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Basic Contract Administration[1]

Basic Contract Administration[1]

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BASIC CONTRACT ADMINISTRATION

TEXT REFERENCE

Chapters 1 – 13 Current Through FAC 90-46 and DAC 91-12

Prepared by:

Logistics Management Institute Center for Public Administration 2000 Corporate Ridge McLean, Virginia 22102-7805

Federal Acquisition Institute 18th and F Streets, N.W. Washington, DC 20405

BASIC CONTRACT ADMINISTRATION Table of Contents
Chapter 1: Contract Administration Planning Vignette: Eric’s First Day ................................................................................................. 1-1 Course Learning Objectives............................................................................................... 1-3 Introduction to Contract Administration Planning ............................................................. 1-4 Steps in Contract Administration Planning ........................................................................ 1-6 Contract Administration Planning ...................................................................................... 1-7 1.1 Review the Contract File ..................................................................................... 1-7 Vignette: Pallet Procurement Contract Administration Planning .................................. 1-10 1.2 Determine Criticality ......................................................................................... 1-10 Vignette: Which Designator for the Pallet Procurement? .............................................. 1-11 1.3 Identify Previous Issues and Problems .............................................................. 1-12 Vignette: Joanne’s Concern ............................................................................................ 1-15 1.4 Meet to Discuss Performance Monitoring ......................................................... 1-15 1.5 Determine the Extent of Performance Monitoring ............................................ 1-16 1.6 Delegate Contract Administration Functions .................................................... 1-20 1.7 The Contract Administration Plan ..................................................................... 1-31 1.8 Provide Notices and Instructions ....................................................................... 1-39 1.9 Provide Formal Notice to Contractor................................................................. 1-43 Vignette: Putting the Pallet Procurement in Perspective................................................ 1-46 Chapter 2: Postaward Orientations Vignette: Assessing the Need to Get Started ..................................................................... 2-1 Course Learning Objectives................................................................................................ 2-3 Introduction to Postaward Orientations .............................................................................. 2-4 Steps in Postaward Orientation Planning............................................................................ 2-5 Postaward Orientation Planning ......................................................................................... 2-6 2.1 Determine the Need ............................................................................................. 2-6 2.2 Determine the Type of Orientation ...................................................................... 2-8 2.3 Planning Orientations ........................................................................................ 2-12 Vignette: Acquisition Team Planning .............................................................................. 2-14 Vignette: Harry’s Continuing Concern ........................................................................... 2-21 2.4 Conduct the Orientation ..................................................................................... 2-22 Vignette: It Never Hurts to Ask........................................................................................ 2-25 2.5 Prepare Postaward Orientation Report .............................................................. 2-25 2.6 Actions to Resolve Disagreements on Key Issues ............................................. 2-27 2.7 Identify the Need for Contract Modifications.................................................... 2-27 2.8 Document the Contract File ............................................................................... 2-28

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2.9 2-10

Provide Information to Interested Parties .......................................................... 2-28 Obtain Executed Contractual Documents, Bonds, or Insurance ........................ 2-29

Chapter 3: Basic Procedures for Successful Performance Monitoring Vignette: Monitoring the Pallet Procurement ................................................................... 3-1 Course Learning Objectives................................................................................................ 3-3 Introduction to Performance Monitoring ............................................................................ 3-4 Steps in Successful Performance Monitoring ..................................................................... 3-6 Successful Performance Monitoring ................................................................................... 3-8 3.1 Respond to Contractor Requests .......................................................................... 3-8 3.2 Monitor Assigned Technical and Other Support Personnel ................................ 3-9 3.3 Obtain Data on Contractor Performance ........................................................... 3-16 Vignette: And Away We Go! … Or Do We? .................................................................... 3-24 Vignette: Lessons Learned Pay Dividends ...................................................................... 3-30 3.4 Inform Others of Contract Status ....................................................................... 3-35 Chapter 4: Problem Resolution in Contract Administration Vignette: Yet Another Realm for Eric ................................................................................ 4-1 Course Learning Objectives................................................................................................ 4-3 Introduction to Problem Resolution in Contract Administration........................................ 4-4 Steps in Problem Resolution During Contract Administration .......................................... 4-5 Problem Resolution in Contract Administration ................................................................ 4-6 4.1 Verify and Document Known or Predictable Performance Problems ................. 4-6 4.2 Determine Impact of Problem on Requirement ................................................... 4-7 Vignette: Cause and Effect: A Two-Sided Coin................................................................ 4-9 4.3 Suspension or Stoppage of Work ....................................................................... 4-11 Vignette: To Stop or Not to Stop? … That is the Question .............................................. 4-14 Vignette: You Handle the Paperwork … I’ll Handle the Job .......................................... 4-21 4.4 Performance Delays ........................................................................................... 4-22 Vignette: Unwinding a Tangled Skein ............................................................................. 4-30 4.5 Resolve Contractor Performance Problems ....................................................... 4-38 4.6 Document Final Decision .................................................................................. 4-38 4.7 Invoke Formal Remedy...................................................................................... 4-39 4.8 Inform Requiring Activity and Other Interested Parties .................................... 4-39 Chapter 5: Contract Modifications and Options Vignette: Another Challenging Frontier ........................................................................... 5-1 Course Learning Objectives................................................................................................ 5-3 Introduction to Contract Modifications and Options .......................................................... 5-4 Steps in Modifying Contracts ............................................................................................. 5-7

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Modifications ...................................................................................................................... 5-8 5.1 Modifications ....................................................................................................... 5-8 5.1.1 Consider Contractor Requests for Modifications ................................................ 5-8 5.1.2 Consider Government Requests for Modifications ........................................... 5-10 5.1.3 Determine Impact of Change on Scope ............................................................. 5-11 5.1.4 Estimate Impact of Change ................................................................................ 5-14 5.1.5 Determine Appropriate Consideration ............................................................... 5-17 5.1.6 Provide Notice of Rejection ............................................................................... 5-18 5.1.7 Determine Type of Contract Modification ........................................................ 5-18 5.1.8 Implement Contract Modifications for Supplemental Agreements ................... 5-20 5.1.9 Implement Contract Modifications for Unilateral Changes .............................. 5-26 5.1.10 Implement Contract Modifications for Other Administrative Changes ............ 5-30 Vignette: What a Difference a Clause Makes.................................................................. 5-32 5.1.11 Implement Contract Modifications for Novation Agreements .......................... 5-33 5.1.12 Implement Contract Modifications for Name Changes ..................................... 5-36 Steps in Exercising Options .............................................................................................. 5-39 5.2 Options ............................................................................................................... 5-40 5.2.1 Identify Available Options................................................................................. 5-40 5.2.2 Determine Need for Additional Supplies or Services ........................................ 5-41 5.2.3 Determine Whether Option Requires Synopsizing ............................................ 5-41 5.2.4 Determine Whether to Exercise Options ........................................................... 5-41 5.2.5 Provide Written Notice and Exercise Option .................................................... 5-45 5.2.6 Prepare Written Determination for Contract File .............................................. 5-46 Vignette: Getting in Shape to Exercise an Option ........................................................... 5-47 Chapter 6: Contract Remedies Vignette: Accountability When Things Go Wrong ............................................................ 6-1 Course Learning Objectives................................................................................................ 6-3 Introduction to Contract Remedies ..................................................................................... 6-4 Preliminary Steps for Choosing Contract Remedies .......................................................... 6-6 Identifying Types of Remedies ........................................................................................... 6-7 6.1 Identify Types of Remedies ................................................................................. 6-7 Steps in Issuing a Delinquency Notice ............................................................................... 6-8 Delinquency Notices ........................................................................................................... 6-9 6.2 Issue Cure or Show Cause Notice........................................................................ 6-9 Steps in Implementing Liquidated Damages .................................................................... 6-17 Liquidated Damages ......................................................................................................... 6-18 6.3 Liquidated Damages .......................................................................................... 6-18 Steps in Rejecting Nonconforming Supplies or Services ................................................. 6-24 Nonconforming Supplies or Services ............................................................................... 6-25 6.4 Rejection of Nonconforming Supplies or Services............................................ 6-25 Steps in Implementing Express Warranties ...................................................................... 6-31 Express Warranties ........................................................................................................... 6-32

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6.5 Express Warranties ............................................................................................ 6-32 Steps in Implementing Implied Warranties ...................................................................... 6-40 Implied Warranties............................................................................................................ 6-41 6.6 Implied Warranties............................................................................................. 6-41 Vignette: Which is It … Warranty, Guarantee, or Guaranty? ........................................ 6-43 Steps in Determining Latent Defects, Fraud, or Gross Mistakes...................................... 6-45 Latent Defects, Fraud, or Gross Mistakes......................................................................... 6-46 6.7 Latent Defects, Fraud, or Gross Mistakes.......................................................... 6-46 6.8 Select Most Appropriate Remedy ...................................................................... 6-49 6.9 Withhold, Reduce, or Demand Payment from Contractor ................................. 6-49 Chapter 7: Contract Payment Vignette: Quid Pro Quo … Payment for Performance...................................................... 7-1 Course Learning Objectives................................................................................................ 7-3 Introduction to Contract Payment ....................................................................................... 7-4 Steps in Processing Contract Payment................................................................................ 7-8 Contract Payment ................................................................................................................ 7-9 7.1 Inspect Invoice or Voucher and Notify Contractor of Any Defects .................... 7-9 7.2 Identify Terms and Conditions Pertinent to Payment ........................................ 7-11 7.3 Obtain Documents and Determinations Pertinent to Payment .......................... 7-11 7.4 Performance-Based Payments ........................................................................... 7-14 7.5 Identify Withholdings, Deductions, or Other Corrections ................................. 7-18 7.6 Determine if Assignee is Protected From Deductions or Withholdings ............ 7-21 7.7 Determine Amount Due Contractor ................................................................... 7-22 7.8 Notify Contractor of Differences Between Invoiced or Vouchered Amounts and Amounts to be Paid ..................................................................................... 7-22 7.9 Notify Contractor of Final Decision on Paying Lesser Amount ....................... 7-22 7.10 Forward Invoice or Voucher .............................................................................. 7-23 Chapter 8: Contract Closeout Vignette: The Whole is Greater Than the Sum of Its Parts ............................................... 8-1 Course Learning Objectives................................................................................................ 8-3 Introduction to Contract Closeout....................................................................................... 8-4 Steps in Contract Closeout .................................................................................................. 8-6 Contract Closeout ............................................................................................................... 8-7 8.1 Verify Contract is Physically Complete .............................................................. 8-7 8.2 Obtain Forms, Reports, and Clearances Required at Closeout ............................ 8-7 8.3 Verify Other Terms and Conditions Have Been Met .......................................... 8-8 8.4 Settle Any Outstanding Issues ............................................................................. 8-8 8.5 Verify No Outstanding Claims or Disputes ......................................................... 8-8 8.6 Make Final Payment or Collect Overpayment From Contractor ....................... 8-10 8.7 Identify and Recommend Deobligation of Excess Funds .................................. 8-10

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8.8 8.9

Prepare Contract Completion Statement and Dispose of Files .......................... 8-10 Determine Whether to Invoke Rights Under Continuity of Services Clause .... 8-12

Chapter 9: Disputes, Claims, and Terminations Vignette: To Be Forewarned is to be Forearmed .............................................................. 9-1 Course Learning Objectives................................................................................................ 9-4 Introduction to Disputes, Claims, and Terminations .......................................................... 9-5 Disputes and Claims ........................................................................................................... 9-7 9.1 Disputes and Claims ............................................................................................ 9-7 Terminations ..................................................................................................................... 9-28 9.2 Terminations ...................................................................................................... 9-28 9.2.1 Termination for Default ..................................................................................... 9-30 9.2.2 Termination for Convenience ............................................................................ 9-44 Vignette: Convenience, Cause, or What? ........................................................................ 9-49 Chapter 10: Consent to Subcontracts Vignette: There’s More to It Than Meets the Eye ........................................................... 10-1 Course Learning Objectives.............................................................................................. 10-4 Introduction to Consent to Subcontracts ........................................................................... 10-5 Steps in Consenting to Subcontracts ................................................................................. 10-7 To Consent or Not to Consent .......................................................................................... 10-8 10.1 Determine Consent Requirements ..................................................................... 10-8 Vignette: Some Folks Just Don’t Get It ........................................................................... 10-9 10.2 Identify Subcontracts Requiring Consent ........................................................ 10-10 10.3 Obtain and Review Advance Notifications ..................................................... 10-12 10.4 Determine If FAR Prohibits Consent............................................................... 10-16 10.5 Determine to Withhold Consent for Other Reasons or Establish Conditions for Consent ....................................................................................................... 10-19 10.6 Negotiate Subcontracting Changes or Corrections .......................................... 10-23 10.7 Document the Decision .................................................................................... 10-24 10.8 Monitor to Ensure Subcontracts Are Awarded Properly ................................. 10-25 Chapter 11: Limitation of Costs Vignette: Cost Plus Whatever … A Different World ....................................................... 11-1 Course Learning Objectives.............................................................................................. 11-3 Introduction to Limitation of Costs .................................................................................. 11-4 Steps in Limitation of Costs.............................................................................................. 11-6 Limitation of Costs ........................................................................................................... 11-7 11.1 Determine If Contractor Nearing Estimated Cost or Limit of Funds ................ 11-7 11.2 Meet With Government Contract Administration Team ................................... 11-9 11.3 Resolve the Problem .......................................................................................... 11-9

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Vignette: When Emotions Run High .............................................................................. 11-11 11.4 Deobligate Excess Funds ................................................................................. 11-12 Chapter 12: Assignment of Claims Vignette: The Assignment of … What? ............................................................................ 12-1 Course Learning Objectives.............................................................................................. 12-3 Introduction to Assignment of Claims .............................................................................. 12-4 Steps in Assigning Payments ............................................................................................ 12-7 Assignment of Claims ....................................................................................................... 12-8 12.1 Determine Contract Permits Assignment........................................................... 12-8 12.2 Determine Proper Request ................................................................................. 12-8 12.3 Determine Assignment Exists .......................................................................... 12-11 12.4 Execute and Return Assignment ...................................................................... 12-12 12.5 Approve Release of Assignment ...................................................................... 12-12 Chapter 13: Property Administration Vignette: There Comes a Time for Action ....................................................................... 13-1 Course Learning Objectives.............................................................................................. 13-3 Introduction to Property Administration........................................................................... 13-4 Steps in Property Administration ...................................................................................... 13-6 Property Administration ................................................................................................... 13-7 13.1 Establish Reporting Requirements..................................................................... 13-7 13.2 Monitor Delivery of Government Property ....................................................... 13-7 13.3 Monitor Contractor Property Control System ................................................... 13-8 13.4 Determine to Decrease or Provide Substitute GFP .......................................... 13-17 13.5 Evaluate and Document Evidence of Loss, Damage, or Destruction .............. 13-18 13.6 Identify Contractor Liability ............................................................................ 13-18 Vignette: Who’s to Blame and What to Do?.................................................................. 13-19 13.7 Prepare Conclusions on Extent and Value of Loss or Damage ....................... 13-20 13.8 Issue Demand for Payment, When Appropriate .............................................. 13-20 13.9 Recover or Dispose of Government Property .................................................. 13-20

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CHAPTER 1

CONTRACT ADMINISTRATION PLANNING
ERIC’S FIRST DAY It is Eric Schmidt’s first day on the job, and he is understandably nervous. His boss, Joanne Davidson, is the agency’s top contracting officer. While considered extremely able, she has a reputation for being tough. Eric had been introduced to the staff at its morning meeting, and he has settled into his new office. Indeed, he is ready to receive his first assignment from Joanne. Two years ago, the agency replaced some 30 small supply depots with three totally automated warehouse facilities. Each facility has 20 bays, and each bay is 10 bins high. The material dispensed at each facility is stored on pallets in individual bins. The operation of the bins is efficient, and the overall warehousing system operates well. There is, however, a nagging problem associated with the material used for pallet fabrication. The material is called out in an agencyspecific specification, and the result of its use has been troublesome because the material does not provide sufficient flexibility to withstand the flexing caused by the continual movement of pallets in and out of each facility. This movement is necessary, of course, to accommodate the ongoing flow of material within the warehousing system. Both the manufacturer of the automated system and the agency’s laboratory have been working to find a solution to what has developed into an expensive problem of pallet replacement. Whatever the solution, it has to be cost effective. Until one is found, a continuing supply of pallets will be needed at the three warehouse facilities. After consulting with both the warehousing system manufacturer and agency laboratory personnel, Joanne felt that the procurement of pallets requiring fabrication under a specified material will not get the job done. She concluded it is both a waste of time and money. For instance, market research had surfaced a considerable number of pallet manufacturers, and the examination of supplier literature had proved to be a real eyeopener about what might be available in terms of currently manufactured pallets. Customary commercial practices for buyer-seller agreements were evident, and the regular use of implied warranties of merchantability or fitness for a particular purpose were found virtually everywhere. In considering alternatives with her technical and contracting colleagues, all agreed that using a performance specification and acquiring the pallets as commercial items would ensure some predictable benefits. As a result of effective planning with the agency’s acquisition team, Joanne had solicited the marketplace using the procedures of FAR Part 12 (Acquisition of Commercial Items) complemented by the use of FAR Part 15 (Contracting by Negotiation) to accommodate what might be needed to clarify the agency’s performance specification for the procurement of pallets. The decision was made to solicit widely, and the procurement was labeled as unrestrictive. An appropriate notice was publicized in the Commerce Business Daily (CBD), competitive offers were received, and a contract was awarded within 45 days of the procurement’s announcement.

1-1

Eric responded cautiously. backed out of the office. However. she rubbed her hands together. Joanne. The first thing you’ll notice is that the contract file is diminished in size from those we generally handle for deals like this.CONTRACT ADMINISTRATION PLANNING As Joanne explained to Eric. and I know you’ll come through for us. Joanne emphasized to her new contract administrator the importance of the procurement’s success in light of the longstanding pallet pliability problem. Read the contract file carefully and develop your plan based on the information you find. Eric. Any questions at this point?” added the contracting officer. “I’m counting on you Eric. “No. you may be best qualified to give me a fresh look at a program covered by a performance specification and procured under FAR Parts 12 and 15.” 1-2 . See you tomorrow morning. Half smiling. We’ll meet tomorrow morning with someone involved in the program and work to finalize your plan. “Your first job is to develop a contract administration plan for the pallet contract we awarded yesterday to Platform Industries. but I’m sure that will change once I’ve gotten into the contract file. I realize you know nothing about the requirement or the company. It’s kind of a new experience for all of us.” As she checked her watch and began to leave. and left by saying.

CHAPTER 1 COURSE LEARNING OBJECTIVES At the end of this course. 1.9 1-3 . you will be able to: Overall: Develop a contract administration plan consistent with the complexity of the acquisition and instruct personnel on their respective roles and responsibilities during the performance period.5 1.2 1. and limitations of authority. responsibilities. Provide notices containing information and instructions to technical representatives and other support personnel concerning their roles.4 1. Provide formal notices to contractors concerning the names. Individual: 1. and limitations of authority of government contract administration personnel. that will be delegated and to whom.7 1. Determine those contract administration functions.1 1.3 1.6 1. roles. identify previous issues and problems with an existing contractor or contracts for similar requirements. Assign a criticality designator to the contract.8 Review a contract file to identify critical contract clauses and requirements. From an acquisition’s history. Meet with a contract’s acquisition team to discuss performance monitoring and surveillance. Determine the extent of any required performance monitoring and surveillance. responsibilities. if any. Develop a contract administration plan.

this plan should be simple and straightforward.CONTRACT ADMINISTRATION PLANNING INTRODUCTION TO CONTRACT ADMINISTRATION PLANNING Contract Administration Planning Contract administration planning involves activity in setting up systems and procedures to ensure compliance with a contract’s terms and conditions during performance. The result of contract administration planning is reflected in a contract administration plan. Remember: A contract is a written. For acquiring commercial items. and its terms and conditions are enforceable under law. mutually binding legal relationship between or among competent parties to do or not to do something not otherwise prohibited by law.. Finalizing the plan for this administration is done once a contract has been awarded. technical monitoring.g. Effective contract administration resides in tailoring its requirements to an acquisition’s complexity. A Common Failure and Problems Failure to read and understand a contract frequently causes contract administration problems. as well as recognizing the need for flexibility. For the acquisition of commercial items or services. quality assurance. the need for administration should be minimal. 1-4 . they must be designed to ensure that the Government and a contractor live up to their promises and fulfill agreed-to responsibilities. For the acquisition of complex systems. When contract administration monitoring or surveillance systems are planned. The administration of any contract should be considered during an acquisition’s planning phase. Large and complex acquisitions will require more detailed plans and may call for the support of various capabilities (e. No one plan or planning device represents a panacea for contract administration. the need for administration will require a considerable effort by the Government and a contractor. and others). Objective of Contract Administration Planning The principal objective of contract administration planning is twofold: to set up a system that reinforces the performance of both parties’ responsibilities. and to provide means for the early recognition of performance problems either before or when they occur.

each step is discussed in detail.CHAPTER 1 Steps in Performance The steps in planning for contract administration are charted on the next page. Following the flowchart. 1-5 .

. Review the contract file. 2-5. Develop a contract administration plan. and limitations of authority for Government representatives. Provide notice and instructions to representatives of the Contracting Officer (e.CONTRACT ADMINISTRATION PLANNING STEPS IN CONTRACT ADMINISTRATION PLANNING Input: Prospective contract. 1. 7. 8. CORs/COTRs). roles. 9.g. 6. Determine the extent of performance monitoring. Determine which contract administration functions will be delegated and to whom. responsibilities. Notify contractors of names. 1-6 .

including: Specifications. Contractor’s proposal. Exhibit 1-1 1-7 .1105 FAR Subpart 4. and Delivery schedule (or performance period). Production surveillance requirements and reporting.11 FAR 42.2 FAR 42. Criticality designator. When applicable. First article testing. time and money. Remember: Effective contract administration planning tailors itself to reflect the need for performance monitoring and reporting. Supporting contract administration requirements.4 FAR Subpart 42. Data requirements. Security requirements. Inspection and acceptance. Overzealous administrative requirements may result in an unnecessary expenditure of Tailor to Meet the Need Contract File Areas to Study in Detail FAR Subpart 42. Government property.CHAPTER 1 CONTRACT ADMINISTRATION PLANNING 1. Exhibit 1-1 lists areas of prime importance. special contract requirements.1 Review the Contract File A thorough review of the contract file will turn up any clauses that are critical to performance and any other requirements that may influence or have an impact on contract administration planning decisions. Special Section H clauses.204 The assignment of contract administration functions.

With this knowl-edge you can determine: How critical the requirement is to the Government. You might have interpreted this clause differently. Write in the “comment” column references to items that have particular or unusual importance to contract administration planning. especially when another person awarded the contract. Review Preaward Data Always review preaward file documentation. After completing a review of the contract file. you might find some information in the minutes of that meeting that addresses an interpretation of a special contract clause. For example. and How much time and effort are needed to ensure success through contract administration. Identify Critical Areas 1-8 . For instance.CONTRACT ADMINISTRATION PLANNING Contract File Checklist Exhibit 1-2 provides an example of a contract file checklist that simplifies the review of any contract file. and this may warrant an increased level of monitoring during contract administration. you might note a paragraph number in a preaward survey that casts doubt on the contractor’s plant capacity. you should have identified all critical areas bearing on performance and monitoring. if you had not attended a prebid or preproposal meeting.

and other restrictive requirements. Packaging and transportation data. Record of negotiation. and other presolicitation documents. and associated documents. Statement of facts justifying the waiver of SBA requests to suspend award action per FAR 19. 13. Evidence of the availability of funds.803 Item 1.CHAPTER 1 Contract File Checklist FAR 4. Security requirements and evidence of required clearances. Authority for deviations from regulatory. A copy of the solicitation and any synopsis published in the Commerce Business Daily. 12. Exhibit 1-2 Yes No Comment 1-9 . Justifications and approvals. Purchase request. determinations and findings. Notice of award. 11. Contracting officer’s determination of contractor responsibility. and supporting documents. 4. 14. 9. 17. 2.505(f). Cost or price analysis. 6. 10. all contract modifications. or other bond documents. 16. Preaward survey reports or other references. 3. statutory. Bid. and notices to sureties. Contractor’s certifications and representations. 7. payment. 8. or references to them. Audit reports or reasons for their waiver. performance. acquisition planning information. 5. The original of the signed contract. 15.

Eric did take special note of the procurement’s use of the clause at FAR 52. Invoicing was to occur after each delivery.212-4 (Contract Terms and Conditions — Commercial Items). construction. He noted that the contracting arrangement called for an indefinite-delivery indefinite-quantity contract (ID/IQ) over a two-year period with an option for one additional year. Your recommended choice will be either “A.” The criterion for each of these designators is shown in Exhibit 1-3. Criticality refers to the degree of overall importance that a contract has to the Government. Prioritizing each contract based on its criticality to the Government is one indicator that helps in the proper allocation of contract administration resources.1105 Requirement for Use of Designators The contracting officer is required to assign a designator based on the criticality of the requirement for all supplies and services contracts (except facilities. or Federal Supply Schedule contracts). Choice of Designators 1-10 . and since the pallets were definably commercial there was no requirement for the submission of cost or pricing data.1104 FAR 42. Such pricing represented customary commercial practice. This had been covered by an appropriate addendum to the SF 1449. A minimum and maximum quantity of pallets was specified for both the base and option periods. the Standard Form (SF) 1449 (Solicitation/Contract/ Order for Commercial Items) had been used. 1. The criticality designator will be shown on the contract when this decision is made prior to the issuance of the solicitation. you may be called on to recommend a criticality designator. In a busy contract administration office. and payment would be made for conforming pallets.2 Determine Criticality FAR 42. The file also provided positive past performance information on Platform Industries. namely. The Government does not have sufficient resources to evaluate a contractor’s every action for each contract it awards. A firm-fixed price per pallet based on the size of any single delivery order had been negotiated.CONTRACT ADMINISTRATION PLANNING PALLET PROCUREMENT CONTRACT ADMINISTRATION PLANNING In examining the contract file for pallets. Eric read the entire file and was taken by its overall simplicity.” “B. There had been agreement to all these terms and conditions with the exception of one. He reasoned that this had been done to reflect the need for the contractor’s compliance with the performance specification and to protect the Government’s interest at the time of inspection and acceptance.” or “C. As required. the standard warranty of merchantability had been altered to substitute for it a warranty of fitness for a particular purpose.

1105 DoD assigns criticality designators based on the priority of the requirement. Contracts (other than those designated “A”) for items needed to maintain a Government or contractor production or repair line. those designated “DX” prior to award. including DX-rated contracts. and contracts for major systems. WHICH DESIGNATOR FOR THE PALLET PROCUREMENT? Eric noticed that Joanne had not yet assigned a criticality designator to the contract he was reviewing. Persons who have special authorization under the Defense Production Act can apply either a DX or a DO rating to a contract that supports the national defense.CHAPTER 1 The criticality designators indicate where to concentrate surveillance efforts. The rating is assigned prior to issuance of the solicitation and will appear on the contract. C All contracts other than those designated “A” or “B. be aware that a certain class of criticality designated “A” contracts. to preclude out-ofstock conditions.6 . 1-11 FAR Subpart 11. Selection of Criticality Designator Criticality Designator A B Criterion Critical contracts. The pallets are necessary to maintain the Government’s warehouse facilities.” Exhibit 1-3 Assigning Designators DFARS 242. also has a potential impact for work in process within the contractor’s plant. with Designator C used for unilateral purchase orders. DX and DO Ratings Although the criticality designator a contracting officer may assign has significance within your office. These designators become particularly important when contract administration resources are spread thin. He made a note to recommend a “B” designator. contracts containing an unusual or compelling urgency. or to meet user needs for nonstock items.

602 Priority of Ratings The DoD implementation of priorities and allocations are in DoDI 4400. (Has this requirement ever been purchased before? What are current problems associated with this product or service?) Past experience with the contractor. Rescheduling of Deliveries and Continuance of Related Manuals. or similar problems that impact the normal processing of production orders within the plant. (What type of specification was used to describe the requirement: design.1. DX rated contracts have first priority in the “pecking order” within a contractor’s plant in the event of material shortages. The other rating is DO. Priorities and Allocations—Delegation of DO and DX Priorities and Allocations Authorities.1 DFARS 211. be aware that contractors may not be able to expedite delivery for your order if they have received rated orders from other agencies. 1. Legal Significance Realize that a contractor is legally bound to expedite DX and DO rated Government contracts. performance. This depends on such factors as: Type of contract. or a combination of types? Have there been any changes in the specification? Are there any other types of specifications that were used on similar contracts? What monitoring does this type of specification require to ensure compliance?) 1-12 . did the type of contract change?) Past experiences with this type of requirement. it is legally bound to give second priority to DO rated Government contracts after all DX rated orders. (Did this contractor previously deliver on time? Did the contractor perform as expected?) Type of specification. This “pecking order” includes any commercial work in process as well as other Government contract requirements within the plant that are not rated DX. strikes. function.CONTRACT ADMINISTRATION PLANNING Defense Priorities and Allocations DoDI 4400. (What type of contract is this? If there was a previous procurement. Even if you do deal with any contracts that support the national defense. When a contractor is behind in its production scheduling.3 Identify Previous Issues and Problems Consideration must be given to the amount of time and effort that will be necessary to ensure successful performance. DX or DO rated orders have preference over an unrated order.

Such files should include the following information: Contracts awarded and dollar amounts. Review the contractor’s performance history. The data included in this file are considered confidential and not available to non-Government personnel. Delivery/performance results. Previously applied remedies and the contractor’s reaction to them.801 FAR Subpart 42.15 Reviewing past performance should involve the following two steps. (How soon is this requirement needed and what would happen if delivery was delayed? Were there any previous problems with contractors meeting the delivery terms? Has this contractor established that it can expedite delivery. (Does the contract include any warranty provisions? Are they the same as offered commercially? Were there problems in the past with reliability beyond the warranty period?) Urgency of the requirement. Key personnel involved with the contract. An important source of information for identifying potential problem areas is a contractor’s performance file. (Does this type of requirement—service or supply—necessitate extensive monitoring to ensure compliance?) Warranty provisions. Items/services purchased. and Reviewing an existing contract file itself.CHAPTER 1 Type of requirement. Identify indicators of a contractor’s past performance by: Reviewing files in your office covering the contractor’s performance history. focus your review on: Patterns of past performance. if needed?) Consider Information to Review If applicable. and 1-13 . and Key personnel for the immediate contract that are identified as either good or poor performers in past performance data. Reviewing Past Performance Step 1 FAR 4.

Normally. Shortfalls in technical performance capabilities. etc. and Reporting requirements (progress reports. If your office has had previous experience with the contractor. when a contractor has demonstrated an inadequacy on a past contract. submission of subcontracting reports. and/or A contractor’s commercial clients. You should find any remedies that were used and the contractor’s reactions to them documented within this file. The contractor should never be given 1-14 . records of past performance within your office will be sufficient for planning efforts. Financial difficulties. past problem areas would be documented within this file. Deficiencies in a contractor’s performance include: Missed delivery dates. This information may indicate some problem areas. even though it may not have been of sufficient magnitude to warrant a negative past performance rating or a nonresponsibility determination. The contract file itself is the best place to look for other indicators.). you may want to look for other indicators of past performance. Labor problems. Past performance or responsibility determination data in the contract file may contain information from: Other Government offices. This file represents a history of the contractor’s performance over a period of time on individual contracts. These areas will require special attention on a current contract. it will have a tendency toward similar deficiencies in future work. Generally. if one exists. If your office has not had any previous experience with the contractor. plus other information on the contractor’s past performance from other sources. Step 2 Review other available indicators of past performance. Keep information provided by both Government and non-Government per-sonnel strictly confidential.CONTRACT ADMINISTRATION PLANNING Contractor-provided past performance information.

is to satisfy the needs of the user. This discussion should include: Sharing of any acquisition history concerning the contractor and the required supplies or services.CHAPTER 1 access to these records. thereby. The record related a history of performance over the past five years that covered different kinds of work ranging from interior design and construction for a large retail establishment to providing large orders of pallets for two government agencies. not hindsight. 1. Priorities or potential problem areas are understood by all. Government or commercial. Joanne was pleased to have found a viable firm. the use of meetings with requiring activity personnel is beneficial to ensure that: The Government is working as a team. Contract progress is measured by foresight. ignore the user’s vital concerns. JOANNE’S CONCERN Platform Industries was not new to the Government contracting arena. A determination of responsibility found the company financially stable with a good backlog of work. but she suspected that its capability to deal with a per-formance specification and varying indefinite quantities of pallets to ensure timely deliveries would require some careful monitoring. but they also related the contractor’s willingness to replace an order of several hundred pallets. One of those agencies noted some problems associated with timely deliveries to multiple locations. or told of those who provided the information. Do not spend too much time on contract requirements that the user is not overly concerned about and. The ultimate goal of any contract. A check on its provided references. So fashion your contract administration plan. four related to government contracts and five to private-sector work. as much as possible.4 Meet to Discuss Performance Monitoring Meet with the requiring activity to discuss requirements for contract administration. and Identifying and ranking the requiring activity’s priorities regarding the contract. Focus on User Priorities Focus your discussion for contract monitoring on the requisitioner’s priorities. to meet user priorities. In sophisticated or complex requirements. proved a valuable source of information. Meeting Objectives 1-15 . told of their contents. each of which had been cut several inches short of what the Government’s specification required.

208 FAR 46.5 Determine the Extent of Performance Monitoring FAR 42. ♦ Criticality of the requirement. ♦ Contract performance schedule. ♦ Contractor’s risks involved in performance (e.202-1 When acquiring commercial items. Some are listed in Exhibit 1-4. There are two steps involved in determining the extent of monitoring that is necessary. If such inspection is customary. Factors in Determining the Level of Monitoring ♦ Level of the contractor’s own inspection system. ♦ Contract requirements for reporting progress and performance. the Government’s inspection must be consistent with commercial practices.. ♦ Contractor’s history of contract performance. The Government must not rely on inspection by the contractor if the contracting office determines that the Government has a need to test what is 1-16 . type of contract). unless customary market practices for what is being acquired include in-process inspection.1104 Step 1 FAR 42. ♦ Contractor’s experience with providing the contract’s supplies or services.1104(a) A contract is a tool the Government uses to acquire goods and services. ♦ Contractor’s financial capability. the Government is to rely on the contractor’s existing quality assurance systems as a substitute for Government inspection and testing before delivery. A vital part of this management is the monitoring of contractor performance. Many factors are involved in determining how much monitoring is necessary. and contract administration is an attempt to manage this tool effectively. Exhibit 1-4 Commercial Items and Monitoring FAR 12. ♦ Contractor’s production or performance plan.g. given the criticality designator: Assess factors that indicate the appropriate monitoring level.CONTRACT ADMINISTRATION PLANNING 1.

246-11. or by a contract clause. Higher-Level Contract Quality Requirement (Government Specification). Note that the third factor listed in Exhibit 1-4 is reporting data on progress and performance. for whatever reason. fails to live up to a contract’s terms. FAR 52.CHAPTER 1 being acquired before delivery or to pass judgment on the adequacy of the contractor’s internal work processes. which relies on the contractor’s own internal inspection procedures and industry standards.246-1. Contractor Inspection Requirements. or it can be the foundation upon which other Government inspection specifications are based.202-3 Even though customary commercial practices may permit virtually no contract administration in the acquisition of a commercial item. the Government reserves the right to inspect or test the item as tendered for acceptance and to require its repair or replacement (or reperformance if a service) at no increase in contract price. Because both the Government and the contractor promise to do something or keep from doing something. When required. This standard clause can be the only inspection clause in a contract. Inspection Supplies—Fixed Price. specification.212-4 Contractor Inspection FAR 46. 1-17 . Contractor Reporting Determine what type of inspection system is required by the contract to decide whether you want to rely solely on it for monitoring a contractor’s performance. The Government has no right to require the contractor to submit data for monitoring purposes when the contract does not provide for it. FAR 52. standard Government clauses specify the type of inspection system that the contractor is to maintain for the performance of the contract. determine in part your level of monitoring and administrative effort. which requires a contractor to establish and maintain an inspection system not otherwise defined except that it must be acceptable to the Government. the last factor listed in Exhibit 1-4. which requires a contractor to comply with a specific Government inspection system or quality control system or quality program. It contains the Government’s basic rights of inspection. Commercial Items and Protecting the Public Interest FAR 52.103 The risks of performance. Any required data must be specifically authorized within the schedule. both are potentially “at risk” if either. For example: FAR 52. Contract Risks FAR 16.202-2 FAR 46.246-2.202-1 FAR 46.

