Jump to content

Termination for Convenience by the government


Recommended Posts

We are the prime, we received a TfC, and we terminated our CPFF subcontract same day.  Termination letter we received from our customer notified us our termination is under FAR 52.249-6, and will follow guidelines in FAR Part 49.  What is clear is anticipated profits and consequential damages for being terminated are not allowed.

Does anyone have a a formula or tool to assist with calculating FAR 49.203 ( c ) (2) (i) and (ii) ?

 

Link to comment
Share on other sites

The text you cited applies when the contractor was (or would have been) in a loss situation in fixed-price contract terminated for convenience.

But apparently you have a cost-reimbursement contract.

Really, you should follow the instructions in the applicable clause -- for you that is FAR 52.249-6.  You may ignore everything in FAR subpart 49.2, including the text you cited.

Link to comment
Share on other sites

Quote

49.201 General.

      (a) A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit. Fair compensation is a matter of judgment and cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation. The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement.

      (b) The primary objective is to negotiate a settlement by agreement. The parties may agree upon a total amount to be paid the contractor without agreeing on or segregating the particular elements of costs or profit comprising this amount.

      (c) Cost and accounting data may provide guides, but are not rigid measures, for ascertaining fair compensation. In appropriate cases, costs may be estimated, differences compromised, and doubtful questions settled by agreement. Other types of data, criteria, or standards may furnish equally reliable guides to fair compensation. The amount of recordkeeping, reporting, and accounting related to the settlement of terminated contracts should be kept to a minimum compatible with the reasonable protection of the public interest.

(Emphasis added.)

T4C's are often traumatic. If the contractor lacks experience, paying for a good consultant (which is likely to be a recoverable TSP expense) is the way to go.

Link to comment
Share on other sites

here_2_help,

Any discussion of anything from FAR subpart 49.2 is inapt in this situation, as FAR subpart 49.2 applies to fixed-price contracts terminated for convenience -- but this thread is about a cost-reimbursement contract terminated for convenience.  FAR subpart 49.3 applies, but does not provide as much flexibility as FAR subpart 49.2 does.  Under FAR subpart 49.3, the Government pays incurred costs according to the normal rules for allowability and so forth (see FAR 31.205-42, Termination Costs) and adjusts the fee as described in 49.305.  Allowable settlement expenses are described in FAR 31.205-42(g).

Link to comment
Share on other sites

17 hours ago, ji20874 said:

here_2_help,

Any discussion of anything from FAR subpart 49.2 is inapt in this situation, as FAR subpart 49.2 applies to fixed-price contracts terminated for convenience -- but this thread is about a cost-reimbursement contract terminated for convenience.  FAR subpart 49.3 applies, but does not provide as much flexibility as FAR subpart 49.2 does.  Under FAR subpart 49.3, the Government pays incurred costs according to the normal rules for allowability and so forth (see FAR 31.205-42, Termination Costs) and adjusts the fee as described in 49.305.  Allowable settlement expenses are described in FAR 31.205-42(g).

Fair point. I stand corrected.

Link to comment
Share on other sites

On 8/18/2020 at 10:58 AM, general_correspondence said:

What is clear is anticipated profits and consequential damages for being terminated are not allowed.

Correct. I’m not at home but there is excellent discussion concerning the Termination for Convenience clauses and their history in any of the editions of Administration of Government Contracts by Prof. Ralph Nash, Esq. and various Co-Authors (originally by Prof. Nash,  and the late Prof. John Cibinic, Esq.) .

The TFC clause was developed to allow the government to avoid breach of contract claims for having to terminate contracts for other than contractor defaults. Anticipated profits, loss of other business opportunities, etc., associated with breach of contracts generally aren’t payable in a good faith TFC under the clauses.

Everyone associated with government contract award and administration should have a copy of this book and some of the other books in the series. The series was originally part of the George Washington University School of Law, Federal Government Contracts Program. 

Link to comment
Share on other sites

FAR 49.202-Profit

I'm trying to get my head around " (a) The TCO shall allow profit on preparations made and work done by the contractor for the terminated portion of the contract. 

how can work be "done" on the terminated portion of a contract?

I sorta comprehend "preparing" for work they would have executed in the terminated portion of the contract, but that tooo doesn't mean anything to me, it simply means those "hours' were already billed.  ??

Link to comment
Share on other sites

Forget profit.  Forget FAR subpart 49.2 and everything in it.  You cited FAR 52.249-6 as the termination clause, so we are talking about a cost-reimbursement contract, right?

