DPAS Rating Impacts to Contractors and their "Remedies" if Any

[JKRAU2003]

Here is the scenario (hypothetical). A contractor has contracts with DPAS ratings of DO and some that are unrated. The contractor accepts a subcontract from a prime contractor that has a DX rating. The contractor finds that it would need to shift human resources to the DX work and re-plan work to utilize more of its facilities for the DX work in order to meet the scheduled DX order delivery dates. Doing so would cause cost and schedule impacts on its DO rated and unrated contracts since human resources would be pulled off of those orders and since the facilities that were planned to be utilized to complete the work under the DO and unrated orders will now be used for the DX rated order. The question is, does the contractor have any entitlement if it were to submit an REA or claim for schedule relief and for cost impacts on the DO rated and unrated contracts? There does not seem to be a constructive change in this scenario that would give rise to submitting an REA or claim pursuant to the Changes clause. Are there any other avenues or "remedies" whereby the contractor might be entitled to additional funds / contract value adjustments and schedule adjustments in this scenario .... perhaps a claim for undue burden?

If the schedule was accelerated under the DX order or if an order was changed from DO to DX, I could see there being entitlement to an equitable adjustment pursuant to the Changes clause, but that is not the case in this scenario.

[here_2_help]

The contractor had a choice whether to accept the DX-rated subcontract, correct? It could have refused, arguing that it lacked capacity to meet the schedule. It chose to accept. The rest, it seems, is on the contractor.

[Fara Fasat]

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. 

[here_2_help]

20 hours ago, Fara Fasat said:

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. 

That's interesting. I didn't realize that a contract could be formed unilaterally.

Back to the OP, I noticed 15 CFR 700.75, which states:

Quote

If compliance with any provision of the Defense Production Act, the Selective Service Act and related statutes, this regulation, or an official action would prevent a person from filling a rated order or from complying with another provision of the Defense Production Act, this regulation, or an official action, the person must immediately notify the Department of Commerce for resolution of the conflict.

That would seem to be the appropriate course of action here.

[Fara Fasat]

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.

[here_2_help]

31 minutes ago, Fara Fasat said:

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.

Forcing one party to accept a contract seems an awful lot like unilateral formation to me. But I'm admittedly not an attorney

[Fara Fasat]

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. 

[policyguy]

"Contractors should report issues experienced during execution of DPAS to DCMA for potential resolutions."

https://www.dcma.mil/DPAS/

 

[Vern Edwards]

On 1/22/2025 at 8:14 AM, JKRAU2003 said:

The question is, does the contractor have any entitlement if it were to submit an REA or claim for schedule relief and for cost impacts on the DO rated and unrated contracts?

No.

Why would there be a basis for an REA or claim? The Changes clause provides no remedy, since the government has not changed or breached any rated contract. There is no other contract clause that provides for such a remedy.

The government did not impose the DX-rated subcontract on the contractor. Since the contractor chose to enter into the DX-rated subcontract, it must either absorb the impact on its DO-rated contracts or breach them. It should not have entered into the DX-rated subcontract if it was not prepared to absorb the impact on other contracts.

However, see 15 CFR Part 700 for possibilities for other official assistance or relief.

[Fara Fasat]

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. 

 

[Don Mansfield]

16 minutes ago, Fara Fasat said:

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.

Why not price the DX contract so the contractor covers its increased costs?

[Fara Fasat]

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.

[Don Mansfield]

If you think the contractor must take a loss, then I disagree. 

A comparable unrated order would be, in my opinion, one that a customer wanted on an expedited basis. A competent contractor would price such an order high enough to cover all of the increased costs that it is expected to incur. As long as the DX-rated order were priced the same way, I see no violation of the regulation.

[Fara Fasat]

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.

[Don Mansfield]

I meant increased costs in total--the same way they would price an expedited order.

You seem to be suggesting that the contractor must eat any losses on its DO-rated orders if it receives a DX-rated order. I think that's wrong. The contractor would not violate the DPAS regulations if it priced a DX-rated order the same as an expedited unrated order. In that situation, a competent contractor is going to make sure they price the order to cover its costs. Think of an expediting fee.

If you are not suggesting that the contractor must eat any losses on its DO-rated orders if it receives a DX-rated order, then I don't know what you're trying to say. 

[Fara Fasat]

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.

[Don Mansfield]

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1 hour ago, Fara Fasat said:

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?

I'm saying that when pricing the subcontract, the subcontractor would not be in violation of DPAS regulations if it considered the cost impact to the company for accepting a DX-rated order. A "comparable unrated order" would be one where the buyer wants expedited delivery. Expediting fees are standard commercial practice.

*********************

AI explanation--

An expediting fee is a charge paid to prioritize and fast-track a process, allowing for quicker completion of a task or service, often by allocating additional resources to handle the request faster, with the understanding that the customer is willing to pay extra for the expedited timeframe; essentially, it's a fee to "jump the line" or receive faster service.

**************

If you are interpreting 700.13(a)(2) to mean that a contractor is prohibited from considering the cost impact to the company of expediting, including the cost impact on other orders, when pricing a DX-rated order then I disagree. If the company considers these costs when pricing comparable unrated orders, there's no violation. 