100 percent inspection. schedules. if. required performance is physically impossible or if the contractor does not have the capability to complete the work. a stepped up level of inspection is probably warranted to ensure that the contractor will not cut corners on quality procedures to make the delivery. Sample inspection.CONTRACT ADMINISTRATION PLANNING Government Risk The Government stands to lose the benefit of a product or service at the price it agreed to pay. When those risks are identified. For instance. Understand how its terms and conditions—those that are standard and those that are unique—affect the contractor’s risks. or if it is assessed damages for its failure to perform. The appropriate type of monitoring effort depends on the complexity and scope of the contract. if stiff liquidated damages for late delivery are to be assessed in a production contract and you know progress is lagging in the last month of the contract. and Monitoring schedules devised by Government personnel to measure contract performance. and other reports. and what might have to be done through monitoring to ensure protection of the Government’s interests. Numerous techniques and procedures for determining whether satisfactory delivery or contract completion will take place include: Reliance on the contractor’s inspection system. Its terms and conditions set forth each party’s obligations. as well as the contract’s specific requirements for the submission of progress reports. A contract is basically an instrument that allocates and defines risks between the parties. for example. Inspection by exception. for example. Ways to Monitor Performance 1-18 . It may also lose good standing if it fails to live up to a contract’s terms. Monitoring production or delivery schedules. as well as each party’s rights if the other should fail to carry out its obligations. you will understand what the contractor might do to cover them. its performance costs exceed the price it agreed to. The contractor may lose money if. Contractor Risk Recognize and Allocate Risks Step 2 Select the most appropriate monitoring method(s).

the experience gained on earlier contracts. provides some standard for comparison. production control. Monitoring Related to the Requirement Progress on production work is generally easier to measure than progress on a research and development contract. many of the unknowns inherent in the research phase are gone. interim monitoring of standard commercial and commerciallike items and services is not administratively cost-effective.1104(c) Generally. You need only monitor timely delivery or performance and inspect the delivered items or work performed. Interim Monitoring of Commercial Items and Services FAR 42. or data management system for these types of items or services is the standard. in fact. Contracting officer directed on-site surveillance. In the developmental phase of a research and development acquisition. an inspector can visit the plant to see if the widgets are. Nevertheless. Although the work is not yet repetitive and detailed specifications are still lacking. Monitoring is necessary. Key Factors for Monitoring Make your choice for a monitoring method based on two key considerations: How much you can rely on the contractor’s own system. if such existed. the work still depends on the contractor’s ability to cope with obstacles not encountered before. Act promptly and carefully to initiate immediate improvements while preserving the Government’s right to future remedies available under the contract. Select a method that is most likely to surface the following: Actual or potential default situations.1104(a) DoD minimum rules on surveillance means that predelivery telephone surveillance is used. with on-site surveillance as required for: Designator A contracts. Maximum use of and reliance on the contractor’s inspection system. unless the contract administrative officer and the contracting officer decide that an on-site check is not required. For production work. coming off the assembly line as scheduled and examine one or more for contract compliance. and Contracts where your telephone check indicates a problem. Goals of Monitoring 1-19 . and How much you can assume contract problems will receive necessary management attention.CHAPTER 1 Predelivery Telephone Surveillance DFARS 242.

1. that is: Administrative Contracting Officer (ACO): The official authorized to perform any postaward contractual action assigned by the CO. and make related determinations and findings. and terminate contracts. A single contracting officer may be responsible for delegating duties to specialized contracting officers. administer. all text references to a “contracting officer” refer to the PCO. that is. or other appointed Government representatives. Some are authorized to perform contractual actions. Assign the contract to a contract administration office (CAO). you need to be aware early if Government action will be required. This effort may be performed by the contracting officer. The contracting officer must determine whether or not to: Retain the contract and perform all applicable contract administration functions. others are limited to technical direction and clarification. or Contracting Officers FAR 2. An ACO would be assigned to the CAO. the next question is who will be responsible for its administration.6 Delegate Contract Administration Functions Having determined how the contract will be monitored. the contracting officer responsible for all duties. Contract Administration Decision The contracting officer determines how contract administration will be handled. regardless of whether those duties have been delegated to other contracting officers.CONTRACT ADMINISTRATION PLANNING The need for Government action.101 1-20 . For purposes of clarity. Your office may refer to the contracting officer as the Procuring (or Principal) Contracting Officer (PCO). Retain the contract and perform administrative functions with the assistance of other Government personnel. the contract administrator. Some agencies have set up separate offices called a Contract Administrative Office (CAO) to handle postaward functions as prescribed by that agency. The contracting officer (CO) is the official authorized to enter into. Although Government action may supplement but not supplant the contractor’s own efforts to solve performance problems. Termination Contracting Officer (TCO): The official authorized to perform postaward actions limited to the termination of contracts.

post. CO Retention of Contract Administration FAR 42. and station purchases. or installation of radar or communication equipment at network sites. Architect-engineer services. camp. Base. However. Consultant services. there are circumstances when DoD will not relinquish contract administration to a CAO. Those circumstances involve contracts for: The National Security Agency.) Type of requirement.203 The contracting officer retains a contract and is responsible for the performance of all administrative functions unless such performance: Must be performed at or near the contractor’s facility. Operation. When DoD COs May Retain Administration DFARS 242. Consequently. 1-21 . (Agencies may require administration by CAOs available to an agency.203(a)(i) The overall rule is that DoD activities are prohibited from retaining contract administration functions that require the performance of those functions at or near contractor facilities. Flight training.) Substantial assistance for the support of contract administration beyond an organization’s normal contract administration functions has to be reviewed for its validity above the CO’s level. (Some agency’s CAOs may not have to accept contracts below an established amount. Research and development performed at universities. CAOs perform the contract administration of many DoD contracts. or Is required of other organizations by agency-specific regulations and may be based on such issues as: Dollar thresholds. maintenance. (CAOs may not accept contracts covering off-the-shelf commercially available products.) Organization. Airlift and sealift services.CHAPTER 1 Assign the contract to a CAO with specific limitations and/or specific additions.

301 Overseas contract administration should be accomplished under FAR 42. Advise the contracting office of all pertinent matters. 1-22 .202(e) Perform 69 baseline functions to the extent they apply. the CAO is responsible to: Administration Outside the U. at military test ranges.302(a) The 69 functions listed in the FAR represent the baseline functions of a contract administration office. country team or the commander of the unified or specified command for policy and procedure guidance.CONTRACT ADMINISTRATION PLANNING Ballistic missile sites (although CAOs can perform supporting administration at missile activation sites) and Operation and maintenance. and Reassign contract administration. Ensure timely submission of required reports. Request supporting contract administration when required. Issue administrative changes. Consent to the placement of subcontracts. you should coordinate contract administration requirements with the U. CAO Responsibilities FAR 42. and installations.301. surveillance. Perform production support.S. facilities. and Determine whether disclosure statements are in compliance with Cost Accounting Standards (CAS).301 DFARS 242. if required. FAR 42. Some typical functions are: Conduct postaward orientation conferences. or installation of equipment. Typical Functions FAR 42.S. In this case. Serve as the focal point for inquiries. and status reporting. When a contracting officer assigns a contract to a contract administration office. unless the overseas need is not specifically addressed in the FAR.

maintenance.302(a) DoD authorizes CAOs to: Review and evaluate contractor estimating systems. Monitor contractor costs. Changes to interim billing prices. and Issue. such as the following: Supplemental agreements incorporating contractor proposals submitted under a clause addressing contract changes. DFARS 242. Changes under contracts for ship construction. Withholding Functions The contracting officer may withhold any of the FAR-specified functions when: The CO determines the contracting office can better handle the performance of the function(s).CHAPTER 1 Additional DoD CAO Functions FAR 42. Prices and priced exhibits for unpriced orders under basic ordering agreements (BOAs).302(b) Beyond the 69 baseline functions. conversion. or Required by agency regulations or interagency cross-servicing agreements. including their administration. negotiate. Additional Functions FAR 42. and execute orders under BOAs for overhaul.302(a) Perform and negotiate schedules on industrial readiness and mobilization production planning field surveys. and repair. and 1-23 . the contracting officer may also assign additional functions. Adjustments to contract prices resulting from the exercise of an economic price adjustment clause. or repair. Supplemental agreements changing contract delivery schedules. Supplemental agreements providing for the deobligation of unspent dollar balances considered excess to known contract requirements. Any decision to withhold administrative functions should be made after consulting with the CAO.

Other Government Personnel In addition to specialized contracting officers. delegations of contract administration functions can be made to other Government personnel. or whatever the case may be. then this function will not be performed. The CAO can even reassign the contract when another office is in a better position to perform administrative functions. such as monitoring industrial labor relations matters on a contract for commercial products or maintaining surveillance of flight operations on a contract that does not involve aircraft.CONTRACT ADMINISTRATION PLANNING Reduced quantities on firm-fixed-price contracts based on inconsequential delivery shortages.includes certain authorized representatives of the contracting officer acting within the limits of their authority as delegated by the contracting officer. some of the functions may not even be applicable to the contract involved. There are also functions that are dependent. However. contracting officer’s technical representatives (COTRs). Additional Support The CAO also has the authority to request supporting contract administration from another CAO for any function that has been assigned by the contracting officer. Rarely would any contracting officer be required to actually perform all of them.” FAR is silent on designating these authorized representatives as contracting officer’s representatives (CORs). if no change in contract delivery schedules is required during contract performance. Terminating Support Team Concept 1-24 . on events that occur during contract performance. The contracting officer may recall a contract or function previously assigned for administration when: Warranted by a change in circumstances. The contracting officer always heads up the contract administration team. resulting in the formation of a contract administration team. For example. Tailor the Assignment of Functions Keep in mind that these functions comprise a potential menu that can be assigned to a CAO. these functions cannot be performed by the CAO. your office may have the responsibility of negotiating supplemental agreements changing contract delivery schedules.101 “. Unless specifically assigned. to some extent.. In fact.. The definition of contracting officer contained at FAR 2. and The recall has been approved by a higher level.

CHAPTER 1 It is also silent on how technical and nontechnical representatives are to be addressed. The result is that these issues are covered by individual agency supplements to the FAR. They generally reflect organizational practicality. The most common places for listing this practice is in your agency’s supplement to FAR Subpart 1. DoD Definition of the Contracting Officer’s Representative DFARS 202. 1-25 . as defined by DoD. Project inspectors. Legal counsel. as well as when or how they should be officially designated.2. but they are not considered in light of a uniform standard. This course uses the designators COR and COTR interchangeably to parallel the practice within the majority of Government agencies. a few agencies reserve the COTR designator for these representatives. Engineers and scientists.6 or 42. other Government officials available to perform various contract administration tasks include: Contract administrators and contract specialists. Quality assurance specialists. Property control administrators. while using the COR label for individuals who have other contract administration duties. and Auditors. However. Although they may not be specifically designated. Contracting Officer’s Technical Representative (COTR) Contracting Officer’s Representative (COR) In practice. the only contracting officer’s representative that is always officially designated is the “contracting officer’s technical representative” (COTR). Follow your own agency’s practice. Some agencies use the term “contracting officer’s representative” (COR) instead of COTR. is an individual that the contracting officer has designated and authorized in writing to perform specific technical or administrative functions. Most agencies use one term or the other to identify that individual who is specifically given the chief role in monitoring aspects of the contract that relate to the statement of work or specification. CORs/ COTRs generally perform their contract administration duties as secondary responsibilities to their primary job which is in a functional area not related to contract administration.101 Team Members The contracting officer’s representative (COR).

1-26 Notifications of Team Roles and Responsibilities Team Member Responsibilities .Scientist Exhibit 1-5 Team Roles The roles and authorities of these team players depend on the size of the Government organization and the size of the contract.Task Manager . Typical responsibilities of key contract administration personnel are generally as follows: Contracting officer responsibilities.Quality Assurance Specialist Other Personnel .Legal Counsel .Project Manager . The contracting officer is principally responsible for the existing business relationship between the Government and a contractor. While signed by the contracting officer.Project Inspector .Engineer . One should be provided to the designee. The delegation of contract administration responsibilities to key team members should be made in writing (e.g. letter of delegation to a COR/ COTR). and property control administrator functions. one who may not only have written the technical specifications but also may perform COR/COTR functions.. the designee should countersign the letter of delegation and a copy of the completed letter should be placed in the contract file. project inspector functions. an engineer may be the representative for the requiring activity for a contract for testing services.Technical Representative . For instance.CONTRACT ADMINISTRATION PLANNING Various key players of a contract administration team are depicted in Exhibit 1-5. and one forwarded to the contractor requesting its written acknowledgment and placement in its contract file.Auditors Contracting Officer’s Representative . including the following: Interpreting and implementing contractual terms and conditions. Contract Administration Team Contracting Officer ACO TCO Inspector .Paying Official .

Providing for the auditing of the contractor’s books and records. contracting officer. Inspecting all work performed by the contractor for contract compliance. Evaluating work as it progresses. Issuing changes and negotiating modifications to the contract. or nonconformance with technical specifications or quality control 1-27 . Exhibit 1-6 provides more specific COR/COTR duties related to individual contract performance that may be assigned. Project inspector responsibilities.CHAPTER 1 Analyzing costs. depending on the contract administration plan for each project. requests for changes. A successful contracting officer must also demonstrate leadership qualities to ensure that the Government’s representatives work well together as a team and do not exceed their delegated authorities. Typical primary responsibilities of a COR/COTR include: Monitoring performance. Responsibilities of a COR/COTR. their responsibilities are usually restricted to monitoring and inspection duties such as: Reviewing the contractor’s progress reports. Being an effective contracting officer involves more than the application of expertise to specific problems. A COR/COTR is usually an official with expertise in the area of the contracted effort who possesses the necessary background to monitor technical aspects of contract performance. In any event. and Organizing and coordinating the efforts of all the functional specialists who comprise the contract administration team. or COR/COTR. or on how an agency has set up these reporting procedures among its organizations. Advising the contracting officer or COR/COTR of any unusual problems—such as schedule slippages. and Inspecting and accepting completed work for the Government. Exercising appropriate technical direction within the scope of the contract. Project inspectors can report to either a contract administrator.

Depending on the complexity of the contract. and If required. submitting periodic or daily reports to the contracting officer or COR/COTR. Maintaining a list of subcontractors on the project. These individuals provide input as requested by the contracting officer. Legal counsel. They include: Program or requiring activity personnel. Administrative support personnel. 1-28 . other people may also become involved in contract administration. Roles of other government personnel. and Auditors. Performing on-site checks to ensure that the contractor and any subcontractors are complying with labor standards and practices. Cost and price analysts.CONTRACT ADMINISTRATION PLANNING requirements that actually or potentially affect contract compliance.

— Monitor time and record keeping. — Keep a current set of drawings and specifications by noting all changes or deviations. — Supervise all technical and clerical personnel assigned to assist the COR/COTR. — Report violations of labor standards provisions to the contracting officer. — Maintain a master copy of the official list of defects and omissions. — Ensure that all defects and omissions are corrected or completed. Inspection and Acceptance: — Inspect all work for full compliance with contract requirements. — Assist the contracting officer in conducting a postaward orientation conference. — Prepare and maintain a running list of items that remain at variance with contract requirements. Exhibit 1-6 (continued on next page) 1-29 .CHAPTER 1 COR/COTR Delegations Administration: — Act as the Government technical representative for contract administration. — Advise the contracting officer if the contractor fails to remove. — Prepare a project diary. — Promptly reject all work that does not comply with contract requirements and immediately notify the CO. advising the contractor of its formal appeal rights when there is disagreement. — Represent the Government in conferences with the contractor and prepare memorandums of pertinent facts for the record. Changes: — Administer contract modifications previously authorized and issued by the CO. — Confer with representatives of the requiring office and other user groups on performance matters. — Maintain a file system. — Ensure that the contractor provides formal proposals for contemplated changes. apprising both the contractor and the contracting officer of corrective action or the need for it. Labor: — Ensure that equal opportunity in employment posters are prominently displayed at the job site. or replace rejected work promptly. correct. — Provide appropriate technical direction.

for timeliness. etc. reserved for a contracting officer. shop drawings. a progress chart showing the actual progress at the end of each accounting or payment period. determining the Government’s agreement or nonagreement with the contractor’s percentage of physical completion for progress reports or costs incurred. — Require the contractor to submit.) and record their impact. weather. reports. etc. — Maintain a record of submittals on a current basis. etc. 1-30 . — Advise the contracting officer of any delay factors (strikes. — Monitor the contractor’s submission of required samples. Some of these actions. Safety: Enforce all safety and health requirements. Schedule: — Review and forward to the contracting officer the contractor’s schedule or project management chart with a recommendation for acceptance or rejection.CONTRACT ADMINISTRATION PLANNING COR/COTR Delegations Payments: Review and verify the contractor’s invoices or vouchers. Exhibit 1-6 (continued) Prohibited Delegations While other Government personnel can be assigned many surveillance and acceptance duties. — Monitor the Government’s timely and complete response to the contractor’s submission of samples. reports. there are some functions that are prohibited from delegation to them. Submissions: — Determine (from the contract) and list the number and types of submittals required from the contractor. — Approve or reject submittals as provided in contract documents. if specified in the contract. are shown in Exhibit 1-7. shop drawings.

At a minimum. ♦ Give direction to the contractor except as provided in the contract. agree to. ♦ Cause the contractor to incur costs not specifically covered by the contract with the expectation that such costs will be reimbursed by the Government. ♦ Obligate. A formal contract administration plan is essential when the contract involves large dollar amounts or complex technical requirements. and Timely and proper performance of the Government’s responsibilities. and payment under the contract. ♦ Authorize work outside the scope of the contract.CHAPTER 1 Actions Not to be Delegated ♦ Award. Such a plan should be implemented immediately after award.7 The Contract Administration Plan Although the FAR does not require the preparation of a formal contract administration plan. or execute a contract or contract modification. Formal Plan 1-31 . ♦ Make a final decision on any matter that would be subject to appeal under the Disputes clause of the contract. contracting officers track the receipt of deliverables (or the performance of services). The plan should provide for: An appropriate level of surveillance or monitoring of contractor performance. the payment of money by the Government. Such contracts typically place many duties and responsibilities on both parties. in any way. ♦ Terminate for any cause the contractor’s right to proceed. acceptance. ♦ Resolve any dispute concerning a question of law or fact arising under the contract. ♦ Redelegate any assigned duties unless specifically authorized to do so. Exhibit 1-7 1. the CO is responsible for ensuring that the parties have complied with all terms and conditions of the contract.

Overreaching to create needless and costly contract administration requirements serves neither the Government’s nor the contractor’s best interests. Key elements of a contract administration plan are identified in Exhibit 1-8. Tailor your contract administration plan to reflect the acquisition’s requirement. A simple way of tracking the extent of contract completion. Over the life of the contract. working document to fulfill its purpose in providing: A baseline for project management and scheduling. a contract administration plan may require periodic updating. it may be necessary to shift responsibilities or add tasks that could not have been anticipated at the time of award. therefore.CONTRACT ADMINISTRATION PLANNING Advance Planning and Key Elements All members of the Government’s team should keep in mind the problems of contract administration and make key contract administration decisions even before a solicitation is issued. and An aid for any postaward orientation conference. 1-32 . Some implementation of these key decisions may be necessary in the solicitation. Need for Flexibility and Possible Alteration Need for Simplicity Determine what actions are essential to effective and efficient contract administration. As the contract progresses. Although finalized at contract award. Any decision to monitor through a contractor reporting procedure would need an implementing procedure in the contract itself. the contract administration plan needs to be a flexible. Don’t provide for administering a system acquisition when the need is for far less complex items or services.

Contract milestones. Be sure to list only major tasks. Names. roles. Part 4—Post-contract activity (e. Remember to tailor your checklist formats. but would not list as a major task the subtask of preparing an official record of the orientation..g. Design checklist formats comprised of key tasks within these four phases.g. where and conditions for). Part 2—Contract performance (e. transmittal of final technical data.g.g. duties under warranty or patent provisions.CHAPTER 1 Key Elements of a Contract Administration Plan A listing of contractual terms and conditions related to administration. Identify contract terms and conditions related to administration. Milestones for reports from contract administration team members. Contractor reporting procedures. contract closeout activities). Part 3—Inspection and acceptance (e.. Part 1—Contract administration preliminaries (e. Inspection and acceptance process (from requiring activity). if they fit.. postaward orientation conference).. for instance. delegations of responsibility. you would want to list it as a major task. Exhibit 1-8 Planning Steps Devising a workable contract administration plan requires adherence to the following six steps. You must identify and outline all major tasks that arise from the terms and conditions of the contract. Quality assurance guidelines (from requiring activity). Step 1 1-33 . monitoring payment provisions). If you decide to hold a postaward orientation conference. audit. authorities. You can enhance this process by dividing it into four parts. and limitations of authority for contract administration team members.

Note procedures and due dates that are pertinent to reports. Some agencies use a special form as an attachment in Section J of the contract to identify contract deliverables including reports. Step 2 Identify contractor reporting procedures. It will be a part of your contract administration plan to ensure that these are complete.CONTRACT ADMINISTRATION PLANNING Your goal is to identify what must be done. Exhibit 1-9 enumerates some common areas you should consider. a unique inspection requirement might be a performance test. Otherwise. and. how and where it is to be accomplished. For example. however. So your contract administration plan would include a checklist of required performance test parameters as well as when and where the test would be performed and by whom. including reports and technical data submissions. Step 3 Ensure that the plan provides for an inspection and acceptance process and calls for conformance to quality assurance requirements. as detailed in Step 3. These unique requirements will be in the contract’s terms and conditions. and otherwise comply with contract terms. you must compile your own list. be given distinct contract line-items in the contract schedule. who must do it. Note. on time. If your agency does either or both of these. identification of contractor reports will be much simpler. when it must take place. that you may wish to expand the checklist—particularly in the quality assurance area—tailoring it to unique contract requirements. Others insist that all contract deliverables. This is not covered by most agency’s standard inspection and acceptance procedures. 1-34 . as necessary. The requisitioner will have had some input to the inspection and acceptance process by identifying unique requirements that affect it.

Furnish Equal Employment Opportunity poster. Establish acceptance procedures and conduct acceptance. run through this list of common contract administration functions to see if there are others you wish to include. Ensure contractor submits insurance and bond certifications to the CO. Monitor Government-conducted testing procedures. Verify subcontracting plan submission. Monitor contractor material submittals. Review and approve deliverables required for interim payment. small disadvantaged. Obtain quarterly reports of prime contractor subcontracts with small. Provide Government-furnished property. Verify first article submission. Obtain instruction/maintenance manuals on newly acquired equipment. Give first article approval. Review and approve contractor technical deliverables and reports. Obtain warranty. Obtain OSHA standards certification. Exhibit 1-9 ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ 1-35 . Applies ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ Does not Apply ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ Hold a postaward orientation conference. and women-owned small business concerns.CHAPTER 1 Common Elements of a Contract Administration Checklist After you have reviewed your contract and identified major tasks for your checklist. Monitor contractor-conducted testing procedures. Notify contractor of decision on exercising options. Arrange for/participate in contract audit.

for example: An outside testing laboratory. Many service contracts. Food on cafeteria lines “set up no more than 30 minutes before opening” establishes 30 minutes as a performance standard. it will still provide “acceptable” service. such as: The piece of equipment “must run for 100 hours at a specific level of operating efficiency” establishes that operating efficiency as the standard. FAR 52.CONTRACT ADMINISTRATION PLANNING Acceptable Quality Requirements Examples of some areas that should be addressed are: The standard in the contract that establishes an acceptable item or service. meaning that if a contractor only meets the performance standard 95 percent of the time. for example. A required or otherwise reasonable method to document test results using. The contractor “must respond to on-call repair service within 6 hours from receipt of a telephone call from an authorized Government representative” establishes six hours as a performance standard. for such things as: The use of tests on a first article of production that cite easily correctable defects as an unacceptable reason for rejection. such as: Establish calibration requirements that contain a range within which calibration is acceptable.209-4(b) 1-36 . or A standard agency form or format. Deviations that would indicate “conditional” approval rather than rejection. state an “acceptable quality level” of.209-3(b) FAR 52. 5 percent. Allowable variations from the standard authorized by the specification or other contract terms. which recognize human error as a fact of life for some kinds of service.

There is no set format you must follow in preparing your contract administration plan. The roles and authorities of these team players depend on the size of the Government organization and the size of the contract. when. Step 5 Develop key milestones. This is especially true when the tasks are assigned to different team members. you need to identify who has been delegated overall responsibility for normal contract administration functions. A suggested format is shown in Exhibit 1-11. Remember: Keep it as simple and precise as possible. 1-37 . Assign a time frame for the completion of each task. Exhibit 1-10 provides a typical format for documenting answers to other questions concerning what. In addition to specific tasks associated with the contract. You need to identify which tasks are crucial to the performance of another task. you need to cover all issues necessary to ensure that all parties understand their roles and due dates for assigned tasks. Now identify who will have responsibility for those tasks. This will help avoid duplication of effort or confusion. You are now ready to present your decisions in a formal plan. Make sure that each task is clearly defined and any overlapping of functions will not result in confusion among team members. and by whom. Step 6 Document your decisions.CHAPTER 1 Step 4 FAR 2. These tasks include those performed by both Government and contractor personnel from contract award to contract closeout. At a minimum. In the previous steps you identified all the necessary tasks for administering the contract.101 Identify contract administration team members and define their roles. Each member of the team should receive a copy of the list of participants and their roles and responsibilities.

23. 1997 Feb. 1997 Jan. 6. 1997 Jan. Milestone Date Jan. Contract Administrator Ida Juan. Submit quality control plan. Notify contractor of delegations. additional columns could be added to specify where and how tasks are to be carried out. 1997 Jan. Contractor Sherlock Holmes. 31. as well as a column for when the tasks were actually completed. 15. Review quality control plan. Contract Administrator The ABC Company. 1997 Jan. 31. Program Manager Note: As necessary. Hold postaward orientation conference.CONTRACT ADMINISTRATION PLANNING A Format for Phase I Milestones Task Write COR delegation letters. 15. Inspector Jane Justice. Contracting Officer Harry Altogether. 1997 Person Responsible Ida Juan. Exhibit 1-10 1-38 . Provide Government-furnished property.

Reporting requirements. Exhibit 1-11 1. Potential problem areas.8 Provide Notices and Instructions The following three steps will ensure providing appropriate notices and adequate instructions. Brief description of the work to be performed. Tasks to be performed by Government personnel and milestones for each task for such functions as: — — — — — — Monitoring the contractor’s quality assurance program. Tasks delegated to each COR/COTR (including any limits on their authority). Furnishing Government property and monitoring its use. inspecting. Submission of invoices/vouchers and other data related to payment. Place of performance and/or delivery points. and criticality designator. Receiving. Monitoring compliance with the small business subcontracting plan. Certifying costs incurred or physical progress for payment purposes. Reviewing and responding to contractor reports/requests. related identifiers. Identity of the contractor and key contractor personnel. The contractor’s milestones for such critical events as: — — — — First article testing and reporting. Performance or delivery. 1-39 . and accepting the work.CHAPTER 1 Typical Contract Administration Plan Format Title of the contract. Identity of the CO’s Representative (COR/COTR). Submission of progress reports. Location of files on the contract and the contractor.

Specify the authorities being delegated. Exhibit 1-12 1-40 . avoid having an organization nominate an administrative coordinator to administer a highly technical service contract. If not. Specify the tasks being delegated. Write designation letters. Make sure any individual proposed as a COR/COTR has the training. or other contract administration team Step 2 Essential Elements of a Letter of Designation Address the individual by name and position title. and experience commensurate with the authority the contracting officer is delegating. recommend that the contracting officer request a qualified substitute. Specify if the designee may redesignate any authority or task. Some agencies require that a copy of the COTR’s training record be kept in the contract file. The essential elements of such a letter are outlined in Exhibit 1-12. Emphasize the limitations of the delegation. Only the contracting officer can sign delegation letters to a COR/COTR. project inspector.CONTRACT ADMINISTRATION PLANNING Step 1 Review qualifications of COR/COTR prior to issuing notices. qualifications. Include a requirement for certifying that the individual has read and will abide by your agency’s procurement integrity or conflict of interest requirements. unless immediate training is available to qualify the proposed individual for the COR/COTR appointment. Specify the contract number that applies to the delegation. Specify any record-keeping requirements and the disposition of those records. For example. The technical adviser to the administrative coordinator may be a better choice as the COR/COTR. There is only one Governmentwide notice to individual Government employees that contains instructions and outlines specific responsibilities in relation to a single contract: the COR/COTR designation letter. members.

contract administration inspection duties are the main job functions of a project inspector. general instructions for COR/COTR notices apply to project inspectors as well. When such is the case. This is particularly true when you have no routine contact with the COR/ COTR. 1-41 . Do this because limitations. or extensive leave approvals that affect your COR/COTR. You will probably need to set up a system to make sure you are aware of when changes or terminations need to be made on lower priority projects. A COTR appointment letter would be quite the same. Whatever the method. When possible. More typically. and job descriptions of contract administration team players. you may arrange to have the COR’s/COTR’s supervisor provide you with copies of personnel reassignments. assure that you are aware of any situation having a potential effect on the performance of contract administration duties that have been delegated to others. Terminate or change designation letters in writing. however. make it a point to call each COR/ COTR each Friday. If you have too many to call. long-term travel. you may not need to prepare any designation letters. Exhibit 1-13 provides a sample of a COR appointment letter. office procedures. COR/COTRs are from a wide variety of organizations whose main function is usually not to act in a contract administration supporting role. issue the termination letter before the termination and specify the date on which it will become effective. Step 3 Set up a system for changing or terminating designations. Project inspectors may also be in organizations where contract administration duties are secondary to their normal responsibilities. When instructions and responsibilities addressed to individuals in the contract administration process are contained in regulations. and tasks will vary depending on differing contractual terms and conditions. guidelines and other instructional documentation within their organizations do not normally cover contract administration support activities.CHAPTER 1 Need for Specific Instructions When the designee is to act for the contracting officer on more than one contract. So you might. for example. authorities. write a separate designation for each contract. Therefore. Send the contractor either a copy of the termination letter or a separate letter advising of the termination.

upon receipt. Contract No. above. Contracting Officer SUBJECT: Contracting Officer’s Representative (COR) Designation. To keep a daily log of all contract-related activities while you are onsite at the contractor’s plant. within 48 hours of its issuance. promptly certify them for prompt payment. for the production of a new concept in Super Duper Widgets. 3. 2. Our Town. Exhibit 1-13 (continued on next page) 1-42 . ARN 97-7028 awarded to the ABC Corporation. To verity invoices and. To provide me with written notification of any dispute that cannot be resolved between you and the contractor regarding performance of the contract. send me a copy of the certified invoice and send the original to Finance. and send a report within five working days of any tests to the contractor’s project manager and to me. ARN 97-7028 I am hereby designating you as contracting officer’s representative (COR) on Contract No. After verification. To furnish the contractor with technical assistance and guidance in all aspects of the contract. provided the direction does not affect price or duration of the contract and that it contains both a signed acknowledgment from the contractor and the following statement: In accepting this technical direction. WI. Under no circumstances are you to make changes that would affect the cost or duration of the contract. You may formalize your guidance to the contractor by written technical direction. 6. To provide me with a copy of all technical direction issued under paragraph 1.CONTRACT ADMINISTRATION PLANNING Sample COR Designation Letter TO: FROM: Tom Jones. Project Engineer Jan Justice. In this capacity you are delegated the specific responsibilities detailed below. but perhaps the most important aspect of this authority is its limitations. To keep accurate records of all interim and final contract testing procedures outlined in the statement of work. 4. the contractor agrees that the price and all other terms and conditions of the contract remain unchanged. You will have the following responsibilities that may not be redelegated to any other individual: 1. 5.

In addition.9 Provide Formal Notice to Contractor Notify the contractor. Such a notice must include some key information. Please sign one copy in the space provided below to indicate your acceptance and return that copy to me. CERTIFIED: __________________________________ Contracting Officer’s Representative DATE: ________________________________ Attachment: Agency’s Code of Ethical Conduct Exhibit 1-13 (continued) 1. 1-43 . Please note that you may not redelegate any of the contractual authority listed above. To turn over all records pertaining to this contract to the successor COR if this COR designation is terminated for any reason before completion of the contract. ACCEPTED: __________________________________ Contracting Officer’s Representative DATE: ________________________________ I have read the Integrity Awareness Act for Government Employees and will abide by its requirements in conducting all my responsibilities as a contracting officer’s representative. and to notify me that you have taken such action. Include in this notification what authority the COR/COTR has in relation to this particular contract. This is especially necessary when the contract itself has not identified these officials. I am providing you with two copies of this letter of designation. in writing. Provide a similar written notice outlining the roles of any other Government employees having a direct contract administration role. This is found in Exhibit 1-14. except for clerical tasks associated with that authority.CHAPTER 1 7. of the names of the individual(s) designated as a COR/COTR. please sign the following certification to indicate that you have read and will abide by the Code of Ethical Conduct (copy attached).

♦ Request a written acknowledgment of the notice from the contractor. ♦ Specify the extent of the delegation. 1-44 .CONTRACT ADMINISTRATION PLANNING Essential Elements of a Contractor’s Notice of a Contracting Officer’s Delegation ♦ Specify the name and position title of the COR/COTR or other person receiving a delegation. Exhibit 1-14 Sample Contractor Notification Exhibit 1-15 provides a sample COR notification letter to the contractor. ♦ Cite the contract number for which authority has been delegated. ♦ Emphasize any limitations of the delegation.

2. Please contact me directly at (123-987-6543) when you anticipate changes that would affect price or overall time of performance. I am providing you with two copies of this notice and request that you acknowledge one copy in the space provided below and return it. will be my onsite representative for this contract. Under no circumstances can he make changes that would affect price or the duration of the contract. Jones. Jones is authorized to act on my behalf in: 1. so long as the direction does not affect price or duration of the contract. Chief Project Officer The ABC Corporation 123 Main Street Our Town. Contract No. Thank you for your cooperation. Contracting Officer FROM: SUBJECT: Contracting Officer’s Representative (COR) Designation. ACKNOWLEDGED: _______________________________ Contractor DATE: ______________________________ Exhibit 1-15 1-45 . Verifying and certifying all invoices. Project Engineer. His authority has limitations. ARN-97-7028 This officially notifies you that Tom Jones. Furnishing technical assistance and guidance to you in all aspects of the contract and formalizing this guidance in written technical direction. You should submit invoices directly to Mr. Mr. Government Agency. WI 12345-6789 Jane Justice.CHAPTER 1 Notification Letter to the Contractor TO: Alvin Johnson.

1-46 . he felt there were elements that required attention and monitoring during performance. He was concerned about the company’s past performance for timely deliveries. For instance. but he felt that something should be done to reinforce the criticality of any delivery order’s delivery schedule. the use of a performance specification that provided Platform Industries with a description of function had to be monitored to some extent. Indeed. Certainly the pallet procurement did not require the detailed administration that otherwise would be required of a production contract tied to an agency-peculiar specification. mind you.CONTRACT ADMINISTRATION PLANNING PUTTING THE PALLET PROCUREMENT IN PERSPECTIVE Eric had reviewed the pallet procurement contract file and was contemplating his upcoming session with Joanne and whoever else. A failure to do so might leave the Government with an unacceptable risk associated with the warranty of fitness for a particular purpose agreed to by the contractor. He had considered alternatives to a contract administration plan and knew that current initiatives throughout the Government sought to minimize—if it was realistic to do so—the expenditure of resources in administering postaward contractor performance. Eric had isolated some issues that should be discussed and resolved at tomorrow morning’s meeting with Joanne and someone else involved in the program. nothing major. Yet even though the pallets were being procured as commercial items.