On 8/18/2020 at 5:43 PM, ji20874 said:

Any discussion of anything from FAR subpart 49.2 is inapt in this situation, as FAR subpart 49.2 applies to fixed-price contracts terminated for convenience -- but this thread is about a cost-reimbursement contract terminated for convenience.  FAR subpart 49.3 applies, but does not provide as much flexibility as FAR subpart 49.2 does.  Under FAR subpart 49.3, the Government pays incurred costs according to the normal rules for allowability and so forth (see FAR 31.205-42, Termination Costs) and adjusts the fee as described in 49.305.  Allowable settlement expenses are described in FAR 31.205-42(g).

Forget profit.

Or, tell us you have a fixed-price contract and the wrong termination clause was used.

21 minutes ago, general_correspondence said:

how can work be "done" on the terminated portion of a contract?

Easy -- it happens all the time -- the termination may have occurred a week before delivery and after much work had been done.  But this is irrelevant to your cost-reimbursement termination -- wholly irrelevant.

Or, let me ask -- do you believe FAR subpart 49.2 applies to the termination for convenience of a cost-reimbursement contract?

Link to comment
Share on other sites

if anticipated profits are not allowed, why does FAR 49.3 continue and repeatedly imply it could be if adjusted?  for example, "The profit or Fee allowance is not imited to the rate contemplated at the time contract was executed.  The negotiation of profit or Fee is based on at least the following additional factors

(h) the rate of profit contractor would have earned at completion. 

on a CPFF, is the fixed fee considered anticipated?

 

thanks

Link to comment
Share on other sites

49.202 Settlement Profit.

So the guidelines I was told to follow is a mixed bag of 49.2, and 49.3 language, but I understand - everything I would do must fall within 49.3.  To cut to the chase, can the subcontractor ask for Fee?  Seems they would be asking for something unallowable, consequential . No?  But it's my experience if you don't ask, you don't get, and in federally funded TfC's an adjusted and reasonable settlement can be agreed - doesn't matter what you call it.  But the customer in this case will review the subcontractors settlement proposal - I don't believe they will delegate that to the prime entirely,  so is Fee an allowed "thing" if it is negotiated?.  Fee on cost, after termination is not what I am talking about.  Fee on costs after termination is unallowable or hardly ever allowed unless I think it went through arbitration, I am talking about an ask for a sum of money and a method on how you came to ask for that sum of money.

Edited by general_correspondence
spelling
Link to comment
Share on other sites

If your prime contract with the Government is cost-reimbursement, and your subcontract is cost-reimbursement, then forget everything in FAR subpart 49.2 -- everything, every single word.  At least, that is my guideline, which seems to differ from your other source of guidelines.

I do not know the terms and conditions of your subcontract, so I cannot speak to that directly.  However, if you modeled your subcontract's fee and termination arrangements after the FAR model for prime contracts, then adjustment of fee is covered by FAR 49.305.  The fee is not "negotiated" -- rather, it is "adjusted" as described in FAR 49.305.

Link to comment
Share on other sites

Historical anecdote: I once worked a T4C for a prime contractor. It was a straightforward T4C, except for one recalcitrant subK who refused to submit a settlement proposal or to even discuss actual costs incurred. The subK kept insisting it had a FFP subcontract and it expected to be paid in full, even if the prime decided it no longer wanted the services for which it had originally contracted.

The prime kept writing letters and having calls, pointing out that the US Government always reserved the right to terminate contracts, in whole or in part, at any time. It was just a known thing in government contracting.

The subK was having none of it. As far as they were concerned, they had a lump-sum commercial contract and they were going to enforce it.

Finally, the prime contractor's lawyer lost his cool and shouted at the subK representatives, "Read your subcontract! Read it and do what it says."

The subK representatives didn't miss a beat. "You read it," they said. "You forgot to include the T4C clause in your subcontract. So pay us in full or we'll see you in court."

The entire prime contract team that had written that subcontract, including those that had reviewed and approved it, were fired that same day. The subK received a very favorable settlement. Once the legal deal had been worked out, they opened their books to us and we got our TSP done in a matter of a few weeks.

Ah, good times.

Link to comment
Share on other sites

General, have you read FAR 52.249-6?  Also, did you include a similar clause in your subcontract?  If so, reading the clause should answer your questions concerning the sub being able to be paid a fee.  Also, remember, subcontractor fee is a cost to the prime.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...