might (1) terminate the contract for you default; or (2) unilaterally reduce the contract price to reflect the reduced value of the late product or service.  If (2), you will be able to file a claim if you disagree with the fairness of the reduction.

Link to post
Share on other sites

Liquidated damages actually represent an estimate of damages to the customer but also a cap on damages.

It can be argued that, absent a liquidated damages clause in a contract, the customer could seek actual damages for breach of contract in a legal action.  

Link to post
Share on other sites
4 hours ago, ji20874 said:

2) unilaterally reduce the contract price to reflect the reduced value of the late product or service.  

Would you be relying on an express contract term or just common law legal principles? 

Link to post
Share on other sites
5 hours ago, kburnett4112 said:

understand (from reading various other posts) that when a delay occurs or the Contractor requests an extension, consideration has to be provided...which can be in the form of cost reduction or other items of value to the Government.  But if a price reduction is requested, is that party not required to provide sufficient data to support review or analysis of that figure.  I know that claims and REA's submitted by contractors have to include pricing data or other than cost and pricing data, so is that not applicable if the Government is the party requesting a downward adjustment of price?

The contractor is not required to provide consideration. However, like ji said, the Government could terminate for default if the contractor refuses. In cases where a termination for default is not a realistic option, the Government could instead re-establish the delivery schedule without receiving consideration (and ding you on CPARS).

Link to post
Share on other sites
8 hours ago, kburnett4112 said:

Contractor experienced a number of delays (from subcontractors) in getting the hardware, which has pushed out deliveries for 7-9 months from the original contract due date.

It's amusing to me that I just finished telling a class that the single most important factor to achieving contract outcomes is management of subcontractors, that prime contractors cannot transfer performance risk to the subcontractors, and that prime contractors don't spend enough time on subcontractor risk management activities. And now here you are!

My advice: Pay whatever amount the government demands as consideration for a contract mod to recognize the schedule slip and pray your CPARS doesn't accurately reflect your performance.

Link to post
Share on other sites
10 hours ago, Don Mansfield said:

The contractor is not required to provide consideration. However, like ji said, the Government could terminate for default if the contractor refuses. In cases where a termination for default is not a realistic option, the Government could instead re-establish the delivery schedule without receiving consideration (and ding you on CPARS).

Is this a commercial item contract? If not, what Termination clause is in your contract? The Government should be able to preserve its rights for damages in lieu of termination for cause or “consideration”.  However, it will have to reasonably substantiate the amount of damages. Reference, “Administration of Government Contracts”, 4th Ed.

Negotiate and demand adequate information.

Link to post
Share on other sites
15 hours ago, kburnett4112 said:

I know that claims and REA's submitted by contractors have to include pricing data or other than cost and pricing data, so is that not applicable if the Government is the party requesting a downward adjustment of price?

Yes it has been found applicable to the Government.  Below you will find a reference to a Civilian Board of Contract Appeals cases that supports that at a certain point (claim by the government against a contractor) that the Government will be required to provide specific data.   So to your situation here is an example of an approach that could play out if you were so inclined.

Write to the CO and deny the amount stating that there is not adequate detail in the proposed REA documentation to give you adequate ability to review the request.  You might even  note Rule 6(a) of the CBCA rules as the basis for your request.  I acknowledge you are not in a dispute  yet but the REA by the government can lead to a claim based on a final decision by the CO.  

If the CO gives detail then fairly evaluate, negotiate and reach an agreement with the government on the amount.

If the Government still refuses then they will have a choice to do a few things.  Issue a final CO decision with regard to the amount at which time under appeal the government will be required to provide the detail.  Terminate your contract for failed performance at which time under settlement the government will be required to provide the detail upon appeal.