“Are you suggesting a hands-off posture for this one. we can minimize the need for any involved postaward administration. Knowing her penchant for timeliness. not very much. or so it seems to me. Eric. “Well. “Whoa. So. “and what did you find?” “Actually.” she started. what have you got to share with us?” Shuffling his papers while clearing his throat. the requiring activity’s technical representative for the procurement. Waiting outside her office. he looked over his notes and awaited the arrival of Harry Carmichael. what leads you to believe the contractor can followthrough without some handholding?” 2-1 . “that lends itself to what I’ve always considered to be the basis for a comprehensive contract administration plan. Joanne seemed to reflect Harry’s sentiment. and I wanted him here to listen to what you came up with concerning the need for planning to administer our contract with Platform Industries. We’ve got to solve this pallet pliability dilemma or all kinds of criticism will fall on us.” Peering at Eric. “The first thing I did. Joanne. mostly promises and few results that carried a big price tag. Buying under FAR Part 12 streamlines the acquisition process and. Joanne appeared in the doorway and signaled for them to come in. Eric. Eric? And if so. Harry arrived a few minutes after eight. Seated at a conference table perpendicular to her desk.” “That’s a start. We trust that we can do a good job for him with this procurement.” Eric retorted.” Harry was quick to jump in.CHAPTER 2 POSTAWARD ORIENTATIONS ASSESSING THE NEED TO GET STARTED Joanne convened a morning meeting of the team for the pallet procurement in her office at eight o’clock. Joanne was quick to begin the meeting. Eric responded. “I see that you and Harry have met. was read the contract file and take note of its terms and conditions relative to the requirement for pallets. He represents our customer organization for the pallet procurement. Eric arrived a bit early and found his boss on the phone. Cradling a cup of hot coffee in one hand and a folder of papers in the other.” she interrupted. and he’s the one that’s been living with the expensive replacement problem for some time. After the two had exchanged amenities. are you saying that we should let Platform Industries run with the ball and then come see us if it scores? We’ve got to do more than that or we’ll end up in the same mess we had with the last contractor.

particularly since it represents a FAR Part 12 acquisition. and get the job underway.” “Let’s get down to specifics. Harry?” “You bet!” he shot back. But not all of them. we have to make certain. I’m saying that the contract file. After all. Once we’ve done that. Eric. for starters. what it will take to monitor Platform’s implementation of the performance spec to see that we’re not running in circles. “to isolate his concerns representing the user community and mine from a contractual perspective. Then we assess those concerns in terms of what the contract says.” At this point. Harry looked puzzled and jumped in. gives us good cause to abide by some of the customary commercial practices that are inherent in the use of FAR 52. looked at both Joanne and Harry. we need to agree among ourselves. that before we issue any delivery orders for pallets that the contractor has demonstrated an outcome that we can hold it to in terms of the agreed-to warranty of fitness for a particular purpose. and responded forthrightly. “Sounds good to me. “and get back to me first thing tomorrow morning with an agenda for a postaward meeting with Platform Industries. What do you suggest to get the ball rolling.” said Eric. why do we need it. but we do have a considerable risk if this contractor fails to perform.” said Joanne.POSTAWARD ORIENTATION Sensing he was off to a bad start. Eric. Eric tried to recover quickly. and who’s going to do it in administering this contract?” Eric leaned forward in his chair. and what do you see for Harry and his staff in all this?” “I suggest that Harry and I sit down. we’ve got to drive home the point that on-time delivery is essential.” 2-2 . given what we’ve ascertained about Platform meeting delivery schedules. “You’re way ahead of me.” Joanne seemed to get the message. Second.” concluded his boss. For starters. “Is that okay with you. as much as we can. “First. and I’m not anxious to mount some huge contract administration effort with Platform Industries.” Joanne looked at the technical representative and responded with a sense of finality.212-4. “I’m suggesting nothing of the sort. Eric. “What do we need. I haven’t the foggiest idea about what you’re saying. “Better now than trying to figure it all out later. we can determine Harry’s role in the contract administration process. Third. shape a reasonable agenda for a postaward meeting with Platform Industries. especially with Harry’s input. we’re not buying some exotic product here.” “Do it Eric.

5 2.4 2.6 2. Determine the appropriate type of orientation.CHAPTER 2 COURSE LEARNING OBJECTIVES At the end of this course. Document the contract file. 2-3 . Provide contractual information to interested parties. Identify the need for unilateral or bilateral contract modifications.8 2. Obtain from a contractor any executed contractual documents or bonds within the time specified.3 2. Conduct postaward orientations for contractors.1 2.10 Determine the need for a postaward orientation. Select a course of action when agreement on a key issue cannot be reached.2 2. Prepare a report on an orientation. Plan an orientation.7 2. you will be able to: Overall: Individual: 2.9 2. Conduct an orientation.

It is neither a substitute for the contractor’s understanding of requirements at the time offers were submitted. ♦ Preventing problems. a postaward orientation focuses on: ♦ Understanding the technical aspects of the contract. or by teleconferencing.501 The contracting officer decides whether a postaward orientation (and the form it might take) is necessary. ♦ Determining how to solve problems that may occur later. The steps in planning for a postaward orientation are charted on the next page. small disadvantaged. and ♦ Reaching agreement on common issues. a postaward orientation should be conducted promptly after contract award to achieve maximum benefits. Focus of Postaward Orientations Steps in Performance 2-4 . each step is discussed in detail.INTRODUCTION TO POSTAWARD ORIENTATIONS Purpose of Postaward Orientations Conducted in person. structured discussion between the Government and the contractor. Following the flowchart. ♦ Averting misunderstandings. When used. ♦ Identifying and resolving oversights. nor is it to be used to alter the final agreement reached in any negotiation leading to contract award. Such orientations are especially encouraged to assist small. a postaward orientation aids both the Government and the contractor in achieving a clear and mutual understanding of all contract requirements and identifying and resolving potential problems. Policy on Postaward Orientations FAR 42. and women-owned small business concerns. As a planned. through correspondence.

. 10. Determine the need for a postaward orientation. No Needed? Yes 2-5. 1. Take any necessary follow-up action (e. conduct. Obtain any executed contractual documents or bonds from the contractor within time specified after award. 2-5 . 6-8. 9. and document postaward orientations. Plan.CHAPTER 2 STEPS IN POSTAWARD ORIENTATION PLANNING Input: The contract and contract administration plan. a contract modification).g. Provide information on the contract to interested parties.

Such action may signal the need for a postaward orientation. and investigate what the impact would be if it arrived at a later time. In these cases. Postaward orientations are most vital when potential risks to the contractor or the Government have not been addressed within the contract itself. Identify Performance Issues or Concerns The success of a postaward orientation rests on the contract administrator’s ability to identify issues or concerns that may (or will) impact contract performance. for example. when the contract states that Government-furnished Equipment (GFE) will be “available 60 days after contract award at the contractor’s plant.1 Determine the Need FAR 42. a postaward orientation identifies these risks and considers ways to reduce the probability of their resulting in serious problems during contract performance. it would be a discussion item for a postaward orientation. contractor performance and its administration by the Government can begin smoothly and proceed without incident. Were that the case.” Failure to do this presents an additional risk if the contractor assumed the GFE would be available within the first couple of weeks of contract performance. If the contract had not specified when and where GFE would be delivered. Identify a need to review specific key contract requirements and milestones. These are three steps to follow in identifying issues or concerns. Other contracts require immediate administrative action to ensure that performance starts off on the right track.POSTAWARD ORIENTATION POSTAWARD ORIENTATION PLANNING 2. determine if the Government could provide it at that time. the Government’s failure to provide the GFE would delay and disrupt the contractor’s planned schedule. Analyze any requirement identified from contract administration planning to determine if you really need some form of a postaward orientation. You would want to learn when the contractor needed the GFE. Consider such issues as: ♦ Did the contract fully explain the requirement? ♦ Would an incorrect interpretation of a performance requirement damage the Government? Step 1 Reduce or Eliminate Risks Analyzing Contract Requirements 2-6 .502 For contracts awarded under simplified acquisition procedures or for the acquisition of commercial items or services. Risk is diminished.

The postaward goals of any contract are to assure that supplies or services are: ♦ Delivered or performed when and where specified in the contract.10 FAR 22.403 FAR Subpart 4. ♦ Acceptable in terms of conforming to the contract’s specification or statement of work.1002 FAR Subpart 22. many contractors overlook the finer points of a requirement in the preaward stage. Postaward orientations ensure that a contractor fully understands all the details of the Government’s requirement.CHAPTER 2 ♦ Would potential problems endanger tight scheduling? ♦ Do contract requirements rely on close interaction between Government and contractor personnel? ♦ What is the extent of any subcontracting requirements. and ♦ Federal policies on nondiscrimination because of age. Even though ignorance of contract terms does not excuse responsibility for complying with them. that it agreed to perform when it signed the contract.1001 FAR 22. ♦ Record-retention requirements. ♦ Federal and state labor requirements.7 FAR Subpart 22. Compliance with other terms and conditions includes requirements such as: ♦ Security classifications and requirements. and might these be clarified by a postaward subcontractor conference? ♦ Are financing arrangements given to complexities such as progress or interim financing payments? Step 2 Identify the need for a general briefing on one or more aspects of contract administration.9 2-7 . ♦ Service Contract Act requirements. FAR 4. including those incorporated by reference. and ♦ Furnished in compliance with other terms and conditions of the contract.

If things go wrong later. and ♦ The degree of difficulty encountered by experienced contractors on similar requirements. It provides an easy way to record the basis for your decision to hold a postaward orientation. This is particularly important if you decide that you don’t want to hold an orientation. small disadvantaged. or ♦ Rights and obligations of the parties in any area. 2-8 . you will supply additional documentation to the file on these activities. Step 3 Document the decisions you make. it demonstrates that you exercised good judgment in your early contract administration decisions. If you do hold a conference or conduct some other form of postaward orientation. You may accomplish a postaward orientation in three ways: Hold a face-to-face orientation conference when you believe the contractor does not have a clear understanding of the: 2. See Section 2-8 below. Exhibit 2-1 provides a menu of items to consider in your analysis.2 Determine the Type of Orientation Face-to-Face FAR 42.POSTAWARD ORIENTATION Extent of Orientation The extent of information provided or discussed at an orientation depends on: ♦ A contractor’s past experience with Government contracts (small. Include the Exhibit 2-1 checklist as a part of your contract file. and women-owned small business concerns with little Government experience will generally need more guidance). ♦ Contract’s technical requirements.502 ♦ Scope of the contract.

CHAPTER 2 Should I Hold a Postaward Orientation Conference? Some common considerations in deciding whether to hold a postaward orientation conference are listed below. The “Yes” answers favor a conference. small disadvantaged. you may have had detailed conversations during an onsite preaward survey or during negotiation sessions.) Is there any indication that misunderstandings exist? Does the procurement history of the required supplies or services reveal recurring problem areas? Is a lengthy production cycle planned? Does the contract involve spare parts and related equipment? Is the contractor a small. or women-owned business concern? Is extensive subcontracting involved? Are safety factors involved in the performance of work? Are progress payments or other interim financing arrangements involved? Can you anticipate contract changes that would require the contractor to use specialized accounting procedures? Exhibit 2-1 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 2-9 . were an unusual number of problems associated with them? Can you foresee specific potential problems for this contract? Is any aspect of this contract urgent or critical to the Government? Does the contract type require a relatively high degree of administration? Is the requirement relatively complex and of a relatively high-dollar value? Have you had little previous conversation with the contractor about this contract? (In contrast. Yes ____ ___ ____ _____ ____ ____ ____ ____ No ____ ____ ____ ____ ____ ____ ____ ____ Is this the contractor’s first Government contract? Has the contractor had little or no previous experience with this type of product or service? If the contractor has had previous Government contracts. This checklist will help you crystallize your thoughts.

Phone A telephone conference is usually sufficient when: ♦ You have had good prior experience with the contractor. You can include a notice of the COR’s/COTR’s designation within this letter as well. or ♦ You do not anticipate problems for good reasons.POSTAWARD ORIENTATION Letter FAR 42. you may find it useful to have a letter convey a few important points. and ♦ The procurement is not particularly complex. you can use a letter as an alternative to a formal postaward conference when: ♦ Only minor details need to be conveyed to the contractor. ♦ Matters for discussions are relatively straightforward. or such other fairly straightforward elements. a letter may suffice if you need only communicate specifics about onsite availability. Combining Orientation Methods A postaward orientation may represent a combination of these methods. 2-10 . instructions for paperwork submissions.504 Generally. You may also decide to use a telephone conference to establish a personal working relationship. In this case. Exhibit 2-2 provides a sample postaward orientation letter. ♦ The contractor has had previous experience in producing the items or providing the services. You may have an uncomplicated procurement with a new contractor for which performance is not required at your installation. especially if the contractor is not located near your installation. For example.

(Send the original notice to Mr. you will need to have a power outage in the west wing of Building 569. a heavily populated office building. I would like to clarify the contract completion date and identify the Government personnel who will play a role in the contract’s administration. I am writing to point out a requirement of the subject contract that has led to problems in other contracts. paragraph 2.m. he is referred to as the contracting officer’s representative (COR). Exhibit 2-2 (continued on next page) 2-11 .CHAPTER 2 An Alternative: The Postaward Orientation Letter TO: FROM: Gary Green.a(1) of the statement of work requires that this power outage take place on Sunday. Accordingly. He does have the authority to inspect and accept the equipment for the Government. Howard Smith is my representative for the technical aspects of this contract. Since performance time is expressed in the contract as 120 calendar days after contract award. as well as other operations. Mr. between the hours of midnight and 6:00 a. a Federal holiday. Also. I want to affirm the date for contract completion as January 30. that cannot be disrupted. 104230-97-C-1234 To avoid any potential difficulties. In addition. Please note the paragraph 2. Smith — see below. Project Manager. Contracting Officer SUBJECT: Contract No. Al Jones. He is not authorized to make any changes to the contract as written. You will receive any change to the contract as an official modification signed by me or another Government official.) The reason for the preceding requirement is that we have computers on-line 24 hours a day in that wing of the building. XYZ Power Co. To install the four pieces of equipment required in contract line item #4.a(5) of the statement of work requires that you provide me with seven calendar days’ notice of your need for this outage. 1997.

PA 10000-9876 Request notice for the power outage.3 Planning Orientations Once the need for an orientation is established. 2-12 .) Ms. and technical reports required by contract line item #7.m. plan it carefully to make certain that its goals are accomplished. Jane Doe Quality Assurance Specialist Dept. Exhibit 2-2 (continued) 2. and 4:00 p. PA 10000-9876 Mr. It is also important to plan what will be addressed in a letter or telephone orientation.Room 829 Your Agency 123 Main Street Our Town. XYZ .POSTAWARD ORIENTATION An Alternative: The Postaward Orientation Letter The list below summarizes your paperwork submissions and identifies the individuals to whom you should send them: Final quality control plan. Al Jones Contracting Officer Dept. (You provided a draft plan at the preaward survey.Room 117 123 Main Street Our Town. DEF . and I’m usually in my office between the hours of 7:30 a.a(7) of the statement of work. All other submissions and correspondence (inincluding nontechnical questions) should be addressed to me. request for interim inspection required by paragraph 10. My telephone number is 100-123-1234. Howard Smith Plant Manager Your Agency Dept.m. PA 10000-9876 Don’t hesitate to call me if you want to discuss any aspect of this contract. ABC . Detailed planning is particularly important when you use a formal postaward conference. Addressing the steps listed in Exhibit 2-3 ensures that you are thoroughly prepared for the orientation and have considered all potential problem areas.Room 401 Your Agency 123 Main Street Our Town. Mr.

Prepare the Government’s position. Traditionally the CO is the chairperson. cause delays in delivery. ♦ Brief the Government’s chairperson and participants on their roles. or ♦ Testing or quality control procedures (if they are incomplete in the contract or otherwise need to be supplemented). ♦ Designate the Government’s participants and name the chairperson. Exhibit 2-3 2-13 . ♦ Prepare a conference agenda and determine the time and place for meeting. ♦ Ambiguous or unclear contractual specifications or clauses. ♦ Provide the contractor with a copy of the conference agenda. Postaward problems in these areas might affect the quality of the product or work. You may recognize the need to make judgments on issues such as: ♦ Government-furnished property procedures (if the contract does not outline them). ♦ Finalize the conference agenda.CHAPTER 2 The Planning Process The following seven steps identify basic activities associated with planning a postaward orientation conference. increase the scope of work and cost. require a contract modification to remedy the situation. ♦ Obtain the contractor’s response to the agenda. and Step 1 Orientation Planning Tasks ♦ Prepare the Government’s position and its understanding on key issues.

♦ Critical milestones. During their meeting. and he wanted to drive home the point that delivery order schedules had to be met. In doing so. Items for the agenda should consider: ♦ Special contract clauses. Yet again. Both Eric and Harry agreed that Platform’s warranty of fitness for a particular purpose was a front-burner item that had to be strongly reinforced. ♦ Roles of the Government’s contract administration team members. Harry agreed with this. ♦ Contractor reporting requirements. ♦ Billing and payment procedures. Include in the agenda all matters needing clarification or otherwise requiring discussion with the contractor to avoid later misunderstandings. Eric expressed his concern about making sure that Platform understood the basis for the issuance of delivery orders under an indefinite-quantity arrangement. Harry pointed out the need for making sure that Platform’s pursuit of a performance specification effort was monitored effectively. ♦ Contractor quality control procedures.POSTAWARD ORIENTATION ACQUISITION TEAM PLANNING Recall that Joanne asked Eric to provide an agenda for a postaward orientation meeting with Platform Industries. Step 2 Prepare the agenda and set the time and place for the conference. To ensure reasonable monitoring of the contractor’s effort.212-4 to determine those that needed to be stressed with Platform at a postaward orientation meeting. Eric met with Harry to isolate and iron out key technical and contractual issues and concerns that both felt would affect contract performance. He suggested that an early understanding with Platform about reporting the results of its effort was very important. and Possible Agenda Items 2-14 . Eric determined that Harry should have a contract administration role in representing the contracting officer as a designated technical representative. Eric reviewed the contract clauses under FAR 52. since any delivery orders for pallets had to await the successful completion of the company’s effort to meet the performance functions set forth in the specification.

CHAPTER 2 ♦ Roles of the contractor’s contract administration team members. Resorting to multiple sessions. In the case of a conference. Be sensible in your choice of a conference site. Tailor the Agenda Use the checklist at Exhibit 2-4 as the basis for outlining your agenda. The less complex the procurement.and lowpriority items. Try to minimize travel time for all participants.) Length of Orientation The complexity of an agenda will influence the length of any orientation. Time. add any item(s) that do not appear on the checklist. ♦ Conference rooms near or within your office area offer convenience for your contract administration team’s busy schedule. (See Step 4. When an agenda addresses both high. letter. Sometimes you will have to analyze one site’s advantages relative to those of another to make the best choice. it may be more efficient to cover the high-priority items at a formal conference and deal with those of lower priority via a teleconference. for example: ♦ Contract performance sites offer ready access to physical conditions that may have a bearing on issues being discussed. Items that may only affect Government team members and not what the contractor is required to do can be discussed at a separate in-house session. When FAR 42. ♦ Make sure the time is mutually agreeable before you firm it up. Where Location. Discuss those topics that are most important to reinforcing mutual obligations and contractor performance requirements. the more you will use the “N/A” column. should occur only for the most complex contracts.501(d) 2-15 . Certain locations will typically have advantages. however. or facsimile transmission. Remember: Tailor your agenda to fit the orientation’s needs. There are really only two concerns about the timing of the conference: ♦ Hold the conference as soon as possible after contract award. you may need to convene more than one session. If necessary.

Unless you can guarantee no interruptions. Productive Versus Convenient Sites 2-16 . The convenience will not be worth the ill will and frustration felt by other attendees. both Government and contractor. determine the number of contractor attendees and the number of participants among your own contract administration team. for wasting their time with your other unrelated business. Make sure the site can accommodate the group’s size. always discard the temptation to have smaller conferences in your own or the contracting officer’s office.POSTAWARD ORIENTATION Number of Attendees Before you finalize your choice of a site.

Other (specify) B. Routing of correspondence 3. GOVERNMENT PROPERTY 1. SDB. Omissions or conflicting provisions 4. Source inspection 5. GENERAL 1. Use of facilities and tooling Check if applicable Clause No. SB. Work progress 2. Contractor Address 4. further action to be taken (attach additional sheets if necessary Exhibit 2-4 (continued on next page) 2-17 . if applicable Significant conclusions. Other (specify) C. Program to facilitate E. and WOSB Subcontracting 1. Contract No. Cost or pricing data 4.CHAPTER 2 Checklist/Record for Postaward Orientation Conference PART I—GENERAL 1. Prime’s responsibility for administration 3. 5. Consent to placement 2. Function and authority of assigned personnel 2. Contractor 2. Preaward Survey? YES NO PART II—CONFEREES 1. Total Amount 6. Type of Contract 7. CONTRACT MODIFICATIONS F. Government 2. REPORTS: PREPARATION AND SUBMITTAL 1. SUBCONTRACTS 1. Contractual requirements 2. Contractor Name 3. Financial 3. Other (specify) D. Date of Conference PART III—CONFERENCE PROGRAM Subject A.

further action to be taken (attach additional sheets if necessary Subject 2.POSTAWARD ORIENTATION Checklist/Record for Postaward Orientation Conference Check if Applicable Clause No. if Applicable Significant conclusions. Maintenance and preservation 3. Limitation of cost 2. Allowability of cost 3. Davis-Bacon Act 3. Other (specify) I. Repricing 2. TRANSPORTATION K. DELIVERY SCHEDULES J. Property procedure approval 4. SPECIAL CLAUSES 1. Other (specify) G. Overtime 6. Property disposal procedures 5. LABOR 1. Data rights 8. INVOICING AND BILLING INSTRUCTIONS l. Special tooling 5. Walsh-Healey Act 5. Government financing 4. Bill of materials 7. GENERAL CLAUSES 1. Warranties 9. Work Hours Act 4. Actual and potential labor disputes 2. Copeland Anti-Kickback Act Exhibit 2-4 (continued on next page) 2-18 . Work performed at government installations 10. Liquidated damages 3. PROCESSING OF COST AND PRICE PROPOSALS M. Other (specify) H.

QUALITY ASSURANCE AND ENGINEERING 1. Laboratory facilities 10. Value engineering clause 11. if Applicable Significant conclusions. Safety (Additional Notes) Exhibit 2-4 (continued) 2-19 . Waivers and deviations 3. Qualifications and environmental tests 7. Other (specify) O. Production planning 2. Milestones and other monitoring devices 3. Manuals 5. Preproduction sample 6. Quality control system 2. Inspection and acceptance 8.CHAPTER 2 Checklist/Record for Postaward Orientation Conference Check if Applicable Clause No. Specification interpretation 9. Production surveillance 4. PRODUCTION 1. Drawing/design approval 4. further action to be taken (attach additional sheets if necessary Subject N.

♦ Quality assurance specialist. anticipate lengthy discussions with one Government representative. ♦ Project inspector. Also. invite your cost/price analyst. It is either you (the contract administrator) or the contracting officer. Invite only people who will have a significant role such as: ♦ COR/COTR. If the conference would result in a discussion of price or cost issues. invite the procuring contracting officer. hold a separate one-on-one meeting with that person. is to: ♦ Identify all actions that must be taken by the Government. Step 4 Brief Government participants on their roles. Purpose of Internal Briefings 2-20 . and ♦ Other appropriate subject matter experts. One preliminary group meeting is usually sufficient. Distribute your contract administration plan at the preliminary meeting and conduct a page-by-page review of its contents. You may have some strong personalities on your contract administration team. Questions might be raised that only the procuring contracting officer could answer adequately. For a smooth transition from preaward to postaward when contract administration functions are delegated. or individual briefings. Emphasize who is in charge and chairing the meeting. The COR/COTR might also chair the meeting if the contract administrator and the contracting officer could not attend. the ACO. On larger contracts. Final decisions affecting contract terms and conditions must be made by the contracting officer. Invite Government representatives to attend who will interact with the contractor during performance. the COR/ COTR could chair a preliminary meeting covering only technical issues. if you. However. You might invite using organizations if the work will take place in their office area and if one of their office employees is not participating in another capacity.POSTAWARD ORIENTATION Step 3 Designate Government participants to attend a preliminary meeting. ♦ Program manager. it may be useful to hold a preliminary meeting with appropriate Government personnel to ensure that the Government’s expectations are clearly expressed and understood. The purpose of this preliminary meeting.

I share your concern.” 2-21 . My concern runs to what alternative methodologies they’ll utilize to conclude that they have whipped the pallet pliability problem. “but can’t we just ask Platform to provide us with a modest written report on its progress. ♦ Identify which Government participants will be making a presentation at the postaward orientation conference and restrict the time and subject matter of each. Eric. “I’ll have to raise that one with Joanne and see what we can do. and ♦ Otherwise finalize agenda items with Government participants. except that meeting the spec’s functions was to be done not later than 40 calendar days after award.CHAPTER 2 ♦ Ensure that all Government personnel involved have a clear understanding of the contract’s terms and conditions and their respective responsibilities.” Eric winced a bit and was quick to share his understanding.” Mike joined in. but we’ve got a fixed-price arrangement here. and I can’t require the submission of any information that’s not set forth in the contract. HARRY’S CONTINUING CONCERN Eric received a call from Harry about an hour after their meeting. “Hey. We didn’t set forth any specific reporting or progress requirements about all that.” “Okay. “I’m not left with a warm.” “Well. their factory is only 100 miles or so down the road. about the business of monitoring Platform’s effort to get after the procurement’s performance specification. I mean I can visit them periodically. ♦ Establish a “common front” relative to the contractor’s responsibilities. if it happens the way we trust it will. After all. say weekly? I sure want to understand what they’re doing and why they’re doing it.” Eric said. I’m with you. Eric. Actually. Can’t we just ask Platform to stretch itself a bit in accommodating our need to let us know what they’re doing?” “Maybe so. on what you want. the contractor’s responsibility is to meet the functional conditions of the spec.” responded Eric. of course. Unless. fuzzy feeling. “We’re already on the hook for a lot of bucks in this deal.” Mike took a deep breath. “and perhaps we should have been more specific about all this in Platform’s contract. Mike. you want to pay for it.

Invite questions from the contractor on any requirement needing clarification.4 Conduct the Orientation Your Orientation Goals ♦ ♦ ♦ ♦ Clarify any procedures to implement contract requirements smoothly. If the contractor responds. Finalize the agenda. get agreement among appropriate Government personnel prior to the meeting. Goals for conducting a postaward orientation. provide the contractor with a written or oral notice that the agenda provided earlier is final.POSTAWARD ORIENTATION Step 5 Provide a copy of the agenda to the contractor. discuss its input. ask for feedback by a specific calendar date. When you do this. If preliminary conference discussions point out the need for a possible change to the contract or to the Government’s normal method of operations. Also discuss and finalize the handling of potential problems you identify. You need to show a united Government front at the orientation meeting. See Exhibit 2-5. whether by letter. phone. Make changes to your agenda as necessary. Exhibit 2-5 Steps to Attain Goals Any orientation conference agenda should permit a logical step-by-step approach to fulfill its goals. tele- Step 6 Step 7 2. Detail the more critical or complex requirements to ensure understanding. or in person are the same. The following six steps allow this to occur. Clarify roles of both Government and contractor key personnel. Obtain the contractor’s response to the agenda. Provide the contractor and Government attendees with copies of the final agenda. 2-22 . If you don’t get a response by the time you asked for feedback.

Emphasize that the only way the contract will be changed or altered is by a written modification signed by the contracting officer. the chairperson introduces each attendee by name and title. ♦ Protection and control of Government property. DoD publishes a post-award conference procedure program. At the opening of the conference. roles. If you are the chairperson and don’t know all the contractor’s attendees. Clarify the limits. Step 4 Provide general instructions. Emphasize that the contracting officer is the Government’s agent to change or alter the contract. but first make sure that that everyone knows who is speaking during the session. Ask the contractor to advise the Government of the roles. Post-Award Conference Record. You can detail these roles later.503-2 DoD Post-award Procedure DFARS 242. and authorities of each contractor representative. data. outlined in DD Form 1484. and reports. General contract administration instructions include information necessary for the contractor to understand its risks as well as the Government’s. and responsibilities of each Government representative. Go over the points outlined in Exhibit 2-5. Any exception to this must be specified clearly. Step 2 FAR 42. Affirm that conference participants without authority to bind the Government must take no action that in any way changes or alters the contract. Further advise the contractor that the Government is not obligated to make any contract adjustments as a result of an action taken by a Government representative unless the action has been specifically authorized in the representative’s letter of designation or by the contract itself. along with a onesentence explanation of the role that person will play in contract administration. and 2-23 . ♦ Compliance with contract clauses. authorities.CHAPTER 2 Step 1 Introduce the participants. Explain the purpose of the conference. and they address contractor responsibilities for: ♦ Management and supervision of the work force. ask the contractor to make those introductions. limits.503-2 DD Form 1484 Step 3 Summarize the roles of Government key personnel. but also emphasize that the conference is not intended to change or alter the contract in any way. responsibilities.

805(b) FAR 22. If not. During the conference. notices. The Government may also need to provide seniority lists from incumbent service contractors ranking its current employees to new follow-on contractors for new service periods. ♦ Interim delivery. the Government is responsible for providing them. Step 6 2-24 . and other data. For milestones that require the contractor’s input. seek the contractor’s agreement now. If the contract requires posting laborrelated notices.1020 FAR 22. Often Government publications are listed as Government-furnished material. request any information or response from the contractor to ensure a mutually uniform understanding of key terms and conditions. Explain that matters pertaining to technical performance may be addressed directly to the COR/COTR or project officer. Labor law implementation will sometimes require that the contractor post equal employment opportunity posters at the job site.POSTAWARD ORIENTATION ♦ Other appropriate areas of concern. and ♦ Payment. emphasize significant and critical terms. but that matters pertaining to questions of fact dealing with contractual terms and conditions must be sent to the contracting officer. including posters that outline the rights of handicapped persons. Consider distributing these and other data you need to provide at this orientation conference. Step 5 FAR 22. Key discussion items would be any uncertainty about terms that would affect: ♦ Performance.1304 FAR 22.1404 Provide the contractor with posters. If you identified ambiguities in key contract terms when drawing up your contract administration plan. Secure agreement on milestones or interpretation of terms and conditions. get agreement on these now. Advise contractors of the proper routing of correspondence.

“Okay. ♦ Areas requiring resolution. If the answer is favorable to Harry. Include a copy in the contract file. “Well. which I’ll put together for the meeting. nothing ventured. Common key elements of a report are contained in Exhibit 2-6. ♦ Names of participants assigned responsibility for further actions. That’s just good business practice. 2-25 . If the contracting officer does not write this report.” 2. then let’s record it in our postaward orientation memo. and others as appropriate. and leave it at that.5 Prepare Postaward Orientation Report FAR 42. ♦ The main points discussed and all agreements reached. it is a good practice to have that person review it initially to ensure an awareness Key Elements of a Postaward Orientation Report ♦ The names and affiliations of all participants. at no cost to the government. nothing gained. After all. then let’s press the issue and see if Platform will ‘buy’ a reporting requirement. “what’s your recommendation about that?” Eric was quick and decisive in his response. the contractor.” she asked. Eric.503-3 Use any convenient format for an orientation report as long as it contains all the information necessary to document the events of the meeting. receive copies of the report. the COR/COTR. ♦ Completion dates for the actions. “I say we should ask Platform what its customary commercial practice is in reporting to its customers on dealing with a performance spec. In any event. Make sure that the contracting officer. If the answer is unfavorable.” Joanne flashed one of her infrequent smiles. let’s do that. let’s not agree to pay for something until we exhaust all that we can do to bargain for a reasonable delivery from the contractor without increasing the price. the contracting officer threw the ball back to her contract administrator.CHAPTER 2 IT NEVER HURTS TO ASK When Eric took Harry’s continuing concern about the performance specification to Joanne.

The most pressing problem that surfaced was that none of the Government attendees knew the location of the Government-furnished replacement parts that the Government is to provide. 1997 I chaired a postaward orientation conference on Contract NO.3a of the statement of work.503-3 DD Form 1484 Report for the Record Exhibit 2-7 is an example of a brief memorandum that can be attached to the checklist in Exhibit 2-4. for the report. Exhibit 2-6 DoD Report Form DFARS 242. He advised me on this date that the parts in question had been ordered through the Federal Supply Schedule and had not yet been received. The building superintendent. It may also be used to record specific probYou may use DD Form 1484. PA. so Mr. A detailed list of the points we covered and the names of those in attendance is attached to this record. went back to check his records after the conference. found the order (Order ISN 97-9424-SP) and advised me today that the replacement parts were shipped on January 20. Report for the Record February 1. their near-term delivery is not holding up performance. Ms. one of the attendees. Sam Smart Contract Administrator Concurred: Jane Justice Contracting Officer 2-26 . Janet Doe. Since the parts will not be needed until the second week in March. ISR 97-2498-NR for repairs to a conveyor system in the Federal Building on Main Street in Our Town.POSTAWARD ORIENTATION of any problems or the need for future action. Post-Award Conference Record. Howard Ames. Ames should be receiving them any day. Our supervisor of simplified acquisition procedures. Mr. per paragraph 1.2.

A key factor is whether the problem can be resolved easily. If the problem requires joint contractor/ Government problem solving. If a contract clause allows the contracting officer to issue a unilateral modification. Remember: Each contractual problem is different. your actions can include: ♦ Further discussions with the contractor’s top management. Take appropriate action to resolve the problem. Although not always practicable. this action is a likely Government solution to the stalemate. If disagreement results in an emotionally charged atmosphere. set up an early time for a separate meeting with only those who need to be in attendance.2 When agreement cannot be reached. Look at all possible solutions. Seek technical or legal advice when necessary. It is important that you resolve each issue in a fair and equitable manner and as quickly as possible. it is best to resolve all problems before the contractor begins any work under the contract. or ♦ Consideration and negotiation of a contract modification. if possible. Exhibit 2-7 2. and no one approach can be used to resolve every disagreement that may arise. Document the contractor’s position in detail. Step 1 Step 2 Step 3 2-27 . but assure the contractor that it will be resolved. four steps may be used to resolve points of disagreement. In general. In seeking mutual agreement.CHAPTER 2 lems resolved during the orientation. delve into the reasons for the contractor’s position and include it in the conference report.103(b) FAR Subpart 43. Select the best solution to the problem and seek agreement on it. take appropriate unilateral action. Step 4 FAR 43.6 Actions to Resolve Disagreements on Key Issues Events that occur when the Government and the contractor discover a point of disagreement during an orientation conference reflect the nature of the problem. consider deferring its resolution. During the conference.

You may also get requests for information from other interested parties. Your agency will have an organization tasked with providing advice on information that is or is not releasable under FOIA. Chapter 5 addresses contract modifications. 2.2 If a contract change seems necessary. FOIA imposes a response time on answering requests for information.9 Provide Information to Interested Parties FAR 24.203 You can find DoD’s FOIA procedures in DoDD 5400. Examples of information you may not release are: ♦ Classified information. Release of any information is subject to the Freedom of Information Act (FOIA). you must clearly define the extent of the proposed change and implement it promptly. A welldocumented contract file will identify and verify the Government’s initial position on any performance problems that were anticipated during the orientation or in the early steps of implementation. 2.7 Identify the Need for Contract Modifications FAR 43.8 Document the Contract File Include the conference report detailed in 2. including trade secrets.7 DoD 5400. Your own procurement organization may have a staff analyst to help you in these decisions. this material can be used to reconstruct facts and events as they occurred. above. DoD Freedom of Information Act Program. DoD Freedom of Information Act Program. So initiate action on them quickly. as well as all other material. DoD FOIA Policy DoDD 5400. or actions from the postaward orientation. 2-28 .5.7-R DFARS 224.7-R. such as other companies that have proposed but were evaluated and determined to be unsuccessful offerors.POSTAWARD ORIENTATION 2. The contracting officer must sign a contract modification in all cases. and DoD 5400. correspondence.103 FAR Subpart 43. and ♦ Contractor’s proprietary data.202 Provide any documentation to members of your contract administration team as well as the contractor when that information affects their role in contract performance.7. In the event of any subsequent disagreements with the contractor.

