Fara Fasat

So we're agreed that the OP is stuck? He priced the DX order normally, and has no relief available under those other contracts to cover the increased costs that were incurred on those. The debate now is over what should be done to avoid this problem. Here's what bothers me: In the OP's scenario, he didn't incur expediting costs on the DX order. He had priced it normally, and then simply shifted resources from other contracts, i.e. gave priority to the DX order. In other words, he bumped it ahead of the other contracts and used their resources. Then he had to incur costs to make up for those shifted resources to perform the other contracts. Once again (and the OP should correct me if I'm wrong), he did not incur expediting costs to perform the DX order; he just took resources from other contracts. I have no problem with including expediting costs when pricing the DX order, if they are incurred to expedite that order, i.e., higher payments to suppliers, overtime costs, etc. The contractor is saying: "here's the cost to get this to you by the required delivery date." But what Don seems to be advocating, is that when pricing the DX order, the contractor should anticipate and estimate the increased costs to perform the other bumped contracts, and put those costs on the DX order. In that case the contractor is saying: "I'll give priority to this order, but it will cost you more because of the impact to my other business." The difference is costs directly incurred to expedite just the DX order, and costs incurred on the other contracts because their resources were taken. I think the former can be priced into the DX order and the latter cannot.

Those "only two things" miss the whole point of the OP's scenario, and the example I've been trying to drag out of you. In the OP's situation, he didn't have a price for a comparable "expedited" unrated order. He didn't have to expedite it because he accepted it before the DX order. Then the DX order came and he incurred costs on those unrated orders, for which he had a contract at a normal, unexpedited price. He wanted to know how he could recover those increased costs on the unrated orders, which he had to reschedule in order to perform the DX order. All along, it sure sounded like you were saying that he could just stick those extra costs on the DX price. That's what we've been saying you can't do, because they are costs incurred on, and allocable to, totally separate contracts from the DX contract. Frankly, the DPAS regs only talk about scheduling and priorities, not extra costs. I don't believe they say what to do if you can't meet a required delivery date with your normal production run (for just that product and assuming no other conflicting orders), but you could meet it if you incur extra costs. The grounds for mandatory rejection simply say if you are unable to fill the order by that date. What does "unable" mean? Does it mean "unable" if you use your normal production processes? Does it mean you must expedite if you are "able" to do so? Nevertheless this departs from the OP's problem. He wants to know if he can recover the costs he has incurred, for unrated orders he had already priced normally, but that he had to reschedule for the DX order.

Maybe not, but you changed the scenario I was asking.

*sigh*, OK, although it's still not clear what you mean by "prices the DX-rated order consistent with comparable unrated orders." IF, and I repeat, IF, this is what you are saying, then I think it does violate DPAS: contractor gets a DX order for a widget; widget is normally priced at $2500; contractor can meet delivery date but only by rescheduling and shifting resources from other commercial orders (as it is required to do by 700.14); BUT, the shifting of resources will cause $700 increased costs on the commercial orders; contractor prices DX widget at $3200 to recover those costs. In effect contractor is saying "I'll accept the DX order but it will cost you more." Not only does this violate 700.13(a)(2), but you're now charging the government for costs incurred on commercial contracts.

Let's try an example: Because of giving priority to a DX order, the contractor will incur additional costs on a commercial contract in order to meet its delivery obligations. Are you saying that those costs can be added to the price of the DX order?

I will just add that some of those other impacted contracts could be non-government commercial contracts. It seems that Don is saying that the excess costs incurred on commercial contracts could be recovered on the DX contract. Not only would that catch an auditor's attention, I think that runs afoul of the 700.13 prohibition: "A person shall not discriminate against rated orders in any manner such as by charging higher prices...." That goes well beyond just adding the costs of expediting the DX order. DPAS isn't fair in some cases. The only protection it provides is against claims for damages from other customers that you had to bump to perform the rated order. I would compare it to other sovereign acts for which the contractor cannot recover.

