JKRAU2003

There is no clause that would limit their liability to the Target Price, at least none that I am aware of. The Government is inherently liable for a portion of cost above the Target Cost up to the Ceiling Price based on the share line ratios for overruns under a FPIF contract, and I am not aware of a clause that would limit their liability to the funded amount either. It appears to me that they are trying to reduce their liability to the funded amount, which just happens to be at the Target Price, by inserting a clause that only applies to CR CLINs. In my opinion, they should ensure they have funds available to obligate up to ceiling if the need arises, before they enter into an FPIF contract or exercise and FPIF CLIN. I don't anticipate the CO issuing the mod unilaterally, but the CO could. I have seen COs issue unilateral mods to add/update clauses or even de-obligate funds.

I recently had a disagreement with a contracting officer (KO) about the applicability of the Limitation of Funds (LOF) clause with regards to FPIF CLINs. The KO notified me that he intends to add the LOF clause to the contract and have it apply to the the FPIF CLINs. I responded that per the prescription of the clause at FAR 32.706-2(b), the clause only applies to incrementally funded cost-reimbursement (CR) contracts, so it should not be added to the contract (contact only has FPIF and FFP CLINs; no CR CLINs). He argued that the clause applies to flexibly priced CLINs, and that FPIF CLINs were in a sense a CR CLINs, since 100% costs would be reimbursed up to the Target Cost and partially up to the Ceiling Price, should the cost exceed the Target Cost. As I looked closer at the LOF clause, I began to focus on the language below from paragraph (b), and read it to mean that the clause in essence limits the Government's liability at the amount funded (allotted). However, under an FPIF contract, the maximum Government liability would be the Ceiling Price, not the amount funded. The Contractor agrees to perform, or have performed, work on the contract up to the point at which the total amount paid and payable by the Government under the contract approximates but does not exceed the total amount actually allotted by the Government to the contract. For this contract in particular, it includes a payments clause that requires periodic submittals of a revised billing price (RBP) for each FPIF CLIN for progress payments, which is based on estimates at completions (EACs). For all of the FPIF CLINs in this contract, the RBPs exceed the Target Cost and Target Price, and in some cases are at the Ceiling Price, but the contract is only funded at the Target Price amount, as the Government currently lacks the funding to appropriately fund the FPIF CLINs to the RBP amounts. My concern in accepting this clause and allowing it to be applied to the FPIF CILNs, I would effectively be lowering the the Government's maximum limitation of liability on the FPIF CLINs from the Ceiling Price to the current level of funding, which is the Target Price. Has anyone encountered this issue before? The KO acted like this clause is added all of the time to FPIF contracts. As a note, I have actually requested the clause be removed from other contracts our company holds that have no CR CLINs, and the KOs of those contracts have agreed that it should not have been inserted into those contracts. Is my assessment of the impact to the Government's limitation of liability by inserting this clause accurate? If unilaterally added, would the clause be self deleting since it only applies to CR CLINs, for which this contract has none?

Scenario: Company A is a design agent and owns a vessel design (Company A's Intellectual Property) that has not been built and that Company B is interested in proposing as it's solution for an anticipated DoD opportunity as a prospective prime contractor. Company A has no patent, and has not filed for a patent for said vessel design, but is requiring Company B to enter into a license agreement including royalty payments to use Company A's vessel design based on a percentage of the price for each vessel constructed and sold to the Government. I am assuming the contract, or CLINs, under which the vessels will be constructed will be fixed price incentive, which may have some bearing on what clauses and provisions may be included in the solicitation concerning. It is my understanding that license agreements with royalty payment terms for the use of a design that has no design patent do exist, but it is not clear to me if the Government would deem such royalty payments to be proper and deem the associated costs to the prime contractor to be allowable if there is no patent. FAR 31.205-37 seems to only address royalties in the context of when there is a patent. FAR 27.202 mostly refers royalties in the context of when there is a patent. So the question is, would the royalties paid to Company A by Company B be deemed proper and the costs deemed allowable despite there being no patent for the vessel design?