301 FAR 28. 2. When you receive the forms. if the contract does not provide a date. nonconstruction contracts do not require payment or performance bonds.10 Obtain Executed Contractual Documents. normally in the letter accompanying contract award.103-3 Since bonds and certificates of insurance must be executed before performance begins. The contracting officer may include bonds in solicitations for services under certain circumstances. Bonds. the deadline for submission should be stated in the contract. in the case of bonds. Reference the contract clause that requires the submission and establish a time for receipt. Another contract requirement may call for the submission of insurance certificates.CHAPTER 2 Generally. request them immediately. check the Treasury Department list to be sure the surety company has the requisite bonding authority. review them and. FAR 28. It is usually within 10 days after award. When bonds and certif-icates are required.202 2-29 .103 FAR 28. Bonding companies have limits on the amount they may bond. or Insurance FAR 28.

mostly promises and few results that carried a big price tag. We trust that we can do a good job for him with this procurement. “that lends itself to what I’ve always considered to be the basis for a comprehensive contract administration plan. “and what did you find?” “Actually. Eric. Eric. we can minimize the need for any involved postaward administration. “I see that you and Harry have met. “Are you suggesting a hands-off posture for this one. what leads you to believe the contractor can followthrough without some handholding?” 2-1 . and I wanted him here to listen to what you came up with concerning the need for planning to administer our contract with Platform Industries. “The first thing I did. he looked over his notes and awaited the arrival of Harry Carmichael. Waiting outside her office. what have you got to share with us?” Shuffling his papers while clearing his throat. After the two had exchanged amenities.” “That’s a start.” Eric retorted. So. Cradling a cup of hot coffee in one hand and a folder of papers in the other.” she interrupted. Eric arrived a bit early and found his boss on the phone.CHAPTER 2 POSTAWARD ORIENTATIONS ASSESSING THE NEED TO GET STARTED Joanne convened a morning meeting of the team for the pallet procurement in her office at eight o’clock. Joanne appeared in the doorway and signaled for them to come in. was read the contract file and take note of its terms and conditions relative to the requirement for pallets. Harry arrived a few minutes after eight. are you saying that we should let Platform Industries run with the ball and then come see us if it scores? We’ve got to do more than that or we’ll end up in the same mess we had with the last contractor. Joanne. the requiring activity’s technical representative for the procurement.” she started. Joanne seemed to reflect Harry’s sentiment.” Peering at Eric.” Harry was quick to jump in. Knowing her penchant for timeliness. We’ve got to solve this pallet pliability dilemma or all kinds of criticism will fall on us. Joanne was quick to begin the meeting. Eric responded. Eric? And if so. Seated at a conference table perpendicular to her desk. “Whoa. “Well. or so it seems to me. He represents our customer organization for the pallet procurement. Buying under FAR Part 12 streamlines the acquisition process and. not very much. and he’s the one that’s been living with the expensive replacement problem for some time.

Harry?” “You bet!” he shot back. Eric tried to recover quickly. as much as we can. we’re not buying some exotic product here. For starters.” said Joanne.” At this point.” 2-2 . we can determine Harry’s role in the contract administration process. given what we’ve ascertained about Platform meeting delivery schedules. Eric. and I’m not anxious to mount some huge contract administration effort with Platform Industries. but we do have a considerable risk if this contractor fails to perform. Once we’ve done that. I’m saying that the contract file.” “Let’s get down to specifics. especially with Harry’s input. I haven’t the foggiest idea about what you’re saying.” Joanne looked at the technical representative and responded with a sense of finality. “What do we need. What do you suggest to get the ball rolling. and what do you see for Harry and his staff in all this?” “I suggest that Harry and I sit down. “First.POSTAWARD ORIENTATION Sensing he was off to a bad start. for starters. and who’s going to do it in administering this contract?” Eric leaned forward in his chair. “I’m suggesting nothing of the sort. and responded forthrightly. we need to agree among ourselves. “Better now than trying to figure it all out later. and get the job underway.” concluded his boss.” said Eric.212-4. shape a reasonable agenda for a postaward meeting with Platform Industries. Third. “You’re way ahead of me. Eric. Then we assess those concerns in terms of what the contract says. Eric. “to isolate his concerns representing the user community and mine from a contractual perspective. particularly since it represents a FAR Part 12 acquisition. “Is that okay with you.” Joanne seemed to get the message. we’ve got to drive home the point that on-time delivery is essential. Harry looked puzzled and jumped in. why do we need it. Second. looked at both Joanne and Harry. what it will take to monitor Platform’s implementation of the performance spec to see that we’re not running in circles. “Sounds good to me. that before we issue any delivery orders for pallets that the contractor has demonstrated an outcome that we can hold it to in terms of the agreed-to warranty of fitness for a particular purpose. But not all of them.” “Do it Eric. gives us good cause to abide by some of the customary commercial practices that are inherent in the use of FAR 52. “and get back to me first thing tomorrow morning with an agenda for a postaward meeting with Platform Industries. we have to make certain. After all.

Conduct postaward orientations for contractors. Select a course of action when agreement on a key issue cannot be reached.2 2. 2-3 .7 2. Provide contractual information to interested parties.4 2. Determine the appropriate type of orientation. Document the contract file. Obtain from a contractor any executed contractual documents or bonds within the time specified.3 2. Plan an orientation.CHAPTER 2 COURSE LEARNING OBJECTIVES At the end of this course. Identify the need for unilateral or bilateral contract modifications.1 2.9 2. Conduct an orientation.8 2.6 2. you will be able to: Overall: Individual: 2.10 Determine the need for a postaward orientation. Prepare a report on an orientation.5 2.

♦ Determining how to solve problems that may occur later. a postaward orientation should be conducted promptly after contract award to achieve maximum benefits. each step is discussed in detail. a postaward orientation aids both the Government and the contractor in achieving a clear and mutual understanding of all contract requirements and identifying and resolving potential problems. Such orientations are especially encouraged to assist small. When used. ♦ Averting misunderstandings. and women-owned small business concerns. a postaward orientation focuses on: ♦ Understanding the technical aspects of the contract. through correspondence. Focus of Postaward Orientations Steps in Performance 2-4 . or by teleconferencing. ♦ Identifying and resolving oversights. As a planned.INTRODUCTION TO POSTAWARD ORIENTATIONS Purpose of Postaward Orientations Conducted in person. small disadvantaged. It is neither a substitute for the contractor’s understanding of requirements at the time offers were submitted. The steps in planning for a postaward orientation are charted on the next page. Following the flowchart. and ♦ Reaching agreement on common issues. nor is it to be used to alter the final agreement reached in any negotiation leading to contract award.501 The contracting officer decides whether a postaward orientation (and the form it might take) is necessary. Policy on Postaward Orientations FAR 42. structured discussion between the Government and the contractor. ♦ Preventing problems.

9. 2-5 . Obtain any executed contractual documents or bonds from the contractor within time specified after award. Take any necessary follow-up action (e. Determine the need for a postaward orientation. Provide information on the contract to interested parties. conduct.CHAPTER 2 STEPS IN POSTAWARD ORIENTATION PLANNING Input: The contract and contract administration plan. 1. a contract modification).g. and document postaward orientations. Plan. No Needed? Yes 2-5. 10. 6-8..

a postaward orientation identifies these risks and considers ways to reduce the probability of their resulting in serious problems during contract performance. Consider such issues as: ♦ Did the contract fully explain the requirement? ♦ Would an incorrect interpretation of a performance requirement damage the Government? Step 1 Reduce or Eliminate Risks Analyzing Contract Requirements 2-6 . the Government’s failure to provide the GFE would delay and disrupt the contractor’s planned schedule.POSTAWARD ORIENTATION POSTAWARD ORIENTATION PLANNING 2. and investigate what the impact would be if it arrived at a later time. Risk is diminished. Analyze any requirement identified from contract administration planning to determine if you really need some form of a postaward orientation. In these cases. If the contract had not specified when and where GFE would be delivered. contractor performance and its administration by the Government can begin smoothly and proceed without incident.” Failure to do this presents an additional risk if the contractor assumed the GFE would be available within the first couple of weeks of contract performance. Postaward orientations are most vital when potential risks to the contractor or the Government have not been addressed within the contract itself.1 Determine the Need FAR 42. determine if the Government could provide it at that time. Identify Performance Issues or Concerns The success of a postaward orientation rests on the contract administrator’s ability to identify issues or concerns that may (or will) impact contract performance. Other contracts require immediate administrative action to ensure that performance starts off on the right track. You would want to learn when the contractor needed the GFE. it would be a discussion item for a postaward orientation. Such action may signal the need for a postaward orientation. Identify a need to review specific key contract requirements and milestones. when the contract states that Government-furnished Equipment (GFE) will be “available 60 days after contract award at the contractor’s plant. These are three steps to follow in identifying issues or concerns.502 For contracts awarded under simplified acquisition procedures or for the acquisition of commercial items or services. for example. Were that the case.

1001 FAR 22. ♦ Acceptable in terms of conforming to the contract’s specification or statement of work. Compliance with other terms and conditions includes requirements such as: FAR 4. Even though ignorance of contract terms does not excuse responsibility for complying with them. ♦ Service Contract Act requirements. ♦ Record-retention requirements. that it agreed to perform when it signed the contract. and might these be clarified by a postaward subcontractor conference? ♦ Are financing arrangements given to complexities such as progress or interim financing payments? Step 2 Identify the need for a general briefing on one or more aspects of contract administration. including those incorporated by reference. The postaward goals of any contract are to assure that supplies or services are: ♦ Delivered or performed when and where specified in the contract.CHAPTER 2 ♦ Would potential problems endanger tight scheduling? ♦ Do contract requirements rely on close interaction between Government and contractor personnel? ♦ What is the extent of any subcontracting requirements. and ♦ Furnished in compliance with other terms and conditions of the contract. and ♦ Federal policies on nondiscrimination because of age.1002 FAR Subpart 22.9 ♦ Security classifications and requirements.10 FAR 22.403 FAR Subpart 4. Postaward orientations ensure that a contractor fully understands all the details of the Government’s requirement. ♦ Federal and state labor requirements.7 FAR Subpart 22. 2-7 . many contractors overlook the finer points of a requirement in the preaward stage.

POSTAWARD ORIENTATION Extent of Orientation The extent of information provided or discussed at an orientation depends on: ♦ A contractor’s past experience with Government contracts (small. 2-8 . and ♦ The degree of difficulty encountered by experienced contractors on similar requirements. See Section 2-8 below. Exhibit 2-1 provides a menu of items to consider in your analysis. and women-owned small business concerns with little Government experience will generally need more guidance).2 Determine the Type of Orientation Face-to-Face FAR 42. Step 3 Document the decisions you make. ♦ Contract’s technical requirements. or ♦ Rights and obligations of the parties in any area. It provides an easy way to record the basis for your decision to hold a postaward orientation. This is particularly important if you decide that you don’t want to hold an orientation. If you do hold a conference or conduct some other form of postaward orientation. it demonstrates that you exercised good judgment in your early contract administration decisions.502 ♦ Scope of the contract. If things go wrong later. You may accomplish a postaward orientation in three ways: Hold a face-to-face orientation conference when you believe the contractor does not have a clear understanding of the: 2. small disadvantaged. Include the Exhibit 2-1 checklist as a part of your contract file. you will supply additional documentation to the file on these activities.

This checklist will help you crystallize your thoughts. were an unusual number of problems associated with them? Can you foresee specific potential problems for this contract? Is any aspect of this contract urgent or critical to the Government? Does the contract type require a relatively high degree of administration? Is the requirement relatively complex and of a relatively high-dollar value? Have you had little previous conversation with the contractor about this contract? (In contrast. small disadvantaged. The “Yes” answers favor a conference. you may have had detailed conversations during an onsite preaward survey or during negotiation sessions. or women-owned business concern? Is extensive subcontracting involved? Are safety factors involved in the performance of work? Are progress payments or other interim financing arrangements involved? Can you anticipate contract changes that would require the contractor to use specialized accounting procedures? Exhibit 2-1 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ 2-9 .CHAPTER 2 Should I Hold a Postaward Orientation Conference? Some common considerations in deciding whether to hold a postaward orientation conference are listed below. Yes ____ ___ ____ _____ ____ ____ ____ ____ No ____ ____ ____ ____ ____ ____ ____ ____ Is this the contractor’s first Government contract? Has the contractor had little or no previous experience with this type of product or service? If the contractor has had previous Government contracts.) Is there any indication that misunderstandings exist? Does the procurement history of the required supplies or services reveal recurring problem areas? Is a lengthy production cycle planned? Does the contract involve spare parts and related equipment? Is the contractor a small.

For example. You can include a notice of the COR’s/COTR’s designation within this letter as well. Exhibit 2-2 provides a sample postaward orientation letter. ♦ The contractor has had previous experience in producing the items or providing the services. you may find it useful to have a letter convey a few important points. In this case. You may also decide to use a telephone conference to establish a personal working relationship. You may have an uncomplicated procurement with a new contractor for which performance is not required at your installation. Combining Orientation Methods A postaward orientation may represent a combination of these methods.504 Generally. Phone A telephone conference is usually sufficient when: ♦ You have had good prior experience with the contractor. and ♦ The procurement is not particularly complex. instructions for paperwork submissions. 2-10 .POSTAWARD ORIENTATION Letter FAR 42. you can use a letter as an alternative to a formal postaward conference when: ♦ Only minor details need to be conveyed to the contractor. or ♦ You do not anticipate problems for good reasons. ♦ Matters for discussions are relatively straightforward. especially if the contractor is not located near your installation. or such other fairly straightforward elements. a letter may suffice if you need only communicate specifics about onsite availability.

He does have the authority to inspect and accept the equipment for the Government. Smith — see below. He is not authorized to make any changes to the contract as written. In addition. Howard Smith is my representative for the technical aspects of this contract. 104230-97-C-1234 To avoid any potential difficulties. Accordingly. as well as other operations. Al Jones. Since performance time is expressed in the contract as 120 calendar days after contract award. Project Manager. a heavily populated office building. you will need to have a power outage in the west wing of Building 569.a(5) of the statement of work requires that you provide me with seven calendar days’ notice of your need for this outage.) The reason for the preceding requirement is that we have computers on-line 24 hours a day in that wing of the building. paragraph 2. Exhibit 2-2 (continued on next page) 2-11 . he is referred to as the contracting officer’s representative (COR). (Send the original notice to Mr. Please note the paragraph 2. To install the four pieces of equipment required in contract line item #4. XYZ Power Co.CHAPTER 2 An Alternative: The Postaward Orientation Letter TO: FROM: Gary Green. Contracting Officer SUBJECT: Contract No. that cannot be disrupted. Also.a(1) of the statement of work requires that this power outage take place on Sunday.m. You will receive any change to the contract as an official modification signed by me or another Government official. Mr. I would like to clarify the contract completion date and identify the Government personnel who will play a role in the contract’s administration. 1997. a Federal holiday. I am writing to point out a requirement of the subject contract that has led to problems in other contracts. I want to affirm the date for contract completion as January 30. between the hours of midnight and 6:00 a.

My telephone number is 100-123-1234. and 4:00 p. 2-12 . DEF . ABC . Howard Smith Plant Manager Your Agency Dept.Room 829 Your Agency 123 Main Street Our Town. PA 10000-9876 Mr. and I’m usually in my office between the hours of 7:30 a. and technical reports required by contract line item #7. Jane Doe Quality Assurance Specialist Dept. (You provided a draft plan at the preaward survey. Exhibit 2-2 (continued) 2. XYZ .m. PA 10000-9876 Don’t hesitate to call me if you want to discuss any aspect of this contract. Addressing the steps listed in Exhibit 2-3 ensures that you are thoroughly prepared for the orientation and have considered all potential problem areas. plan it carefully to make certain that its goals are accomplished. request for interim inspection required by paragraph 10.Room 117 123 Main Street Our Town.Room 401 Your Agency 123 Main Street Our Town.m. Detailed planning is particularly important when you use a formal postaward conference. PA 10000-9876 Request notice for the power outage. All other submissions and correspondence (inincluding nontechnical questions) should be addressed to me.a(7) of the statement of work. Al Jones Contracting Officer Dept.POSTAWARD ORIENTATION An Alternative: The Postaward Orientation Letter The list below summarizes your paperwork submissions and identifies the individuals to whom you should send them: Final quality control plan.) Ms.3 Planning Orientations Once the need for an orientation is established. It is also important to plan what will be addressed in a letter or telephone orientation. Mr.

♦ Designate the Government’s participants and name the chairperson. Traditionally the CO is the chairperson. You may recognize the need to make judgments on issues such as: ♦ Government-furnished property procedures (if the contract does not outline them). ♦ Obtain the contractor’s response to the agenda. ♦ Brief the Government’s chairperson and participants on their roles. ♦ Finalize the conference agenda. ♦ Prepare a conference agenda and determine the time and place for meeting. Postaward problems in these areas might affect the quality of the product or work.CHAPTER 2 The Planning Process The following seven steps identify basic activities associated with planning a postaward orientation conference. cause delays in delivery. Step 1 Orientation Planning Tasks ♦ Prepare the Government’s position and its understanding on key issues. Prepare the Government’s position. and require a contract modification to remedy the situation. Exhibit 2-3 2-13 . ♦ Provide the contractor with a copy of the conference agenda. increase the scope of work and cost. or ♦ Testing or quality control procedures (if they are incomplete in the contract or otherwise need to be supplemented). ♦ Ambiguous or unclear contractual specifications or clauses.

Eric reviewed the contract clauses under FAR 52. since any delivery orders for pallets had to await the successful completion of the company’s effort to meet the performance functions set forth in the specification. In doing so. and he wanted to drive home the point that delivery order schedules had to be met. To ensure reasonable monitoring of the contractor’s effort. ♦ Contractor quality control procedures. Eric met with Harry to isolate and iron out key technical and contractual issues and concerns that both felt would affect contract performance. Yet again. Step 2 Prepare the agenda and set the time and place for the conference. Include in the agenda all matters needing clarification or otherwise requiring discussion with the contractor to avoid later misunderstandings. and Possible Agenda Items 2-14 .POSTAWARD ORIENTATION ACQUISITION TEAM PLANNING Recall that Joanne asked Eric to provide an agenda for a postaward orientation meeting with Platform Industries. ♦ Critical milestones. ♦ Roles of the Government’s contract administration team members. Harry pointed out the need for making sure that Platform’s pursuit of a performance specification effort was monitored effectively. ♦ Billing and payment procedures. Items for the agenda should consider: ♦ Special contract clauses.212-4 to determine those that needed to be stressed with Platform at a postaward orientation meeting. During their meeting. He suggested that an early understanding with Platform about reporting the results of its effort was very important. Eric expressed his concern about making sure that Platform understood the basis for the issuance of delivery orders under an indefinite-quantity arrangement. Both Eric and Harry agreed that Platform’s warranty of fitness for a particular purpose was a front-burner item that had to be strongly reinforced. Harry agreed with this. Eric determined that Harry should have a contract administration role in representing the contracting officer as a designated technical representative. ♦ Contractor reporting requirements.

The less complex the procurement. Discuss those topics that are most important to reinforcing mutual obligations and contractor performance requirements. Tailor the Agenda Use the checklist at Exhibit 2-4 as the basis for outlining your agenda. Try to minimize travel time for all participants. letter.501(d) 2-15 . should occur only for the most complex contracts.and lowpriority items. ♦ Make sure the time is mutually agreeable before you firm it up.) Length of Orientation The complexity of an agenda will influence the length of any orientation. In the case of a conference. Certain locations will typically have advantages. add any item(s) that do not appear on the checklist. If necessary.CHAPTER 2 ♦ Roles of the contractor’s contract administration team members. Remember: Tailor your agenda to fit the orientation’s needs. When FAR 42. When an agenda addresses both high. Where Location. or facsimile transmission. the more you will use the “N/A” column. however. There are really only two concerns about the timing of the conference: ♦ Hold the conference as soon as possible after contract award. Resorting to multiple sessions. Be sensible in your choice of a conference site. (See Step 4. you may need to convene more than one session. for example: ♦ Contract performance sites offer ready access to physical conditions that may have a bearing on issues being discussed. Sometimes you will have to analyze one site’s advantages relative to those of another to make the best choice. ♦ Conference rooms near or within your office area offer convenience for your contract administration team’s busy schedule. Items that may only affect Government team members and not what the contractor is required to do can be discussed at a separate in-house session. it may be more efficient to cover the high-priority items at a formal conference and deal with those of lower priority via a teleconference. Time.

for wasting their time with your other unrelated business. always discard the temptation to have smaller conferences in your own or the contracting officer’s office. The convenience will not be worth the ill will and frustration felt by other attendees. both Government and contractor.POSTAWARD ORIENTATION Number of Attendees Before you finalize your choice of a site. Productive Versus Convenient Sites 2-16 . Unless you can guarantee no interruptions. determine the number of contractor attendees and the number of participants among your own contract administration team. Make sure the site can accommodate the group’s size.

CONTRACT MODIFICATIONS F. Cost or pricing data 4. Financial 3. 5. Date of Conference PART III—CONFERENCE PROGRAM Subject A. Preaward Survey? YES NO PART II—CONFEREES 1. Contract No. Program to facilitate E. Contractual requirements 2. Total Amount 6. if applicable Significant conclusions. Type of Contract 7. Omissions or conflicting provisions 4. Use of facilities and tooling Check if applicable Clause No. GOVERNMENT PROPERTY 1. REPORTS: PREPARATION AND SUBMITTAL 1. Government 2.CHAPTER 2 Checklist/Record for Postaward Orientation Conference PART I—GENERAL 1. Other (specify) B. SUBCONTRACTS 1. Function and authority of assigned personnel 2. Contractor Name 3. GENERAL 1. Source inspection 5. further action to be taken (attach additional sheets if necessary Exhibit 2-4 (continued on next page) 2-17 . SDB. Other (specify) C. Other (specify) D. SB. Routing of correspondence 3. Consent to placement 2. and WOSB Subcontracting 1. Prime’s responsibility for administration 3. Contractor 2. Work progress 2. Contractor Address 4.

DELIVERY SCHEDULES J. SPECIAL CLAUSES 1. Bill of materials 7. Data rights 8. Other (specify) G. Property disposal procedures 5. GENERAL CLAUSES 1. Walsh-Healey Act 5. Other (specify) I. Liquidated damages 3. Government financing 4. Work Hours Act 4.POSTAWARD ORIENTATION Checklist/Record for Postaward Orientation Conference Check if Applicable Clause No. Allowability of cost 3. LABOR 1. Warranties 9. Special tooling 5. Maintenance and preservation 3. Property procedure approval 4. Repricing 2. Overtime 6. Davis-Bacon Act 3. further action to be taken (attach additional sheets if necessary Subject 2. if Applicable Significant conclusions. Work performed at government installations 10. Copeland Anti-Kickback Act Exhibit 2-4 (continued on next page) 2-18 . Other (specify) H. Actual and potential labor disputes 2. INVOICING AND BILLING INSTRUCTIONS l. Limitation of cost 2. TRANSPORTATION K. PROCESSING OF COST AND PRICE PROPOSALS M.

Production planning 2. Value engineering clause 11.CHAPTER 2 Checklist/Record for Postaward Orientation Conference Check if Applicable Clause No. PRODUCTION 1. Manuals 5. Specification interpretation 9. Production surveillance 4. Other (specify) O. Qualifications and environmental tests 7. Drawing/design approval 4. further action to be taken (attach additional sheets if necessary Subject N. QUALITY ASSURANCE AND ENGINEERING 1. Waivers and deviations 3. Laboratory facilities 10. Safety (Additional Notes) Exhibit 2-4 (continued) 2-19 . if Applicable Significant conclusions. Quality control system 2. Milestones and other monitoring devices 3. Inspection and acceptance 8. Preproduction sample 6.

On larger contracts. Final decisions affecting contract terms and conditions must be made by the contracting officer. or individual briefings. You may have some strong personalities on your contract administration team. hold a separate one-on-one meeting with that person. is to: ♦ Identify all actions that must be taken by the Government. ♦ Program manager. and ♦ Other appropriate subject matter experts. Purpose of Internal Briefings 2-20 . For a smooth transition from preaward to postaward when contract administration functions are delegated. it may be useful to hold a preliminary meeting with appropriate Government personnel to ensure that the Government’s expectations are clearly expressed and understood. invite your cost/price analyst. Invite Government representatives to attend who will interact with the contractor during performance. You might invite using organizations if the work will take place in their office area and if one of their office employees is not participating in another capacity.POSTAWARD ORIENTATION Step 3 Designate Government participants to attend a preliminary meeting. If the conference would result in a discussion of price or cost issues. Questions might be raised that only the procuring contracting officer could answer adequately. However. invite the procuring contracting officer. Also. Emphasize who is in charge and chairing the meeting. if you. the COR/ COTR could chair a preliminary meeting covering only technical issues. anticipate lengthy discussions with one Government representative. ♦ Project inspector. One preliminary group meeting is usually sufficient. The purpose of this preliminary meeting. Step 4 Brief Government participants on their roles. The COR/COTR might also chair the meeting if the contract administrator and the contracting officer could not attend. ♦ Quality assurance specialist. the ACO. It is either you (the contract administrator) or the contracting officer. Invite only people who will have a significant role such as: ♦ COR/COTR. Distribute your contract administration plan at the preliminary meeting and conduct a page-by-page review of its contents.

” 2-21 . After all. I’m with you. “but can’t we just ask Platform to provide us with a modest written report on its progress.CHAPTER 2 ♦ Ensure that all Government personnel involved have a clear understanding of the contract’s terms and conditions and their respective responsibilities. “We’re already on the hook for a lot of bucks in this deal. “I’m not left with a warm. Eric. ♦ Identify which Government participants will be making a presentation at the postaward orientation conference and restrict the time and subject matter of each. their factory is only 100 miles or so down the road. the contractor’s responsibility is to meet the functional conditions of the spec. “Hey. Eric. on what you want. I mean I can visit them periodically. Can’t we just ask Platform to stretch itself a bit in accommodating our need to let us know what they’re doing?” “Maybe so. and ♦ Otherwise finalize agenda items with Government participants. if it happens the way we trust it will. HARRY’S CONTINUING CONCERN Eric received a call from Harry about an hour after their meeting. except that meeting the spec’s functions was to be done not later than 40 calendar days after award. and I can’t require the submission of any information that’s not set forth in the contract.” responded Eric. My concern runs to what alternative methodologies they’ll utilize to conclude that they have whipped the pallet pliability problem.” “Well. “and perhaps we should have been more specific about all this in Platform’s contract.” Eric winced a bit and was quick to share his understanding. you want to pay for it. Unless.” Eric said. I share your concern.” “Okay.” Mike took a deep breath. ♦ Establish a “common front” relative to the contractor’s responsibilities. about the business of monitoring Platform’s effort to get after the procurement’s performance specification. We didn’t set forth any specific reporting or progress requirements about all that. Mike. but we’ve got a fixed-price arrangement here. “I’ll have to raise that one with Joanne and see what we can do. fuzzy feeling.” Mike joined in. Actually. say weekly? I sure want to understand what they’re doing and why they’re doing it. of course.

or in person are the same. Exhibit 2-5 Steps to Attain Goals Any orientation conference agenda should permit a logical step-by-step approach to fulfill its goals. Also discuss and finalize the handling of potential problems you identify. At the opening of the conference. See Exhibit 2-5. If the contractor responds. Clarify roles of both Government and contractor key personnel. Finalize the agenda. When you do this. provide the contractor with a written or oral notice that the agenda provided earlier is final. Goals for conducting a postaward orientation. Provide the contractor and Government attendees with copies of the final agenda.POSTAWARD ORIENTATION Step 5 Provide a copy of the agenda to the contractor. telephone. You need to show a united Government front at the orientation meeting.4 Conduct the Orientation Your Orientation Goals ♦ ♦ ♦ ♦ Clarify any procedures to implement contract requirements smoothly. Introduce the participants. but first make sure that that eve- Step 1 2-22 . Step 6 Step 7 2. The following six steps allow this to occur. Invite questions from the contractor on any requirement needing clarification. Obtain the contractor’s response to the agenda. ask for feedback by a specific calendar date. If preliminary conference discussions point out the need for a possible change to the contract or to the Government’s normal method of operations. You can detail these roles later. along with a onesentence explanation of the role that person will play in contract administration. whether by letter. Make changes to your agenda as necessary. Detail the more critical or complex requirements to ensure understanding. the chairperson introduces each attendee by name and title. get agreement among appropriate Government personnel prior to the meeting. discuss its input. If you don’t get a response by the time you asked for feedback.

ask the contractor to make those introductions. ♦ Compliance with contract clauses. responsibilities. and they address contractor responsibilities for: ♦ Management and supervision of the work force. outlined in DD Form 1484. but also emphasize that the conference is not intended to change or alter the contract in any way. authorities. and authorities of each contractor representative. Ask the contractor to advise the Government of the roles. and responsibilities of each Government representative. and reports. Advise contractors of the proper routing of correspondence. DoD publishes a post-award conference procedure program.CHAPTER 2 ryone knows who is speaking during the session. roles. If you are the chairperson and don’t know all the contractor’s attendees. Any exception to this must be specified clearly. data. Affirm that conference participants without authority to bind the Government must take no action that in any way changes or alters the contract. DoD Post-award Procedure DFARS 242.503-2 DD Form 1484 Step 3 Summarize the roles of Government key personnel. limits. Post-Award Conference Record.503-2 Explain the purpose of the conference. Go over the points outlined in Exhibit 2-5. and ♦ Other appropriate areas of concern. ♦ Protection and control of Government property. Clarify the limits. Explain that matters pertaining to technical performance may be addressed directly to 2-23 . Emphasize that the contracting officer is the Government’s agent to change or alter the contract. Step 4 Provide general instructions. General contract administration instructions include information necessary for the contractor to understand its risks as well as the Government’s. Emphasize that the only way the contract will be changed or altered is by a written modification signed by the contracting officer. Further advise the contractor that the Government is not obligated to make any contract adjustments as a result of an action taken by a Government representative unless the action has been specifically authorized in the representative’s letter of designation or by the contract itself. Step 2 FAR 42.

The Government may also need to provide seniority lists from incumbent service contractors ranking its current employees to new follow-on contractors for new service periods. If the contract requires posting laborrelated notices. For milestones that require the contractor’s input. During the conference.1304 FAR 22. Often Government publications are listed as Government-furnished material. request any information or response from the contractor to ensure a mutually uniform understanding of key terms and conditions. and other data. ♦ Interim delivery.1404 Provide the contractor with posters. including posters that outline the rights of handicapped persons.POSTAWARD ORIENTATION the COR/COTR or project officer. and ♦ Payment. Key discussion items would be any uncertainty about terms that would affect: ♦ Performance. notices. get agreement on these now. If not. but that matters pertaining to questions of fact dealing with contractual terms and conditions must be sent to the contracting officer. Step 6 IT NEVER HURTS TO ASK 2-24 . Labor law implementation will sometimes require that the contractor post equal employment opportunity posters at the job site. seek the contractor’s agreement now.805(b) FAR 22. Secure agreement on milestones or interpretation of terms and conditions. Consider distributing these and other data you need to provide at this orientation conference. emphasize significant and critical terms.1020 FAR 22. the Government is responsible for providing them. Step 5 FAR 22. If you identified ambiguities in key contract terms when drawing up your contract administration plan.

“I say we should ask Platform what its customary commercial practice is in reporting to its customers on dealing with a performance spec. let’s not agree to pay for something until we exhaust all that we can do to bargain for a reasonable delivery from the contractor without increasing the price. Make sure that the contracting officer. In any event. If the contracting officer does not write this report. nothing ventured. the COR/COTR. If the answer is favorable to Harry. receive copies of the report. at no cost to the government. it is a good practice to have that person review it initially to ensure an awareness of any problems or the need for future action.” 2. Key Elements of a Postaward Orientation Report ♦ The names and affiliations of all participants. After all. ♦ The main points discussed and all agreements reached.” she asked. and others as appropriate. nothing gained. That’s just good business practice. If the answer is unfavorable. the contractor. let’s do that. “Well. then let’s press the issue and see if Platform will ‘buy’ a reporting requirement. ♦ Names of participants assigned responsibility for further actions. Common key elements of a report are contained in Exhibit 2-6.503-3 Use any convenient format for an orientation report as long as it contains all the information necessary to document the events of the meeting. Include a copy in the contract file. ♦ Completion dates for the actions. ♦ Areas requiring resolution.5 Prepare Postaward Orientation Report FAR 42.CHAPTER 2 When Eric took Harry’s continuing concern about the performance specification to Joanne.” Joanne flashed one of her infrequent smiles. and leave it at that. Exhibit 2-6 2-25 . then let’s record it in our postaward orientation memo. “what’s your recommendation about that?” Eric was quick and decisive in his response. the contracting officer threw the ball back to her contract administrator. which I’ll put together for the meeting. “Okay. Eric.

POSTAWARD ORIENTATION

DoD Report Form DFARS 242.503-3 DD Form 1484 Report for the Record

You may use DD Form 1484, Post-Award Conference Record, for the report.

Exhibit 2-7 is an example of a brief memorandum that can be attached to the checklist in Exhibit 2-4. It may also be used to record specific problems resolved during the orientation.

Report for the Record
February 1, 1997 I chaired a postaward orientation conference on Contract NO. ISR 97-2498-NR for repairs to a conveyor system in the Federal Building on Main Street in Our Town, PA. A detailed list of the points we covered and the names of those in attendance is attached to this record. The most pressing problem that surfaced was that none of the Government attendees knew the location of the Government-furnished replacement parts that the Government is to provide, per paragraph 1.2.3a of the statement of work. The building superintendent, Mr. Howard Ames, one of the attendees, went back to check his records after the conference. He advised me on this date that the parts in question had been ordered through the Federal Supply Schedule and had not yet been received. Our supervisor of simplified acquisition procedures, Ms. Janet Doe, found the order (Order ISN 97-9424-SP) and advised me today that the replacement parts were shipped on January 20, so Mr. Ames should be receiving them any day. Since the parts will not be needed until the second week in March, their near-term delivery is not holding up performance.

Sam Smart Contract Administrator Concurred: Jane Justice Contracting Officer

Exhibit 2-7

2-26

CHAPTER 2

2.6 Actions to Resolve Disagreements on Key Issues

Events that occur when the Government and the contractor discover a point of disagreement during an orientation conference reflect the nature of the problem. A key factor is whether the problem can be resolved easily. Remember: Each contractual problem is different, and no one approach can be used to resolve every disagreement that may arise. In general, four steps may be used to resolve points of disagreement. Document the contractor’s position in detail. During the conference, delve into the reasons for the contractor’s position and include it in the conference report. If disagreement results in an emotionally charged atmosphere, consider deferring its resolution, but assure the contractor that it will be resolved, if possible. If the problem requires joint contractor/ Government problem solving, set up an early time for a separate meeting with only those who need to be in attendance. Take appropriate action to resolve the problem. Seek technical or legal advice when necessary. Look at all possible solutions. Select the best solution to the problem and seek agreement on it. It is important that you resolve each issue in a fair and equitable manner and as quickly as possible. Although not always practicable, it is best to resolve all problems before the contractor begins any work under the contract. In seeking mutual agreement, your actions can include: ♦ Further discussions with the contractor’s top management, or ♦ Consideration and negotiation of a contract modification.

Step 1

Step 2

Step 3

Step 4 FAR 43.103(b) FAR Subpart 43.2

When agreement cannot be reached, take appropriate unilateral action. If a contract clause allows the contracting officer to issue a unilateral modification, this action is a likely Government solution to the stalemate.

2.7 Identify the Need for Contract Modifications FAR 43.103 FAR Subpart 43.2

If a contract change seems necessary, you must clearly define the extent of the proposed change and implement it promptly. The contracting officer must sign a contract modification in all cases. Chapter 5 addresses contract modifications.

