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DAR Council Interprets ?Contract? to Include Task and Delivery Orders

Posted by Don Mansfield, 10 March 2011 · 5,485 views

In one of my earlier blog entries, I inferred that the FAR Councils interpreted the definition of ?contract? at FAR 2.101 to include task and delivery orders based on their answer to a question about the applicability of TINA to task and delivery orders (see ?Commonly Understood? I Think Not). Well, there is no reason to draw any inferences anymore. In a recently published final DFARS rule, the DAR Council unequivocally stated that the definition of ?contract? included task and delivery orders. The following exchange appears in the Background section of the final rule for DFARS Case 2010-D004 (72 FR 76296):

QUOTE
5. Applicability to task or delivery orders. One respondent recommended that the language at 222.7401(a), Policy, delete the reference to task or delivery orders and bilateral modifications adding new work.
Response: DoD does not agree. In accordance with FAR 2.101, a contract includes all types of commitments that obligate the Government to an expenditure of appropriated funds. Task orders and delivery orders obligate funding, and if they utilize funds appropriated or otherwise made available by the DoD Appropriations Act for Fiscal Year 2010 that are in excess of $1 million, the section 8116 restriction would apply.


Save this, because it?s unlikely that the definition of ?contract? at FAR 2.101 will ever be changed to explicitly include task and delivery orders.

In addition to the DAR Council, the GAO has also interpreted the definition of ?contract? to include task and delivery orders. In Delex Systems, Inc., B-400403, October 8, 2008, the GAO stated:

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In our view, the legal question is whether the Rule of Two, which by its terms applies to ?any acquisition over $100,000,? FAR sect. 19.502-2(b), applies to individually competed task or delivery orders under multiple-award contracts. We conclude that it does, because, at least for purposes of this analysis, those orders are properly viewed as ?acquisitions.? We have previously concluded that a delivery order placed under an ID/IQ contract is, itself, a ?contract,? at least for some purposes, see FAR sect. 2.101, and contracts are covered by the definition of ?acquisition? in FAR sect. 2.101. Letters to the Air Force and Army concerning Valenzuela Engineering, Inc., 98-1 CPD para. 51 (Letter to the Air Force at n.1).


While it?s nice to have more clarity on the status of task and delivery orders, there remains ambiguity on how to apply clauses in indefinite delivery contracts. Should they be applied at the ?whole contract? level, the task or delivery order level, or both? The FAR Councils routinely receive public comments asking how a new requirement is to be implemented in an IDIQ contract. Consider the following from the final rule implementing the current version of the clause at FAR 52.232-10, Payments Under Fixed-Price Architect-Engineer Contracts (75 FR 13424):

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12. Fee withholding should be different for task orders under indefinite-delivery/indefinite-quantity (IDIQ) contracts.
Four respondents commented that IDIQ contracts should be treated differently. One respondent noted that some small A-E firms believe that the current regulation may not be consistent with IDIQ contracting practices. This comment is supported by four other comments received on this same point. One respondent claimed that retainage for individual task orders under an IDIQ contract is, at times, currently held until the entire IDIQ contract is complete.
Response: Retainage should be related to the contractor's performance on the individual task or delivery order and, in order to be compliant with the requirements of FAR 52.232-10, the contractor must be paid any unpaid balance upon satisfactory completion of the work under that contract, whether it is a task or delivery order or a stand-alone contract. However, this is a matter of educating contracting officers rather than changing policy; the policy is correct, but its execution needs improving.


Apparently, the ?right? way to implement this clause was at the task order level, not the ?whole contract? level. How a contracting officer is supposed to just know this is beyond me. The FAR Councils have declined to clarify this policy in the clause.

So should we applying all clauses at the task and delivery order level? Apparently not. Contracts that are set aside for small business concerns are required to contain a limitation on subcontracting clause. FAR 52.219-14(b) sets forth the limitations as follows:

QUOTE
By submission of an offer and execution of a contract, the Offeror/Contractor agrees that in performance of the contract in the case of a contract for?
(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.
(2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials.
(3) General construction. The concern will perform at least 15 percent of the cost of the contract, not including the cost of materials, with its own employees.
(4) Construction by special trade contractors. The concern will perform at least 25 percent of the cost of the contract, not including the cost of materials, with its own employees.


By operation of the clause at FAR 52.202-1, Definitions, the applicable definition of ?contract? would be the one located at FAR 2.101:

QUOTE
?Contract? means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see Part 16.


It would seem that since both indefinite delivery contracts and task and delivery orders meet this definition, so one would think that the subcontracting limitation applied to both. However, that?s not how the GAO interprets the clause.

The decision in Lockheed Martin Fairchild Systems, B-275034, 17 January 1997, stated the following:

QUOTE
Lockheed contends that the delivery order violates the subcontracting limitation clause, Federal Acquisition Regulation (FAR) ? 52.219-14, contained in UNITECH's contract. Contrary to Lockheed's contention, this clause, by its terms, only applies to the contract as a whole and does not require that each delivery order placed under the contract satisfy the requirements of that clause.


Thus, the GAO determined that this clause was applicable at the ?whole contract? level, and not at the task order level. There?s no discussion on why this is necessarily so.

What about the clause at FAR 52.232-20, Limitation of Cost? Do the notification requirements apply at 75% of the estimated cost of the task or delivery order, or at 75% of the estimated cost of the indefinite delivery contract? What about the clause at FAR 52.216-8, Fixed Fee? Does the $100,000 fee withholding limitation apply to each task or delivery order, or to the whole IDIQ contract? The questions are endless. Contracting officers have answers to these questions, but they are not all the same. Without a clear set of rules, it?s hard to argue that anybody is wrong.

