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Retreadfed

"Funding Overrun"

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I would like to get the insights of the participants in this forum on the following scenario.

An agency awards an IDIQ contract. The contract has a maximum dollar amount on orders that can be placed. The contract calls for CPIF orders to be issued. The agency issues several orders to the contractor, none of wich are overrun. When the maximum limit on orders is reached, the agency continues to place orders without increasing the maximum order amount, which the contractor performed. None of these orders was overrun. The agency has now submitted a proposed contract modification to the contractor contending that the orders in excess of the maximum order limitation was a "funding overrun." Further, because the contract called for CPIF orders, with a 70/30 split, the contractor owes the government 30% of the "funding overrun." Without getting into the question of whether the orders above the maximum order limit constituted sole source contracts, has anyone ever heard of "funding overrun"? If so, what impact does that have on a contractor's obligations under a CPIF contract?

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Retread:

Did the contract establish a target cost, target fee, maximum fee, minimum fee, and share ratio for the entire contract or on an order-by-order basis?

Also, by "maximum order limitation" do you mean the maximum quantity for the contract, as mentioned in FAR 52.216-22(B), or a maximum order limitation in accordance with FAR 52.216-19?

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Retread:

Did the contract establish a target cost, target fee, maximum fee, minimum fee, and share ratio for the entire contract or on an order-by-order basis?

Also, by "maximum order limitation" do you mean the maximum quantity for the contract, as mentioned in FAR 52.216-22(B), or a maximum order limitation in accordance with FAR 52.216-19?

Vern and FARFetched, the contract contains a target cos, target fee, maximum fee and minimum fee per CLIN and for the total contract. The share ratio is 70/30 for each CLIN and for the entire contract. For maximum order limitation, I was referring to the maximum quantity for the contract as mentioned in 52.216-22(B).

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I'm trying to get my brain around this, I understand you can't give the specifics of the contract but let me know if I'm way off on my example:

Target cost = 2000

Target fee = 200

Split 70% Gov/30% Contractor

If the final costs are higher than the target, say 2200, the Gov will pay 2000+200+0.7*(2200-2000) = 2340. Meaning the Contractor paid 2200 in costs and received 2340 as payment from Gov making the Contractor fee 140, which is lower than your target due to the "funding overrun".

I think the modification is just stating the obvious, meaning you just went over target.

I'm I way off here?

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Vern and FARFetched, the contract contains a target cos, target fee, maximum fee and minimum fee per CLIN and for the total contract. The share ratio is 70/30 for each CLIN and for the entire contract. For maximum order limitation, I was referring to the maximum quantity for the contract as mentioned in 52.216-22(B).

Retread:

In your first post, you said that the contract is IDIQ and, "The contract calls for CPIF orders to be issued." I don't understand your description of the contract. It does not make sense to me to apply a CPIF incentive to the total contract, and to the line items in the contract, and to orders issued against line items, if that is what is being done. Each order should have its own set of targets and share ratio, since they should reflect the risks associated with specific work. Cumulative application, if that is what is going on, is stupid. I am not clear on the relationship between the maximum quantity and the incentives.

In any case, these were your questions:

(1) "Without getting into the question of whether the orders above the maximum order limit constituted sole source contracts, has anyone ever heard of "funding overrun"?

(2) "If so, what impact does that have on a contractor's obligations under a CPIF contract?"

I have heard of overruns, but I'm not sure what a "funding" overrun is, unless it means that incurred costs have exceeded available funding. If that is what it means, then, yes, I've heard of it. As for the contractor's obligations under a CPIF contract in such event--under both the limitation of cost and limitation of funds clauses the contractor is not obligated to continue to work in the absence of funds.

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I started to reply to this three diffrenet times and keep questioning what the contract is all about.

Is it for development of something and a series of individual orders are issed incrementally. Or is it for nothing in particularly and task orders get issused for seperate projects individually? The first seems to indicate why the agency wants to nick the contractor for an overrun. The second seems to be in line with the questions asked. It's not clear.

As opposed to what Vern is asking about funding overun, I get the impression you are saying the government issued funded orders in excess of the contract maximum "quantity" and the contrcator performed work greater than the contract mamimum amout. Is that it?

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formerfed:

It's a cost reimbursement contract, and I wonder if what happened was that due to cost overruns the total cost incurred for all orders exceeded the contract maximum amount under FAR 52.216-22(B), which says, in part:

The Contractor shall furnish to the Government, when and if ordered, the supplies or services specified in the Schedule up to and including the quantity designated in the Schedule as the "maximum."

FAR 16.504(a) says that IDIQ contract quantity limits may be stated as a number of units or as dollar values. When the maximum quantity under a cost-reimbursement IDIQ contract is stated as a dollar value, how is progress toward the maximum to be measured--on the basis of estimated costs and fees, target costs and fees, or on the basis of incurred costs and fees? If the maximum is $1,000,000, and if the total estimated cost and fee of all orders issued is $900,000, but the incurred costs to date total $1,000,000, has the maximum been reached? Can the government no longer issue orders? Must the government terminate orders that are underway, even if it has the funds to cover overruns?

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Retread:

In your first post, you said that the contract is IDIQ and, "The contract calls for CPIF orders to be issued." I don't understand your description of the contract. It does not make sense to me to apply a CPIF incentive to the total contract, and to the line items in the contract, and to orders issued against line items, if that is what is being done. Each order should have its own set of targets and share ratio, since they should reflect the risks associated with specific work. Cumulative application, if that is what is going on, is stupid. I am not clear on the relationship between the maximum quantity and the incentives.