2-27

POSTAWARD ORIENTATION

2.8 Document the Contract File

Include the conference report detailed in 2.5, above, as well as all other material, correspondence, or actions from the postaward orientation. In the event of any subsequent disagreements with the contractor, this material can be used to reconstruct facts and events as they occurred. A welldocumented contract file will identify and verify the Government’s initial position on any performance problems that were anticipated during the orientation or in the early steps of implementation.

2.9 Provide Information to Interested Parties FAR 24.202

Provide any documentation to members of your contract administration team as well as the contractor when that information affects their role in contract performance. You may also get requests for information from other interested parties, such as other companies that have proposed but were evaluated and determined to be unsuccessful offerors. Release of any information is subject to the Freedom of Information Act (FOIA). Examples of information you may not release are: ♦ Classified information, and ♦ Contractor’s proprietary data, including trade secrets. Your agency will have an organization tasked with providing advice on information that is or is not releasable under FOIA. Your own procurement organization may have a staff analyst to help you in these decisions. FOIA imposes a response time on answering requests for information. So initiate action on them quickly.

DoD FOIA Policy DoDD 5400.7 DoD 5400.7-R DFARS 224.203

You can find DoD’s FOIA procedures in DoDD 5400.7, DoD Freedom of Information Act Program, and DoD 5400.7-R, DoD Freedom of Information Act Program.

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2.10 Obtain Executed Contractual Documents, Bonds, or Insurance FAR 28.103 FAR 28.301 FAR 28.103-3

Generally, nonconstruction contracts do not require payment or performance bonds. The contracting officer may include bonds in solicitations for services under certain circumstances. Another contract requirement may call for the submission of insurance certificates. Since bonds and certificates of insurance must be executed before performance begins, the deadline for submission should be stated in the contract. It is usually within 10 days after award. When bonds and certif-icates are required, request them immediately, normally in the letter accompanying contract award. Reference the contract clause that requires the submission and establish a time for receipt, if the contract does not provide a date. When you receive the forms, review them and, in the case of bonds, check the Treasury Department list to be sure the surety company has the requisite bonding authority. Bonding companies have limits on the amount they may bond.

FAR 28.202

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BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING
MONITORING THE PALLET PROCUREMENT After a brief period on the job, Eric had been assigned responsibility for monitoring the performance of nine contracts, one of which was the pallet procurement awarded to Platform Industries. Having met with Joanne to discuss her expectations of how he should undertake his expanded responsibility, he decided to unscramble some notes he had taken at their meeting. Joanne had provided Eric with a good deal to think about. As he worked to put his notes in some reasonable order, he listed the following points as a summary of their conversation: Monitoring contractor performance comes in a variety of sizes; not every contract requires the same amount of effort. When all else fails and people start pointing fingers in several different directions, it’s time to go back and read the contract. Contractors are frequently unaware that what the big print giveth in a Government contract the small print can taketh away. Any contract of any size should have a contract administration plan; some may be less than a page in length, and others may be of considerable size. Keep the contract administration team advised about contractor performance and a contract’s status. Make certain that technical and other support personnel understand the limitations of any delegated authorities. Remember that it takes two to tango; consider the contractor a partner, even though one at arm’s-length. Eric felt fortified with some good, basic maxims. “Right from the mouth of one” he said to himself, “who has the experience and insights.” Reflecting on the pallet procurement, he took out the record of the postaward orientation conference with Platform Industries. It seemed to be a good tool to use for assessing the need to mon-itor the contractor’s performance. Having used the procedures of FAR Parts 12 and 15 to acquire the pallets, Eric knew that he could streamline the contract administration process.

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BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING

The postaward orientation record noted that several points had been made to the contractor concerning the terms and conditions of FAR 52.212-4 (Contract Terms and Conditions—Commercial Items). For instance, Eric had invited Platform’s attention to the terms and conditions for inspection and acceptance, those covering risk of loss, and the importance of meeting prescribed delivery schedules. Both Eric and Harry Carmichael, who had been designated as the COTR for the procurement, had been very specific in dealing with the warranty provision for the pallets. Eric had explained that Platform’s warranty was one of fitness for a particular purpose. Harry had further explained the importance of the performance spec under which Platform would develop and test a process for wood preservation that would ensure the required pliability of the pallets. Eric had made it very clear at the postaward orientation that the Government wanted to stay on top of the development and test of a process for wood preservation. He had requested that Platform provide the COTR with a weekly written report on its progress and permit the COTR to visit and review the work of those involved in the wood preservation effort. Platform’s purchasing agent had responded almost unhesitatingly. “Sure, we’ll provide Harry with a weekly report, and he can come see us anytime he wants.” Then, as Eric recalled, Platform’s technical representative at the orientation leaned forward and interrupted. “Excuse me, Eric,” he had interjected, “but remember that you’ve ‘bought’ our in-house inspection system for this procurement under FAR 52.246-1.” “You bet we have,” Eric had replied, “and we’ll abide by that.” But then he placed an important condition on the postaward table. “May we assume,” he had asked, “that the weekly report you’re willing to provide is a no-cost item to the Government?” The purchasing agent had smiled and shrugged his shoulders. “Sure!” he had blurted out. “Why not? Doing that reflects our company’s customary practice in dealing with its customers. It’s no big deal, so long as you’re not expecting something the size of a metropolitan phone book.” At the time, Eric seemed delighted and Harry looked visibly relieved. “Tell you what we’ll do,” Eric had said, “we’ll draw up a brief requirement for the weekly progress report, you can review it, and if it’s okay we’ll issue a modification to incorporate it into your basic indefinite-quantity contract.” Again shrugging his shoulders, the purchasing agent had agreed. “Sure, that makes good business sense,” he had responded. “I see no problem in doing it that way.” After the postaward orientation, Eric and Harry met to confirm their understanding of what had been explained to Platform Industries, and to set a time for getting together to draw up a reporting requirement for the wood preservation process and to discuss the monitoring of Platform’s contract. And Harry’s comment to Eric after the postaward orientation had stuck in the contract administrator’s mind. “Hey, Eric,” the COTR had said, “so far so good. Let’s hope it stays that way.”

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COURSE LEARNING OBJECTIVES
At the end of this course, you will be able to: Overall: Individual: 3.1 3.2 3.3 3.4 Respond to contractor requests. Monitor actions of assigned Government technical and other support personnel. Obtain data on contractor performance from the commencement of work through final inspection and acceptance. Inform a requiring activity and other interested parties of a contract’s status. Monitor performance under a contract of both contractor and Government personnel as well as any actions required by the contracting officer.

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INTRODUCTION TO PERFORMANCE MONITORING
Performance Monitoring Performance monitoring involves contract administration activities that contracting officers and other Government personnel use to ensure that supplies or services acquired under contracts conform to prescribed quality, quantity, and other requirements. Monitoring activities include, but are not limited to, inspection and acceptance as well as quality assurance techniques. Under a contract, both parties are obligated to perform as each has promised to do under specified terms and conditions. Not all contracts, however, are performed according to their terms and conditions or within required time frames. Poor performance or late deliveries may cause costly delays in a program. Thus the Government monitors contract performance to ensure that required supplies or services are delivered on time. Performance monitoring supports many objectives, including those given to the following: Identifying potential delinquencies, Isolating specific performance problems, Supporting contractor requests, Pointing out the need for Government assistance, Revealing actual or anticipated default, and Identifying Government-caused delays. Policy on Performance Monitoring FAR 46.102 Governmentwide policy requires agencies to ensure that: Deliverables tendered by contractors meet contract requirements, Procedures are in place for assuring that contract requirements are met before the acceptance of deliverables, No contract precludes the Government from performing appropriate inspection, and Inspection and acceptance services by other agencies are used when it is more practical or beneficial to the Government.

Objectives of Perfor-ance Monitoring

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Quality Program Policy DFARS 246.102

DoD policy requires: Cost-effective quality programs, Quality audits, Quality assurance functions tailored to the specific acquisition, and Contractors provided maximum flexibility to establish quality programs in meeting contract requirements.

Monitoring Contracts for Commercial Items FAR 46.102(f)

Contracts for commercial items rely on a contractor’s existing quality assurance system as a substitute for compliance with Government inspection and testing before: The tender of items for acceptance, unless Customary market practices for the items permit a buyer’s in-process inspection. Any Government in-process inspection must be conducted in a manner consistent with customary commercial practice.

Steps in Performance

The steps in executing successful performance monitoring are charted on the next page. Following the flowchart, each step is discussed in detail.

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BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING

STEPS IN SUCCESSFUL PERFORMANCE MONITORING
Input: Contract and delegations authority to contracting officer’s representatives.

1. Respond to contractor

2. Monitor CORs/COTRs and other ment personnel.

3-4. Obtain feedback on contractor mance or deliverables (including first tests, if applicable).

No Any problems? 12-13. Document the file and status of contract.

Yes

With deliverables from FAR Part 8 sources? No

Yes

14. Investigate and resolve as prescribed in FAR Part

5-8. Investigate actual or potential ance problems, constructive changes, or breaches.

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(Flowchart continued from prior page)

5-8. Investigate actual or potential performance problems, constructive changes, or other breaches.

Yes Constructive change?

9. Determine whether to modify the contract or to satisfy constructive changes.

No 10. Informally resolve problems.

No Problem resolved?

11. Invoke formal contractual remedies.

Yes 12-13. Document the file and report status of contract.

SUCCESSFUL PERFORMANCE MONITORING

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BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING

3.1 Respond to Contractor Requests

The Government will be called on to review, approve, make decisions, or take other actions during the performance of a contract. Most Government actions are based on contract requirements. For instance: The interpretation of technical specifications, Obtaining approval for contractor entry to or on a Government site, Providing an escort in controlled areas, Arranging for utility outages when required by the contractor for maintenance or installation purposes, Authorizing the use of overtime under certain types of contracts, and Authorizing used or surplus material as a substitute for new material.

Track and Respond to Requests

Since the contractor is responsible for direction of the work, it is in the best position to determine when to submit requests to the Government. As a contract administrator, you should be prepared to handle requests by establishing a system to: Track contractor requests, and Provide timely responses in accordance with the contract or other regulatory prescriptions.

Tracking Requests

Many requests a contractor submits require input from other Government officials. Use a tracking system, manual or automated, so that requests that might be “out of sight” are not also “out of mind.” Remember: A request may be crucial to contract performance. In fact, the contractor may not even be able to proceed until the Government responds. For instance, a specification might call for the submission of a material sample for the Government’s approval of color. While the program manager may be charged with overall responsibility for approving the color, other officials may have to concur. The contractor may be at a complete standstill until approval is received. If you have not set up a tracking system, it may take days just to locate the sample. You can use a tracking sheet such as shown in Exhibit 3-1 to monitor all such material approval requests, including those for used surplus or reconditioned material.

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CHAPTER 3

Timeliness

Respond to contractor requests in a timely and efficient manner. Timely responses set the tone for a relationship with the contractor and pay dividends by minimizing the amount of contract administration required for contracts that are running smoothly. Untimely responses may have major consequences. The contractor may legitimately point to an inability to act on its request as the reason for not meeting a delivery or performance schedule. Contracts should specify both the requests a contractor must make and the amount of time the Government has to respond. If a contract does not specify a time, the Government should establish one. An effective tracking system will identify not only who is handling the response but also its due date.

Unforeseen Circumstances

Contractors may submit requests to the Government based on unforeseen circumstances. For some, the contractor may be entitled to delay delivery or performance. A timely response to these requests ensures that the contractor is held accountable for delivery or performance requirements. Unintended modifications to an existing contract often result from the action or inaction of Government personnel, frequently without their being aware of the effect of such action or inaction. This can create troublesome situations that result in a contractor’s efforts requiring the expenditure of time and money. That is, the contractor may claim that it construed such action or inaction to have required the performance of compensable work. Such actions are often called “constructive change orders.” A “constructive change order” may be defined as an oral or written act, or omission, provided by a presumably authorized government official that is construed to have the same effect as a formal, written change order. Despite the longstanding history of what is called “the doctrine of constructive changes,” the FAR contains no definition of the term “con-structive change.” The adjective “constructive” is grounded in the verb “to construe.” That tells us that a “constructive change” is one that infers or implies that an appropriate course of action is (or was) required to be taken. It can result from either a specific action or a failure to act.

3.2 Monitor Assigned Technical and Other Support Personnel

Meaning of Constructive Change Order

3-9

Exhibit 3-1 3-10 .BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING Material Approval Tracking Sheet Contract Number: ______________________ Contractor: ___________________________ Submittal ID No.* Contract Paragraph Number Description of Material or Submittal Date Request Received Approval Needed by or Due by Date Review Completed Date Returned to Contractor Approved or Rejected Previous Submittal ID No. then cite the previous submittal number in the column on the far right. *Give each resubmittal its own ID number.

Indicative situations that serve as the basis for constructive changes include the following: Specifications that are “impossible to perform. Specification provisions that are defective because of conflicting or excessive requirements. more often than not. held to be baseless grounds for pursuing compensation associated with alleged constructive change orders. comments.” either in whole or part. or opinions by Government personnel are. a costly and time-consuming process has to occur. Instruct contractors to submit notices for constructive changes and other potential changes. and the virtual impossibility of any prepricing puts the Government in a disadvantageous negotiation position. But a caution is in order: Simple suggestions. Monitor for Constructive Changes 3-11 . Monitoring for constructive changes can be achieved through one or more of the following methods: Obtain copies of correspondence from technical and other support personnel. and Unauthorized technical direction by Government personnel. the Government’s avenues for resolution may be to issue a formal change order under the contract’s Changes clause.CHAPTER 3 Indicative Situations for Constructive Changes Constructive change orders are often attributed to letters. Government inspection that exceeds any reasonable interpretation of what a contract may require. Government failure to disclose its superior knowledge when such knowledge is essential to the performance of required work. telegrams. advice. for example. or to pursue some kind of ratification procedure. The acceleration of work or performance despite a contractor’s valid claim of an excusable delay. or other documents from Government personnel that are misconstrued as directing the performance of changed or additional work. In both instances. Resolution of Constructive Changes Given. the determination that an alleged constructive change order was “issued” by a contract administration official.

requires a contractor to notify the Government in writing. FAR 52. Contract Modifications DFARS 243.243-5 Changes and Changed Conditions (for construction when the contract amount is not expected to exceed the simplified acquisition threshold).243-7. Pricing of Contract Modifications.243-7001.000. When used. as soon as possible (a specific time frame for which is to be negotiated).107 FAR 52. Each of these clauses prescribes for the issuance of change orders by the Government under specified conditions. Include Appropriate Changes Clause With few exceptions. Notification of Changes. While not prohibited from use for smaller procurements. This clause is not intended to be universally applied. FAR 52. the clause at FAR 52.243-2 Changes—Cost Reimbursement. Make unscheduled site visits.000. FAR 43. Periodically contact CORs/COTRs and other support personnel. Its use is primarily available for negotiated research and development or supply contracts for the acquisition of major systems or principal subsystems.243-3 Changes—Time-and-Materials or Labor-Hours. the prescribed threshold for its optional application is $1.205-71 Contractor Notices of Potential Changes FAR 43.104 FAR 43. a Government contract must include an appropriate Changes clause or its applicable alternate. and for construction when a firm-fixed-price contract is contemplated and the amount is not expected to exceed the simplified acquisition threshold).243-4 Changes (for dismantling. FAR 52.243-1 Changes—Fixed Price.205 3-12 . The following clauses are required when certain types of contracts are used: FAR 52. FAR 52.243-7 Use the following clause when you plan and use a fixed price contract: DFARS 252. or removal of improvements. demolition.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING Obtain feedback on meaningful oral communications with the con-tractor. when the contractor determines that the Government has effected or may effect a change in the contract.

243-7(b) and (d) 3-13 .249-7002.101 Substantial Impact on Employment DFARS 243. and plan for its funding. as a “contracting officers representative” as defined in FAR 202.107-70 DFARS 249. Notification of Changes. the Secretary of Defense has to notify the Secretary of Labor. or (3) notify the contractor that no change is considered to have been made. direct further performance resulting from the change. The notification procedures are established in DFARS 252. When appropriate. (2) countermand the alleged change. The Government’s responsibilities for responding to a contractor’s notice of change are shown in Exhibit 3-3. If a modification of a major contract or subcontract will have a substantial impact on employment. the use of the Notification of Changes clause permits the Government to (1) evaluate an alleged change and confirm that it is one. DoD’s procedures require that contractors provide the specific impact information in all major defense program contracts. Contractor and Government Responsibilities FAR 52.107 FAR 52.7003 Benefits of Notification of Changes DoD defines the “specifically authorized representative” (SAR) referenced in FAR 52.101.CHAPTER 3 Contracting Officers Representative DFARS 243. The basic content requirements for the contractor’s notice of change are shown in Exhibit 3-2. The Notification of Changes clause specifies the responsibilities of the contractor and the Government concerning any notification of changes.243-7 FAR 202. Notification of Anticipated Contract Termination or Reduction.243-7.

delivery schedule. or other contract terms. nature. what delay and disruption in the manner and sequence of performance and their effect on continued performance have been or may be caused by the alleged change. The name. delay. function. and circumstances of the conduct or action regarded as a change. The identification of any documents and the substance of any oral communication involved.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING Notice of Change Content Requirements The date. including: Contract line-items affected. The contractor’s estimate of a reasonable response time by the Government that would minimize cost. estimated cost. or disruption of performance. Exhibit 3-2 3-14 . and activity of Government or contractor personnel who know about such conduct. Specific labor or material categories affected. To the extent practicable. The basis for any allegation of accelerated performance or delivery. Any element of contract performance that the contractor may use as a basis for an equitable adjustment (a change in time or money). Contractor estimates of adjustments to contract price.

♦ Countermand any communication regarded as a change. or Other contract requirements. prepare to make an equitable adjustment in price. Or: ♦ If additional information is needed from the contractor to make a decision. Analyze them for constructive changes. including the funding of the change. ♦ Modify the contract in writing.CHAPTER 3 Responsibilities in Responding to a Notice of Change Either: ♦ Confirm that the circumstances constitute a contract change. advise the contractor what information is required and establish a date for its submission and a date by which the Government will respond. and/or delivery schedule and in such other provisions as may be affected. ♦ Deny that the alleged Government conduct constitutes a change and direct further perfor-mance. Meaningful communications would include any information that might potentially affect: Performance. Price. Exhibit 3-3 Importance of Communications FAR 42. 3-15 . Contact Other Government Personnel A contract administration plan may require a designated COR/COTR or other support personnel to provide periodic progress reports or daily logs of contract activity. ♦ If it is determined that the alleged change did in fact occur. Meaningful communications help control actions that are otherwise inconsistent with contract requirements. estimated cost. Follow up immediately when these are not received. cost.1104(d) All Government officials involved in contract administration must report to a contract administrator any meaningful communications they have held directly with the contractor.

Often these “insignificant” events can cause major future headaches. the easier it will be to resolve them. Remember: The more quickly you identify contract administration problems. 3. you want to have an early warning of any contract performance difficulties. However. Use Other Monitoring Methods Sometimes an unannounced site visit is the most effective way to find out what is really happening. you should obtain sufficient data to verify satisfactory performance.3 Obtain Data on Contractor Performance In addition to monitoring the actions of Government officials.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING If a contract administration plan does not include the submission of reports from support personnel. You need to recognize any evidence of potential performance problems by either the contractor or the Government. and Invoice or voucher items or amounts that are not consistent with contract requirements. When both contractor and government personnel are there to listen to the other’s answers to a contract administrator’s questions. contact them on a regular basis and ask how things are going. Sources for obtaining information on potential contractor performance difficulties are summarized in Exhibit 3-4. Monitoring may uncover more direct evidence of such problems as constructive changes. For instance: Requests for change orders from the contractor. the result is less likely to portray a one-sided picture of events that have taken place or are currently happening. Sometimes they will not “bother” you with something they think is insignificant. 3-16 .

Submission Requirements The required submission of written data from a contractor must be covered by a contract. you probably have (or should have) a contract submission requirement to fulfill that need. They should be advised to provide such reports: In sufficient time for necessary action by the contracting office. ♦ Other data supporting acceptance or rejection. and With a specific recommendation for action.CHAPTER 3 Sources of Contract Performance Status FAR 42. CORs/COTRs may initiate written reports identifying potential or actual delays in performance. However. Blueprints. ♦ Personal site visits and/or observations of work. some well-timed questions may produce valuable oral information. or other problems in contractor performance. the following: Shop plans. among other things. ♦ Requiring activity personnel and end users. Exhibit 3-4 Progress and Other Monitoring Reports Daily logs or progress reports required by a contract administration plan or the contract itself often provide early warning indicators of potential changes. A contract may call for. 3-17 . If your information needs are not simple enough to be answered by a brief question-and-answer session. Reports may be provided by Government officials or the contractor.1106 ♦ Progress and other monitoring reports. ♦ Other persons (both Government and contractor officials). ♦ Inspection and acceptance officials. Shop travellers. delays.

If the report states that the contractor is on schedule. progress reports do tend to have some common elements. ♦ Status of the work in general and by specific element. ♦ Actions taken or proposed to overcome difficulties or delay factors. the CAO does not have to add comments. ♦ Reasons for any difficulties or delay factors. These are listed in Exhibit 3-5. Wiring diagrams. the CAO has to include comments and recommend corrective actions. Common Elements of Contractor Progress Reports ♦ Actual deliveries or performance milestones met. and then has to provide comments to the contracting officer within four working days. However. 3-18 . In all other cases. ♦ Factors causing delays.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING Stick drawings. Reprocurement data packages. Exhibit 3-5 CAO Review and Comment DFARS 242. ♦ Assistance needed from the Government. Progress Report Content Requirements Because the information needs of different contracts vary widely. there are no standard FAR clauses addressing content requirements for progress reports. and Progress reports. ♦ Scheduled deliveries or projected performance milestones. and the CAO agrees.1106(b) The contract administration office (CAO) has to review the contractor’s progress reports. Identification of subcontractor sources. Remember: Progress reports will be the long-term contract administration monitoring tool for a contract administrator.

but some contracts require direct submission to the contracting office. or a facilities contract. Tooling. but these schedules are often characterized by reporting associated with various stages of the production cycle. There is no standard format. the COR/COTR reviews and verifies the contractor’s progress reports. Some production contracts require a phased schedule for reporting progress.1107 FAR 52. your contract administration plan should include a separate report from the COR/COTR. progress generally is reported and measured by the percentage of work completed. Testing. whichever is less. Component manufacture. the contractor does not need to repeat the analysis in regularly scheduled progress reports. In contracts for maintenance and overhaul. In this case. Subassembly and final assembly. and Shipping. Purchasing. 3-19 . a construction contract.CHAPTER 3 Progress Report Actions Normally. Plant rearrangements. such as: Planning. Production Contract Reports FAR 42. Make a comparison of similar reports and resolve any discrepancies.242-2 Production progress reports are generally required unless the work is performed under a Federal Supply Schedule. Once an initial analysis is made and reported. The fact that a monthly progress report is required does not relieve the contractor of its obligation to report anticipated or actual delays to the COR/COTR or the contracting office as soon as such delays are recognized.000 or 5 percent of the total contract amount. Delays in furnishing production reports allow the contracting officer to withhold from payment an amount not exceeding $25. but progress toward correction must be tracked if correction was indicated in the analysis.

and Efforts taken to resolve problems in terms of costs. DoD’s Defense Technical Information Center (DTIC) collects all scientific and technical reports from DoD and contracted efforts. Time. Other work in process.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING R&D Contract Reports FAR 35. Tasks. these kinds of charts do have limitations. but now computer graphic software programs can create these comparison graphics with relative ease.010 These progress reports are normally in addition to the scientific and technical reports that become a permanent record of the work accomplished under the contract. Experiments being conducted. Problems encountered. progress reports are often required from the contractor and may include such things as: Number and names of key personnel working on the project during the reporting period. Facilities currently set aside for the work. FAR 35. Scientific and Technical Reports DFARS 235. and technical objectives. Negative results of work or experimentation. However. they represent some unique monitoring problems. this was a time-consuming task. In the past. Therefore. They do not show complex interrelationships among: Events. and 3-20 . An example of a milestone chart is shown as Exhibit 3-6. schedules. Direction of the work. Bar charts and milestone charts represent more simple graphic displays.002 Since the primary purpose of research and development (R&D) contracts is to advance scientific and technical knowledge.010 Graphic Progress Presentations Production and other contracts may require a contractor to submit graphic displays comparing actual with scheduled progress. The Government must closely monitor technical progress.

The Committee for Purchase From People Who Are Blind or Severely Disabled. as well as provide. and military inventory control points). This usually will help a contractor perceive the relationship among various tasks. and resources. and Critical Path Method (CPM). Defense Logistics Agency. Wholesale supply sources (General Services Administration. decisions. equipment. and labor). the Department of Veterans Affairs. When a contractor performs on-site work. they are important contract monitoring tools. (More detail on these methods is provided in Appendix A. This kind of chart can serve as both a planning and a contract performance and management tool. Complex Graphic Presentations When a contract involves a complex web of interdependent relationships between tasks. the contractor may be required to prepare a more elaborate graphic display—one that shows what has to be done and when. material. A contract may require the contractor to submit such a chart with its offer or after contract award. a contractor will submit them voluntarily.001 3-21 . These meetings help foster a team approach to contract administration. and the need for specific resources (e. bar and milestone charts are difficult to revise when changes take place. pertinent information on a contract’s status. These sources include: Federal Prison Industries. Examples of techniques used as a basis for more elaborate display systems include: Program Evaluation Review Technique (PERT). Moreover. the order in which events and decisions take place.) Meet With Requiring Activity Hold periodic meetings with requiring activity and end users to obtain.g. Monitoring Required Sources of Supplies and Services FAR 8. PERT and CPM charts detail interrelationships. When these charts are available to the Government. The acquisition of supplies or services from or through Government supply sources are not exempt from requirements for appropriate monitoring. they can provide early warnings of any potential performance problems. On occasion..CHAPTER 3 Contractor progress. because it uses them for internal project management purposes.

where contracting responsibilities are assigned to one or more of the departments.7002-1 FAR 8. 3-22 . agencies. the administration of contracts with these sources should include appropriate monitoring and oversight. including follow-up and expediting of inspection and transportation.7001 DFARS 208.405 FAR 8. the “Acquiring Department” is the one that has contracting responsibility under the coordinated program. and Optional use Federal Supply Schedules. or the General Services Administration.407 Under the DoD Coordinated Acquisition Program. The acquiring department also performs or assigns contract administration. While regulatory requirements vary for remedies arising from the noncompliance or nonperformance of Government supply sources.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING Mandatory Federal Supply Schedules. Acquiring Agency Monitoring Under Coordinated Acquisition DFARS 208.

Assist with evaluation. Interview staff to determine training needs and specifications. including linkages with other training efforts and publications. 6. Develop briefing materials. 2. FOLLOW-UP EVALUATION 13. 3. Identify all materials needed for data base. TRAINING PROGRAM DESIGN 5. Review state-of-the-art training designs and those used in other federal agencies. 7. = Project milestone event Exhibit 3-6 3-23 . Present concept. Develop trainer manual. Develop program schedule. 4. register participants. 12. Conduct briefings and workshops. Develop evaluation design. Support trainers during initial sessions. Train trainers. 10. 9. 11. 14. Develop training materials for workshops. Prepare and produce manuals.CHAPTER 3 Sample Milestone Chart PROJECT PHASES AND KEY ACTIVITIES PROJECT SCHEDULE (WEEKS AFTER START) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PERFORMANCE APPRAISAL DESIGN 1. TRAINING DELIVERY 8.

Harry.” Harry sat back in his chair and said he thought that was a fine idea. Harry was determined to get things off to a good start. “Seems like we’re open from dawn to dusk around here. Clyde found that the cognizant purchasing agent was off for the day. no. Purchasing keeps all the paperwork. What I want to do this morning is make certain that we’re all in sync as far as your weekly progress report is concerned. and was in Clyde Ruskin’s office soon thereafter.. he told Harry that no one else in purchasing would really know the details of Platform’s contract. Harry?” asked Clyde. Come when you want to.” Clyde called Caroline to join them. Harry began somewhat slowly. but maybe we ought to get purchasing in here.” Clyde and Caroline looked at each other and then at Harry.” said Clyde. And beyond that.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING AND AWAY WE GO! . I’d like you. Been here for years. what can we do for you?” Harry took a folder from his briefcase and asked Clyde if he had a copy of the postaward orientation conference report. They appeared somewhat perplexed. “Appreciate the opportunity to meet with you folks to confirm what we expect of Platform in administering its contract and the orders that will be placed under it. who indicated he would drive to Platform’s location the next day. “Trust you had a pleasant drive down here. and works well with everybody. I’d suggest that early morning might be a good time. And now that you’re hear. “We’re glad to do what you want and show you what we can. “Sure. to make an appointment. With an apologetic tone. Harry. Harry Carmichael decided to visit Platform Industries’ facility where work had gotten un-derway on the wood preservation effort. does a fine job. uh . Caroline interrupted him saying that she had to be at a corporate meeting in Building 1 at ten o’clock. And as he carried on about that. Wanting to make sure that Platform’s team understood what the COTR had in mind. “It looks like we’re short on 3-24 . “What do you want to do. But let me get Caroline Moore to join us. The facility’s manager was most cooperative.. Harry. He called ahead to Clyde Ruskin. and she was there in no time. OR DO WE? About ten days after the postaward orientation for the pallet procurement.. He added that perhaps two or three hours onsite would be suf-ficient time for him to see what was being done and to talk with those on the job. The manager seemed most accommodating. Caroline.. the facility’s manager who had attended the postaward orientation. In calling purchasing. She’s the one who heads up our laboratory for materials testing. Harry left early the next morning. since they’re the ones who handle all the paperwork.” That sounded good to Harry. I don’t. “Well. explain how you’re going about conforming to the performance spec we provided for dealing with the pallet pliability problem. if you will. to show me your laboratory area and. arrived at Platform’s facility about nine o’clock. Harry.

prior notification is required. On-site meetings allow both Government and contractor personnel to surface. When making on-site visits to such facilities. If the CAO has already gathered data that will fill your data requirements. But as he prepared to accept Clyde’s suggestion for rescheduling the meeting. as discussed earlier.402 Access to Classified Information During Visits to Contractors DFARS Post-Visit Reporting In addition to the notification requirements shown in Exhibit 3-7. as detailed in Exhibit 3-7. Personal Site Visits Hold periodic site meetings with contractor and Government technical personnel who have contract administration responsibility. the COTR realized that he was in the middle of wasting almost an entire day. as well as resolve. Your goal is not only to identify potential change situations. There are certain rules that must be followed before making a site visit when your contract administration office has delegated specific contract administration functions to another contract administration office (CAO).” With a sense of embarrassed self-reflection. This type of delegation often occurs when your office has a production contract in a plant where another agency has an on-site contract administration activity. but he sensed a feeling of benign indifference on the part of Platform after his virtually useless meeting with Clyde and Caroline. he was beset by a gnawing feeling that Platform’s approach to administering its contract left something to be desired. Maybe he was wrong. He hoped that wasn’t the case. technical problems at the operating level. you are expected to inform the CAO of any agreements you reach with contractor personnel or other results of your visit that may affect CAO operations. That was his problem. The type of data you can expect to receive from Government officials responsible for inspection will depend on what inspection and acceptance methods are specified contractually. you must give advance written notice to the contractor.CHAPTER 3 people to get after things today. but something had to be done and he would take this up with Eric later in the day on his return to the agency. Under its contract. Performance includes furnishing the quantity and quality of items the con- Data from Inspection Officials 3-25 . When your contractor facility visit requires access to classified information. the contractor assumes responsibility for timely delivery and satisfactory performance. Maybe we can schedule all this for a later visit over the next few days. Visits to Contractor’s Facilities FAR 42. personnel within the CAO will generally discourage your visit and provide you with the existing data. but to obtain monitoring data through your own observations.

Name and address of the contractor’s facility and personnel to be contacted. when appropriate.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING tractor agreed to deliver and the Government agreed to pay for. raw materials. and The contractor achieves satisfactory performance. Identify data to be obtained in conjunction with the visit. The extent of inspection varies with the dollar value of the contract and the type of supply or service. CAO Notification Requirements for Contractor Facility Visits Names. Inspection means examining and testing supplies or services (including. protects its interest to ensure a quality product.101 Quality Assurance Definitions DFARS 246. Inspection and acceptance requirements included in a contract are the basis for this protection. Although the contractor is fundamentally responsible. Products and services meet technical requirements. Inspection Defined FAR 46. Quality assurance is a planned pattern of all actions needed to give adequate confidence that: Adequate acceptable technical requirements have been established.101 3-26 . whether or not desired. components. Date and duration of visit. Request for CAO representation. Exhibit 3-7 Purpose of Inspection The purpose of inspection is to determine whether a product or service conforms exactly to what the Government has ordered. Contract number. the Government. and purpose of the visit. and security clearance information for all visitors. if desired. any program involvement. and intermediate assemblies) to determine whether they conform to contract requirements. through contract administration. official positions.) (The CAO may accompany visitors.

CHAPTER 3 Quality audit is a systematic examination related to quality procedures designed to independently verify or evaluate the quality program. or it can be the foundation for other Government inspection specifications. The standard inspection clause. 3-27 . or contract requirements. The FAR specifies other clauses for use with different contract types and in specific situations. these are basically the same as the standard inspection clause. is the clause used when the technical requirements of a contract mandate closer control of work processes or attention to such factors as planning. and execute material and service quality through design. An example of a specialized test for a contract not exceeding the simplified acquisition threshold could be an environ-mental test for an outdoor herbicide product. but it relies on the contractor for overall inspection. Quality program is a beginning through completion effort to develop.246-1. There are basically three types of inspection systems: Government reliance on inspection by the contractor. plan. With minor adjustments in wording for contract type and applications. unless the contracting officer decides that some form of Government inspection and testing is necessary. and support. Inspection of Supplies—Fixed-Price. This type of clause will require the contractor to comply with Government inspection or quality assurance procedures.246-2. contractor self-inspection systems are used.246-11. deployment. Contractual Coverage for Inspection Whenever possible. FAR 52. The clause is required for use for supplies or services when the contract amount does not exceed the simplified acquisition threshold. is the standard clause used to identify this quality level. Higher-Level Contract Quality Requirement (Government Specification). production. Higher-level quality control requirement. Standard inspection requirement. FAR 52. requires that the contractor establish and maintain an inspection system not otherwise defined except that it must be acceptable to the Government. FAR 52. operations. The standard inspection clause can be the only inspection clause in a contract. Contractor Inspection Requirements. specifications. if such are described in the contract. The clause does allow some specialized Government inspection and testing.

missing pieces. Chemical tests to determine chemical composition and physical tests to determine hardness are also in this category of examination. Sensory checks are examinations by an inspector using eyes. Destructive tests. For instance. This kind of examination reveals surface defects. will be based on this type of inspection. 3-28 . This kind of inspection provides actual performance data. ears. Requiring that a motor run or an operating system perform at a certain level for a specified period of time are examples of this kind of inspection. to test fireproofing. The inspector exercises a good amount of personal judgment in this method. and parts out of alignment. Factors involved in this type of inspection are listed in Exhibit 3-8. Some contracts require that end products meet certain reliability standards or withstand a specific level of stress.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING Inspection Methods and Data The data desired from Government inspections result from several different inspection methods. noisy operations. Data obtained from an agency’s inspection and acceptance personnel for routine commercial supply items. Physical or performance tests. The inspector makes dimensional checks using gauges and micrometers to determine whether the dimensions of the items conform to contract specifications. Inspectors test these requirements simulating abuse until the item is destroyed. The most commonly used methods and their resultant data are: Sensory and dimensional checks. or items that were previously inspected at a plant. This kind of inspection often provides data on a “worst case” performance environment. and other senses. the inspector heats the product until it burns.

in turn. and who you want to see. Fabricated pallets of the wood 3-29 . Harry had come to respect Caroline’s expertise.” She had no problem in measuring up to that. Harry consulted Eric. “You blew it. Within short time periods. Subsequent visits to Platform were preceded by either a facsimile trans-mission or E-mail that provided a brief agenda for the visit. “Treat Carmichael as though he were the customer.CHAPTER 3 Elements of a Commercial Item Inspection ♦ Proper type or kind. and Harry placed a copy in his contract administration file. and the contract administrator was immediately candid with him. ♦ Correct quantity. That’s being businesslike. and she. As Clyde had told her. Once you’ve established that kind of relationship. Harry! You assumed that because you were ready the contractor would be. ♦ Appropriate packaging. ♦ Operability check. ♦ Preservation check for spoilage and other signs of age deterioration. Exhibit 3-8 LESSONS LEARNED PAY DIVIDENDS Returning from his near-useless visit to Platform. too. Before you visit any contractor. His most recent visit was to observe Platform’s demonstration test for pallet pliability. Be responsive and keep him fully in-formed. things had improved considerably since his first visit to Platform. Indeed. a contractor knows what to expect. if applicable. Doesn’t always happen that way. what you want. you’ve got to make sure there is an understanding about why you’re coming. ♦ Damage check. the processed wood was exposed to extremes in temperature associated with good and bad weather. ♦ Proper item identification. had come to understand the COTR’s frustration over the pallet pliability problem.” Harry had taken Eric’s upbraiding in stride and found that lessons learned do pay dividends. It was a comprehensive demonstration test for pallet pliability and lasted the better part of a week. ♦ Packaging and labeling requirements check. Platform always confirmed its receipt of these.

