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Retreadfed

Commercial items acquired on a CPFF contract

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Contractor has a contract to provide training services to the government under a CPFF contract. As part of the training, certain material provided by the contractor will be consumed. The training material is material that the contractor produces and sells commercially at a catalog price. When pricing the contract, the contractor priced the training material at the catalog price, however, no CLIN was included in the contract for the materials, only a CLIN calling for training. The government incorporated the contractor's proposal in the contract. When the contractor started submitting vouchers for the training services, DCAA rejected them because the training materials were shown at the catalog price instead of the cost of production. According to DCAA, commercial items that do not have their own CLIN cannot be included at price on a CPFF contract. The contracting officer has taken the position that it is acceptable to price the contract using the catalog prices, but when submitting vouchers the cost of the training materials must be used instead of the catalog price (the contract is not CAS covered). There is not special provision in the contract stating how the material is to be billed. The contract does include FAR 52.216-7.

My question is does anyone know of any authoritative pronouncement that addresses this situation? I have found no cases on point and the provisions of FAR Parts 12, 15, and 31 don't specifically cover this issue.

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Retreadfed, it sounds like you've already answered your own question. The contract professes to be a CPFF contract. Unless you can point to language in the contract carving out portions of the work as being other than CPFF, that is what it is. Referring to the "training material...that the contractor produces" as "material" doesn't make the final training material "material" in the cost element sense. FAR 31.205-26(d) notes, "When materials are purchases specifically for and are identifiable solely with performance under a contract, the actual purchase cost of those materials should be charged to the contract. If material is issued from stores, any generally recognized method of pricing such material is acceptable if that method is consistently applied and the results are equitable." While there are different inventory costing methods, they are still costing (vis pricing) methods. I'm sure I'm reading too much into your point, but if you are suggesting that because the government PCO did not insist on a total sight picture into all the elements of cost of the training material at the time the contract was negotiated, then government doesn't bear the risk (or reward) of the contractor's actual cost experience for that aspect of performance, that goes too far. I'm sure I'm missing something.

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Well this is a nice question and one that I've mulled over for a while. I think Jacques is close to the right answer. Because the training material is produced in-house the costs must be allocated to the contract to avoid pyramiding profit. If the material was purchased, no problem.

In hindsight, the contractor should have created two business segments, one to create the material and sell it at commercial prices and the other to provide training services. That would permit the contractor to use the exception at 31.205-26(e). Oh well, hindsight is 20/20.

To address the issue at hand, consider invoicing the training materials at the commercial price, without application of any additional fixed fee.

Sorry I couldn't be more helpful.

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Well this is a nice question and one that I've mulled over for a while. I think Jacques is close to the right answer. Because the training material is produced in-house the costs must be allocated to the contract to avoid pyramiding profit. If the material was purchased, no problem.

In hindsight, the contractor should have created two business segments, one to create the material and sell it at commercial prices and the other to provide training services. That would permit the contractor to use the exception at 31.205-26(e). Oh well, hindsight is 20/20.

To address the issue at hand, consider invoicing the training materials at the commercial price, without application of any additional fixed fee.

Sorry I couldn't be more helpful.

Because the contractor proposed the commercial items at their catalog price, it excluded the commercial items from its fee calculation. All evidence indicates the govenrment did the same. Thus, what you have suggested is the way the contract was actually priced. Moreover, by the government now saying the contractor cannot bill for the items the way the contract was negotiated, the contractor will receive an effective fee substatially less than what the parties negotiated. Moreover, the overall cost to the government will be substantially reduced through the elimination of the profit element of the price of the commercial items. As I mentioned earlier, the pricing of the commercial items was clearly identified and discussed in the contractor's proposal, which is incorporated into the contract.

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Because the contractor proposed the commercial items at their catalog price, it excluded the commercial items from its fee calculation. All evidence indicates the govenrment did the same. Thus, what you have suggested is the way the contract was actually priced. Moreover, by the government now saying the contractor cannot bill for the items the way the contract was negotiated, the contractor will receive an effective fee substatially less than what the parties negotiated. Moreover, the overall cost to the government will be substantially reduced through the elimination of the profit element of the price of the commercial items. As I mentioned earlier, the pricing of the commercial items was clearly identified and discussed in the contractor's proposal, which is incorporated into the contract.

comment withdrawn... see below.

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Retreadfed writes:

Because the contractor proposed the commercial items at their catalog price, it excluded the commercial items from its fee calculation. All evidence indicates the govenrment did the same. ...[T]he contractor will receive an effective fee substatially less than what the parties negotiated.... As I mentioned earlier, the pricing of the commercial items was clearly identified and discussed in the contractor's proposal, which is incorporated into the contract.

