Applicability of Limitation of Funds (FAR 52.232-22) to Fixed-Price Incentive Frim Target (FPIF) Contract Line Items (CLINs)

[JKRAU2003]

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?

[Retreadfed]

56 minutes ago, JKRAU2003 said:

However, under an FPIF contract, the maximum Government liability would be the Ceiling Price, not the amount funded.

If the target price and ceiling price are different and the government has only obligated funds to cover the target price, is there already a clause in the contract that limits the government's liability to the target price?  It seems strange that the government would include an amount you are entitled to be paid under the contract and not obligate funds to cover that liability.

On what authority does the CO plan to unilaterally add the clause?

[JKRAU2003]

44 minutes ago, Retreadfed said:

If the target price and ceiling price are different and the government has only obligated funds to cover the target price, is there already a clause in the contract that limits the government's liability to the target price?  It seems strange that the government would include an amount you are entitled to be paid under the contract and not obligate funds to cover that liability.

On what authority does the CO plan to unilaterally add the clause?

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.

[Neil Roberts]

4 hours ago, JKRAU2003 said:

is my assessment of the impact to the Government's limitation of liability by inserting this clause accurate?

I think you are on the right track and your attention to detail in this matter is admirable. However, you work for a company that has created the contractual impression in the past that adding this clause is commonly acceptable to your company. My experience is that many contractors are focused on the statement of work and price more than the many terms and conditions. I believe you should take steps to be confident that you don't object to a contract clause that the company has already assessed as an ok risk before you proceed further with such steps as discussing with the level above the contracting officer. Or, maybe your position is better handled by the program office contacts with the customer.  

 

Edited February 5 by Neil Roberts
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