Resources are being applied at originally predicted levels. especially when the stakes are pretty high.” opined Harry at week’s end. 3-30 .” The COTR was equal to the occasion. “You know. we’d be out of it. Clyde approached him. Okay?” Clyde shook his head in agreement. in writing. As far as the results of the demonstration test are concerned. If everything is on target. it may be that you’ll start receiving delivery orders for pallets within the next two weeks. Everyone seemed pleased. at least up to this point. “I guess all’s well that ends well. “what you may choose to do is up to you. Progress payments are warranted. For instance. He was satisfied that the new pallets met the functional requirements of the agency’s performance specification. The Government has the right to inspect all materials and workmanship at any time and any place in a manner that will not unduly delay the work. But I remind you that the decision to order is not mine to make and that any order must come from the contracting officer. you’ll be hearing from our agency. but they‘re a cautious bunch. After Harry drove off he said to Caroline. determining whether: On-schedule performance can be expected. Cost will be within the initial estimate for cost-reimbursement types of contracts or for fixed-price types of contracts with progress payments. Nice enough and most friendly.” he said. and they were lifted and lowered numerous times as would be the case in filling bins throughout the warehousing system.” Then she added. Harry? We’d like to get a leg up on things while we’ve got a decent inventory of lumber we can process. I’ll never understand these Government people. Before Harry left to drive back to the agency.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING were tested to hold various weights.” responded Caroline. If we ever dealt with our suppliers and customers that way. “I think we’re the better for it.” Interim Inspections Even if a contract calls for reliance on the contractor’s inspection system. Interim Government inspections may focus on different aspects of performance. the Government retains the right to inspect and probably will inspect for adequacy and perform sensory checks. “Can we consider the results of this week a go-ahead signal to start producing pallets. over the next week.” “Maybe so. “Clyde. “But I’ve learned a lesson or two this past week about a Government customer’s monitoring. Quality of end products will be consistent with the specification.

The Government does not have to specify the method it will use to test a product or service for contract conformance. except for an inspection associated with quantity. even though the other test shows that the supplies met the specifications of the contract. The Government generally has the right to inspect items or services it had inspected previously. Reinspections are also improper if they are unreasonable as to time and place so that undue or unnecessary delays result. It can perform tests that are unspecified. your inspector failed to accurately perform a interim test so that a de-fective item passed through an interim inspection undetected. If the contractor can demonstrate that a Government inspector is incompetent. Erroneous tests. Reinspections for acceptance purposes at destination when the supplies have previously been accepted at a place other than destination is inappropriate as well. then in all likelihood the Government will be held liable for those damages. Unusual Inspections and Incompetency When a Government inspector conducts an inspection exactly according to a contract’s specifications. 3-31 . When unspecified tests impose a stricter standard of performance than is otherwise prescribed. If the negligence of a Govern-ment agent causes damages to a contractor. a rejection based on inspections made by that inspector may be invalidated through a formal appeals process. they are improper. However. Improper Inspections Inspection clauses provide the Government with certain rights in contract monitoring. If such reinspections are inconsistent with prior inspections. dam-age in transit. or possible substitution for fraud. but the improper application of inspection procedures can jeopardize these rights. most of which fall into the following categories: Unspecified tests that are improper. or A contractor’s own inspection system is adequate. Inspection testing is improper if it is not a reasonable measure of contract compliance.CHAPTER 3 New components need to be incorporated in major systems. however. they are improper. Be alert for any indication of improper inspections. it will usually not prevent rejection later. If. a rejection of supplies cannot be overturned by another test method. if a contractor produced an item that exactly conforms to a Government-furnished sample. Repeated tests. a rejection based on improper operation is not valid because the contractor has complied with performance requirements under the contract.

503 3-32 . Acceptance is final except for: Latent defects. The point of accept-ance is: The contractor’s plant. if mutually agreeable. easily correctable defects are not cause for rejection of first articles. acceptance will be done at the plant. A prescribed destination point. Normally. Brand name “or equal” specifications also fall into this category. Subjective standards. Place of Acceptance FAR 46.209-3(b) FAR 52. acceptance will ordinarily be done at destination. Acceptance Standards Acceptance is based on essentially three types of inspection standards: Strict compliance standards.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING Data Supporting Acceptance or Rejection The acceptance procedure is important. when a contract requires Government quality assurance actions at a plant. When quality assurance actions are performed at destination. but discretionary standards in the form of subjective standards or first article approvals are sometimes necessary. the first article approval clauses provide for “conditional” approval. because at the time and place of formal acceptance. “Comfortable fit” or “easy operation” are examples of such standards used in specifications. or Gross mistakes that amount to fraud. FAR 52.209-4(b) First article approvals. The contract controls where items will be accepted. Because the primary purpose for first article approval is to prove a contractor’s capability of producing end items that will meet a contract’s specifications. Industry standards and customary commercial practices govern in these situations. title passes from the contractor to the Government. Instead. The Government generally has the right to enforce strict compliance with contract specifications by either rejecting the work or requiring a price reduction for noncomforming work. Fraud. or Anywhere else.

you usually see one or more of the following documents: A receiving report.505 Ownership (title) transfers to the Government upon formal acceptance. It is usually written evidence of final acceptance. (Free on board) Origin F. (Free on board) Destination Contractor has delivered conforming supplies to the carrier. Contractor has delivered conforming supplies to destination and the supplies have been accepted by the Government. acceptance may be implied by either the Government’s conduct or by the Government’s delay. is the document generally used for formal acceptance by the Department of Defense (DoD). Material Inspection and Receiving Report. The contractor is responsible for removing rejected supplies and paying the Government for any storage and similar charges. The time of this ownership transfer is significant when damage or loss occurs. The Government becomes responsible for the damage or loss based on the following delivery requirements: F. DD Form 250. or use of the items.B. The Government may be able to sell those supplies and use the proceeds against storage charges.B. Although the Government may not have formally accepted items. A notice of rejection must be provided to the contractor when the product or service has been found unacceptable. Government alteration of items prior to rejection. In other words. For example. Acceptance or rejection of supplies must be made as promptly as possible after delivery.CHAPTER 3 Time of Acceptance After delivery is made. This report is signed by an official authorized to accept supplies or services for the Government. 3-33 . Other agencies usually have their own unique forms as found in agency FAR supplements. constitutes acceptance. When a contractor refuses to remove rejected supplies. Notification of Acceptance or Rejection Transfer of Ownership FAR 46. then acceptance of the consumed portion has generally occurred. Specific actions by the Government may imply acceptance when none was intended. a reasonable period of time is allowed for Government acceptance or rejection. Evidence of Final Inspection or Acceptance As evidence of final inspection or acceptance.O. the Government has the authority to ship them back to the contractor at the contractor’s expense.O. if the Government consumes part or all of delivered but defective items.

Individual or group meetings. in turn. The legal significance of the F. Signed by an authorized official. in turn. This is a simple and timesaving device as long as caution is exercised in sharing information about contractor performance that is appropriate for telephone conversations.246-15 Certificate of Conformance. There is a series of 67 solicitation provisions and contract clauses found within the framework of FAR 52. point is that it signifies the point of acceptance which.. almost always indicates the point at which title (ownership) passes from the contractor to the Government. Almost one-third of these deal with the postaward aspects of the F. 3.4 Inform Others of Contract Status When a contract progresses to its successful completion according to plan. A contractor’s bill of lading (CBL). If what is to be shared requires the distribution of information (e. (2) small losses would be incurred in the event of a defect. a CBL usually means that the Government is responsible for freight payments. the contract administrator should provide the status of that contract to all interested parties.247 that deals with transportation. The following conditions apply: (1) acceptance on the basis of a contractor’s certificate of conformance is in the Government’s interest. The Government still retains the right to inspect the deliverables.B. A contract administrator must carefully assess which one or more of these is required for any given solicitation or contract document. is responsible to the Government. When a contract so states. the transportation carrier is responsible to the contractor for any damage or loss. or (3) the contractor’s past-performance reputation makes it likely that deliverables will be acceptable and any defective work will be replaced or corrected without contest.O.g. This certificate may be used in certain instances instead of source inspection (whether the contract calls for acceptance at source or destination) at the contracting officer’s discretion. Under a CBL. this can serve as an acceptance document if permitted by a contract.B.O.BASIC PROCEDURES FOR SUCCESSFUL PERFORMANCE MONITORING A copy of an invoice (or voucher). then a one-on-one meeting with an interested party or a group meeting of several may enhance the mes3-34 Application of FAR Clauses for Transportation FAR Subpart 42. and the contractor. FAR 52. Transmitting a contract’s status can take one or more of several forms: Individual or conference telephone calls. point or the payment of freight.14 . contractor or Government progress or other reports).

3-35 . encourage the receiver’s questions or comments concerning what the information relates about a contractor’s performance. tag it with an organizational routing sheet. This may be especially helpful when those to be briefed represent a variety of organizational functions. mail. Routing information for comments. A commonly used method for informing interested parties. if necessary. again exercising appropriate caution in the process. importance to the agency. it may be advisable to present a contract’s status through the use of an oral briefing along with supporting visual aides and/or other summary information presented by key Government contract administration personnel. If appropriate. is to place information in a folder. Oral briefings. and include a handwritten note requesting a review of the material and its return. or whatever. On occasion. dollar amount. by whatever date. or electronically.CHAPTER 3 sage and permit a dialog to occur that otherwise would not if information were transmitted by courier. especially where there may be high levels of interest in contractor performance because of a program’s sensitivity.

Eric vented his spleen.” he was quick to say. Eric noted that he had run across what appeared to be some problems associated with missed or questionable delivery schedules in several ongoing contracts. Eric assured her that pallet delivery orders was a front-burner item on his agenda. be available to me as the Government’s business manager. or may not. equals a condition that amounts to default. along with Harry’s input. unless for some excusable reason. With that opening. I read the contract to figure out what resolution alternatives may.” Then she added jokingly. making a decision based on what I find out along with inputs from both Government personnel and the contractor. Shifting gears in their conversation. has been unjustly put under lock and key by federal agents for alleged fraud in its taxreporting practices. He had been contacted by both Government and contractor personnel. with which it always does business.” Eric added quickly. “Perspective? Yeah. all of whom were after him to provide some resolution of known or anticipated delivery schedule slippages. And the third situation is clearly the most confusing—a prime’s subcontractor has refused to force the issue of timely delivery with one of its vendors. Failure to deliver in a timely manner. I start there and then look at the facts of any delay situation with the objective of resolving it as best I can. to get after the preparation of a series of delivery orders for pallets. She seemed pleased with the results thus far and reinforced the need for Eric.” “Well.” “How so?” queried the contracting officer. I’ve got one. It seems that one deal has the technical people screaming about a contractor’s inability to deliver on time. Another arrangement involves a contractor that calls weekly about the badgering he is taking from some Government field personnel who are pressuring his manufacturing people to increase deliveries against some ill-defined need for more than has been promised under the contract.CHAPTER 4 PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION YET ANOTHER REALM FOR ERIC Eric was in Joanne’s office providing her with an update on the pallet procurement with Platform Industries. “There’s no doubt I can handle these. 4-1 . She reminded the contract administrator that there was a warehousing system and its customers to be serviced. “but what’s your perspective on these sorts of things?” As always. Joanne responded forthrightly and to the point. “that paints a fairly straight line down what can become a zigzag highway. “And if things really get tough. Like I’ve got three deals involving slipped deliveries and each one’s different. and that is causing system problems because a required inventory of components is dangerously low. claiming that the vendor’s most reliable distribution center. and it’s quite simple.

Eric. And I’ll be delighted to have you report to me on how you expect to handle each situation you mentioned. “welcome to the imperfect world of contract performance. why she was the boss. if at all possible. and he left understanding. By when can you do that? After all.. “Well!” she said raising her voice. the exercise of some business judgment. How would you approach it?” Joanne was beginning to sense Eric’s increasing confidence in sharing his concerns during their brief conversations.” And then she unloaded. that might satisfy both sides. “Common to all three situations. as you put it.” She nodded favorably. “How would I approach it? Well.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Before Eric could continue. I’d look for solutions through resolution.” he responded. 4-2 . He was determined to measure up. And she didn’t let the opportunity pass by to do some on-the-spot training.. “I don't expect to find any patent leather answers.” “Give me a couple of days. yet again. Guess that means I’d have to involve both sides. Joanne jumped in. She liked that. Do you know where to turn to search out what alternatives are available to you in these situations? Are you ready to exercise some busi ness judgment. but I do expect to uncover some alternatives that can serve as a basis for. And then there’s the matter of what each contract may contain that provides a basis for examining alternatives. Yeah. Eric. or do you expect that buried in those contracts’ terms and conditions you’ll find some magical answers to your problems?” She had done it to him again. certainly not like a bull in a china shop. will you Joanne? And I’ll come in with an approach to each of them. Let’s see . I’d look for solutions. we don’t want delays in prudent business management to contribute to the muddled resolution of performance delays in Government contracts. “No.

4 4. including those dealing with breach of contract.3 4.7 4. Prepare a final decision. Determine the impact of any problem on the requirement. if needed.1 4. Resolve performance problems short of invoking a formal contractual remedy.5 4.CHAPTER 4 COURSE LEARNING OBJECTIVES At the end of this course.6 4. Issue a suspension-of-work order or stop-work order. you will be able to: Overall: Take all necessary steps for the resolution of performance problems identified through monitoring your Government contracts and inform a contractor and other interested parties of decisions reached and actions taken. Invoke a formal remedy. 4-3 . Individual: 4. Prepare the Government’s position on any performance delays. Inform the requiring activity and other interested parties of the decision reached and action taken.2 4.8 Verify and document evidence of known or predictable performance problems.

Seeking solutions from the contractor. and.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION INTRODUCTION TO PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Perspective on Problem-Solving Methods The key to effective. the Government. wherever possible. each step is discussed in detail. and Seeking solutions from Government personnel. regardless of whether the situation was or may be caused by the contractor. This chapter provides some ideas for creative approaches to the resolution of known or predictable contract performance problems associated with the suspension or stoppage of work and delays in performance. a sense of practicality. a positive approach. Following the flowchart. Proactive problem solving involves careful thought. innovative problem-solving techniques is not merely to search for textbook or regulatory solutions. Performance Problem Determine Creative Approaches 4-4 . Creative approaches means: Looking for solutions that will satisfy both parties. or both. Consult regulatory guidance to ascertain what may be required as a function of contractual terms and conditions. A performance problem is any known or predictable situation that may endanger or disrupt the efficient execution of a contract’s terms and conditions. Steps in Performance Steps for seeking resolution to performance problems in contract administration are charted on the next page.

if needed. 4. Inform the requiring activity and other interested parties of the contract’s status. 3. Verify and document known or predictable performance problems or other breach and determine the impact. resolve the problem short of a formal contractual remedy and prepare a final decision. 4-5 . 1-2. 5-6. Issue a suspension-of-work order or a stop-work order. 7. If possible.CHAPTER 4 STEPS IN PROBLEM RESOLUTION DURING CONTRACT ADMINISTRATION Input: Contract with a stop-work order clause. Prepare the Government’s position on the delay of work.

Gives notice beforehand that it will not perform the contract when the time for performance arrives (constructive breach). subcontracting goals. Exhibit 4-1 Common Cause of Performance Problems Each of the problems in Exhibit 4-1 has a common denominator.” A breach of contract is a failure.g.1 Verify and Document Known or Predictable Performance Problems The careful monitoring of a contract pays dividends in the early identification of performance problems. Supplies or services in process or being delivered do not meet contract requirements or are not expected to do so. For instance.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION 4. QUALITY: OTHER COMPLIANCE: shown in Exhibit 4-1. Exceeding cost estimates or budgets on cost-reimbursement or fixed-price types of contracts so as to endanger both schedule and performance (or even its very survival). with clauses on labor rates.. clean air and water. or 4-6 . Performance problems that can occur are Examples of Performance Problems SCHEDULE: COST: Failure to deliver or make progress toward timely delivery. or maintaining specified working conditions). when a party to a contract: Fails to perform. to perform any promise that forms the whole or part of a contract. Contractor noncompliance with other terms and conditions of a contract (e. It involves a potentially broken promise. technically known as a “breach. either in whole or in part. without legal excuse.

Methods used in factfinding include: Discussions with the contractor. Breach Under a Government Contract The Government can be guilty of a breach when it: Issues a unilateral change to a contract that is outside the scope of the contract. in addition to pursuing and collecting damages. be excused from its performance responsibilities. Every breach of contract gives the injured party the right to pursue and collect damages. Personal observations at the work site. and Discussions with requiring activity and user personnel. The contractor can be guilty of a breach when it: Abandons contract performance. Moreover. offering for acceptance only those items that conform to contract requirements. Many “problems” disappear when you isolate terms and conditions that apply to them. a technical specialist may report that the contractor is using inferior material. immediately ask: “What does the contract say regarding this situation?” Always consider a problem as it mirrors or relates to a contract’s terms or conditions. While the technical specialist may be disappointed in the 4-7 . Determine Symptoms and Cause You may need to conduct factfinding with the officials involved in a problem to identify its symptoms and cause. Discussions with audit personnel. Discussions with a COR/COTR. Required contract clauses generally make contractors responsible for overall product or service quality. 4.CHAPTER 4 Makes performance impossible for itself or the other party. the party harmed by a breach may sometimes. or Fails to disclose pertinent site information for on-site work. or Commits a fraudulent act in connection with a contract. Discussions with quality assurance personnel. For example.2 Determine Impact of Problem on Requirement When a problem surfaces.

) ♦ Where the public interest is affected. the contract administrator will first need to determine whether a contract’s language is ambiguous or whether unreasonable in- Rules of Contract Interpretation ♦ Everyday words are given their dictionary definition. ♦ Contract language should not be interpreted or defined so as to render the language meaningless or the rights and obligations of either party unrealistic. (The presumption is that a specific clause qualifies a general clause and. Typed language takes precedence over printed language.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION quality of the product. unless the context or usage indicates a different meaning. Relate Problems to Contract Language Many so-called problems can be avoided simply by reading the contract. ♦ When there is a conflict between two of a contract’s sections and there is no specific direction to the contrary: Handwritten language takes precedence over typed language. You may discover after factfinding that the problem is in the contract itself. consistently. wherever possible. In problems arising out of differing interpretations. ♦ Technical words are defined as is usual or common in the trade or technical area. used in different parts of the contract. is presumed to mean the same thing. The Government may have made one interpretation of what is required and the contractor another. Specific clauses take precedence over general clauses. therefore. a review of the actual contract requirement may indicate that the product was in conformance and. 4-8 . carries more weight. therefore. acceptable. ♦ The contract should be read as a whole and. ♦ The same word. an interpretation is preferred which favors that interest. ♦ Words defined by the contract are interpreted as the contract defines them.

Your documentation and factfinding efforts may be hampered by someone trying to cover up actions that are now regretted. that the position being advocated is unrealistic. Moreover.CHAPTER 4 terpretations have made. If the nondrafter does not and the ambiguous language is obvious. when the Government can show that the contractor originally calculated certain work as required by the contract and is now trying to claim the work is extra. Similarly. A Government interpretation of language in the specifications at the postaward orientation will prevail over a later contradictory Government opinion. if the ambiguity is obvious. Deal With Ambiguous Language Intentions Related to Interpretations Get Everything On the Table 4-9 . calmly and with cool logic. unless the other party’s interpretation is unreasonable. or at least did not challenge. the courts would probably say that the nondrafter had the last opportunity to correct the deficiency and did not. the other party (the “nondrafter”) has the duty to request clarification before contract award. Exhibit 4-2 Be a Calming Force If there is a problem involving someone who is making an unreasonable interpretation. A problem-solving attitude always yields better results than a finger-pointing approach. Ambiguous language is usually interpreted against the drafter. Courts and boards will generally hold a contracting party to interpretations that it held. prior to the dispute. see if there is any evidence as to what the Government and the contractor intended initially. If a contract’s words do not point to a solution. Use the guidelines in Exhibit 4-2. that work will be considered part of the basic contract and not additional work. Look for inconsistencies with past interpretations of the same language by either the Government or contractor. your job is to convince that person.

But in many instances.” In the three cases he had briefly conveyed to Joanne. The overriding issue is 4-10 . If a delay rested on the Government’s shoulders. share them with interested parties. and make a written final decision for action. the ‘answer’ to a problem is not found in strict contractual language. “There’s no end to the intricacies of it all. he concluded. He tapped out the following on his computer. and banked it for future reference. Eric began to realize that oper-ational contract administration was far more than the simple application of regulatory prescriptions or the enforcement of numerous contract clauses. The contract administrator determined that for any performance delay. ran a copy for Joanne. Eric determined that its resolution had to deal with issues associated with cause and effect. including those that appeared to be open-and-shut cases. Certainly there were cut-and-dried contractor delin-quencies that represented airtight default situations. that could produce another. If a delay was occasioned by Government action or inaction under a change order. If a delay was excusable. on the Government’s interests. he found contractual language in each that set forth the parties’ rights and responsibilities concerning performance delays. you must determine the problem’s significance. assess the extent of the delay’s impact. Third. And on and on. both operationally and fi-nancially. examine the contractual responsibilities and rights of both parties in the event of a performance delay. as he often said. determine the cause or causes of the delay by questioning and listening to both sides. he would exercise a four-step methodology in working to establish a justifiable course of action. And a big factor had to be the significance of a delay in terms of its ripple effect. that was another. as well as examples of overzealous Government administration that had contributed to contractor performance problems and subsequent delays. Determine the Extent of Problem Damage When a known or predictable performance problem has been identified and it is not just a simple matter of clarifying a contract’s requirements. but rather in ascertaining its cause and determining the impact of its effect. document the results of the previous steps. from which a final decision could be shaped and justified. Second. And in many instances. This was the stuff. it was clear that separating the wheat from the chaff was not an easy job. First. Fourth. Indeed. In reviewing each case. that was one thing.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION CAUSE AND EFFECT: A TWO-SIDED COIN In delving into the netherworld of performance delays.

the contracting officer may order a suspension of work for a reasonable period of time.1302 Under a construction or architect-engineer contract. The amount of time and effort you will need to resolve the problem has a direct relationship to the problem’s significance to the user’s requirement.3 Suspension or Stoppage of Work One of the first issues you must deal with when a serious problem surfaces is whether the contractor should continue performance. including the fault or negligence of the contractor. the contractor may submit a written claim for increases in the cost of performance.242-14 4-11 . Price or cost. that is necessarily caused by an unreasonable suspension. if provided by the contract. 4. unless provided under any other term or condition of the contract. If the performance of all or any part of the work under a construction or architect-engineer contract is suspended.CHAPTER 4 the extent of damage the Government will incur if the problem is not resolved. and Quality. Identify Need to Suspend Work FAR 42. not only as that interest relates to one contract. excluding profit. Quantity. Some of the questions you need to ask are: How serious is the problem? How long will it take to correct the problem? Which is more costly to the Government—paying additional mon-ey for suspending or stopping the work until the problem is fixed or paying money for the work to be corrected later? A contract administrator is responsible for making decisions that are in the Government’s best interest. or interruption of the work. If the suspension is unreasonable. delay. Conditions for Claims Under Suspended Work FAR 52. an adjustment is to be made for any increase in cost. but as it relates to the Government’s overall well-being. or interrupted by an act of the contracting officer. delayed. No adjustment is to be made for any other cause. or a failure to act within the time specified in the contract (or within a reasonable time if not specified). Factors that must be considered include: Delivery. excluding profit.

the contractor must comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to work covered by the order during the period of work stoppage. production or engineering breakthroughs. Stop-Work Order—Facilities. Generally. Conditions for Issuing Stop-Work Orders FAR 42.1303(a) and (b) 4-12 . at any time requiring the contractor to stop all or any part of the work called for by the contract for a period of 90 days (this may reduced to a lesser time in the contract) and for any further period agreed to by the parties.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION More specifically: Any adjustment to the contract must be in writing. if one can be specified. or realignment of programs. and a stop-work order must not be used in place of a termination notice after a decision to terminate has been made. Issuance of a stop-work order must be approved at a level higher than the contracting officer. research and development. the contracting officer may issue a stop-work order if stoppage is required for reasons such as advancement in the state of the art. (Stop-work orders for facilities contracts are treated under the clause at FAR 52.242-16. (A lesser time period. must be asserted in writing as soon as practicable after the termination of the suspension.1303 Under any negotiated fixed-price or cost-reimbursement type of supply. or service contract.) On receipt of an order.) The contracting officer may issue a stop-work order.242-15 The following general sequence of events must occur in a non-facilities acquisition stop-work order action. in an amount stated. a stop-work order is issued only if it is advisable to suspend work pending a decision by the Government and a supplemental agreement providing for the suspension is not feasible. or interruption. Identify Need to Stop Work FAR 42. if provided by the contract. Sequence of Events on Issuance FAR 52. A claim. A claim is not allowed for any costs incurred more than 20 days before the contractor notified the contracting officer in writing of the act or failure to act (except this condition does not apply to a claim resulting from a suspension order). in writing. but not later than the date of final payment under the contract. will enable to contractor to hold down costs associated with any work stoppage. delay.

but the contracting officer may deal with a claim submitted any time before final payment under the contract. the contracting officer must allow. Promptly after issuing a stop-work order. reasonable costs resulting from the order. the contracting officer must take appropriate action to do one of the following. by equitable adjustment or otherwise. If a stop-work order is not canceled and the work covered by the order is terminated for default. as detailed above: Terminate the contract. modify the order in light of the discussion. Instructions concerning the contractor’s issuance of further orders for materials or services. Guidance to the contractor on action to be taken on any subcontracts. if the order resulted in an increase of the time required to perform or in the cost properly allocable to performance of the contract.1303(c) A stop-work order should include the following: A description of the work to be suspended.1303(d) and (e) As soon as feasible after issuing a stop-work order. If a stop-work order is not canceled and the work covered by the order is terminated for convenience. and Other suggestions to the contractor for minimizing costs. price. After Issuing Stop-Work Order FAR 42. the contracting officer must either cancel a stop-work order or terminate the work covered by the order as provided in the contract’s termination clause(s). if appropriate. but before its expiration. Contents of Stop-Work Order FAR 42.CHAPTER 4 Within the 90-day (or other) period. and/or delivery. If a stop-work order is canceled or the period of the order expires. the contracting officer should discuss the order with the contractor and. The contractor must assert its right to an adjustment within 30 days after the end of a work stoppage. the contractor must resume work and is entitled to an equitable adjustment in cost. the contracting officer must allow reasonable costs resulting from the order in arriving at a termination settlement. 4-13 .

4-14 .PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Cancel the stop-work order (such a cancellation requires the same approvals as its issuance). or Extend the period of the stop-work order if necessary and if the contractor agrees (such an extension requires a supplemental agree-ment).

.500 a device.” “Can’t we modify the spec for those yet to be delivered and have the contractor provide some sort of retrofit kit for the ones already in hand?” Eric’s suggestion was a good one. we’re talking the better part of four million bucks.” “Okay. “A whole lot.” Eric’s mind was swirling with thoughts as Aimsley continued to talk. everyone was pleased. To date. And that means the ones being produced now are quite useless. We’ve already considered that alternative and concluded that the cost would be prohibitive. hoping that people could modify a complex piece of equipment to make it work. If he was to get her involved. along with retrofit kits. “So what’s the problem. cleared the screen. And even if it could. After three months of performance.CHAPTER 4 TO STOP OR NOT TO STOP? .000 devices have been delivered. I’m anxious to know what we can do about this in terms of our current contract. that’s out of the question. With that. “Tell you what I’ll do. the agency’s director of material management. and I’ll be back to you before the end of the day.. were on time and in compliance with the Gov-ernment’s specification. Eric had learned that Joanne was not one for aimless talk about anything. as the contract administrator recalled. THAT IS THE QUESTION Eric was in the middle of a secure phone call from Chuck Aimsley. we can’t do that. Eric. At almost $1. had set the stage for the requirement several months ago. Let me get with the contracting officer. discuss some alternatives. Far too many risks in that approach. Cbuck?” asked Eric. “that sounds responsible to me. we’d be distributing security devices. His list looked like this: 4-15 . he had to present alternatives that could be discussed with her. the phones clicked at both ends. “No. But what’s that got to do with Manufacturing Unlimited’s deal?” Aimsley responded very simply. As Aimsley carried on about this. Aimsley agreed with the contract administrator and said he would be at his desk all day. but Aimsley said. to be distributed worldwide. No. he interrupted. and its deliverables.” he mumbled to himself. Eric.” Eric said. Chuck. “what can we do?” He then proceeded to tap into his computer. if indeed it could be done at all.” And then he added. was bordering on a problem. “The impending regulations require the use of upgraded security devices. he reached the bottom line of his phone call. and started to list what he felt were the salient points he thought the contracting officer would want to deal with.” Reinforcing the need to define and set some course of action. because they fall short of lock-and-detection requirements under the new rules. The contractor had been performing well. Eric. and as we speak the contractor’s production line continues to roll. Aimsley than went into an extended explanation of national security requirements for the devices which. only about 8. “Okay. Finally.000 of the 25.000 security devices. the problem we have is that top-side is about to issue new regulations concerning security procedures that reflect what we’ve learned from terrorist activities over the past year. with few exceptions. Chuck was explaining to him that the agency’s firm-fixed-price contract with Manufacturing Unlimited for 25. “In a nutshell.

by when does it have to be taken. Practicalities in Considering Work Stoppage The necessity for a stop-work order can result from actions initiated by either Government or contractor personnel. and I need your help. go through all that. “I’ve got a hot one. he assured her that the situation was very real and required her time. She was too busy to get into some purely philosophical discussion. how long should it last and can we approximate its cost to the Government? ♦ Should we discuss the situation with the contractor before we decide on a contractual course of action or after we decide? ♦ Should we consider a termination for convenience. who says so. Can I see you?” She told him yes. Joanne. Government-furnished supplies or services will be delivered late. Government actions necessitating a stop-work order. but cautioned him to bring along his own thoughts about whatever the matter might involve. Quality assurance or inspection personnel notify the contracting office that the production line must be stopped for tool calibration. As Eric put down the phone.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION ♦ Is there a legitimate need for action? If so. These actions may be taken by the contracting office to reduce the Government’s liability when. or 4-16 . and who must approve it? ♦ Would it be appropriate to issue a stop-work order to Manufacturing Un-limited’s contract pending a decision about what should be done? Why would we want to issue such an order? ♦ If a stop-work order is appropriate. Termination for default is being considered (provided that the stop-work order is not used in lieu of termination). Eric called the contracting officer. and then recompete the requirement based on a modified specification? ♦ We can’t fool around with this one. What course of action will assure a reasonably quick resolution of the problem for all parties? After completing his list. for instance: The correction of defective specifications is necessary.

Factors that determine such an impact are Factors That Determine Stop-Work Order Impact ♦ Estimated cost for delaying the work. ♦ Any adverse effects the delay may have on contract completion.). ♦ Potential damage to perishable goods. ♦ Estimated effect on overhead (inventory. ♦ Potential effect on labor (loss of skilled labor. loss of efficiency. indirect labor. etc. but one that appears to offer a production or engineering breakthrough that would be in the Government’s interest to pursue. Contractor actions may necessitate a stop-work order and represent the Government’s best interest. Determine Impact of Work Stoppage Work stoppages should only occur after the Government has made a determination of their impact. shown in Exhibit 4-3. For instance: Contractor submission of a value engineering proposal that will take the Government time to evaluate. Exhibit 4-3 4-17 .CHAPTER 4 The requiring activity notifies the contracting office that it needs time to initiate changes that would substantially change the end product or service. etc. Contractor actions necessitating a stop-work order.). or Contractor notification to the contracting office of conditions at a Government work site that make the performance of work unsafe and are not immediately correctable.

