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Ok, this may be considered a silly question by all of you incredibly smart people (see how flattery works).  I have a cost plus contract that at the time it was awarded in late 2019 it was for $385M.  Now because of COVID and cost increases due to materials and inefficiencies, etc., my project manager doesn't want to spend the next 3-4 years having to deal with settling overruns. His solution is to increase the contract value up to what the contractor is estimating at time of contract completion. So now we go from $385M in value to almost $1B.  I have consulted everyone i know including CO's and Lawyers and the answer is this isn't a legal contract mod.  I have explained this to the PM and the contractor. The PM is still looking for a way to make this happen.  Is there anyone out in WIFCON world that has worked a Cost contract that has allowed a contract value change because the original estimate (contract award value) was basically not a true cost estimate?  Curious CO wants to know how it could or ant be done.

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On 9/2/2021 at 5:47 AM, NASA CO said:

I have a cost plus contract that at the time it was awarded in late 2019 it was for $385M.  Now because of COVID and cost increases due to materials and inefficiencies, etc., my project manager doesn't want to spend the next 3-4 years having to deal with settling overruns. His solution is to increase the contract value up to what the contractor is estimating at time of contract completion. So now we go from $385M in value to almost $1B.  I have consulted everyone i know including CO's and Lawyers and the answer is this isn't a legal contract mod.  I have explained this to the PM and the contractor. The PM is still looking for a way to make this happen.  Is there anyone out in WIFCON world that has worked a Cost contract that has allowed a contract value change because the original estimate (contract award value) was basically not a true cost estimate?  Curious CO wants to know how it could or ant be done.

@NASA COFirst, let's use proper terminology. In professional discussion there is no such thing as a "cost-plus" contract. There are cost-reimbursement contracts: cost (no fee), cost-sharing, CPFF, CPIF, and CPAF contracts. Cost-reimbursement contracts have  an "estimated cost" or "target cost," not a "contract value."

If the current estimate to complete a cost-reimbursement contract exceeds the current contract estimated cost, then the  government has a choice. It can (a) increase the estimated cost to cover all or part of the projected overrun, (b) terminate the contract, or (c) let the contractor stop working when the funds run out.

Since an increase in the estimated cost of a cost-reimbursement contract would be an increase in the government's obligation (see FAR 52.232-20 or -22), the government must have appropriated funds to cover the amount of the increase. Increasing the estimated cost without enough appropriated funds to cover the amount of the increase would violate the Anti-deficiency Act (ADA), for which there are criminal penalties.

So, NASA CO, are there funds to cover an increase in the estimated cost from $385M to $1B? If not, then the mod that the PM wants would be illegal. (The ADA provides for criminal penalties.) You cannot increase the estimated cost just to save the PM from having to deal with settling overruns. You do it to increase the obligation of both the government and the contractor.

If the PM does not understand all that, then he or she is professionally ignorant. (Maybe confused by people who talk about "contract value.") The CO should understand all that and explain it to the PM with appropriate references—FAR clauses and the GAO Red Book.

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On 9/2/2021 at 8:47 AM, NASA CO said:

I have consulted everyone i know including CO's and Lawyers and the answer is this isn't a legal contract mod.

In terms of the basic legal part, you definitely CAN enact a contract mod to increase the value from $385M to $1B, under the right circumstances.  Such as getting the funds to cover the increase, and getting God-level approval for a huge, non-competitive, out-of-scope modification (possibly an equitable adjustment?) that reflects poorly on everyone involved, having OIG parachute in, and other unpleasant things.  

Basically, you want stuff that you thought would cost $10.  And now it seems like it will cost $30.  As Vern notes, you have limited options:

1) Get another $20

2) Get only about 1/3 of the stuff you had planned on getting.

3) Pick up your marbles and go home (terminate, find a different means of acquiring the stuff).

Quarrelling about whose at fault for the variance between $10 & $30, stalling for time, or being unhappy with situation won't change these options. 

 

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Keep in mind that an increase in the estimated cost of a cost-reimbursement contract need not be based on a contract change in order for the government to increase the estimated cost.

If, in accordance with FAR 52.232-20(b) the contractor notifies the CO that "The total cost for the performance of this contract, exclusive of any fee, will be... greater... than had been previously estimated," then the CO must decide whether to (1) fund the overrun and  increase the estimated cost, (2) modify the contract to reduce the estimated cost, (3) terminate the contract, or (4) let the contractor work until the funds run out. It doesn't matter why the contractor is going to overrun, the choices are still the same.

An increase in the estimated cost is an increase in the government's obligation and must be funded.

This is cost-reimbursement contracting 101.

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