If you decide to go this route, the claim can include seeking reformation of the contract to add the FFP CLIN for the training material based on mutual mistake in integration. See Nash & Cibinic, Administration of Government Contracts (3d Ed. 1995), at 329f. However, given the government CO's current position, don't be surprised if (s)he asks for contemporaneous correspondence reflecting the understanding of the parties and/or points to FAR 52.215-8 to suggest that where there is an inconsistency between the schedule (stating the contract type) and the attachments, the schedule prevails. Some agencies also have clauses when they incorporate a proposal limiting the effect of any language in the proposal inconsistent with the rest of the contract.

If cost or pricing data was required, how did the contractor complete the first page of its pricing proposal, in separately calling out proposed cost, profit or fee, and total (see Table 15-2, at I.A.(6))?

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Because the contractor proposed the commercial items at their catalog price, it excluded the commercial items from its fee calculation. All evidence indicates the govenrment did the same. Thus, what you have suggested is the way the contract was actually priced. Moreover, by the government now saying the contractor cannot bill for the items the way the contract was negotiated, the contractor will receive an effective fee substatially less than what the parties negotiated. Moreover, the overall cost to the government will be substantially reduced through the elimination of the profit element of the price of the commercial items. As I mentioned earlier, the pricing of the commercial items was clearly identified and discussed in the contractor's proposal, which is incorporated into the contract.

Retreadfed,

Yeah, I thought through that point before I posted. What I was looking for was a quick resolution to the issue. My thinking was that the contractor had a commercial profit baked into its commercial pricing, so the loss of the fixed fee would not significantly impact the bottom line. You say the impact is "substantial" and I take you at your word -- which means to me that the training materials comprise a large part of the contract price as negotiated.

I guess you can ask the CO to mod the contract to delete training materials from the existing CLIN and add them back as a new CLIN, with a D&F that the materials are commercial items as per FAR 2.1. But I wonder what consideration you could offer the CO? Maybe the promise not to pursue a claim as Joel mentioned?

Bottom line: It's a difficult situation and one that needs to be resolved before somebody gets accused of defective pricing and/or submission of false claims. Not that the allegation would lead to a conviction, especially since you say the commerical item nature was "clearly identified and discussed" but that never stopped any DCAA auditor from dropping dime. I myself would consider most any out-of-the-box solution in order to avoid litigation defense costs and potential settlement expenses, even if it meant giving up some fixed fee I felt I had coming to me.

H2H

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The claim can include seeking reformation of the contract to add the FFP CLIN for the training material based on mutual mistake in integration. See Nash & Cibinic, Administration of Government Contracts (3d Ed. 1995), at 329f. However, given the government CO's current position, don't be surprised if (s)he asked for contemporaneous correspondence reflecting the understanding of the parties and/or points to FAR 52.215-8 to suggest that where there is an inconsistency between the schedule (stating the contract type) and the attachments, the schedule prevails. Some agencies also have clauses when they incorporate a proposal limiting the effect of any language in the proposal inconsistent with the rest of the contract.

I am not a lawyer, so the parties probably ought to seek such advice. I'm only commenting on the fairness aspect of the contract formation. The contractor obviously thought that its proposal was based upon exclusion of fixed fee on training materials and that it would be paid for its training materials at the commercial price. The government apparently incorporated the proposal, without deleting that condition, into the contract. The contractor feels that there is evidence that the KO or authorized negotiator knew about this aspect of the proposal. Apparently, the materials are a substantial portion of the cost of contract performance.

Mutual mistake may be grounds. If both the Contracting Officer or their authorized representative negotiated the fee terms, knowing that fee on materials would be excluded from the fixed fee and would be priced as a commercial item in accordance with the clear terms of the proposal, then the KO should have included some mechanism in contract when integrating the proposal into the contract. The Contractor was obviously under the impression that payment would be made at the commercial rate per its proposal.

There is also discussion about unilateral mistakes in Nash & Cibinic's, Administration of Government Contracts (in both the 3d Ed. and 4th Ed.), at page 330. Discussed is where the Government should have known of the Contractor's mistake at the time of contract formation.

There is a similar doctrine called "Superior Knowledge". I didn't notice it specifically addressed as such in Administration of Government Contracts . Superior Knowledge is a situation where the government has in its possession information unknown to bidders and vital to contract performance, and the contractor, unaware of such information and relying on the disclosures actually made, is induced to agree to perform at a price which does not take account of the matters within the special knowledge of the government. See http://www.cohenseglias.com/government-con...view&id=136

"...the government has breached its duty to disclose matters within its superior knowledge and the contractor is entitled to recover the increased costs resulting therefrom." Several cases are cited, where the superior knowledge relate to costs. I would think that the same principle could apply to the fee basis.