Overall it is your call on what you may do or not do with regard to the government's stonewalling but I do not believe the government can stonewall you with regard to how they arrived at the amount, considering the cases I have shared here.   The government has an obligation to operate under good faith and fair dealing just as they demand the contractor!  The door for "stating in simple, concise, and direct terms the factual basis for each claim and the amount in controversy." does swing both ways in the eyes of the CBCA it seems.   

https://www.cbca.gov/files/decisions/2016/LESTER_02-03-16_4826__JR_SERVICES_LLC_V_VA.pdf 

Consider as well -

https://www.cbca.gov/files/decisions/2016/LESTER_02-24-16_5188__RALPH_MUHAMMAD_V_DOJ.pdf  

Link to post
Share on other sites

At this point in time, there is no requirement for the Government to share the basis of its consideration request amount, period.  There is no requirement that the consideration amount be of equal or approximate value to anything else.  I think we err if we conflate consideration amount with REA proposal amount, or if we conflate consideration amount and damages.  There is no requirement that consideration amount approximate costs or damages.

The contractor asked for substantiation of the Government's consideration amount request, and the Government said no.

Now, the contractor has a choice (1) ask again, (2) agree, (3) negotiate, or (4) disagree.

Similarly, if the contractor proposes a consideration amount, it is not required to substantiate that amount or prove it to the Government.  There is no requirement for equivalency or approximation to anything else.

 

Link to post
Share on other sites
19 hours ago, kburnett4112 said:

Contractor experienced a number of delays (from subcontractors)

kb, have you read FAR 52.249-8(d) to see if it applies to your situation?

 

19 hours ago, kburnett4112 said:

I know that claims and REA's submitted by contractors have to include pricing data or other than cost and pricing data

This is not true in regard to claims. 

Link to post
Share on other sites
  • 2 weeks later...
On 6/18/2020 at 11:36 AM, Retreadfed said:

kb, have you read FAR 52.249-8(d) to see if it applies to your situation?

Retreadfed, I have looked at that FAR Clause and I wish it was applicable, but do not believe it is.  That paragraph states that "If the failure to perform is caused by the default of a subcontractor at any tier, and if the cause of the default is beyond the control of both the Contractor and subcontractor, and without the fault or negligence of either," and I don't believe we have a case to support that the delay/default was beyond the control of the Subcontractor.  

Let's say, hypothetically, this was an effort that consisted primarily of COTS items being slightly modified for military use ("items of a commercial type"). The contract is not considered FAR Part 12.

The effort includes multiple subcontractors/suppliers producing items of a commercial type that will eventually be integrated into a functioning system.  For these hypothetical delays, let's say that the Subcontractor/Supplier changed its design or process without notifying the Prime (as these are commercial products); and when this change was finally communicated from the Sub/Supplier, quality reviews were completed by the Prime, resulting in discovery that the newly designed component now does not meet physical compliance requirements.  Additionally, the Sub/Supplier had already conducted/completed a number of requirements tests (at the subcomponent level) with the non-compliant units.  So, hypothetically, the delay is in large due to the Sub/Supplier not thoroughly "vetting" their changes to ensure the product still met all requirements, and ultimately resulted in delays to re-produce and re-test components.  Another scenario might be that the subcontractor/supplier procured the incorrect part, which didn't meet requirements, and there was a delay caused to get the correct part re-procured or maybe components arrived at the prime and had been damaged in transit, causing a delay to re-procure long lead material that could not be repaired from that damage.

Another question would be for an effort of this type, what is the general level of involvement/oversight that the Government is "entitled" over the Contractor and/or Subcontractors manufacturing, design, test plans to meet requirements, procedures, testing at the Supplier (at subcomponent level) when these are COTS Products?

 

I think the issue at heart is that this product (and subcomponents) are considered COTS, but the Government believes and pushes to dictate every aspect of the design, manufacturing, schedule, testing, etc like it is a military product...hypothetically. 

Link to post
Share on other sites
32 minutes ago, kburnett4112 said:

Let's say, hypothetically, this was an effort that consisted primarily of COTS items being slightly modified for military use ("items of a commercial type"). The contract is not considered FAR Part 12.

I don't know why it would not be a contract for commercial items under these facts.  However, that is another issue.  What inspection clause is in the contract?

Link to post
Share on other sites

And if I may, in addition to inspection clause(s), does the contract include the clause at FAR 52.246-11, Higher-Level Contract Quality Requirement?    The fill-in for para. (a) might flow down to the subcontractor via para. (b).