[Vern Edwards]

On 1/24/2025 at 3:33 PM, Don Mansfield said:

You seem to be suggesting that the contractor must eat any losses on its DO-rated orders if it receives a DX-rated order. I think that's wrong. The contractor would not violate the DPAS regulations if it priced a DX-rated order the same as an expedited unrated order. In that situation, a competent contractor is going to make sure they price the order to cover its costs. Think of an expediting fee.

@Don MansfieldSo you think the CO for the DX-rated order should find the order price to be fair and reasonable, even the price includes costs incurred under the DO-rated order?

[Don Mansfield]

2 hours ago, Vern Edwards said:

@Don MansfieldSo you think the CO for the DX-rated order should find the order price to be fair and reasonable, even the price includes costs incurred under the DO-rated order?

There wouldn't be any costs incurred at the time of pricing the DX-rated order. Do you mean estimated costs?

In any case, the contracting officer should be concerned about the overall price. As long as it was consistent prices charged for comparable unrated orders, they shouldn't find it unreasonable solely because the contractor included collateral costs in its estimate.

[Vern Edwards]

@Don Mansfield

10 hours ago, Don Mansfield said:

Do you mean estimated costs?

Yes.

Here is the original scenario:

On 1/22/2025 at 8:14 AM, JKRAU2003 said:

Here is the scenario (hypothetical). A contractor has contracts with DPAS ratings of DO and some that are unrated. The contractor accepts a subcontract from a prime contractor that has a DX rating.

I don't read that as saying that the DX ratted subcontract was imposed on the subcontractor pursuant to law.

In any case, suppose that the DO rated contracts were awarded by Agency A and the DX rated subcontract would be awarded by Agency B. I presume the prospective subcontractor's price proposal for the DX rated subcontract proposal would disclose an estimate of the impact cost on the DO rated contracts included in the proposed price.

Why would the CO for Agency B want to compensate the contractor for increased costs under the Agency A contracts? Would such an agreement even be legal?

[Don Mansfield]

If the overall price for the DX-rated order was consistent with prices charged for comparable unrated orders, I don't think the contracting officer should be questioning any particular estimated cost. 

I don't understand where you and FASA are coming from. You seem to be worried about cost accounting. If a contractor wants to be profitable, they need to ensure that revenue exceeds expenses. If a customer wants their order expedited, they should expect to pay a premium. This should cover the increased costs to the contractor for expediting the order. Why should the Government get special treatment? I don't think the DPAS regulations provide this. I think the DPAS regulations just ensure that the contractor doesn't take unfair advantage of the Government. As long as their prices are consistent with comparable unrated orders, the contractor is not violating the DPAS regulations.

By the way, I think that the subcontractor in the original scenario is out of luck. They already accepted the order.

[Vern Edwards]

47 minutes ago, Don Mansfield said:

I don't understand where you and FASA are coming from. You seem to be worried about cost accounting. If a contractor wants to be profitable, they need to ensure that revenue exceeds expenses. If a customer wants their order expedited, they should expect to pay a premium. This should cover the increased costs to the contractor for expediting the order. Why should the Government get special treatment? I don't think the DPAS regulations provide this. I think the DPAS regulations just ensure that the contractor doesn't take unfair advantage of the Government. As long as their prices are consistent with comparable unrated orders, the contractor is not violating the DPAS regulations.

I don't understand why you don't understand.

In many acquisitions the contracting officer must determine fairness and reasonableness through cost analysis. The CO may have to require the submission of certified cost or pricing data or data other than certified cost or pricing data, and demand that the prospective contractor justify its price based on its cost. Cost accounting standards might apply. In such a case, I as a contracting officer would fact-find by asking how the contractor came up with its number. If I found that it had included costs allocable to work other than the work required by the my prospective contract, I would exclude it from my negotiation objective.

I don't think there is anything unorthodox about that. Moreover, there may be appropriations issues. If the contract were for a commercial product and I was using only price analysis to determine fairness and reasonableness, it likely wouldn't matter to me.

In my experience while with the Air Force, every contract I negotiated had a DPAS rating, some DO and some DX. I never did an acquisition in which I used DPAS to impose a contract on a contractor, and I never heard of anyone else doing it. And I never had a contractor seek a rated contract price which included costs allocable to other contracts. I would have paid a contractor the cost allocable to work under my contract, but not any cost allocable to work under another program's contracts. The contractor would have to decide whether it wanted my contract or not. I can't remember the issue ever coming up.

I can see how such a situation might cause some increase in labor and materials costs for all the contractor's contracts, but that would be another matter entirely.

Maybe we agree and don't know it.

[joel hoffman]

It would seem straight forward to me that paying for claims/REA’s/impacts on other separately funded contracts must not be charged to appropriations on the instant contract.

[Fara Fasat]

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. 

[Vern Edwards]

See FAR 15.402, Pricing Policy, paragraph (b):

Quote

 

(b) Price each contract separately and independently and not-

(1) Use proposed price reductions under other contracts as an evaluation factor; or

(2) Consider losses or profits realized or anticipated under other contracts.