It would seem to me that there was either a mutual mistake by both parties when the government didn't revise the contract terms to integrate the terms of the proposal or a unilateral mistake by the proposer (contractor) that the government knew about and didn't fix the contract's payment terms. Or, if the FAR prohibits such payment terms (I don't know), the contractor obviously didn't know and the government officials apparently didn't know. It should be obvious that the proposer didn't know that something special had to be added to accommodate payment for the training materials as it proposed.

This is assuming that the proposal is clear enough to be obvious. Whether there is enough contemporaneous evidence necessary to support this position or even if it is necessary, I wouldn't know.

I'd recommend discussing with the government officials the possibility of reforming the contract to either accommodate the terms of the accepted proposal or renegotiate the fixed fee. Depending upon the outcome of that conversation, you may need to hire an attorney.

My assumption is that the Government officials intended to pay a fair price for the training materials and were aware of the prices. I'm also assuming that DCAA or somebody informed the KO that they either didnt write the contract in a way to do that or can't do it that way. Now the government needs to fix the situation one way or another.

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The contract is CPFF. Start with what the contract says. Absent express agreement to the contrary, under a cost-reimbursement contract the contractor is entitled to be reimbursed for its allowable incurred costs. Absent express agreement to the contrary, the contractor is not entitled to be reimbursed at what it would have charged if it had sold the books at retail or wholesale prices. Why would you think anything else? What cost principle provides for invoicing for those materials at the price the contractor would have charged instead of cost? What case law? As for incorporating the contract into the proposal, it is impossible to reach any conclusion absent the language of the proposal and the incorporation language. In any case, language in a proposal that is contrary to the terms of a mandatory clause like FAR 52.216-7, is not likely to be effective.

The talk about reformation, unilateral mistake, mutual mistake, and superior knowledge is baseless. There was only the ignorance of someone who signed a contract without thinking and without knowing what he or she was doing. He should have negotiated a fixed price CLIN. Fee calculations or expectations have no bearing on the issue. The contractor agreed to do a job, to be reimbursed for its allowable incurred costs, and to receive a fixed fee. End of story. Game over. The fact that the contractor estimated costs to include the selling price of the books is irrelevant and could be seen as fraudulent padding. To invoice for the books at price when the cost was less would be an insane shortcut to a false claims charge. If I were the CO and the contractor came to me with a sob story about this I would look at him as if he had lost his mind and then try to keep him calm until the nut house crew arrive.

Some of the posts in this thread are amazing. As far as I'm concerned, the only useful response to the original post was Joel's suggestion to seek the advice of an attorney.

I hope I haven't abused anyone too much.

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The talk about reformation, unilateral mistake, mutual mistake, and superior knowledge is baseless. There was only the ignorance of someone who signed a contract without thinking and without knowing what he or she was doing. He should have negotiated a fixed price CLIN. Fee calculations or expectations have no bearing on the issue. The contractor agreed to do a job, to be reimbursed for its allowable incurred costs, and to receive a fixed fee. End of story. Game over. The fact that the contractor estimated costs to include the selling price of the books is irrelevant and could be seen as fraudulent padding. To invoice for the books at price when the cost was less would be an insane shortcut to a false claims charge. If I were the CO and the contractor came to me with a sob story about this I would look at him as if he had lost his mind and then try to keep him calm until the nut house crew arrive.

Some of the posts in this thread are amazing. As far as I'm concerned, the only useful response to the original post was Joel's suggestion to seek the advice of an attorney.

I hope I haven't abused anyone too much.

No, you didn't abuse me, too much. I thought that the contractor had made it clear how it intended to price the training materials and how it had not based its fee on the cost of materials.

Yes, we've only heard one side of the story but that is what some of us are responding to.

The government officials then(EDIT: appeared not to) know any better than the contractor or (EDIT: It appears that they) decided to get a great deal for itself. Then it (EDIT: supposedly) incorporated the proposal into the contract without any communications concerning the proposer's announced approach (EDIT: from the information provided).

How is that fraud or a false claim? The guy isn't intentionally trying to lie, steal or cheat.

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No, you didn't abuse me, too much. I thought that the contractor had made it clear how it intended to price the training materials and how it had not based its fee on the cost of materials.

Yes, we've only heard one side of the story but that is what some of us are responding to.