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

I don't know why it would not be a contract for commercial items under these facts.  However, that is another issue.  What inspection clause is in the contract?

Retreadfed, the applicable inspection clauses are FAR 52.246-2 (Inspection of Supplies - Fixed Price) and FAR 52.246-4 (Inspection of Services - Fixed Price).  

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

And if I may, in addition to inspection clause(s), does the contract include the clause at FAR 52.246-11, Higher-Level Contract Quality Requirement?    The fill-in for para. (a) might flow down to the subcontractor via para. (b).

Not included

Link to post
Share on other sites
On 6/17/2020 at 9:54 PM, Don Mansfield said:

Would you be relying on an express contract term or just common law legal principles? 

I guess common law legal procedures.  The only clauses applicable in the contract are "Termination for Default," however, this is not a realistic option for the Government; and "Changes," with the change being a change in delivery schedule, but it is as a result of delays.

On 6/18/2020 at 8:07 AM, joel hoffman said:

Is this a commercial item contract? If not, what Termination clause is in your contract? The Government should be able to preserve its rights for damages in lieu of termination for cause or “consideration”.  However, it will have to reasonably substantiate the amount of damages. Reference, “Administration of Government Contracts”, 4th Ed.

Negotiate and demand adequate information.

The effort does include commercial items of a type, but is not under FAR Part 12...not sure the sorted background on this, as I came in after award.

I have requested clarification and adequate/additional information supporting the value/cost of the delay stated by the Government and was told that we are not privy to that information. If we are disputing the amount they consider as "Value" for this delay, then we can formally issue a claim for disputes and they will provide adequate information to back up their "value" to the appropriate reviewer as required, but the formulas and processes they used to arrive at this value cannot be released for Contractor Review.

Link to post
Share on other sites

kb, in regard to your question concerning government oversight of this type work, here is what FAR 52.246-2 says concerning supply contracts which this appears to be

The Government has the right to inspect and test all supplies called for by the contract, to the extent practicable, at all places and times, including the period of manufacture, and in any event before acceptance. The Government shall perform inspections and tests in a manner that will not unduly delay the work. The Government assumes no contractual obligation to perform any inspection and test for the benefit of the Contractor unless specifically set forth elsewhere in this contract.

Link to post
Share on other sites
1 hour ago, kburnett4112 said:

I have requested clarification and adequate/additional information supporting the value/cost of the delay stated by the Government and was told that we are not privy to that information. If we are disputing the amount they consider as "Value" for this delay, then we can formally issue a claim for disputes and they will provide adequate information to back up their "value" to the appropriate reviewer as required, but the formulas and processes they used to arrive at this value cannot be released for Contractor Review.

The contractor seeking an extended delivery/performance date asked for substantiation of the Government's consideration amount request, and the Government said no.

Now, the contractor has a choice (1) ask again, (2) agree, (3) negotiate, or (4) disagree.

Similarly, if the contractor proposes a consideration amount, it is not required to substantiate that amount or prove it to the Government.  There is no requirement for equivalency or approximation to anything else.

Link to post
Share on other sites
22 hours ago, kburnett4112 said:

Let's say, hypothetically, this was an effort that consisted primarily of COTS items being slightly modified for military use ("items of a commercial type"). The contract is not considered FAR Part 12.

Another question would be for an effort of this type, what is the general level of involvement/oversight that the Government is "entitled" over the Contractor and/or Subcontractors manufacturing, design, test plans to meet requirements, procedures, testing at the Supplier (at subcomponent level) when these are COTS Products?

I think the issue at heart is that this product (and subcomponents) are considered COTS, but the Government believes and pushes to dictate every aspect of the design, manufacturing, schedule, testing, etc like it is a military product...hypothetically. 

I would love to say this is a classic "delay & disruption" claim waiting to be filed (based solely on the parts I'm selectively quoting above). However, I can't say that, because of the other facts that I didn't quote, facts that make it seem as if the prime wasn't effectively managing its subcontractors because the items being procured were "commercial products." [Note: Interesting phrase that doesn't seem to match FAR definitions.] See my June 17 post for my thoughts about a prime contractor who doesn't effectively manage its subcontractors.

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...