I want to make sure I understand you correctly. You are saying that the subcontractor can roll its additional costs on the unrated and DO orders, into the price for the DX order, so that it recovers all the costs of this "expediting." Is this correct or am I misunderstanding you? If that is what you are saying, then I disagree. The only protection I see in the regs is protection against claims for damages from the unrated and DO customers. I believe Vern stated above that there was no basis for an REA or claim on those unrated and DO orders. If you are not entitled to any recovery on those impacted contracts, why should you be able to roll those costs into the DX contract? I've gone through various training materials i have saved over the years. All say that 1) you are required to reschedule the unrated and lower-priority orders if necessary, and 2) you are protected against claims from those affected customers. None of the materials say anything about recovering those extra costs, or rolling them up into the higher-rated order. If that amounts to "eating" the costs on those lower orders, then I guess that's what it is. The only disagreement I had was whether the subcontractor here had a choice about accepting the DX order. Once accepted, it had to perform, and I (and others) see no basis for recovering the additional costs incurred on the other orders.

If the DX order price included the actual cost of expediting the order, priced the same as it would any expedited order, then it might be OK. I say "might" because the reg does say that you can't charge a higher price. If you want to include the increased costs you will incur on other contracts that had cost/schedule impacts, then I would say no. Remember, the OP wants to know if he can recover the increased costs incurred on the DO and unrated orders, caused by shifting resources to produce the DX order. To that, you said "Why not price the DX contract so the contractor covers its increased costs?" I can't tell if you meant the increased costs on just the DX order, or all the increased costs incurred on other contracts because of the disruption of the DX order. The latter is what the OP wants to know.

That's probably prohibited. See 700.13(a)(2): "A person shall not discriminate against rated orders in any manner such as by charging higher prices or by imposing different terms and conditions than for comparable unrated orders." Besides, those costs would be incurred on other contracts, not the rated order. I wouldn't want to get into that mess.

I'm not so sure the subcontractor had a choice. Mandatory rejection at 700.13(b)(1) says that "Scheduling conflicts with previously-accepted lower rated or unrated orders are not sufficient reason for rejection under this section." At 700.13(a)(1), Mandatory Acceptance, it says "a person shall accept every rated order received and must fill such orders regardless of any other rated or unrated orders that have been accepted." The way I have always interpreted this is that you must accept the rated order if you can meet the delivery date by shifting resources from unrated (including commercial) or lower-rated orders that you already have. The only exception that might have applied here is a conflict with a previously-accepted DX order (see 700.13(b)(3). On the OP's facts though, the prior order was DO. Yes, there are optional rejection criteria at 700.13(c), and one of those might have given the subcontractor a "choice." However we have no indication from the OP that any were present. There is protection against claims from the other affected customers at 700.90, but I don't know of anything that provides relief to the contractor for its own increased costs.

It's not unilateral if it's accepted. The law says it's mandatory to accept, so what are you going to do? The OP asked whether any relief was available for the other contracts that were affected. I don't know the answer to that. I just commented that the contractor didn't appear to have a choice, based on the facts we have seen.

Where do you get the idea that a contract would be formed unilaterally? The reg says that a DX order must be accepted unless one of the allowable reasons for rejection exists. Order + acceptance = a contract.

The contractor may not have had a choice. Acceptance of a rated order is mandatory unless it meets the authorized reasons for rejection in 15 CFR 700.13(b). It may only reject a DX order if it would interfere with delivery of a previously-accepted DX order. See 15 CFR 700.13(b)(3). If it only has a DO order currently, it must accept and give priority to the DX order.

I can't say much else without seeing the entire contract. I will just say that you need to revise their clause to ensure that you are entitled to payment for all work performed up to the termination, minus reasonable charges for reprocurement, up to the cap. Use the FAR clause as your guide.

Reprocurement or completion provisions are not unusual for defaults, and are in the FAR as well (see 49.402-6) but this one is a bit stricter than others. Possible approaches: 1. Put in a "not to exceed" amount. 2. Modify the "relieved of any further payment" provision. It's too vague. Does it mean they don't have to pay you even for services already delivered or invoiced? Suggestion - align it with the settlement and payment provisions of the FAR.