The government officials then didn't know any better than the contractor or decided to get a great deal for itself. Then it incorporated the proposal into the contract without any communications concerning the proposer's announced approach.

How is that fraud or a false claim? The guy isn't intentionally trying to lie, steal or cheat.

I failed to mention that it appeared from the first post in the thread that the DCAA alerted both parties that a separate CLIN for training materials was necessary to be able to pay for them at the catalog price. To me, it appears that the KO who accepted the proposal and incorporated it into the contract didn't know any more than the proposer/contractor that the proposed approach either wasn't possible or that it required that a separate CLIN be established.

Looks like the guy needs to contact a good attorney.

Again, I see no intent by the contractor to deceive anyone from the information provided. A false claim or fraud requires intent to deceive.

If anything, it appears to be a case of mutual ignorance.

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The government officials then didn't know any better than the contractor or decided to get a great deal for itself. Then it incorporated the proposal into the contract without any communications concerning the proposer's announced approach.

Joel, You don't know what the government officials knew or didn't know, or that they decided to get a great deal. It was a CPFF contract. There are no great deals for the government under CPFF contracts. All we know for sure is that there was a deal to reimburse the contractor's incurred allowable costs and to pay a fixed fee and that the contractor says it intended/wanted a different deal for the training material.

And what do you know about communications between the government and the contractor concerning incorporation of the contractor's proposal? And what did the proposal say? And assuming that the contract is written in the Uniform Contract Format, into what part of that format was it incorporated? And assuming that the order of precedence clause, FAR 52.215-8, is in the contract, what is the proposal's place in the order?

As for fraud and false claims, let me tell you--if you have a CPFF contract and submit an invoice for your allowable costs but knowingly charge something else, you could spend a lot of money on attorneys after DCAA gets wind of what you did. You might be able to explain yourself after you have spent a small fortune. I have been paid as an expert witness for such people, to explain that they were fools, but not crooks. My experience with the Justice Department is that if they get interested they will be very skeptical and very persistent. By the way, the government does not have to prove intent to deceive in a false claim case. All it might have to prove is that the contractor's interpretation of the contract is unreasonable. See Commercial Contractors, Inc. v. U.S., 154 F.3d 1356, 1356 (C.A. 1998):

If a contractor submits a claim based on a plausible but erroneous contract interpretation, the contractor will not be liable, absent some specific evidence of knowledge that the claim is false or of intent to deceive. Yet when a contractor adopts a contract interpretation that is implausible in light of the unambiguous terms of the contract and other evidence (such as repeated warnings from a subcontractor or the fact that the interpretation is contrary to well-established industry practice), the contractor may be liable under the FCA or the CDA even in the absence of any deliberate concealment or misstatement of facts.

The False Claims Act is complicated, Joel. Be careful.

People like you and me are supposed to be professionals. Professionals don't pop off with unjustified suppositions, half-baked theories, and ill-considered opinions. They inquire thoroughly and offer opinions cautiously. I mean, what's all the stuff about reformation, mistakes, and superior knowledge (of all things)? That's what makes me so mad when I read some of this stuff. We're supposed to know better. What kind of lessons are we teaching the newbies?

The opening post asked one question: "My question is does anyone know of any authoritative pronouncement that addresses this situation?" The answer to that was either yes, with citations, or no. Any other answer was unprofessional. A pro should have said nothing more. The older heads at Wifcon must be wiser.

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Joel, You don't know what the government officials knew or didn't know, or that they decided to get a great deal. It was a CPFF contract. There are no great deals for the government under CPFF contracts. All we know for sure is that there was a deal to reimburse the contractor's incurred allowable costs and to pay a fixed fee and that the contractor says it intended/wanted a different deal for the training material.

And what do you know about communications between the government and the contractor concerning incorporation of the contractor's proposal? And what did the proposal say? And assuming that the contract is written in the Uniform Contract Format, into what part of that format was it incorporated? And assuming that the order of precedence clause, FAR 52.215-8, is in the contract, what is the proposal's place in the order?

As for fraud and false claims, let me tell you--if you have a CPFF contract and submit an invoice for your allowable costs but knowingly charge something else, you could spend a lot of money on attorneys after DCAA gets wind of what you did. You might be able to explain yourself after you have spent a small fortune. I have been paid as an expert witness for such people, to explain that they were fools, but not crooks. My experience with the Justice Department is that if they get interested they will be very skeptical and very persistent. By the way, the government does not have to prove intent to deceive in a false claim case. All it might have to prove is that the contractor's interpretation of the contract is unreasonable. See Commercial Contractors, Inc. v. U.S., 154 F.3d 1356, 1356 (C.A. 1998):

The False Claims Act is complicated, Joel. Be careful.

