Guardian Posted February 16, 2021 Report Share Posted February 16, 2021 I am working with a program office that is using the term "disincentives" in their performance work statement for what equates to a penalty for late deliveries. I believe their use of the term "disincentives" is a misnomer. The dictionary definition of "disincentive," is to discourage a course of action by removing an incentive. Since this contract has no built-in incentives for early delivery or performance that exceeds our requirements, I do not believe "disincentives," in this case, is the proper term. Conversely, I would not say that these monetary penalties are liquidated damages either. Liquidated damages, as I understand them, refer to monetary amounts that the Government would deduct, based on either calculated or estimated damages. Because these "disincentives" are flat amounts that apply across-the-board, there seems to be little to no thought devoted to calculating or estimating to correlate the amounts to the degree of harm or damage done to the Government. Therefore, I believe that what they are calling "disincentives" are actually penalties. Could anyone within this forum provide succinct contract definitions for each of the three subject terms? Link to comment Share on other sites More sharing options...
Vern Edwards Posted February 16, 2021 Report Share Posted February 16, 2021 Negative incentive instead of disincentive. Link to comment Share on other sites More sharing options...
joel hoffman Posted February 16, 2021 Report Share Posted February 16, 2021 What type of contract is this - service, supply construction, etc.? Link to comment Share on other sites More sharing options...
Guardian Posted February 16, 2021 Author Report Share Posted February 16, 2021 21 minutes ago, joel hoffman said: What type of contract is this - service, supply construction, etc.? Joel, it's a service contract for professional services. 58 minutes ago, Vern Edwards said: Negative incentive instead of disincentive. Thanks Vern. Hope the antique printing press refurbishment is going well 🙂. Link to comment Share on other sites More sharing options...
Vern Edwards Posted February 16, 2021 Report Share Posted February 16, 2021 @Guardian I'm afraid I got side-tracked on the printing press refurb. Some day. A couple of thoughts. If the PWS says that the deductions are for "late " delivery, i.e., a default, then such is not an incentive. Such is either a form of liquidated damages or a penalty. If liquidated damages, then there should be a reasonable and documented calculation of the damages the government would suffer on a daily basis. Absent such a calculation, the deduction might be construed as a penalty that is not related to any injury the government would suffer. A penalty likely would not survive before a board or the Court of Federal Claims, because it would not be consistent with the American common law of contracts. Cibinic, Nash, and Nagle discuss that in their Administration of Government Contracts, 5th. In order to be an incentive, the delivery date should be a "target," with a sliding scale of permissible dates fore and aft and the incentive payment a function of actual delivery, positive and negative from the target. Delivery within the permissible range would not be "late" and would not constitute a default. Link to comment Share on other sites More sharing options...
C Culham Posted February 17, 2021 Report Share Posted February 17, 2021 17 hours ago, Guardian said: Could anyone within this forum provide succinct contract definitions for each of the three subject terms? Liquidated Damages - Not really a definition but provides intent with regard to its use in Federal acquisition- FAR 11.501. Disincentive - Sorry no reference other than the dictionary one referred to but as a term it got a lot of play in the early years of performance based acquisition ideals. You can find the term for instance in an aged guide call "Seven Steps to Performance Based Acquisition". It seems that the guide here is the more current reference out there for performance based acquisition and does not carry "disincentive" as a term - https://pba.app.cloud.gov/app/#/pba Penalty - Seems the dictionary is applicable here too. Link to comment Share on other sites More sharing options...
joel hoffman Posted February 17, 2021 Report Share Posted February 17, 2021 I agree with Vern. “Administration of Government Contracts” (not just the fifth edition) explains the legal aspects of using penalties for late delivery or late completion without the availability of offsetting incentives for early performance or for using liquidated damages that are based on penalties or are otherwise unsupportable or arbitrary and capricious. In addition to current case law and literature, I remember reading about such case law way back in private practice and as a City Engineer in the 70’s. Link to comment Share on other sites More sharing options...
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