I currently administer a CPFF contract and all subcontractor proposals must be approved by the Contracting Officer. The contractor provided a proposal and it was approved by the C.O. and deemed fair and reasonable. However, the contractor claims that their subcontractor backed out and they had to find another sub, but the costs were quite a bit higher.

My question: After we already agreed on the price and definitized it by a modification, is the Govt obligated to pay the extra costs for the new sub. The contractor claims that this is a cost reimbursement contract and the government is obligated to reimburse for all allowable costs for the performance of our work. But it's not our fault the subcontractor backed out. We feel the contractor should be bound by the agreement in place and not charge us for the difference?

Thanks!

My question: After we already agreed on the price and definitized it by a modification, is the Govt obligated to pay the extra costs for the new sub. The contractor claims that this is a cost reimbursement contract and the government is obligated to reimburse for all allowable costs for the performance of our work. But it's not our fault the subcontractor backed out. We feel the contractor should be bound by the agreement in place and not charge us for the difference?

If the contract is CPFF, then you did not agree on "the price." You agreed to an estimated cost and fixed fee. You must reimburse the contractor for its incurred allowable cost up to the amount of the estimated cost, at which point the contractor does not have to do any more work unless you agree to raise the estimated cost. The contractor is not "bound" to do the work for the estimated amount agreed upon. It is obligated only to make its "best effort" to complete the work within the estimate.

So, in answer to your question, the government is obligated to pay the extra allowable costs for the new sub up to the amount of the estimated cost. If the work costs more than the estimate and you don't want to pay the additional amount, the contractor can stop working.

See the clauses at FAR 52.216-7, Allowable Cost and Payment, and 52.232-20, Limitation of Cost. If the contract is incrementally funded, read 52.232-22 instead of 52.232-20.

doc4243,

Just to add to what Vern wrote, for a cost to be allowable, it must be reasonable. See FAR 31.201-2 (I'm assuming the cost in question is being incurred by a commercial organization). See FAR 31.201-3 for guidance on determining the reasonableness of a cost. So, the contractor is correct that the Government must reimburse its allowable costs. However, the Government may find the extra subcontract costs unreasonable and thus, unallowable.

I agree with Don, but the cost is not unreasonable merely because it's higher than the original cost.

I agree with Don, but the cost is not unreasonable merely because it's higher than the original cost.

I agree with both of the other gentlemen. But I would add that if it is possible to explore alternatives, take some proactive management action.If you have determined or believe that the contractor's actions were unreasonable or the higher costs are unreasonable (read FAR 31.103 and 31.2) or if you just want to better manage costs, what alternatives are there to get the estimated costs back within the contract budget? If there are viable alternatives available or if you want to know if there are any, it would behoove you to immediately discuss the matter with the contractor before it is too late to mitigate.

At first glance, I wouldnt think that there is much, if any benefit on a cost reimbursable fixed fee contract for the prime contractor to bid shop, or otherwize squeeze the original sub for a lower price that results in the sub refusing to perform or sign the subcontract. Such actions are often considered unethical, but it wouldnt increase the prime's fee, nor will having to get a higherr priced replacement subcontractor increase its fee. So, without the benefit of the full story, it would seem that the prime had no motivation to do such a thing. It is not uncommon for subcontractors to back out or otherwise fail to come through.

If there is no alternate that will keep the estimated costs within budget, I believe that Vern described your likely options.