We were at the last week of a cost plus fixed fee contract, when our finance department resubmitted the new overhead/G&A rates to the Government/DCAA. I am the Program Manger and was told in November that the rates would not change much. As it turns out, there was a big change.

As we approached the end of the contract, with the old rates I had $100K left. The new rate adjustment made the total costs $400K over what we had been invoicing throughout the year. Therefore, with the new rates, I am now over the contract amount by about $300K. So, of course, my program was shut down by our finance department.

So, I have several questions. What happens now? I am assuming that we will just send an invoice up to the contract amount ($100K) for the adjustment as no work was performed. How and when does the Government get their final invoice for the remainder of $300K? Does this come out of my Contracting Officers program funds. What I am most concerned about is getting my CO/COTR very upset. Does this come out of his budget or does his department have a pool for this? How bad will this look on him/me? Does he have to start trying to find more money?

We were at the last week of a cost plus fixed fee contract, when our finance department resubmitted the new overhead/G&A rates to the Government/DCAA. I am the Program Manger and was told in November that the rates would not change much. As it turns out, there was a big change.

As we approached the end of the contract, with the old rates I had $100K left. The new rate adjustment made the total costs $400K over what we had been invoicing throughout the year. Therefore, with the new rates, I am now over the contract amount by about $300K. So, of course, my program was shut down by our finance department.

So, I have several questions. What happens now? I am assuming that we will just send an invoice up to the contract amount ($100K) for the adjustment as no work was performed. How and when does the Government get their final invoice for the remainder of $300K? Does this come out of my Contracting Officers program funds. What I am most concerned about is getting my CO/COTR very upset. Does this come out of his budget or does his department have a pool for this? How bad will this look on him/me? Does he have to start trying to find more money

What happens now is that the Government might tell you to get lost.

The title of this post says that your contract is cost-plus-fixed-fee. If that is correct, then the contract should include either the clause at FAR 52.232-20, Limitation of Cost, or the clause at FAR 52.232-22, Limitation of Funds. I assume that when you said, "I am now over the contract amount" you meant that your total costs incurred exceed the contract estimated cost and/or total funds allotted. I also assume that you did not give the Government any advance notice of the overrun as required by the clauses and that the Government did not give you the okay to continue performance in spite of the overrun. If that is the case, then by the express terms of both of those clauses the Government is not obligated to reimburse your firm for the excess costs incurred. In other words, they don't have to find any additional funds because they don't owe you any part of the overrun. That doesn't mean that they won't reimburse you for the overrun. It just means that they probably do not have to do so. You might be able to talk them into it, in which case they'd have to come up with the money from somewhere. Who knows where?

Having said that, the boards of contract appeals and the courts have occasionally permitted a contractor to recover an overrun attributable to an unanticipated increase in overhead rates. (By "contractor" I mean your company, not you personally. The fact that you were clueless might not mean much if others in the company knew or had reason to know about the coming overhead rate increase.) If you plan to seek recovery on the basis of such board or court decisions you should contact an attorney who knows the law. Of course, bringing in a attorney won't make your firm more popular with your customer, but that's up to you.

You might do better simply by talking things over and simply asking for the money. They will be well within their rights to be pissed off at you if they had no idea this was coming. It could affect your past performance rating.

I don't really have anything to add to Vern's comments, but I am interested in the original post: "So, of course, my program was shut down by our finance department."

I am hoping that the work was done and all reports submitted and that all required close-out activities had been completed before the program was "shut down". If not, where are the costs of those efforts going to be charged?

Let's assume a quick hypothetical --

1. Program did not inform customer that it was going to need additional funds as required by the clause(s) found in the contract.

2. Program had some work or required close-out activities left to perform.

3. Costs of those remaining activities would have been charged as direct costs of the CPFF contract, absent the "shut down" by Finance.

4. Somebody will still perform those activities but the costs of performing them won't be charged to the contract.

If those four statements in the hypothetical scenario are true, then (hypothetically) your company has a problem--particularly if there is a pattern of Finance "shutting down" incomplete contracts when they reach funding ceilings, where the company didn't comply with the contract clause(s) Vern noted above.

I hope my hypothetical scenario does not apply to your company.

I also hope this helps.

Help:

I don't understand your comments. If the contract is CPFF, then the contractor is not obligated to perform in the absence of funding. Why must the work be "done," "reports submitted," and "closeout activities completed"? Are you speaking in terms of customer satisfaction or legal obligation? If you say "customer satisfaction," then I understand. Hopefully, you won't say "legal obligation."

When the contractor runs out of money under a CPFF contract it can (a) stop working or ( continue working on its own nickel. It might do the latter at no expense to the customer in order to remain in the customer's good graces or in the hope that the customer will fund the overrun and reimburse its costs. But either way, the contractor has no legal obligation to keep working and finish anything.

In my experience, contracts is often an organization within the larger finance organization, and it makes good sense to me that finance would shut down operations under the contract until company management decides what to do. In my experience, your hypothetical scenario is not altogether uncommon in reality. The reason for having a finance VP is to, well, manage the company's finances until someone decides whether to continue spending money that the firm is not obligated to spend and for which the firm is not entitled to reimbursement.

What happens now is that the Government might tell you to get lost.

The title of this post says that your contract is cost-plus-fixed-fee. If that is correct, then the contract should include either the clause at FAR 52.232-20, Limitation of Cost, or the clause at FAR 52.232-22, Limitation of Funds. I assume that when you said, "I am now over the contract amount" you meant that your total costs incurred exceed the contract estimated cost and/or total funds allotted. I also assume that you did not give the Government any advance notice of the overrun as required by the clauses and that the Government did not give you the okay to continue performance in spite of the overrun. If that is the case, then by the express terms of both of those clauses the Government is not obligated to reimburse your firm for the excess costs incurred. In other words, they don't have to find any additional funds because they don't owe you any part of the overrun. That doesn't mean that they won't reimburse you for the overrun. It just means that they probably do not have to do so. You might be able to talk them into it, in which case they'd have to come up with the money from somewhere. Who knows where?