People like you and me are supposed to be professionals. Professionals don't pop off with unjustified suppositions, half-baked theories, and ill-considered opinions. They inquire thoroughly and offer opinions cautiously. I mean, what's all the stuff about reformation, mistakes, and superior knowledge (of all things)? That's what makes me so mad when I read some of this stuff. We're supposed to know better. What kind of lessons are we teaching the newbies?

The opening post asked one question: "My question is does anyone know of any authoritative pronouncement that addresses this situation?" The answer to that was either yes, with citations, or no. Any other answer was unprofessional. A pro should have said nothing more. The older heads at Wifcon must be wiser.

Assuming that Retreadfed knows what he is talking about, he said that "the contractor proposed the commercial items at their catalog price, it excluded the commercial items from its fee calculation. All evidence indicates the govenrment did the same. Thus, what you have suggested is the way the contract was actually priced. Moreover, by the government now saying the contractor cannot bill for the items the way the contract was negotiated, the contractor will receive an effective fee substatially less than what the parties negotiated." He also said that the KO incorporated the proposal into the contract.

It APPEARS that the DCAA has told everyone that to pay for the training materials at catalog price there must be a separate CLIN (fixed unit price, I am ASSUMING). It APPEARS that the KO may have found that out from the DCAA, after award.

Otherwise,why did the KO accept the proposal and incorporate it into the contract (from Retreadfed's post)? To induce the Contractor into signing the contract, knowing that the clause would override the proposal? THAT would be unprofessional or worse. Now, I will give the KO more credit than that.

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Joel:

I think your analysis of this problem is shallow, at best. First, what does it mean to say that the contractor "proposed" catalog prices for a cost-reimbursement contract? What were the contractor's precise words? Second, it doesn't matter what it proposed if the contract it signed said something different, since a government contract is usually an integrated agreement and precontractual communications are not binding (the parol evidence rule). Moreover, to say that the proposal was "incorporated" into the contract means nothing until we see the language of the proposal and of the incorporation.

Even more importantly--Retread did not ask Wifconers to speculate. He asked a very specific question. Why take off on a flight of supposition and speculation, which you have done increasingly in the last year or so? What's up with that? Retread posted a brief synopsis of a situation and has mades unexplained assertions ("Because the contractor proposed the commercial items at their catalog price, it excluded the commercial items from its fee calculation. All evidence indicates the govenrment did the same. Thus, what you have suggested is the way the contract was actually priced.") and off you (and others) go, with no cited basis in law or regulation. Woo Hoo!

What have you found in Cibinic, et al., Cost Reimbursement Contracting, 3d,or Manos, Government Contract Costs & Pricing, 2d, or case law, to support any of your speculations?

I used to think so highly of your posts. I find this very distressing. I give up. Have at it. Enjoy yourself.

Vern

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People like you and me are supposed to be professionals. Professionals don't pop off with unjustified suppositions, half-baked theories, and ill-considered opinions. They inquire thoroughly and offer opinions cautiously. I mean, what's all the stuff about reformation, mistakes, and superior knowledge (of all things)? That's what makes me so mad when I read some of this stuff. We're supposed to know better. What kind of lessons are we teaching the newbies?

Vern suggests folks have "pop[ped] off with unjustified suppositions, half-baked theories, and ill-considered opinions" and have behaved unprofessionally.

I'm not sure about that. If someone read my Post #6 as suggesting something other than a possible area for inquiry, my apologies. There should be a way to offer up potential next steps or avenues to consider. This forum inevitably deals with incomplete facts. No one is going to hand over the contract file or engage in discovery before they post a question. We shouldn't have to prove up "our case" before we ask questions like, "Have you considered..."?

Vern's Post #9 provides needed context for any newbie. I don't think anyone who reads my reference to Nash & Cibinic at Post #6 and the cases discussed is going to come away thinking that mutual mistake is easy to prove or that it is frequently successfully invoked.

In Post #9, Vern says, "The talk about reformation...is baseless." In Post #12, he then emphasizes that none of us know what the facts are. If you read my Post #6 in the spirit in which it was offered--an avenue of inquiry, rather than as a prediction of the likely final outcome--"baseless" seems like a strong word. The suggestion was "based" on Retreadfed's statements and conclusions, quoted in my Post #6 and Joel's Post #13. To the extent Vern was providing some context on the likelihood of success of this argument generally (again, without reference to all the facts), point taken.

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Why suggest anything in this case other than an answer to the question asked?