In any case, these were your questions:

(1) "Without getting into the question of whether the orders above the maximum order limit constituted sole source contracts, has anyone ever heard of "funding overrun"?

(2) "If so, what impact does that have on a contractor's obligations under a CPIF contract?"

I have heard of overruns, but I'm not sure what a "funding" overrun is, unless it means that incurred costs have exceeded available funding. If that is what it means, then, yes, I've heard of it. As for the contractor's obligations under a CPIF contract in such event--under both the limitation of cost and limitation of funds clauses the contractor is not obligated to continue to work in the absence of funds.

Vern, the contract is one of the most convoluted contracts I have ever seen. It does not make sense to me either, but it is what it is (whatever it is).

In any event in response to you and formerfed, the contract calls for the contractor to perform maintenance on government equipment. As the equipment needs maintenance, an order is issued to cover that maintenance. The orders have estimated cost and fee associated with them. The contractor did not exceed the estimated cost of any order. When the maximum contract amount was reached (for discussion sake $5M), the agency continued to issue and fund orders. The contractor performed and was paid for those orders so that the total cost of performing the contract through the orders issued is now $6M. The contractor did not cause any overrun. The extra $1M was caused by the government issuing orders in excess of the contract value. Presumably this is why the agency is referring to the $1M as a funding overrun instead of a cost overrun. The agency is contending that because of the 70/30 split in the contract, the contractor owes the agency $300K as the contractor's share of the funding overrun. No other rationale has been provided for the agency's assertion.

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Vern, the contract is one of the most convoluted contracts I have ever seen. It does not make sense to me either, but it is what it is (whatever it is).

In any event in response to you and formerfed, the contract calls for the contractor to perform maintenance on government equipment. As the equipment needs maintenance, an order is issued to cover that maintenance. The orders have estimated cost and fee associated with them. The contractor did not exceed the estimated cost of any order. When the maximum contract amount was reached (for discussion sake $5M), the agency continued to issue and fund orders. The contractor performed and was paid for those orders so that the total cost of performing the contract through the orders issued is now $6M. The contractor did not cause any overrun. The extra $1M was caused by the government issuing orders in excess of the contract value. Presumably this is why the agency is referring to the $1M as a funding overrun instead of a cost overrun. The agency is contending that because of the 70/30 split in the contract, the contractor owes the agency $300K as the contractor's share of the funding overrun. No other rationale has been provided for the agency's assertion.

Vern has answered the specific questions in your initial post, but doesn't the contract include FAR 52.216-7, Allowable Cost and Payment, and 52.216-10, Incentive Fee? If so, the amount of fee payable should be readily calculable. Add that amount to the allowable costs payable in accordance with 52.216-7 and you have the total amount due. Can't everyone just read the contract?

Personally, I've never heard of a "funding overrun" as you describe it.

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The agency is contending that because of the 70/30 split in the contract, the contractor owes the agency $300K as the contractor's share of the funding overrun. No other rationale has been provided for the agency's assertion.

My problem is that I have not seen the contract and so cannot know what it says. Having said that, the agency's interpretation does not seem right under any contract terms that I know. I suggest that the contractor file a nonmonetary claim demanding a final decision by the contracting officer on the interpretation of the contract with respect to the application of the incentive fee clause. The claim should demand a decision within 60 days of its receipt by the CO. See what happens and respond accordingly.

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My problem is that I have not seen the contract and so cannot know what it says. Having said that, the agency's interpretation does not seem right under any contract terms that I know. I suggest that the contractor file a nonmonetary claim demanding a final decision by the contracting officer on the interpretation of the contract with respect to the application of the incentive fee clause. The claim should demand a decision within 60 days of its receipt by the CO. See what happens and respond accordingly.

Thank you. I understand your comments about not having seen the contract.

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My problem is that I have not seen the contract and so cannot know what it says. Having said that, the agency's interpretation does not seem right under any contract terms that I know. I suggest that the contractor file a nonmonetary claim demanding a final decision by the contracting officer on the interpretation of the contract with respect to the application of the incentive fee clause. The claim should demand a decision within 60 days of its receipt by the CO. See what happens and respond accordingly.

Retreadfed,

I agree with Vern that the agency's interpretation does not seem right under any contract terms that I know, but rather than appearing confrontational with the CO by "demanding" a decision, I suggest the contractor (1) respectfully decline to sign the proposed contract modification the agency sent, (2) return it to the CO with your explanation of your understanding of the contractual agreement, and (3) continue to perform and bill in accordance with the contract's terms.

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To be clear, "demand," when used professionally, does not connote confrontation, anger, or disrespect. See Black's Law Dictionary, 9th ed., page 495: "demand, vb. 1. To claim as one's due; to require; to seek relief." See the definition of claim at FAR 2.101, which describes a claim as a written demand or assertion. To "demand" a final decision is to request it as a matter of right, instead of as a favor or gesture of good will. Under the terms of a government contract, a contractor has every right to "demand" a final decision from a CO in a matter in which the parties potentially disagree. So go ahead and demand a decision. I assume that the demand would be made in civil terms. Laymen think of "demand" in the ordinary dictionary sense of "to ask for urgently or peremptorily."

One of our problems today is that COs are illiterate when it comes to official terminology and professional language. A professionally literate CO would not take offense at the word "demand," unless it were shouted or expressed with rage or contempt.

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