This may override any other consideration. Analyze the estimated cost for work stoppage versus the cost liability of the Government if the work continues. as shown in Exhibit 4-4. ♦ A supplemental agreement between the parties covering the suspension is not feasible. An example would be when the Occupational Safety and Health Administration (OSHA) orders the closing of a Government job site. Prerequisites for Issuance of a Stop-Work Order Do not issue a stop-work order unilaterally unless all of the following prerequisites are met: ♦ There is a clause in the contract that allows the Government to issue a unilateral order to stop work. In some cases. Remember: You may not issue a stop work order unless certain prerequisites exist. Other alternatives. but often there are. ♦ It is advisable to suspend work pending a decision by the Government. For instance: The origin of or purpose for stopping the work. a termination for convenience may be a practical alternative. A cost assessment. There may not be other alternatives.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Decide Whether to Stop Work A decision must be made based on an estimation of the risks and benefits involved in letting work continue versus those involved in its discontinuance. Exhibit 4-4 4-18 . This risk/benefit analysis should involve several considerations. ♦ The issuance of the stop-work order is approved at a level higher than the contracting officer. Document Decision to Stop Work In documenting the risk/benefit analysis for stopping work. include documentation as to why a supplemental agreement is not possible between the parties.

such as life-threatening safety violations. Include all of the content requirements listed in Exhibit 4-5 in a written order. Oral orders should cover as many of these minimum content requirements as is practicable. Immediately follow up oral orders and confirm them with written ones.CHAPTER 4 Issuing Order Contracting officers can issue stop-work orders orally or in writing. and a time frame for work stoppage needs to be conveyed. Highly urgent reasons. The decision to issue an oral order should be based on minimizing the Government’s cost liability. Contracting officers should only issue oral orders when the situation precludes waiting for the issuance of a written one. Oral Orders Written Orders 4-19 . may make oral orders necessary. ACOs can only recommend to the contracting officer the issuance of a stop-work order when a CAO is monitoring the work.

keep the contractor informed of other alternatives the Government may be considering. In situations like this. ♦ Instructions concerning the contractor’s issuance of further orders for materials or services.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Minimum Content Requirements for a Stop-Work Order ♦ The effective date and time. ♦ Other suggestions to the contractor for minimizing costs. You need to establish when 4-20 Contractor Written Acknowledgment . The contractor employee who received the oral order. personal conference. ♦ A description of the work to be suspended. the written order should reference the oral order by identifying: The date and time of the oral order. E-mail. ♦ When a written order confirms an oral one. ♦ Guidance to the contractor concerning subcontractors. or whatever). ♦ Nature of or reason for work stoppage. there may not be a resumption of work at all. Who conveyed the order for the Government. you documentation is incomplete as to when the stop-work order actually became effective. Exhibit 4-5 Work Stoppage Uncertainties If a contract is stopped because of realignment of program priorities within an agency due to budget cuts. Without this acknowledgment. This will allow the contractor to make better business decisions concerning its other commercial and Government work. The method of transmission (for example—telephone. and The location where the oral order was presented in person. if applicable. However a stop-work order is conveyed. make sure you obtain the signature of a contractor’s employee acknowledging its receipt. facsimile.

include in your discussion the topics shown in Exhibit 4-6. In the interest of minimizing disruption and promoting better planning for both parties. ♦ Discuss any alternative actions to continuing the stop-work order. Exhibit 4-6 Determine Need to Terminate Once a contractor has stopped work. ♦ Discuss the type of costs that the Government can agree to cover and those for which it is unable to provide compensation. an efficient termination should be made and the contractor informed promptly. Topics for Stop-Work Order Discussions With Contractors ♦ Fully discuss the reasons for issuing the stop-work order. Ask the contractor for suggestions. ♦ Explain the factors considered when reaching any specified time frame and the degree to which it is certain or subject to revision. ♦ Investigate the contractor’s willingness to extend the stop-work order bilaterally beyond a 90-day interval in the event that becomes necessary. your goal should be to keep the lines of communication open. At a minimum. ♦ Explore the appropriateness and impact of possible time frames for work stoppage. ♦ Obtain an estimate of labor and other costs associated with the expected work stoppage. 4-21 . Any decision to terminate should be made within the period of the stop-work order. Government-Contractor Discussion of Order Inform the contractor of all the circumstances and considerations that led up to the issuance of a stop-work order. Since reasonable costs resulting from the stop-work order must be allowed in arriving at any settlement. a decision may eventually be made never to resume it. a termination action is proper.CHAPTER 4 the Government is released from the responsibility for payment of any costs incurred for contract work as a result of the stoppage. In this case.

advising the contractor when to resume work. because requiring organizations can greatly influence the cancellation of the order. Consider including the offices most affected by the decision. I’LL HANDLE THE JOB Karla Thurston was frustrated. contact the contractor orally first. the contractor will again be free to resume work and the Government will be liable for all costs it incurs in contract performance.” 4-22 . Cancel the Order YOU HANDLE THE PAPERWORK . I realize that engaging in site-characterization activities is not like producing baskets. At a minimum.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Maintain Daily Contacts Daily communication may seem excessive. but it serves as a reminder that stop-work situations are highly undesirable and should be discontinued as quickly as possible. Delays attributable to site characterization were beginning to have an effect on remedial action schedules for cleaning up the location. Karla’s frustration had surfaced numerous times in progress meetings with the contractor. time and time again. it read as follows: “We are losing time and public support for the overall remediation effort. at the location being remdiated by Geo-Ecology. In part. virtually everyday. but we must get from remedial design to remedial action as originally scheduled or our agency’s customer will be reluctant to provide funding for future remediation work. She finally decided to confront the contractor’s project director. and sent him an E-mail that expressed her point of view. Contractors are not required to resume work until a written notice has been received. Brent. . The contractor will resume work on the expiration (or any extension) date of the stop-work order unless you cancel the order or the contract is terminated. Brent Harrison. As the COTR for an agency’s large environmental re-mediation project.. that any delivery slippages were manifestations of unanticipated difficulties in the work. You must follow up with written confirmation. the contractor had been consistently late in delivering in-vestigatory reports and the results of soil sample tests. If you have determined to cancel the order. contact the parties responsible for the stoppage. Having undertaken much site-characterization activity. she was on-site. Inc. . and that’s unacceptable. We must move more rapidly and give greater attention to timely delivery. under an indefinite-quantity contract that permitted the issuance of firm-fixed-price and time-and-materials task orders. If you take no official action when the stop-work order expires. She had been persuaded. None of us wants that to occur.

249-8 and -9 4-23 .CHAPTER 4 Brent got the message.” Obtain and Verify Evidence of Delay Problems that involve delays are serious. In part. and within 48 hours thereafter.4 Performance Delays FAR 52. 4. and was told to do whatever was necessary—within reason—to satisfy the customer. reiterated the continuing difficulties associated with the work. One of the goals of Government contracting is to acquire what is needed when it is needed. it conveyed the following: “You’ve made us aware of the necessity for increased action on our part to meet your customer’s requirement. Risks associated with performance delays (events that slow the perfor-mance of work) covered by appropriate clauses in Government contracts have been traditionally allocated as follows: The contractor bears both schedule and cost responsibility for a delay that it causes or that is within its control. With marching orders in hand. includes a completion time frame or delivery date.” On its receipt. therefore. I would like to speak with you at our next meeting about how to accommodate the impact of these changes within our contract and its task orders. In obtaining and verifying evidence of a delay. remember that there are basically two types of performance criteria—those for end products (including finished services) and those for levels of effort. I’ll keep you posted. Geo-Ecology’s project director informed his own team that a new day was at hand. he responded to Karla’s E-mail with one of his own. she attached her earlier E-mail message to Harrison and scribbled a note across the top of it: “Action delayed is action denied. talked to his company’s Director of Environmental Services. Karla made two copies of Brent’s E-mail. placing one in her own contract file and sending one to the agency’s cognizant contract administrator. Every contract. we have rectified unintended schedule slippages over the past few months and fully intend to apply whatever resources are necessary to meet future schedules. He was also advised to identify any additional costs that had been generated by the Government’s insistence on improved delivery. As you know. as well as those attributable to any efforts associated with what the Government had labeled as performance delays in reporting. Karla. This contractor now understands what the name of the game is. To the latter’s copy.

FAR 52. even if the objective was not met during the life of the contract. Importance of Type of Performance Determining which type of performance criteria is contained in a contract is a key to verifying evidence of a delay.242-17 FAR 52. Some contracts call for a measurable amount of work. or for one that it has agreed to compensate the contractor. the contractor’s obligation is to apply a stated level of effort toward a specified objective or kind of work during a specified period. the contractor is not obligated to provide additional effort. A delay attributable to failure to perform by a subcontractor that is beyond the control and without the fault or negligence of both its prime contractor and itself is not deemed to be the basis for default. Supported by this information. In these contracts. In other contracts. This type of performance requirement states a specific time for delivery or completion. but the contractor bears the risk of increased cost resulting from the delay. unless: The subcontracted supplies or services were obtainable from other sources.249-14(b) End Products Versus Levels of Effort End Products. Levels of effort.242-14 FAR 52. When that date has passed. you can more intelligently and usefully apply the necessary efforts to assure timely completion of work or resolve any delay problems. the contractor is entitled to an extension of the delivery schedule proportionate to the excusable delay. such as preparation of training course materials to be delivered in camera-ready form or for the manufacture of a product as required by specifications. for one under its control. A delay occurs when: The delivery period has passed and what should have been done was not done. The program planning background surrounding the delivery date helps to determine how important the date is. or Causes of Delay 4-24 . The Government is responsible for both the schedule and cost effects of a delay that it causes. The contracting officer ordered the prime contractor in writing to acquire the supplies or services from another source.249-14 For a delay not caused by the contractor or for one beyond its control.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION FAR 52. their expiration date marks the end of the contractor’s obligation. and The contractor failed to comply reasonably with this order.

Determine the cause and who is responsible. A contractor is usually quick to provide notice when a delay is not its fault. Determine if the delay will impact delivery or completion. When a delay is the contractor’s fault. or both. and Select an appropriate action to resolve the problem. you may not discover this until the date for completion has arrived. because it may be entitled to an extension of time. Inability to proceed with the mission or program. Check with all parties to: Identify the existence of an actual or anticipated delay. Importance of Taking Action Failure to meet the scheduled delivery or completion date usually originates with a problem that occurred much earlier in the course of performing contract work. Reshuffling of a program’s effort. Determine Basis and Impact of Delays Careful planning will not avoid all delays. 4-25 . or Public embarrassment for the agency. Disruption of personnel. Decreased efficiency. Take action as soon as you identify a potential delay. Delay in meeting the delivery schedule could endanger an entire Government program or mission and may result in: Increased cost. Determine the duration of the delay. additional money in the case of a compensable delay. including those caused by the contractor. Careful monitoring of a contract helps identify any actual or anticipated delays. Verify any evidence of a performance delay that results from your monitoring methods or from a contractor’s notification.CHAPTER 4 There is an anticipated delay in delivery or performance and the contractor has advised that it will not perform the contract when the time for performance arrives.

Commingled or concurrent delays. It is. Excusable delays. Other than excusable delays.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Identify Type of Delay The type of delay mirrors who is responsible.249-14 There are three basic classifications of performance delays: excusable. Both the Government and the contractor. therefore. and quarantine restrictions. and Unusually severe weather. The contractor. Delays invariably cause damage. These are delays that the Government has not authorized and for which a contractor is responsible. epidemics.505(d) FAR 52. The contractor is responsible for meeting a contract’s requirements when it cannot justify a delay as being beyond its control. or Neither party. responsible for all costs incurred in making up for the “lost time” associated with other than an excusable delay. Fires. ones that are neither excusable nor other than 4-26 . These delays are beyond the control and without the fault or negligence of a contractor or its subcontractors at any tier. either in the form of lost revenue or in the form of extra cost to the Government or the contractor. Strikes and freight embargoes.249-8 and -9 FAR 52. Delays of common carriers (for commercial items). The basic Termination for Default clause and the Excusable Delays clause indicate that a contractor will not be held liable if its failure to perform a contract arises from such delays. Three Classifications of Performance Delays FAR 49. Act of the Government in either its sovereign or contractual capacity. other than excusable. Examples of these delays include: Acts of God or of the public enemy. and commingled and concurrent. floods. For instance: The Government. There are delays that fall in a middle ground.

can then be placed against the definable party (or parties) and the contract modified to reflect this. In this case. It cannot be excused. then the additional 25-day delay may be considered unreasonable. A commingled delay occurs when both parties are at fault for one or more events contributing to that delay. Using other available Government procedures. or other arbitration medium to settle the dispute. For example. with an adjustment being granted for that portion considered to be reasonable. the contractor would probably be entitled to any costs resulting from the 25-day delay. (This clause is optional for contemplated fixed-price types of arrangements for supplies or services that are commercial or modified-commercial. as when a Changes clause may apply). 4-27 Liabilities for Otherwise Excusable Delays . as the Government or a subcontractor for its actions. including their cost or schedule consequences. A concurrent delay occurs when two or more delays happen at the same time. if performance was suspended for 30 days while the Government made a decision and a period of five days is recognized as a reasonable time within which to make that decision. say. if the contractor (or subcontractor) could have acted to end the strike by: Filing an injunctive relief with the appropriate Government labor relations board. or Using a private board. Government Delay of Work. Reasonableness of Delay A total delay adjustment can be divided into its reasonable and unreasonable portions. These kinds of delays can be difficult to resolve. A contractor may be held liable for a delay that is otherwise excusable if the delay was within the contractor’s (or subcontractor’s) control. a strike-caused delay is normally excusable. Appropriate deductions of time for the delay. but the effort must be taken to determine their causes and results. organization. It is not applicable if a contract otherwise provides for an equitable adjustment because of delay or interruption. however.CHAPTER 4 excusable. For example. it may be that the contractor can be assessed for the amount of a delay attributable to its actions as well. Government Performance Delays Government procurements contemplating fixed-price types of arrangements for supplies other than commercial or modified commercial items must contain the clause at FAR 52.242-17. When such causes and results can be segregated and measured separately.

Making a change to the contract. Not furnishing timely Government property. such as: Directing a contractor to stop work. delay. Bases for Government Delays Examples of actions that cause Government delays or interruptions include instances when authorized Government officials act or fail to act. The Government Delay of Work clause does not authorize a contracting officer to order (or justify) a suspension. of the contracting officer. 4-28 .1304 FAR 52. Not issuing timely changes or responding to contractor requests. or failures to act. Performing other acts within the Government’s sovereign capacity. then the contracting officer must act to end the delay or take appropriate action as soon as practicable. or interruption of performance. it provides for the administrative settlement of contractor claims that arise from delays and interruptions in performance caused by acts. Not obtaining process approvals or funding. Checklist for Identifying Delays Use Exhibit 4-7 as a quick reference to help you identify the type of delay that occurred or may occur. and Not inspecting or accepting when required.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION FAR 42.242-17 When the Government delays work. If a contracting officer has notice of an unordered delay or interruption covered by the Government Delay of Work clause.

Delay in granting approvals. Scarcity of supplies due to Defense Production Act priorities over commercial or nonrated orders. Delay caused by protesting the award of the contract by an interested party. did the contractor: File a charge with the appropriate labor relations board to seek injunctive relief in court. you must make sure that the contractor had no control over the circumstances that caused the delay. Delay in issuing a required notice to proceed. Failure to reply to a contractor’s request for clarification. Yes ♦ If the delay was caused by a labor strike. But before you make a final decision. Failure to disclose all facts applicable to performance.CHAPTER 4 Is This Delay Excusable? Note: If you can answer “yes” to any of these questions. Exhibit 4-7 (continued on next page) N/A No 4-29 . or Use other available Government procedures or private boards or organizations in an attempt to settle or arbitrate disputes that caused the strike? ♦ Was the delay caused by Government interference or disruption? Examples of Government interference or disruption include: Delay in making payments that are rightfully due. Delay in performance by other Government contractors. Delay in issuing changes. Delay in providing funding. Site conditions that are different than portrayed. Late delivery of Government-furnished property. Delay in inspection or acceptance. Delay in making the site available. Delay due to defective or ambiguous specifications. the delay was probably excusable.

♦ Was the delay caused by other circumstances not previously mentioned that were: Not caused by the contractor. is the delay excusable to the subcontractor(s) at each tier? You would answer “No” to this question if: The delay was caused by a dispute between the subcontractor and the prime. ♦ Was the delay caused by any other occurrences specifically mentioned in the Default or Excusable Delays clauses (or other clauses) as being generally excusable? For example. and Over which the contractor had no control? Exhibit 4-7 (continued) N/A No 4-30 . these include: Acts of God or of the public enemy. Acts of the Government in either its sovereign or contractual capacity. Quarantine restrictions. Fires. Freight embargoes. Floods. Strikes.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Is This Delay Excusable? Yes ♦ If the delay was caused by a subcontractor. Delays of common carriers. or The subcontracted products or services were available from other sources in time for the prime to complete performance. Unusually severe weather. Epidemics.

” Prepare Finding of Facts After addressing excusability issues. but the message shouldn’t. Whatever you’re saying. Why didn’t you give me a call about all this before you committed your thoughts to writing and shared them with the contractor?” “C’mon. my guess is that we’ll be faced with contractor claims—documented with dates.” There was a silence at the other end of the phone followed by a simple question. I got your E-mail package. Karla. this is Courtney Burnside in contracts. the metaphor might elude you. And when it goes off. She read the E-mail messages and cover note and took a deep breath while shaking her head in disbelief.CHAPTER 4 UNWINDING A TANGLED SKEIN Karla Thurston’s E-mail package arrived at Courtney Burnside’s desk two days after it had been sent. And what for? Well. Tell me when to be there and what to bring. who an-swered on the first ring. “You’re metaphor eludes me. Courtney. and I think what you’ve done puts us at great risk. I think both you and the contractor’s project director may have put a noose around your necks. and all of it will be sent to us in a package labeled ‘Excusable Delay Claims Under Contract Umpty-ump. I advise you to get over here early tomorrow morning. given everything that’s happened. “I’ve just cleared my calendar for tomorrow. or buts.’ Oh yes. technical direction way beyond what it should have been. places. I’ve got to face my contracting officer. Include: A list of the persons with factual knowledge of the delay. and I think we’ve made our case without a lot of ifs. 4-31 . “Karla. and names—that will add up to a mighty amount.” “You bet. Courtney.” Courtney shot back. and it will be the customer and the contractor who will feel the pain. and. Brent Harrison knows what’s at stake. In doing so. Courtney was the agency’s contract administrator for Geo-Ecology’s contract. Courtney. “the remediation job is moving along at a snail’s pace. And then. and I’m being pressured by my management and the customer’s agency to have the contractor get off its backside and on with the job. “I’m telling you that what’s happened is a ticking time bomb. Okay.” said the contract administrator.” interrupted Karla. for starters. Believe me. “but you and I must meet over the next day to take stock of what you may not realize is in the mill.” Karla responded abruptly.” “Pretty heady stuff. think on these: performance delays attributable to Government actions. present clear and concise evidence for your conclusions. She was immediately on the phone to Thurston. Courtney. your next step is to document the Government’s position in a finding of facts. I’m not looking forward to that. put in plain English.

Reasons for both excusable and/or other than excusable parts of the delay. A history of contract performance. and The contractor’s expectations regarding contract completion. and Demonstrate that the delay was void of any commingled or concurrent delays. and If so. The event was unforeseeable. The contractor’s remaining obligations under the contract. indicating when work began under the contract. Develop Government’s Position Developing the Government’s position on a delay basically deals with: Deciding if the delay was excusable. Substantiate the costs associated with the delay. Progress made to date. then calculating the amount of any time and cost adjustments. The overall progress of the work was delayed by the event which caused the delay. Contractor Burden of Proof A delay is excusable when the contractor can prove: An event that caused a delay has occurred and the event was not the contractor’s fault. Demonstrate that the delay was reasonable. and 4-32 . The event was the type for which an excusable delay can be grant-ed. Include this finding of facts in the official contract file for any future reconstruction of events. you can require the contractor to: Substantiate the evidence of the delay. Unless it is obvious.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Relevant statements or evidence.

Identifying and analyzing any potential alternatives to a revised delivery schedule. Always consult this activity before preparing the Government’s position. 4-33 . While the requisitioner needs the requirement. Before meeting with the requiring activity. you also need to investigate if any portion of the contractor’s continuing performance has a potential negative impact on the requiring activity. Consult Requiring Activity If you have determined that a delay is excusable. The delivery or performance reflects an exact date or time that the requisitioner depends on for the satisfaction of a mission or program. Additional Performance Time As stated in the contract. This information will enable you to temper any unrealistic reactions of a requisitioner.CHAPTER 4 The requested additional time is appropriate to compensate for lost time. timeliness is not critical to its mission. This can assist you in: Estimating a reasonable additional time for performance. review the contract clauses that pertain to delay and any background information used to select those clauses. but would only cause inconvenience if the delivery date were missed. The completion date cited in the contract is based on a bona fide need of the requisitioner. The acquisition plan. the delivery requirement is probably based on a delivery that reflects one of the following: A Market Standard. you will become aware of current needs as well. However. purchase request. The contractor’s expectations for the impact of a delay on final delivery or performance may be minimal or nonexistent. you can make a better choice among possible alternatives to resolve any problems caused by a delay. and any determinations and findings are good sources of background information. What was not critical in the past may be critical now. consider what impact the delay will have on the requiring activity. Critical Need. the delivery requirement would become critical. By consulting with the requisitioner. A delay would seriously jeopardize this. After you establish the impact and current criticality of the requirement. and Establishing any recoverable damages due the contractor. at some point. Semi-Critical Need. However. The delivery or performance reflects standard market or industry practices.

If an analysis of a contractor’s progress at the time of acceleration shows that.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Extending Time Allowing a time extension commensurate with the delay is the appropriate action when the delay is excusable. or Pressures the contractor to complete a schedule. It should be able to explain how it could have met the schedule had it not been accelerated. These alternatives would probably result in a change to the contract. Remember: There is no acceleration unless an action or inaction causes the contractor to perform work at a faster rate. Change the place for inspection. Adjust Schedule for Acceleration A contractor has the burden of proving the need or validity of a proper time extension. This can serve as the benchmark for measuring an adjustment for a delay. Accelerated Delivery Accelerated delivery can occur when an authorized Government official does any one of the following: Makes a request to accelerate delivery. For example. when flood conditions force a plant to close for five days. You may allow a time extension only when the requisitioner has determined the requirement is not critical. then the time it 4-34 . Delete a low priority task. Allow a material substitution. Fails to grant a time extension when one should have been granted. Threatens to terminate for default. you must explore other alternatives. at the time. the contractor was behind schedule. It is very important. Examples include: Use a different method of shipment. When the requirement is critically needed. plus any additional time it actually took to clean up the plant for continued operation. or Accelerate performance. to determine if the contractor was on or ahead of schedule when acceleration began. the completion date can be extended for the same number of days. Allow other specification changes. therefore.

Impact of Accelerating Performance Acceleration of contract performance includes adhering to the original delivery date when the contractor is entitled to an extension of time for a delay. Not recognizing these delays by granting an extension of time may result in such action or inaction being treated as a “con-structive change” by the contractor.CHAPTER 4 lagged behind schedule can be deducted from the adjustment the contractor might otherwise be due for the acceleration. Importance of Prompt Resolution It is important to resolve delay issues promptly after determining that a delay is excusable. the contracting officer must make an equitable adjustment in the contract’s price (or estimated cost and any fee). whether changed or not by a change order. Typically. then the contractor has the burden of proof to show that: An excusable delay occurred. If the Government accelerates contract performance. or both. the Government is liable to a contractor for the effect of accelerating performance on both time and costs. As with other changes it initiates. The contracting officer (or authorized representative) had knowledge of the delay. or the time required for. the contractor’s right to an equitable adjustment is derived from a contract’s Changes clause. Acceleration can occur from both action and inaction in dealing with delay issues. By not granting a timely extension. When a contract modification is not issued in recognition of a delay’s excusability and the contractor makes a claim for cost and/or time based on acceleration. In these circumstances. 4-35 . Add additional shifts. and must modify the contract accordingly. the contractor may have to do one or more of the following to meet the prescribed delivery date: Hire more employees. or Purchase more expensive products from other sources. this clause sets forth that: If any change causes an increase or decrease in the cost of. the effect may “change” the contract by shortening the time allowed for delivery under its terms and conditions. Pay overtime. performance of any part of the work under the contract. delivery schedule.

e. and those that may have been incurred through the contractor’s mismanagement. use standard principles of cost and price analysis to arrive at the Government’s position concerning delay costs. The contractor is not expected to know exact costs for delays that it was not anticipating and over which it had no control. Proof of Entitlement to Claim The contractor’s burden of proof is twofold: It must present evidence that it had no control over the situation that caused the delay and increased its costs or that the Government was directly responsible for the delay. It must be able to show that the costs it is claiming resulting from a delay are reasonable. There are two dangers in this: Total actual costs can include both costs properly attributable to the delay. you may not process payment for them. a buy-in situation). The contractor can use subjective measures to estimate its costs when presenting requests for additional money. 4-36 . The contractor actually accelerated performance.. Total Cost Cautions Be wary of an approach that presents actual cost compared with originally expected cost. But it must present a logical basis for the costs it is claiming so that you can conclude they show a reasonable estimate of actual damages.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Action by the Government indicates that delivery was accelerated. Incurred Costs The Government may be required to pay for any additional costs to the contractor when it was a party to a delay or other change. and The contractor notified the Government of the existence of an excusable delay and a time extension was not granted. If it is unable to prove its entitlement to the costs it claims. recognize that your job in developing the Government’s position for delay costs is often more difficult if actual cost data are not available and costs are difficult to prove. As a general rule. The contractor incurred additional costs as a direct result of the acceleration. Total originally expected cost can be based on what at the time was an unrealistically low offer (i. However.

Protection or storage of materials. If the contractor extended these coverages for the period of the delay and would not have otherwise done so. inefficient manner instead of one given to an originally scheduled sequence of work. Examples are rehandling and transportation charges that would not have been necessary if the work had proceeded without delay or interruption.CHAPTER 4 Major Recoverable Costs From Excusable Delays To the extent the contractor can document them. Other Recoverable Costs Insurance and bond coverage. it should provide you with a notice from the bonding or insurance companies for the amount of any increased premium resulting from the extension. or by examining payroll records in an audit. To be allowable. costs reflecting these conditions could not have had an effect on perfor-mance were it not for the change in performance due to the delay. verifiable expenses that are generally recoverable include: Idle time of facilities or equipment. Idleness of rental equipment is not normally an allowable expense since the equipment can be returned to the rental agency. However. These must be actual additional costs. and that it also had an actual effect on the contractor’s performance. This is the most difficult expense to document. that is in a poorly organized. Increase in material prices. by interviewing contractor personnel. Unusually severe weather conditions. You can verify conditions of unusually adverse weather by U. these costs may be allowed.S. Loss of efficiency. You can normally verify these costs by consulting local labor union officials. The contractor bears the burden of documenting that the weather was unusually severe. When the contractor has been forced to work out of sequence. Compare these with those of the original performance period to verify the degree or extent of unusual weather conditions that could have contributed to delays. but it is also one of the most common costs of delay and disruption. Weather Service reports for the affected period. if the contractor can show that it is less expensive to continue renting. learning curve efficiencies will be lost. Increase in wages. 4-37 . The contractor should support these increases with supplier invoices or letters substantiating them.

sought other work to offset this overhead cost and spread it out across other jobs. Unabsorbed overhead. can include both direct labor personnel underutilized because of the delay and general office overhead expenses directly attributable to or chargeable against the contract. ♦ The contractor must be agreeable to an audit of its books and records in order to verify the unabsorbed overhead amount. there will be additional costs for restarting the production line. Unabsorbed overhead. ♦ The contractor’s overhead must be unabsorbed or increased over what it would have been during a normal period that did not include a delay. Demobilizing and mobilizing the work force. When the contractor laid off personnel during the delay. Exhibit 4-8 4-38 . Interest. before you determine that these expenses are appropriate. there will be administrative rehiring costs. that is. when it applies. If a production run was interrupted. Note that you do not necessarily have to conduct an actual audit. make sure that the Prerequisites for Payment of Unabsorbed Overhead ♦ The contractor must prove that it attempted to mitigate the damages for the delay. However. If the delay was long and the contractor is unable to rehire part of the original work force.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION Additional make-ready costs. prerequisites shown in Exhibit 4-8 are met. You need only obtain the contractor’s agreement to one. Interest on funds necessary to finance the extended performance time caused by the delay is recoverable. recruitment advertising and employment fees to recruitment agencies may be included within these costs.

The notification to the contractor should include: The Government’s determination on the nature of the delay. Acceptable reasons for believing the delay is excusable and a determination concerning any other than excusable part of the delay. Document any informal agreement on corrective steps to be taken to bring performance back into compliance through: Either a memorandum of concern requesting a written plan from the contractor for correcting performance. A response time. including: A statement of the problem. and The contractor’s position regarding the delay.5 Resolve Contractor Performance Problems You should assist the contractor in identifying and solving performance problems that would not be considered excusable. The Government’s position reached as a result of this analysis. and The contractor’s appeal rights. A revised delivery schedule. prepare a written decision of your intended action. including all the supporting facts and documentation for it.6 Document Final Decision 4-39 . 4. Recoverable damages (if any). Or a formal contract modification. and A place for the contractor to provide acknowledgment by signature of its receipt. 4. The earlier problems are identified the simpler the solution.CHAPTER 4 Discuss Government Position With Contractor Discuss your findings with the contractor. Suggested corrective steps. Prepare Final Decision When discussions are concluded. You should attempt to reach informal resolution with all parties prior to invoking a formal contractual remedy. These discussions should include: The Government’s analysis of the evidence concerning the background and reasons for the delay.

other interested parties should be informed of the final decision. you will need to invoke a formal contractual remedy. As appropriate.7 Invoke Formal Remedy If the contractor is unwilling or unable to resolve its performance problem.) Advise the requiring activity of the final decision. You may need this activity’s support if the contractor decides to appeal the final decision.PROBLEM RESOLUTION IN CONTRACT ADMINISTRATION 4. This activity will need to be prepared to make adjustments on other program actions that may be affected by any schedule change. 4. (Remedies are discussed in Chapter 6.8 Inform Requiring Activity and Other Interested Parties 4-40 .

when she could. He had already been involved in a modification for the pallet procurement. She frequently said. “Wonder why this difference in application?” he thought to himself. In discussing his career development with Eric. administrators. two areas of more than passing interest for him. Eric had been sent a syllabus for the course he was to attend. Eric remembered that the contractor had agreed to a no-cost modification covering the submission of a weekly progress report on the wood preservation effort. the world of government procurement rarely bypassed the inclusion of a changes article in its contracts.CHAPTER 5 CONTRACT MODIFICATIONS AND OPTIONS ANOTHER CHALLENGING FRONTIER In requiring her staff to measure up to the agency’s expectations of them. That had been a fairly straightforward procedure. the possible ripple effect their issuance could have on multiple areas of contractor performance. Whenever possible. In light of this. As he reflected on the modification to Platform’s indefinite-delivery indefinite-quantity contract (ID/IQ).” Eric was scheduled for a course in postaward contact management that emphasized the planning and execution of modifications and options. the idea of including a changes article in buyer-seller agreements. In today’s environment. as well as keep him current with new developments in the field of acquisition management. and the fairly substantial work that had to go into exercising options. and with the contractor’s agreement to it. the contract administrator had executed a change using a Standard Form (SF) 30. and others by seizing the opportunity to complete both mandatory and. but that’s not the name of the game. a bilateral modification was effected. or so it seemed. and assuming that Platform Industries performed successfully. he was struck with ambivalence over the dramatically different approaches of the public and private sectors to dealing with contract modifications. On the one hand. “You can hide behind a million rules that nobody else knows. She had always set the stand-ard for her contract specialists. 5-1 . you’ve got to concentrate on developing a wide range of skills that permit you to be a business manager. she participated as an instructor. and after reviewing it somewhat carefully he was taken aback by three things: the differing types of contract modifications. Joanne was known for her strong support of training programs for contracts personnel. optional courses that were offered in the field of procurement and related management. an extension of its performance could be realized via the Government’s exercise of a one-year option period. In thinking about all this. Joanne had encouraged him to develop and stay with a training plan that would reinforce his performance capabilities and skills. On the other. someone who can contribute to an acquisition team. the world of commercial contracting frowned on.

CONTRACT MODIFICATIONS AND OPTIONS The deal with Platform Industries included a Changes clause under FAR 52. Finding none. the in-scope versus out-of-scope dilemma and situations in which technical direction altering contractor performance was not considered to have the same effect as the issuance of a change order. But doing this for changes under a cost-reimbursement arrangement.212-4(c). he reached toward his computer to check for any recent E-mail correspondence.” That was far different than the unilateral right expressed in a Government contract whereby a contracting officer could issue changes within the general scope of a contract. And then there was the nomenclature associated with modifications: unilateral issuances leading to bilateral or supplemental agreements. had him confused. and I’ve got to expand my horizon to know more than rules. where an estimated cost. and the contractor had to undertake the change as issued. but that was short and sweet. “It’s like an endless trail. Indeed. he scarfed up three items from his “in basket” requiring attention. And then there was the business of pricing out changes for fixed-price types of contracts versus costing them out for cost-reimbursement types. he was left with a lingering thought about what Joanne had said concerning the development of a wide range of skills that would permit one to become a business manager. Putting aside the course syllabus. He thought he understood the business of working toward some net amount which either added or deleted dollars in the pricing out of fixed-price types of changes. As he tried to clear his focus for what had to be done. Platform’s contract would require the Government to consider exercising one. Eric had a practical interest in understanding options. “She’s right. equitable adjustments in either price. or delivery. He wondered how much time and effort would be required to justify an extension of work for Platform. There certainly wasn’t an immediate need for concern. and the use of modifications to reflect novation and change-of-name agreements. but he knew that unless he made time his friend it would surely become his enemy in the options arena. not a price. cost. He had much to learn. At some point in time.” he mumbled to himself. had been agreed to. the business of modifications and options is another challenging frontier for me!” 5-2 . All it said was “Changes in the terms and conditions of this contract may be made only by written agreement of the parties.

1. Determine whether a synopsis is required for an option.2. Consult requiring activities to determine the need for additional supplies or services covered by an option. Document a decision to reject a modification.1. Provide written notice to the contractor and exercise an option.3 5.10 5. Implement modifications for supplemental agreements. Determine whether to meet a requirement through a new procurement or a modification. Estimate the impact of a proposed change on price.5 5.7 5. Determine that a Government request for a modification is sufficient. Implement modifications for other administrative changes.2 5.CHAPTER 5 COURSE LEARNING OBJECTIVES At the end of this course.5 5. Determine the appropriate type of modification.2. cost. Implement modifications for novation agreements.1 5.1.12 5. Implement modifications for unilateral changes.6 Determine whether to consider modifications proposed by contractors. 5-3 .2. Identify available options. Determine whether any consideration is appropriate for a modification. Develop skill in modifying contracts through administrative modifications.1. Prepare a written determination for a contract file.6 5.2.4 5. you will be able to: Overall: Individual: 5. delivery.4 5.1.1. Implement modifications for name changes. change orders. and in exercising options.2. and performance.1. supplemental agreements.2 5.9 5.1.1 5.1.11 5.2.1.1. Determine whether to exercise an option.8 5.3 5.1.

Only contracting officers acting within the scope of their authority are empowered to execute contract modifications on behalf of the Government. acting in such a way as to encourage contractors to believe they have authority to bind the Government. In supply-type contracts. or directing or encouraging contractors to perform work that should be the subject of a contract modification.103 Definition of Option FAR 17. for a specified time. options may be appropriate when basic quantities are learning or testing quantities and com-petition for the options is impracticable once initial contracts have been awarded. others. options may be appropriate to ensure continuity of operations and the diminution of disrupted support if there are anticipated needs for similar services beyond initial performance periods. the Government may elect to purchase additional supplies or services called for by the contract. “Option” means a unilateral right in a contract by which.102(a) 5-4 . “Contract modification” means any written change in the terms of a contract. This may be necessary to incorporate revised performance requirements or to handle contingencies that develop during performance. In service-type contracts. or may elect to extend the term of the contract. however. Rationale for Options Definition of Contract Modification FAR 43. Options may be included in Government contracts when it is in the Government’s best interest.201 Policy on Contract Modifications FAR 43. Some of these modifications are made in accordance with a contract’s terms and conditions. Other Government personnel are prohibited from executing contract modifications. are neither anticipated nor were they expected to occur under the original business arrangement. A contract modification is either bilateral (agreed to by both the Government and the contractor) or unilateral (signed only by the contracting officer). specified terms and conditions may require modification.CONTRACT MODIFICATIONS AND OPTIONS INTRODUCTION TO CONTRACT MODIFICATIONS AND OPTIONS Rationale for Contract Modifications During the administration of a Government contract.

and the result will probably be an increase in price or estimated cost. (2) the requirement covered by the option fulfills an existing Government need. Unless both parties have agreed to some conditions for the issuance of changes under other contract clauses. adequate value will reflect the release of a contractor from some of its obligations. (3) the exercise of the option is the most advantageous method of fulfilling the need. In other instances. the net result of this is that changes for acquisitions made under FAR Part 12 cannot be made unilaterally by the Government. FAR 52. the authority to invoke one is always restricted to situations in which the Government receives adequate value in exchange for an agreement to modify a contract. a contracting officer must provide a written notice to the contractor within the time period specified in the contract. and (4) the option was synopsized in accordance with appropriate prescriptions. price or cost and other factors considered.212-4(c) Basic Tenet of Contract Modifications Policy on Options FAR 17. In some instances. adequate value will reflect a trade-off of factors resulting in no increase or decrease in price or estimated cost. and the result will probably be a reduction in price or estimated cost. the applicable Changes article requires that changes may be made only by the written agreement of the parties. For example: In some instances. are absent. An option may be exercised only after a determination that: (1) funds are available.102(b) All contract modifications are to be priced before their execution.207(c) 5-5 . The terms and conditions of traditional Government contracting Changes clauses that reserve the Government’s right to issue changes.207(a) Only contracting officers acting within the scope of their authority are empowered to exercise options on behalf of the Government. at least a maximum price or estimated cost must be negotiated unless impractical (and such impracticality should be rare). FAR 17. as in a no-cost contract modification. to whatever prescribed extent within the scope of a contract. For the acquisition of commercial items or services acquired under the policies and procedures of FAR Part 12. if this can be done without adversely affecting the Government’s interest. unless exempted therefrom. In doing so. Whatever the basis for a modification. adequate value will reflect new or additional contractor obligations.CHAPTER 5 FAR 43. In any event.