Having said that, the boards of contract appeals and the courts have occasionally permitted a contractor to recover an overrun attributable to an unanticipated increase in overhead rates. (By "contractor" I mean your company, not you personally. The fact that you were clueless might not mean much if others in the company knew or had reason to know about the coming overhead rate increase.) If you plan to seek recovery on the basis of such board or court decisions you should contact an attorney who knows the law. Of course, bringing in a attorney won't make your firm more popular with your customer, but that's up to you.

You might do better simply by talking things over and simply asking for the money. They will be well within their rights to be pissed off at you if they had no idea this was coming. It could affect your past performance rating.

What happens now is that the Government might tell you to get lost.

The title of this post says that your contract is cost-plus-fixed-fee. If that is correct, then the contract should include either the clause at FAR 52.232-20, Limitation of Cost, or the clause at FAR 52.232-22, Limitation of Funds. I assume that when you said, "I am now over the contract amount" you meant that your total costs incurred exceed the contract estimated cost and/or total funds allotted. I also assume that you did not give the Government any advance notice of the overrun as required by the clauses and that the Government did not give you the okay to continue performance in spite of the overrun. If that is the case, then by the express terms of both of those clauses the Government is not obligated to reimburse your firm for the excess costs incurred. In other words, they don't have to find any additional funds because they don't owe you any part of the overrun. That doesn't mean that they won't reimburse you for the overrun. It just means that they probably do not have to do so. You might be able to talk them into it, in which case they'd have to come up with the money from somewhere. Who knows where?

Having said that, the boards of contract appeals and the courts have occasionally permitted a contractor to recover an overrun attributable to an unanticipated increase in overhead rates. (By "contractor" I mean your company, not you personally. The fact that you were clueless might not mean much if others in the company knew or had reason to know about the coming overhead rate increase.) If you plan to seek recovery on the basis of such board or court decisions you should contact an attorney who knows the law. Of course, bringing in a attorney won't make your firm more popular with your customer, but that's up to you.

You might do better simply by talking things over and simply asking for the money. They will be well within their rights to be pissed off at you if they had no idea this was coming. It could affect your past performance rating.

This is a cpff contract. Thirty days before the end of last year we did not know that there was a problem. In fact, I got an email from our finance department in November 2009 stating that the rates would remain flat and would not substantially change from the approved rates. Then the first week of January 2010 (I am assuming that Finance worked through Christmas), the company submitted new rates to DCAA which has a rate adjustment for last year. These rates have not been approved yet. (that is a whole other problem).

Using the old rates (which are the only approved rates that we have) the contract still has $100K left on it. If you add up all the costs throughout 2009 and apply new rates then we are about $300K over. So, I guess that theoretically I still have $100K left on the contract using the only approved rates that we have. But since the new rates were submitted and the company believes they will be accepted, they had me stop working on the program. We have not submitted a final invoice yet.

Example:

Total Contract Limit: $5M. (assume no fee for simpicity)

Total Costs on the contract from January 1 to December 31, 2009 using old approved rates was $4.9M.

Remaining: $100K at the end of December 31 using old approved rates.

January 3, new rates for 2009 submitted to DCAA 8% higher (comglomerate rate combining G&A, Overhead, etc. for simplicity)

Amount costs increased due to rate adjustment: $4.9M x 8% = $392K

Total Costs $4.9M + $392K = $5.292M

Amount over the $5M limit: $292K

Suppose this contract ended in September 2009 and I went right to the limit because in good faith the company did not know that there would be a rate increase. Now three months after the engineering is done and the final reports are submitted we recalculate our rates for the previous year. We then find out that we were over; wouldn't we be entitled to the money that we were over? I could even imagine that the rate adjustment could come years later. Certainly, there may be no money left in the specific program at that point. Where would the money come from?

I don't know where the money would come from! How the heck would any of us know if you don't know?

You've already told us the sad tale of the overrun. I have answered your question about your entitlement: It ends when you hit the estimated cost or total funds allotted. Read your contract. Your company should have done a better job of cost tracking and projection. All you can do now is try to sweet talk the agency into reimbursing you or litigate.

I don't know where the money would come from! How the heck would any of us know if you don't know?

You've already told us the sad tale of the overrun. I have answered your question about your entitlement: It ends when you hit the estimated cost or total funds allotted. Read your contract. Your company should have done a better job of cost tracking and projection. All you can do now is try to sweet talk the agency into reimbursing you or litigate.

I agree with Vern.

Vern,

Thank you so much. One more question then; What if during the rate recalculation our rates actually were lower. Would we have to pay the Government back?

Vern,

Thank you so much. One more question then; What if during the rate recalculation our rates actually were lower. Would we have to pay the Government back?

nitram_PM if you have a CPFF contract then you can only bill actual, allowable costs. You have a contract clause 52.216-7 and you should read it carefully. If rates go up, you bill up to funding. If rates go down, you submit an adjustment voucher or give the government a refund. (The fixed fee stays the same either way.)

Hope this helps

Vern,

Thank you so much. One more question then; What if during the rate recalculation our rates actually were lower. Would we have to pay the Government back?

Here_2_help gave you a good answer.

This forum is great. You all are extremely helpful and quick. For anybody interested, here is a court case agreeing 100% with the two of them.

http://www.ll.georgetown.edu/federal/judic...ns/97-1299.html

It seems to me that there is a serious need for some housecleaning in the Finance Department!!