Fortunately, some clauses are clear on this point. For example, the clause at FAR 52.216-23, Limitations on Pass-Through Charges, states the following reporting requirement:

QUOTE
( c ) Reporting. Required reporting of performance of work by the Contractor or a subcontractor. The Contractor shall notify the Contracting Officer in writing if?
(1) The Contractor changes the amount of subcontract effort after award such that it exceeds 70 percent of the total cost of work to be performed under the contract, task order, or delivery order.


Some of the newer FAR rules recognize the potential confusion caused in the case of indefinite delivery contracts and have adapted. That?s encouraging, but it doesn?t help us interpret the older rules. The FAR Councils could clarify things by adding an interpretation convention at FAR 1.108 stating at which level (whole contract, task order or delivery order, or both) requirements of clauses in indefinite delivery contracts apply, if not otherwise specified. Probably won?t happen. I can hope.





What about CAS coverage? Should CAS coverage be determined at the contract level? If so, what's the contract price for purposes of determining whether the contract is valued in excess of $650,000? Is the contract value the ceiling or the minimum amount?

Clearly it makes much more sense to identify CAS coverage at the task order level, but that's not how DCAA sees it.
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here_2_help,

As I wrote in one of my earlier blog entries, the FAR Councils have stated that CAS determinations are made at the "whole contract" level in the case of indefinite delivery contracts (see ?Commonly Understood? I Think Not). No, I won't argue that it makes sense.

As far as determining CAS applicability for an indefinite delivery contract, I would say that the contract value is the maximum amount of the contract in accordance with FAR 1.108( c ). FAR 1.108 says "The following conventions provide guidance for interpreting the FAR...", so I assume that includes the FAR Appendix.
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Don,

I know we discussed this at length but stumbled across the below case and thought it might interest you. Ameresco Solutions, Inc. ASBCA Nos. 56824, 56867.

http://www.asbca.mil..._030411_WEB.pdf

In this particular case the ASBCA held that a delivery order issued by DESC pursuant to a DOE contract was a separate DoD contract over which the ASBCA had jurisdiction on appeal.
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Darby8001,

Thank you. Somebody sent me that decision just a few days after I made this blog entry. Note that the ASBCA limited their interpretation of "contract" to include delivery orders solely to determine CDA jurisdiction. This raises another question--Why did the parties in the case refer to FAR definition of "contract" to interpret the Contract Disputes Act? The definition of "contract" at FAR 2.101 only applies to the use of that word in the FAR.
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Don,

Good questions and I am not real sure of the answer. The best I could come up with is from another court See P.R. Burke Corp. v. United States, 47 Fed. Cl. 340 (2000), which stated: ?This court prefers to use the context in which the contract language appears and the intent of the parties, rather than general dictionary definitions, to proved plain meaning to contract terms?

Also on pg. 161 of Admin of Gov Contracts the texts mentions that ?Dictionary definitions are rejected when they are not useful or there is better evidence to determine the meaning of a term.?

In these instances I would say since the FAR provides a more appropriate definition then why not use it?

In any event thanks for the good discussion.
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QUOTE (Don Acquisition @ Mar 21 2011, 11:29 AM)
here_2_help,

As I wrote in one of my earlier blog entries, the FAR Councils have stated that CAS determinations are made at the "whole contract" level in the case of indefinite delivery contracts (see ?Commonly Understood? I Think Not). No, I won't argue that it makes sense.

As far as determining CAS applicability for an indefinite delivery contract, I would say that the contract value is the maximum amount of the contract in accordance with FAR 1.108( c ). FAR 1.108 says "The following conventions provide guidance for interpreting the FAR...", so I assume that includes the FAR Appendix.


Don, why would you think that FAR 1.108© applies to the CAS and the CASB rules, when the CASB is given sole responsibility and authority for issuing CAS interpretations?
Also, in regard to what is the value of an IDIQ contract, what impact does this extract from FAR 16.504 have on your conclusion that it is the maximum potential amount that can be ordered under the contract that deterines the value of an IDIQ contract "To ensure that the contract is binding, the minimum quantity must be more than a nominal quantity, but it should not exceed the amount that the Government is fairly certain to order"?
Changing it around a little bit, would it make any difference if we are talking about multiple award contracts instead of single award IDIQ contracts?
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Retreadfed,

As you know, the CAS Board has not issued an interpretation of how to apply dollar thresholds in the case of IDIQ contracts. For that matter, neither has a board or court. However, we do know that trial courts have been instructed by the CAFC to use related regulations for interpretative guidance when interpreting CAS (ATK Thiokol, Inc. v. U.S., 68 Fed. Cl. 612 (2005)). I don't think that there's a more "related" regulation to CAS than FAR (both chapters within the same title of the CFR), which contains interpretative guidance on how to apply dollar thresholds at FAR 1.108( c ). Given these facts, it is more reasonable than not to use FAR 1.108( c ) to interpret dollar thresholds in CAS.

The statement in FAR 16.504 provides guidance to agencies on establishing a minimum quantity in an IDIQ contract. It has no effect on my conclusion that, in applying dollar thresholds, one must consider the maximum potential amount of the IDIQ contract.

I understand your point about multiple award contracts--most such contracts probably don't come close to reaching their maximum amounts. However, the same is true for some single-award IDIQ contracts and this fact doesn't affect how we are to apply dollar thresholds.

I would like to see the CAS Board recognize IDIQ contracts and make a clear interpretation of how we are to apply CAS to them. In my opinion, it makes the most sense to determine CAS applicability at the task/delivery order level, like TINA.
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