I know of not a single case in the history of government contracting of reformation of a CPFF contract other than to permit recovery of state taxes after contract completion. If anyone knows of a case, I'd appreciate the information.

Had the contractor wanted to charge catalog price instead of allowable cost it should have either negotiated an FFP CLIN or an advance cost agreement. The contractor has the burden of proving that the parties had, in fact, agreed that the contractor would be paid a catalog price. If the agreement was as clear as Retread suggests, then that should not be a problem and there should be no need to attempt to rely on any mistake doctrine.

The thing to do is to submit a nonmonetary claim under the Contract Disputes Act demanding an interpretation of the contract and a final decision within 60 days. If you don't get the decision you want, file an appeal.

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One cannot provide a definitive answer to the situation which was only outlined by Retreadfed. One can offer areas to explore or possibilities.

I suggested discussing the situation with the KO, who APPEARS to have been told by DCAA that a separate CLIN is required to effect the terms of payment in the ("incorporated") proposal that conflict with the CR payment provisions in the contract. I also suggested consulting with an attorney.

Explain the facts to him or her more clearly than here and provide the details and "evidence")

The KO (might be or might not be the PCO) had to have seen the payment request. According to Retreadfed, it was the DCAA who identified the problem, not the KO.

Vern stated in post #9 that: "Absent express agreement to the contrary, under a cost-reimbursement contract the contractor is entitled to be reimbursed for its allowable incurred costs. Absent express agreement to the contrary, the contractor is not entitled to be reimbursed at what it would have charged if it had sold the books at retail or wholesale prices."

I believed and still believe that Retreadfed said, that there is evidence to prove that the proposal reflected and the parties agreed on excluding the training materials from the fixed fee basis and agreed that using established catalog rates would be acceptable.

Then, SUPPOSEDLY, the PCO incorporated the proposal into the contract. Retreadfred did not say how. He or she did not indicate that the proposal was modified to delete or modify the information that stated how materials would be priced.

The contractor MAY have assumed that this is all that is necessary to implement the terms of the proposal. We don't know.

The PCO may have also assumed this. We don't know. However, in my opinion, it would be incorrect (not professional?, bad judgment? Wrong? Ignorant? Poor practice? a MISTAKE?) to incorporate a proposal into a contract that patently conflicts with the rest of the terms of the contract, if the government had rejected the contractor's proposed pricing approach.

In my opinion, the KO should have first gotten the proposer to correct the proposal to reflect any negotiations that questioned or rejected the price basis of the proposal, if the government didn't intend to accept the proposed pricing basis of training materials. Had the government objected to this proposed pricing, it should have never incorporated the conflicting proposal into the contract as written. This MIGHT indicate that the KO didn't know any better that it would be necessary to add a CLIN to handle payment of the training materials or provide some other means to do so.

As far as I know, a CPFF contract can contain some fixed price or fixed unit price contract line items. Several of the multibillion dollar Chemical-Demilitarization Systems contracts I helped administer within the past 10 years (the PCO was with a subordinate command of AMC) contained hundreds of millions of dollars of fixed-price and unit-priced line items with CR umbrella contracts for disposal of stockpiled chemical weapons.

This could be a possible means to fix the contract to pay for the training materials, if the contracting parties both thought that is what they agreed upon and what they intended to contract for.

There may be better ways to cover a CLIN to pay for training materials.

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Thoughtful analysis, Joel.

In my opinion, if the contractor thinks that there is persuasive evidence it its support, then the best thing to do now is to formally request that the CO render an interpretation.

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Thoughtful analysis, Joel.

In my opinion, if the contractor thinks that there is persuasive evidence it its support, then the best thing to do now is to formally request that the CO render an interpretation.

I apologize for not being clearer and for my clumsy typing. I may also withdraw my comments concerning the possibility of government underhandedness. I apologize if that offended anyone (discussing superior knowledge or unilateral mistake).

The contractor apparently doesn't feel that the government negotiated the price down to reflect a low fee while rejecting the proposed materials pricing arrangement. The contractor thinks that it was agreed as proposed to pay for materials using the catalog pricing.

I honestly think, after mulling it over, that the government side didn't realize that they had to set up a separate CLIN to pay for training materials based upon the catalog price or some discounted percentage of catalog prices. Obviously, neither did the contractor - although why should it have to know more than the government contract writers about mechanisms of CLIN structures? I hope that the parties can work it out.

By the way, I'm wearing hand splints for the next 30 days to determine if I only have tendinitus in my hands or if I have the awful cousin Arthur - or Carpal Tunnel Syndrone. Too much thumbing on the BB and one digit typing on the keyboards. The dad-gummed things keep getting tangled in the keyboards. B)

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Let?s go with what we know for sure, based on Retread?s opening post.

