Can or should an equitable adjustment be used to decrease the vendor's fee in an FFP contract?

[NewbieFed]

We had a Firm Fixed Price contract for a vendor to conduct auditing services of examining 6 years of records of a target company. Because of some issues that arose with the target of our audit, our Program office and the vendor decided to change this to examining only 3 years of records...which still fulfills the government objective. The vendor has already completed this service.

Now we need to modify the agreement to reflect this change in scope.

"Can" and "should" we use equitable adjustment (EA) to decrease the fee paid to the vendor in a situation like this if the payment structure was FFP? I was under the impression, EAs are typically to increase the vendor's pay, and is usually used for non-FFP agreements.

There were no contract clauses that discussed equitable adjustment built into the agreement.

 

This was a GSA acquisition, so the master GSA contract and its included FAR clauses applies.

[Vern Edwards]

First, you should know that a 50 percent reduction in the work may be outside the coverage of any Changes clause. It may be subject to the termination for convenience clause, instead.

Tell us which Changes clause is in the contract. Give us the FAR citation. FAR 52.243 dash what?

[ji20874]

How was the contract set up?  How is the pricing set up?  This information is critical.  And Vern is right -- this might be a T4C.

22 minutes ago, NewbieFed said:

I was under the impression, EAs are typically to increase the vendor's pay, and is usually used for non-FFP agreements.

I recommend erasing this impression completely and wholly from your memory.

[NewbieFed]

8 minutes ago, Vern Edwards said:

First, you should know that a 50 percent reduction in the work may be outside the coverage of any Changes clause. It may be subject to the termination for convenience clause, instead.

Tell us which Changes clause is in the contract. Give us the FAR citation. FAR 52.243 dash what?

The clauses are mainly the standard clauses included in their master GSA contract. I looked in the master contract and didn't see any 52.243 clauses?

[NewbieFed]

2 minutes ago, ji20874 said:

How was the contract set up?  How is the pricing set up?  This information is critical.  And Vern is right -- this might be a T4C.

I recommend erasing this impression completely and wholly from your memory.

It falls under a master GSA agreement and was conducted via GSA. Pricing is a Firm Fixed Price for an audit of 6 years of records. Is termination for convenience a better option than simply modifying the contract?

The contract period has technically ended too since this was supposed to have been completed a month back.

[ji20874]

So, it is a schedule order?

[NewbieFed]

Yes, this was conducted on GSA e-buy.

[ji20874]

How is it set up?  Fixed-price per month for a fixed number of months?  Fixed-price per annual audit?  1 JB?

[NewbieFed]

It was one fixed price for the entire audit, and the audit was supposed to be for 6 years of records. The timeframe for completion was ~6 months.

[ji20874]

See para. (l), Termination for the Government's Convenience,  of the clause at FAR 52.212-4, which should be included in your parent schedule contract.  See also FAR 12.403, Termination.

[NewbieFed]

3 minutes ago, ji20874 said:

See para. (l) of the clause at FAR 52.212-4, which should be included in your parent schedule contract.  See also FAR 12.403.

Thank you. 

[ji20874]

Here is the key text from the clause:  ". . .the Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges . . . ."

[C Culham]

On 5/25/2021 at 11:33 AM, ji20874 said:

Here is the key text from the clause:  ". . .the Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges . . . ."

Wait...I believe you are off base.   While you quote 52.212-4 as the clause you are correct but you have not quoted the language of the 52.212-4 clause that would be in a GSA FSS contract.   I suggest a close look at the clauses specific to the OP's GSA FSS being used.  GSA uses the clause with deviation.   By example here is the clause for GSA FSS Professional Services, Business Administrative Services (541611)

 

(l) Termination for the Government’s convenience. The Government reserves the right to terminate this contract, or any part hereof, for its sole convenience. In the event of such termination, the Contractor shall immediately stop all work hereunder and shall immediately cause any and all of its suppliers and subcontractors to cease work. Subject to the terms of this contract, the Contractor shall be paid an amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rate(s) in the contract, less any hourly rate payments already made to the Contractor plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system that have resulted from the termination. The Contractor shall not be required to comply with the cost accounting standards or contract cost principles for this purpose. This paragraph does not give the Government any right to audit the Contractor’s records. The Contractor shall not be paid for any work performed or costs incurred that reasonably could have been avoided.

[ji20874]

Thanks for the info on the GSA deviation -- when NewbieFed looks in the contract for the clause, he or she will find whatever version is there to use as the starting point if he or she decides to pursue a termination approach (instead of a change approach).  

There is no contract text for a change approach for a commercial item contract -- this doesn't mean that you cannot do a change; you just cannot do a unilateral change order.  So if you use a bilateral change approach (I don't recommend it based on what I have read, but if) to "change" from six audits to three, certainly you should change the price as part of the deal.

[C Culham]

23 minutes ago, ji20874 said:

Thanks for the info on the GSA deviation -- when NewbieFed looks in the contract for the clause, he or she will find whatever version is there to use as the starting point if he or she decides to pursue a termination approach (instead of a change approach).  

There is no contract text for a change approach for a commercial item contract -- this doesn't mean that you cannot do a change; you just cannot do a unilateral change order.  So if you use a bilateral change approach (I don't recommend it based on what I have read, but if) to "change" from six audits to three, certainly you should change the price as part of the deal.

I should have added clarifying information that the deviation clause is 552.212-4, or in other words authorized by the GSA FAR supplement.

As to the change matter again for clarification, the deviation carries this change language as well (which is in the FAR clause 52.212-4).

(c) Changes. Changes in the terms and conditions of this contract may be made only by written agreement of the parties