1. The contractor submitted a proposal for a CPFF contract for training services and asserts that it included catalog prices for certain training materials that it sells commercially. We do not know if the contractor clearly stipulated catalog prices instead of cost reimbursement or merely based its cost estimate on catalog prices.

2. The parties reached agreement on an estimated cost and fee and incorporated the contractor?s proposal into the contract. We don?t know what words were used in the proposal with respect to the catalog prices or what words were used in the statement of incorporation. So we cannot presume anything about the legal significance of the incorporation to this issue.

3. The contractor believes that it is entitled to invoice for the catalog price of the materials, and apparently has submitted invoices/vouchers based on that belief, which I assume to be a good faith belief. The government disagrees. An auditor has disallowed the materials charges in the contractor?s invoices/vouchers and has told the contractor that in order for it to be paid for the materials at the catalog price the contract would have to include a CLIN and a stipulated price for the materials. It seems that the CO agrees with the auditor. We do not know anything else about contractor-CO communications about this issue.

Thus, the parties disagree in their interpretations of the contract. Should the contract be interpreted to provide for payment for the materials at catalog price or reimbursement for the cost of the materials, which I presume would be only the allowable cost of reproduction, packaging, and shipping, since it appears that the materials had already been developed by the time of contract award and the cost of development would not be allocable to the contract.

Thus, an otherwise routine request for payment may be in dispute. I say ?may be? because we don?t know exactly how this has gone down between the contractor and the CO.

Retread did not ask for advice about what to do, but some are making suggestions. So, if I were the contractor, the first thing I would want to do is see if the parties can resolve the matter in its favor. I would state my interpretation of the contract and the basis for it in writing and ask for a meeting. That might enable the parties to resolve the issue if the contractor writes persuasively and the language of the contract, including the proposal, is on its side. If that does not resolve the issue, I would want to get the contracting officer?s (not the auditor?s) interpretation and explanation, in writing, if possible. The contractor might find that to be persuasive. If the CO would not go along with an informal approach, then there are two possibilities: (1) Convert the disputed invoices/vouchers into a monetary claim pursuant to the Disputes clause and demand a final decision by the CO. (2) Submit a nonmonetary claim pursuant to the Disputes clause seeking only an interpretation of the contract and demanding a final decision

The contractor should seek legal advice if it decides to submit a claim, since there are at least two ways to do that and one way might be better than the other from a tactical standpoint. I would want to keep any monetary claim below $100,000, if possible, so that certification is not necessary and I could demand a final decision within 60 days. The contractor might want legal advice in any case if significant sums are involved.

This is best dealt with as soon after contract award as possible, while the contract negotiation is still relatively fresh in everyone?s mind. The sooner this is resolved the better. Inertia might take hold If the disagreement is allowed to continue, making it harder to get resolution in the long run.

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The catalog prices are fine as long as it is a real catalog that they sell to other customers. The more accurate DCAA questions should have been does the company grant discounts to some of its customers, and if so, the government is entitled to those.

Before I go on, realize that when you have a DCAA office saying 2+2 = 87 and a KO that is supporting DCAA, you already lost the war before you fight your first battle. So consider this post to be something to use in the future.

The KO usually always follows DCAA, so they are not to blame. DCAA has been going down the crapper for many years now, and that is why I left. DCAA is dead wrong. I cannot give you a perfect citation, but come on - this is crazy to ask for actual costs on a commercial item. All judgment and common sense is gone from DCAA, so I will try to give you some references for the future. Feel free to throw these out.

I am wondering how material this is? Is this just $10-$20K or are we talking big bucks? If we are, I might research this further.., but the bottom line is when you have an low-experienced DCAA office (which is what you have), you can have a big problem.

On with some references -

Look in FAR 15 for references to catalog, etc..,

Tell DCAA to look at their CAM Chapter 5-1209.1(h) Suitability of catalog pricing and prepriced listing methods for developing reasonable prices for spare parts proposals, if used by the contractor.

CAM 6-313(B) The existence of an established practice should be readily determinable from evidence such as catalogs, sales information, and delivery records.

CAM 9.304(a) The data may include bills of material, vendor quotations and catalogs, blueprints, value., etc, I could go on.

And the biggest one is CAM 14-907.1(a) The Clinger-Cohen Act of 1996 [also known as the Federal Acquisition Reform Act of 1996 (FARA)] also changed the exceptions by combining the catalog or market price exception with the commercial item exception. In the past, exceptions were discretionary, now they are mandatory, i.e., cost or pricing data shall not be obtained if an exception applies. Any information requested from an offeror to support an exception is now categorized as ?information other than cost or pricing data.? Contracting officers, although still tasked with the responsibility of purchasing supplies and services at a fair and reasonable price, are instructed not to obtain more information than is necessary.

What this is saying is, use common sense. You will not find common sense in the FAR.

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The catalog prices are fine as long as it is a real catalog that they sell to other customers. The more accurate DCAA questions should have been does the company grant discounts to some of its customers, and if so, the government is entitled to those.

Before I go on, realize that when you have a DCAA office saying 2+2 = 87 and a KO that is supporting DCAA, you already lost the war before you fight your first battle. So consider this post to be something to use in the future.

The KO usually always follows DCAA, so they are not to blame. DCAA has been going down the crapper for many years now, and that is why I left. DCAA is dead wrong. I cannot give you a perfect citation, but come on - this is crazy to ask for actual costs on a commercial item. All judgment and common sense is gone from DCAA, so I will try to give you some references for the future. Feel free to throw these out.

I am wondering how material this is? Is this just $10-$20K or are we talking big bucks? If we are, I might research this further.., but the bottom line is when you have an low-experienced DCAA office (which is what you have), you can have a big problem.

On with some references -

Look in FAR 15 for references to catalog, etc..,

Tell DCAA to look at their CAM Chapter 5-1209.1(h) Suitability of catalog pricing and prepriced listing methods for developing reasonable prices for spare parts proposals, if used by the contractor.

CAM 6-313(B) The existence of an established practice should be readily determinable from evidence such as catalogs, sales information, and delivery records.

CAM 9.304(a) The data may include bills of material, vendor quotations and catalogs, blueprints, value., etc, I could go on.

And the biggest one is CAM 14-907.1(a) The Clinger-Cohen Act of 1996 [also known as the Federal Acquisition Reform Act of 1996 (FARA)] also changed the exceptions by combining the catalog or market price exception with the commercial item exception. In the past, exceptions were discretionary, now they are mandatory, i.e., cost or pricing data shall not be obtained if an exception applies. Any information requested from an offeror to support an exception is now categorized as “information other than cost or pricing data.” Contracting officers, although still tasked with the responsibility of purchasing supplies and services at a fair and reasonable price, are instructed not to obtain more information than is necessary.

What this is saying is, use common sense. You will not find common sense in the FAR.

Let's not necessarily beat up the DCAA here. This appears to be the KO's problem.

After checking for more information - I wont go into more detail on that - my premise was pretty close to what happened.

The parties have previously contracted for training and the material was bought the same way at least twice before. The government didn't seem to have any problem with the method or the pricing. The training was fixed price in previous contracts. But there seemed to be too much variation in the student load, so the government - for some reason - went CPFF this time, with the intent or impression that it would get a better deal on the training cost, when the student load fluctuates.

The contractor proposed a similar method for selling the training materials for this contract and the parties agreed. I don't know the details.

The government failed to include a separate CLIN for the training materials when the contract was written up. The proposal was made part of the contract.

The DCAA correctly pointed out that a separate CLIN was necessary in order to pay for the training materials, thus rejected the invoice. I don't know if they said anything else, as I didn't read what the DCAA said. They didn't have to say anything else. It doesn't appear to be a reasonableness assessment. There is simply no way in the contract as currently written to pay for the contractor produced materials at a fixed price. The government needs to fix the contract if that is what was agreed upon.

The KO doesn't seem know that he/she can simply fix the contract to effect what was agreed upon by adding the separate CLIN. It is acceptable to mix CPFF and fixed price (unit price) as long as the material costs can be segregated from the training costs. It might only require a mod to adjust the current CLIN an add the training material CLIN. - but I dont know the details.

The KO now says the contractor needs to work it out with DCAA!!!!

Is this fear of DCAA reporting the KO to DoD or something if he/she mods the contract to reflect the original agreement?

Amazing to me...

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The catalog prices are fine as long as it is a real catalog that they sell to other customers.

What does that mean? Are you saying that under a CPFF contract the contractor can voucher for the price at which it sells its own products? Which cost principle says that?

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X DCAA,

Why don't you answer Vern's question? You seem to have time to contribute to every other thread on the forum. Your avoidance of Vern's simple question sure makes it seem like you don't know what you're talking about.

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XDCAA,

I assume you've lost interest in this thread, as you've posted elsewhere since both Vern's and Don's posts above. Perhaps you're thinking, researching, and composing a response. Please let those following this thread know. Thanks in advance!

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