Following the flowchart. Common Misconception One frequently hears the terms “amendment” and “modification” used interchangeably. the contract modification or other written document that notifies a contractor must cite the contract’s option clause as authority. the Standard Form (SF) 30. each step is discussed in detail. “The Government amends its solicitation documents and modifies its contracts.” What is common to both is the form by which each is executed. The term “amendment” means the revision of or addition to a Government solicitation document. it is correct to say. Steps in Performance 5-6 .CONTRACT MODIFICATIONS AND OPTIONS When an option is exercised. Such usage is incorrect. The general steps in modifying contracts are charted on the next page. Similarly in the subsequent section. the steps in exercising an option and documenting it in a contract modification are charted and then discussed in detail. In brief. Amendment of Solicitation/Modification of Contract.

5-7 . 5. Name changes. Implement the selected type of modification. 3. 2. 8-12. Types of Modifications Supplemental agreements.CHAPTER 5 STEPS IN MODIFYING CONTRACTS 1-2. Determine whether to meet the requirement through a new procurement or a modification.” Yes 7. Determine the type of modification. Modify the contract No The contract remains “as is. 1. 3. Determine whether to modify the contract. Other administrative changes. Novation agreements. 4. Should a new procurement be initiated? Yes The contract remains “as is. Review a proposed modification for sufficiency.” No 4-6. Unilateral changes.

Required by the Contract • • An economic price adjustment. You must be satisfied the contractor has made its case for the change. A price redetermination. A contractor submitting a request for either a novation agreement or name change must submit. and Document Changes FAR 42. Contractors may attempt to make up for losses they would have incurred had there been no change. A Department of Labor (DOL) wage rate increase when services are continued by exercising an option. Contractor Motivations for Change A contractor is required to provide all necessary documentation when sub-mitting requests. at a minimum: Three signed copies of the proposed novation agreement. The contractor must provide sufficient documentation to support any request for a change in delivery and/or performance. • A constructive change. Name and address of the contracting office. • • Due to Action by the Contractor Its name is changed.1. Submission of a value engineering proposal. A list of all affected contracts and purchase orders remaining unsettled between the transferor and Government showing for each the: Contract number and type. They may also perceive an opportunity to increase profit margins.1 Modifications 5. Carefully evaluate every request for a modification. Consideration offered for other than an excusable delay. • A novation agreement.CONTRACT MODIFICATIONS AND OPTIONS 5.1 Consider Contractor Requests for Modifications A contractor may request a contract modification when the reason for the change was something: Beyond the Contractor’s Control • • An excusable delay. • • • A settlement for a termination for convenience. The documentation varies with the reason for the modification. Total dollar value as amended.1204 5-8 . There are no specific guidelines for documentation requirements except when a change affects the legal status of a company. A stop-work order.

or Acceptability of substitute materials. Value of proposed considerations other than price. and the administrative contracting officer may be in excellent position to assist the cognizant contracting officer in developing an evaluation plan. Consider their point of view carefully. Restructuring costs have to be audited. Your agency’s counsel must determine the adequacy of this additional documentation. You may want to ask the contractor to provide a briefing or further documentation to support its request for a change.CHAPTER 5 Remaining unpaid balance. The opinion of legal counsel for the transferor and transferee stating that the change was properly effected under applicable law and the effective date of transfer. Novation agreements require additional documentation to support the request for a modification. Acceptability of a value engineering proposal. where the proposed consolidated contractor can prove that there will be a reduction of overall costs. Requiring activities are the best source for determining the: Impact of any delivery delays on the requirement. the contractor is generally free to use any method or manner of performance to provide the end item or service. Restructuring Costs Under DoD-related Novation Agreements DFARS 242.1204(e) A recent aspect of the consolidation of DoD contractors has included restructuring agreements where several DoD contractors have merged. The contract administrator is the middle person between the contractor and the user. Understand that requiring activities may not be amenable to any change to the original terms of the contract and may have justification for this kind of reaction. The process may involve allowable restructuring costs. as long as the end item or service meets the needs of the Government. Cautiously examine changes that indicate performance has changed but not the function of the end item. Obtain Guidance From Requiring Activities 5-9 . In a firm-fixed-price contract. Many requests from a contractor for a contract modification involve the technical requirements of the contract. Determining if the Government will be harmed may require you to involve the requiring activity and any technical advisors involved in a project.

Completion date. the modification cannot be simply summarily approved and issued. At a minimum. Changes to nontechnical business terms and conditions are unacceptable. Contain appropriate and adequate documentation to support the need for the change. At any time after award. Be agreeable to all appropriate Government officials. Quantity. is one means of otherwise adjusting it.2 Consider Government Requests for Modifications 5-10 . or Additional funds are not available to fund the modification. If funds are not available. a contract may have to be otherwise adjusted so that overall price or cost does not change. 5. Technical changes cannot be supported to the requiring activity’s satisfaction. the Government may have to make changes to requirements covered by a contract. Even when a contractor is entitled to an equitable adjustment.1. the request should: Be clear and understandable as to what the change encompasses. and Price or cost. decide if a modification to the contract is necessary. and Detail the Government’s position as to the proposed change’s impact on: Quality. Decreasing the total quantity under a contract. Not be covered currently by the contract. Importance of Funding Funding is always a consideration for approving a modification. You will need to examine whether any Government proposed change is sufficient for processing. Do not approve the modification when: What would be modified is already covered by the contract.CONTRACT MODIFICATIONS AND OPTIONS Make the Determination After you have all the documentation from a contractor. for instance.

or Place of performance of the services. it is essential to determine whether the change is within the scope of the contract. Method of shipment or packing. 5-11 . and each has a function given the type of contract for which it is prescribed and the specified areas within which it permits changes to occur within the general scope of a contract.e. all of them possess the following common characteristics for the issuance and implementation of a change order: Government: The authority to issue it is found in the contract itself.1.CHAPTER 5 5. The basis for ascertaining the impact or extent of a change on a contract’s scope of work is to be found in the contract’s Changes clause. days of the week. designs. Time of performance (i. This determination is not always an easy one to make. or specifications. the Changes clause in a firm-fixed-price supply contract for other than commercial items acquired under FAR Part 12 permits changes to be issued within the general scope of the contract in one or more of the following: Drawings. designs. Common Characteristics of Changes Clauses Despite different Changes clauses for different types of Government contracts. or Place of delivery. along with specified alternates. initiated by either the Government or the contractor. hours of the day. or specifications when the supplies to be furnished are to be specially manufactured for the Government in accordance with the drawings.3 Determine Impact of Change on Scope In dealing with any change. the extent of any change and its implementing change order must be within the general scope of one or more specified areas set forth in a contract’s Changes clause. In contrast. For instance.). etc. In all cases.. the Changes clause in a cost-reimbursement type of contract for services (no supplies to be furnished) permits changes to be issued within the general scope of the contract in one or more of the following: Description of services to be performed. Understand Different Changes Clauses There are numerous Changes clauses.

and/or other affected terms and conditions of the con-tract.CONTRACT MODIFICATIONS AND OPTIONS A contracting officer must issue it in writing and without notice to sureties. must be expressed in writing. assuming the change is in compliance with the Changes clause. Determine In-Scope Changes As noted earlier. Its issuance may occur at any time up until final payment. Contractor: It must proceed promptly. in many instances. schedule. when agreed to. if any. determining whether a change is within a contract’s scope is. 5-12 . Exhibit 5-1 lists several factors that should be considered in this determination. if the facts justify it. Failure to agree to an equitable adjustment is a dispute under the contract’s Disputes clause. The extent of its issuance must be within the general scope of the contract for any one or more specified areas subject to change. It must assert its right to receive an equitable adjustment within a specified number of days from its receipt of the change (and the contracting officer may. extend this time and receive and act on a proposal for an equitable adjustment up and until final payment under a contract). Both Government and contractor: An equitable adjustment. not easy. An equitable adjustment may be reflected in price or cost.

not merely in terms of an increase per se. Does the changed work represent what both parties reasonably contemplated at the time of award? Is the changed work essentially the same as was initially bargained for? Is the nature of the requirement altered by the change? Would this type of change normally be expected for this kind of requirement? Were the drawings or specifications defective. For example: 5-13 . ♦ Competitive factors of the original solicitation are the same.CHAPTER 5 Factors Indicating In-Scope Changes ♦ The function of the item or service has not changed. ♦ Specification or statement of work changes are not extensive. requiring extensive redesign? Minor or Major Variations of Scope It may appear that any change resulting in either an increase of items or a longer period of performance would be considered outside the scope of a contract. Such thinking helps determine whether quantity changes are within the scope of the contract. Judicial authorities have suggested thinking in terms of major and minor variations. ♦ The basic purpose of the contract has not changed. ♦ The dollar magnitude of the change is proportionate to the price or cost of the original contract. Exhibit 5-1 Questions Dealing With In-Scope Changes Questions that deal with in-scope/out-of-scope changes need to be answered.

5.1. and/or Performance. you must determine what impact a change will have on: Price or cost. Even if the price negotiated for the change was the same unit price as for the basic contract. Contractor Perspectives Generally. 5-14 . When out-of-scope changes are made to a competitor’s contract. Consequently. In these circumstances. However. Major Variation An existing contract covered the purchase of 100 widgets as a line-item. because the function of the end item did not change. Delivery. At times. it may not object to that change not being within the contract’s scope because additional compensation is clearly due. the GAO may rule that an agency’s appropriate action is to terminate the modified portion of the contract. The Government increased the total to 150. The contractor had to use 150 widgets to make the machine function properly The increase of 50 units was within scope. because the widgets were the end item. The increase of 50 units was not within the scope of the contract. contractors are less concerned with changes that are beyond the scope of their own contracts than with changes on their competitors’ contracts.CONTRACT MODIFICATIONS AND OPTIONS Minor Variation The Government’s design for a sophisticated machine required the use of 100 widgets. In the case of the 50 extra widgets previously reviewed as an example of a minor change. there is no way of knowing whether the increased quantity would have resulted in a lower unit price among competitors in the open marketplace. The GAO describes changes that are “within scope” as those that the competing offerors would have “reasonably anticipated” under the terms of the contract.4 Estimate Impact of Change Before issuing a contract modification. a competitive price was not obtained. when a contractor is faced with an out-of-scope change to its own contract. A contractor’s competitors may protest any change that would be considered outside the scope of a contract to the General Accounting Officer (GAO). The GAO’s focus is the competitive process. the GAO would likely determine that the statutory requirement for competition was circumvented. competition has been achieved. However. in the example of a major change. a contractor is likely to view it as a missed business opportunity. the GAO has concluded that a change is new work and therefore represents a new procurement.

Deductive Changes. (Even when work of equal value is substituted. Variation-in-quantity limitations for deliverable items. modifications may be effected to accomplish the following: Options for additional work and economic price adjustments. For instance. Work added to the contract. resulting in either no change in contract price or a change that is tempered by the monetary effect of the substitution involved. These categories are: Additive Changes. Change orders.CHAPTER 5 Bases for Change The Government may anticipate and therefore address the need for some changes prior to award. Request technical evaluators to address how the change will impact delivery and performance. Various contract clauses provide the basis for modifying contracts when specified situations arise or if information not known at the time of award becomes subsequently available. and Increases in the total estimated cost-reimburse-ment types of contracts. resulting in more money for the contractor. changes to basic fixed-price types of contract requirements can be placed in one or more of three categories. it is im- Price/Cost Evaluation of Impact 5-15 . resulting in a reduction of the contract price. Substitution Changes. and if provided for within a contract. Equitable adjustments for the delivery of defective (or late) Government-furnished property. Equitable adjustments under inspection terms and conditions for nonconforming supplies or services. cost limitation for Technical Evaluation of Impact Obtain a technical evaluation of a proposed change when a contractor’s request would result in a change to basic contract requirements not anticipated before award. According to the effect a change has on a resulting equitable adjustment. Work a contractor has not yet performed deleted from the contract. Added work being substituted for deleted work. Adjustments in agreed-to dollars if certain taxes are increased or decreased. Usually a single change will embody elements of more than one category.

804-1(a)(4) 5-16 . Cost or Pricing Data Examine cost or pricing considerations in the same way you would examine them for a basic contract.000).000 or more.804-1(a)(2) FAR 15. If your independent Government estimate appears to be somewhat defective. A contracting officer is prohibited from requiring the submission of cost or pricing data (but may require information other than cost or pricing data. The acquisition of a commercial item meeting the definition in FAR 2. For modifications to contracts or subcontracts for commercial items.101.) For cost-reimbursement types of contracts involving substitution changes. or A cost-realism analysis. Required Cost or Pricing Data FAR 15. if the basic contract or subcontract was awarded without the submission of cost or pricing data under an approved exception Exceptions to Cost or Pricing Data FAR 15. for actions below $500.000 but exceeding the simplified acquisition threshold ($100.CONTRACT MODIFICATIONS AND OPTIONS portant to get the change in writing so that the requirement is accurately documented.804-1(a)(3) FAR 15.804-1(a)(1)(i) FAR 15.804-2(a) Unless an exception applies or a waiver is applicable. a contractor must submit cost or pricing data as part of its change proposal if the value of the change is $500. Current market prices. if justified. use other means of comparison. then information other than cost or pricing data for a commercial item must be limited to information that it is regularly maintained by an offeror in its commercial operations. This may be required. but only to the extent necessary) to support a determination of price reasonableness or cost realism for the following: Agreed-to prices based on: (1) adequate price competition. there is no net dollar amount negotiated for the difference between added or deleted work as there would be for such changes under fixed-price types of contracts. for example: A history for similar requirements. (If the contracting officer does not have sufficient information to determine a fair and reasonable price.804-5(c)(1) through (3) FAR 15. or (2) prices set by law or regulation.) Exceptional cases where a waiver has been granted.

You may need to comply with legal or administrative requirements that apply to contracts for the increased dollar value of the contract as changed.1007(b) 5. If the modification changes the nature of the work to the commercial item or adds other noncommercial work. and to evaluate the relevance of consideration to both the contractor and the Government.804-4 When cost or pricing data are required. an additional wage determination would be appropriate for a modification as well. If the Department of Labor has no compliance approval on record for the contractor.000.CHAPTER 5 and the modification does not change the contract or subcontract to one for the acquisition of other than a commercial item. Obtaining Cost or Pricing Data Certification FAR 15. the contractor must be required to execute a Certificate of Current Cost or Pricing Data. Sometimes consideration has been predetermined or limited based on a formula or a restriction contained within a contract itself.500. then obtaining cost or pricing data for the changed work is not prohibited. The regulations are not clear as to when new service work is significant. Processing Delays Evaluating a change can be extremely time-consuming.805(a)(1)(ii) FAR 22. When a change raises a contract’s total value over $1. the threshold for applicability of the Act on a new procurement. as with a sharing arrangement relative to acquisition savings calculated for a value engineering change proposal. Wage Determinations. When a modification includes a significant amount of new work covered by the Service Contract Act and/or performed by new categories of service workers not included on wage determinations obtained for the basic contract. there would be a delay while an approval was processed.1. FAR 22. 5-17 .104 The job of a contract administrator is to ensure fairness to both contracting parties.000.5 Determine Appropriate Consideration FAR 48. you are required to obtain a wage determination covering these new categories. you need to obtain an approval for compliance with equal opportunity. but certainly when the dollar value of work to be performed by persons within these new service categories exceeds $2. Two examples make the point. which must be included in the contract file. Base your evaluation on what is equitable and reasonable for the particular circumstances surrounding a change. EEO Clearance.

the contractor must be notified promptly to avoid costly delays or other performance problems. or Reflect other agreements of the parties modifying the terms and conditions of a contract. Definitize letter contracts. and Unilateral as signed only by the contracting officer. but should notify the requiring or program office of a decision as well. For example.103 The terms of the contract or regulatory guidelines may state when a specific type of response is due. you will not only owe the contractor a response. Approve changes required by a contract.6 Provide Notice of Rejection You must notify all parties involved when a decision is made to reject a change. 5. You may choose not to notify a requiring or program office on a contractor-initiated modification when its input was not required in the decision-making process. Bilateral Modifications (Supplemental Agreements) Bilateral or supplemental agreements are used to: Make negotiated equitable adjustments resulting from the issuance of unilateral changes.103 There are two types of contract modifications: Bilateral (supplemental agreement) as signed by the contractor and the contracting officer. You must advise the contractor in writing when rejecting a request.1. FAR 48.7 Determine Type of Contract Modification FAR 43. 5-18 . you must ensure the contracting officer responds with a decision to value engineering change proposals within 45 days from the Government’s receipt of them by either providing: A notice of the decision. you would obviously owe the initiating office notification of any decision to reject the change. When the contractor initiates a request. or The anticipated decision date with an explanation for the delay. such as economic price adjustments. Otherwise.CONTRACT MODIFICATIONS AND OPTIONS 5. If the requiring or program office initiated a modification.1.

5-19 . and Name-change agreements. “Change order” means a written order. Although these are not termed change orders. Examples are the issuance of a stop-work order. They deal mainly with a contract’s administrative recitals. These are changes that are minor in nature and do not materially affect contract performance. Change in a paying office. Make changes authorized by other contract clauses. a termination notice. Unilateral Modifications Unilateral modifications are used to: Make administrative changes. for instance: A change has no effect on the substantive rights of the contractor or the Government. or There is no basis in the contract’s terms and conditions for issuing a unilateral modification. Addition of a zip code on a delivery address. cost. and other terms.CHAPTER 5 Most supplemental agreements involve the negotiation of price.101. for instance: A change has an effect on the substantive rights of either party. As defined in FAR 43. There is sufficient time to negotiate a supplemental agreement. This term refers to the actual issuance of a change authorized by the Changes clause in the basic contract. Novation agreements. signed by the contracting officer. directing the contractor to make a change that the changes clause authorizes the contracting officer to make without the contractor’s consent. Use of Bilateral Modifications Select a bilateral modification when. Issue change orders. and the exercise of an option. Use of Unilateral Modifications Select a unilateral modification when. they can be issued unilaterally. usually entailing tasks that are similar to those involved in the award of a basic contract. The Changes clause is cited as the authority for the modification. Examples of administrative changes include: Correction of a funding citation.

Most Government agencies prescribe formal change-order procedures.1. or Cost proposals over $10 million. and substitutions. The contract administration officer’s price/cost analyst supports the administrative contracting officer in preparing the field pricing report by: 5-20 Step 2 FAR 3. that is. Generally.000.e. a contractor should make the same overall percentage of profit or loss after a change that it would have made without the change. the contracting officer may issue a final decision as the basis for definitizing a unilateral change.805-5 Cost proposals over $500. actual cost or value is just one factor to consider. there are nine steps to follow in dealing with fixed-price types of contracts. a change order). Allowing a contractor to “get well” on changes encourages the practice of “buying in” (i. 5. and The time required to negotiate a bilateral agreement would cause a delay that would adversely affect the Government’s interests. submitting an offer below anticipated costs expecting to increase the contract amount after award through unnecessary or excessively priced change orders). and performance data as well as an indication of the maximum equitable adjustment that could result from the change. The contractor’s proposal for a change should include price. Make sure that the proposal covers all elements of the change.000 from offerors with estimating system deficiencies. schedule. decreases.8 Implement Contract Modifications for Supplemental Agreements Step 1 In implementing a unilateral change that requires a supplemental agreement between the parties (e. change orders should be followed up with bilateral modifications (supplemental agreements) when negotiations are concluded on the change. DoD uses the contract administration office for field pricing support on: Fixed-price proposals over $500.g. As unilateral changes.. increases. Stop-Work Order. The contractor’s agreement to a change is not otherwise required.CONTRACT MODIFICATIONS AND OPTIONS A change can be made unilaterally under a specific contract term. If exhaustive negotiations do not result in a mutual agreement. or Termination clauses. Obtain a proposal from the contractor. Evaluate the contractor’s proposal.. DFARS 215.501 Field Pricing Support for Proposal Evaluation . such as the Changes. When you evaluate a contractor’s proposal for a change.

807 5-21 .CHAPTER 5 Working with the auditor to establish a deadline for the auditor’s report.Cl. Inc. One hundred of the units were to be electricity-driven and 100 gasoline-driven. the loss position on the electric units was $332. 983. Select and use whatever price analysis techniques will ensure a fair and reasonable price.80 per unit. Contractors are usually more accommodating when a change is in their favor. Be prepared to counter any contractor arguments. Extensive factfinding is necessary when a change covers issues not required by the original contract or when you suspect that the contractor is in a loss position. Step 4 FAR 15. A Government audit revealed that the contractor was in a loss position on both types of units. Take Account of Contractor Position In negotiating a contract change. if necessary. Step 3 Do factfinding. and Acting in full responsiveness to requests for technical information from the auditor. and A profit objective. Identifying areas for special consideration. The cost objectives. (176 Ct.58 per unit. 1966). The procedures followed on an original fixed-price type of award may provide a sound foundation for developing the prenegotiation position for a change. you must also consider the current position of the contractor. One case that is often cited to illustrate the concept of maintaining the contractor in the same profit or loss position is Keco Industries. Before any of the gasoline units were produced. the Government issued a change order directing that all 200 units be electricity-driven. Never enter any negotiation without being adequately prepared. Invite other Government officials involved in the change to provide pertinent facts to use during any negotiations. Develop a prenegotiation position on price. addressing: The pertinent issues to be negotiated. whereas the loss on the gasoline units was only $148. use cost analysis techniques as the basis for the Government’s pricing position. However. Keco had been awarded a contract for 200 refrigeration units.805-2 FAR 15. Arranging for exchange of technical and audit information. When there is no adequate basis for price analysis.

258.603. An adjustment giving the contractor its actual cost for manufacturing the units altered by the change order would enable the contractor to recoup some of the loss it would have suffered originally.720.138.00 $1. Have the flexibility to change your objectives as new information is provided by the contractor during the negotia5-22 Step 6 .80 (loss per unit) x 100 units = $14.880.00 (contract price per unit) $ 332. Inquire about the contractor’s strategies and tactics with other contract administrators or contracts personnel who have negotiated with the contractor. Step 5 Develop negotiation strategies and tactics.58 (cost per unit) minus 1. right. or reasonable if the contractor can prove that it is entitled to the cost it claims.00 $48.603. Conduct negotiations.868. Review any methods and techniques previously used to negotiate with the contractor. Be prepared to counter any of the contractor’s strategies and tactics that you can anticipate.80–$1.00 Total loss on contract after the adjustment: A price adjustment reflecting only the price difference between the electric unit and the gas unit would put the contractor into an even greater loss position than had been the case.58 (loss per unit) x 100 units = $33.454.78 100 units covered by the change order: $1.78 (equitable adjustment price per unit) $ 148. the adjustment had to be figured as follows: Price per gasoline unit Less cost difference between the gasoline unit and the electric unit ($1.138.CONTRACT MODIFICATIONS AND OPTIONS Calculate Adjustment From Change The contractor’s total loss position before the change was $48.271.603.454. Practically speaking.58) Price per unit for the 100 units covered by the change order Contractor’s loss position after the adjustment: 100 electric units unchanged by the order: $1.00 265.22 $1. the principle of equitable adjustment for contract changes means that the Government will do whatever is fair.58 (cost per unit) 1. For the contractor to be left in the same position it had been in before the change was issued.

meet with appropriate officials and consider any new information before making a final decision.301 Prepare the agreement and obtain approvals Most agencies use the Standard Form (SF) 30. Make sure you are familiar with your agency’s requirements. Refer to Exhibit 5-3 to review the FAR-prescribed terminology for a contractor’s release. or a blank sheet of paper as the second page of the modification. Step 8 FAR 43. To indicate the finality of the settlement and to avoid subsequent controversy on supplemental agreements that result from unilateral modifications. but your agency may require its own form. 5-23 . If required. Step 7 FAR 43. a release of claims should be pursued. A sample SF 30 used as a supplemental agreement is shown in Exhibit 5-2.204(c) Obtain a release of claims. to modify their contracts. use the Optional Form (OF) 336. Amendment of Solicitation/Modification of Contract. Continuation Sheet. When a SF 30 does not provide enough room to document the change. Internal approval policies vary from agency to agency.CHAPTER 5 tion process.

CONTRACT MODIFICATIONS AND OPTIONS Sample Supplemental Agreement 5-24 .

) 5-25 . Exhibit 5-3 Implications of Release of Claims A release of claims generally terminates a contractor’s right to further claims unless it excepts a particular issue. The circumstances involve fraud. There are some recognized exceptions that may make a signed general release of claims invalid. (This has been held to apply to. the signature of a duly authorized contracting officer when that person did not follow appropriate procedures in settling a claim.. reserving both parties’ rights to a future settlement. but not a mistake about which only one of the parties knew or reasonably could have known.). A mutual mistake exists. among others.” the Contractor hereby releases the Government from any and all liability under this contract for further equitable adjustments attributable to such facts or circumstances giving rise to the “proposal(s) for adjustment” (except for …. in getting the contractor to sign the release. such as when: A modification increases the price for a change to the contract and the change is later recognized as being part of the original contract.CHAPTER 5 Exhibit 5-2 Contractor’s Statement of Release (For supplemental agreements definitizing unilateral changes) In consideration of the modification(s) agreed to herein as a complete equitable adjustment for the Contractor’s ______describe_______ “proposal(s) for adjustment. The Government uses economic duress. unless both parties had knowledge of the fraud when the settlement agreement and/or claims release was signed. such as threats to terminate for default. or The official who signed the release lacks the authority to sign it. The Government breaches the contract or fails to perform in accordance with a supplemental agreement.

When the Government issues a stop-work order. issuing a supplemental agreement is the most common method for definitizing a unilateral modification. Identify the clause authorizing the change. for instance.201 Step 4 5-26 . 5. It is important to establish goals for definitizing any unilateral change.CONTRACT MODIFICATIONS AND OPTIONS Step 9 Document the file and distribute the agreement. Incorporate the change in the contracting office suspense system. Other offices may be on your normal distribution list for duplicates of the signed copies in accordance with agency regulations. There are usually eight steps to follow. The clause allows the contractor to obtain an equitable adjustment for the delay. Make sure you cite the appropriate clause for the change. Prepare your unilateral change on your agency’s prescribed form for contract modifications. and The paying office. The supplemental agreement should be signed by both parties on three copies. but only if you comply with all requirements as listed in Exhibit 5-4. Step 2 Step 3 FAR 43. Generally. Exhibit 5-5 shows a sample of a SF 30 used as a change order.1. When unusual or urgent circumstances demand quick action. Establish due dates for interim steps in the process including a date for the overall goal. Prepare and issue the change order or other unilateral change. The contractor. you may implement unilateral changes by telegraphic messages. Determine whether to issue a telegraphic order.9 Implement Contract Modifications for Unilateral Changes Step 1 Implementing a unilateral modification for an administrative change is different than implementing a bilateral modification. usually the SF 30. the contractor is required to stop work until given the go-ahead. Signed copies are to be distributed to each of the following: The official Government file. A Changes clause is not the only clause authorizing a modification.

♦ Furnish copies of the message promptly to the same addressees who received the basic contract. except it would: Not indicate the estimated change in price. and Include in the body of the message the statement: “Signed by (Name).” ♦ The contracting officer must manually sign the original copy of the message.CHAPTER 5 Prerequisites for Unilateral Issuance by Telegraphic Message ♦ The circumstances are urgent or compelling. Amendment of Solicitation/Modification of Contract. ♦ Take immediate action to confirm the change by issuance of a SF 30. ♦ The message must contain substantially the same information required by the SF 30. Contracting Officer. Exhibit 5-4 5-27 .

CONTRACT MODIFICATIONS AND OPTIONS Sample Change Order Exhibit 5-5 5-28 .

). (An example of this is when faulty Government testing procedures result in the rejection of delivered items.). Performance is impossible. You can demand this cost segregation only when a contract requires a contractor to do so. the contractor must proceed with the work as changed. as in the case of temporary unavailability of Government-furnished materials...232-20 FAR 52. The Government’s action leaves the contractor in an untenable position. new subcontract work. alert the contractor to the possible need for a revision to its normal accounting procedures to track the following direct costs categories: Nonrecurring costs (e. labor and material costs). (However. and Costs of recurring work (e.205(f) FAR 52. The Government grossly and materially breaches its duties and obligations under the contract.243-6 Inform the contractor of any need to segregate the costs of performing changed work. engineering costs and costs of obsolete or reperformed work). A contractor’s standard accounting method may not be designed to segregate the costs of performing changed work. new prototypes. There are a few exceptions. This holds true even if an agreement as to adjustment in price and performance time has not been reached or there is open and intense disagreement on these adjustments.g. or new retrofit kits).203 FAR 43.213 Inform the contractor of its obligation to continue work under the contract as changed. the contractor’s duty to proceed will remain effective and the contractor must continue performance after the obstacle to performance has been removed. When a Government contracting officer issues a unilateral change.g. FAR 52.216-24 FAR 52. or An issued change is beyond the scope of the contract.232-22 A contract clause permits the contractor to stop work when funds are exhausted or when a certain percentage of the costs has been expended. When there is such a requirement. when performance is temporarily impossible. A contractor need not proceed if: It needs and requests.232-7 FAR 52. Costs of specific work caused by the change (e.g. Step 6 FAR 43. 5-29 .. clear direction from the contracting officer on how to proceed with the change.CHAPTER 5 Step 5 FAR 33. but does not obtain.

and Document the file and distribute the supplemental agreement or other document used to definitize the change. Follow three steps to implement them. and retain one signed copy for the contract file. Exhibit 5-6 provides a sample unilateral modification to effect an administrative change. the paying office. Use a SF 30.1. Step 2 Step 3 5-30 . Normally this is merely a matter of reading the change request and making a judgment. Verify that the change does not affect the substantive rights of the parties. Negotiate a supplemental agreement on the amount of the equitable adjustment and other terms. After a unilateral change has been issued. It is important to document the file adequately for unilateral changes. Send signed copies of the modification to the contractor. Prepare and issue the change. Obtain a release of claims or resolve the claim.CONTRACT MODIFICATIONS AND OPTIONS Step 7 Document the file and distribute the modification. You need to identify what follow-up action is required for definitizing a change. Document the file and distribute the modification. you need to issue a bilateral agreement or otherwise definitize the change.10 Implement Contract Modifications for Other Administrative Changes Step 1 Most administrative changes correct nonsubstantive errors in the original contract document. Step 8 5. The following steps for definitizing unilateral changes are the same as for bilateral changes: Establish a prenegotiation position. Definitizing a unilateral change.

CHAPTER 5 Sample Modification for an Administrative Change Exhibit 5-6 5-31 .

the Changes article merely said that both parties had to agree.” Throughout his study of contract modifications. Eric began to realize that changing or altering a Government contract requires more than meets the eye. And yet again. in writing.CONTRACT MODIFICATIONS AND OPTIONS WHAT A DIFFERENCE A CLAUSE MAKES After having studied both the nature of and regulatory requirements for contract modifications. and only which. he reflected on the ease with which Platform Industries had agreed to a no-cost. there were decisions to be made that reflected a multitude of interests. bilateral change to its contract for the submission of a weekly progress report. or 15 (Contracting by Negotiation) as the method of contracting? ♦ Without a unilateral right to issue a change. All of that resulted in a supplementary agreement. It all added up to a lot more than pushing paper and simply getting it out the door. In other cases. it was a wake-up call for him to realize that what can be changed under any Changes clause is not merely a question of its “being within the general scope.212-4 infer an equitable adjustment in the event of a change. but it was critical to Harry Carmichael and the requiring activity. he concluded. you gotta do it in some form of writing. 14 (Sealed Bidding). He would raise them with Joanne when she had time for one of their general conversations. Eric zipped into his computer and banked the following questions concerning the Changes article under FAR 52. while sometimes difficult to determine relative to a proposed change. to any change in the contract’s terms and conditions. “the whole nine yards of it reinforces the fact that if you’re gonna alter a Government contract. ♦ How should I approach changes. It wasn’t considered a big deal. and what exists to resolve their differences if both parties can’t agree to one? 5-32 . assuming some might be necessary. He became particularly alert to the specific terms of the traditional Changes clauses used in Government contracts. And while he found a similarity of conditions expressed in each.212-4. changes can be issued. Eric wondered what might have been the case had Platform not agreed to the change. for whatever reason.212-4. is further clarified in each clause by expressed areas within which. “I guess. for items or services procured under FAR Part 12 (Acquisition of Commercial Items) using FAR Part 13 (Simplified Acquisition Procedures). how do we bridge the gap? ♦ Does the Changes article under FAR 52. It almost seemed too simple. modification procedures were simple. In some cases. For under FAR 52. from the requiring activity and funding sources to the contractor and its subcontractors.” he said to himself.” The business of general scope. how do I persuade the contractor to agree to one? And if we get hung up at the outset.

Provide all contracting offices affected by a proposed novation agreement with: A list of all affected contracts. and A request for comments or feedback within 30 days. Such documentation is shown in Exhibit 5-7. If you do. and The Government to recognize the transfer of the contract and related assets.1. The contracting officer or ACO administering the largest unsettled balance has the responsibility to execute the novation agreement for the Government.1203(b) 5-33 .1202(c) FAR 42.CHAPTER 5 5.1201 A novation agreement is a legal instrument executed by: The contractor (transferor).1203(f)(4) Sometimes you will receive a copy of an administrative modification from another contracting office affecting one of your contracts. The transferee to assume all obligations under the contract.11 Implement Contract Modifications for Novation Agreements FAR 42. first look at the list of all affected contracts and other orders. The contractor must submit proper documentation to support a novation agreement. The successor in interest (transferee). and The Government. FAR 42. Dealing With Novation Agreements FAR 42. A novation agreement provides for: The transferor to guarantee performance of the contract by the transferee. Obtain any missing or deficient documentation if your contract has the largest unsettled balance of the listed contracts. For a novation. then distribute it as you would any other such modification.

as amended. Total dollar value.. ♦ The opinion of legal counsel for the transferor and transferee stating that the transfer was properly effected under applicable law and the effective date of transfer. and Remaining unpaid balance. ♦ Evidence that any security clearance requirements have been met. ♦ A list of all affected contracts and purchase orders remaining unsettled between the transferor and Government. showing for each the: Contract number and type. as of the dates immediately before and after the transfer of assets.g. ♦ An authenticated copy of the transferee’s certificate and articles of incorporation. ♦ The consent of sureties on all contracts if bonds are required or a statement from the transferor that none is required.CONTRACT MODIFICATIONS AND OPTIONS Documentation Requirements for Novation Agreements ♦ Three signed copies of the proposed novation agreement. ♦ A certified copy of each resolution of the corporate parties’ boards of directors authorizing the transfer of assets. certificate of merger. certified for accuracy by independent accountants. ♦ Evidence of the transferee’s capability to perform the contracts. or court decree). agreement. contract. Name and address of the contracting office. deed. Exhibit 5-7 5-34 . ♦ A certified copy of the minutes of each corporate party’s stockholder meeting necessary to approve the transfer of assets. ♦ An authenticated copy of the instrument effecting the transfer of assets (e. ♦ Balance sheets of the transferor and transferee. if a corporation was formed for the purpose of receiving the assets involved in performing the Government contracts. a bill of sale.

After documents have been reviewed and approved by the Government. Forward the novation agreement.1203(d) The processing and execution of a novation agreement involves the following five steps. Sign the document when it is consistent with the Government’s interest to execute the agreement. As with any legal documentation about which you are generally unfamiliar. Execute the agreement. Step 2 FAR 42. However. or A determination that the proposed transferee is not responsible.1203(f) 5-35 . and Have attached a complete list of affected contracts. A contract modification (using a SF 30 unless otherwise directed by agency requirements) must: Reference the novation agreement. Base a decision not to execute one on: Feedback from other contracting offices. Step 3 Step 4 FAR 42. forward a copy to both the transferor and the transferee.CHAPTER 5 Processing and Executing Novation Agreements Step 1 FAR 42.1203(c) FAR 42.1204(e) Follow the format provided in the FAR for executing an agreement when the contractor has not provided the agreement. Make any changes that might be necessary to the standard novation agreement. Obtain legal review of sufficiency. the transferee’s inclusion on the List of Parties Excluded from Federal Procurement and Nonprocurement Programs. Incorporate a summary of the agreement in the modification. it may not always be appropriate to process a novation agreement. but not be limited to. A lack of responsibility can be based on information that would include. Request them to sign the approved agreement and return it for the Government’s signature. obtain Government counsel’s clearance on the basis for the modification and the supplemental agreement itself. Prepare a contract modification incorporating the agreement. Ask the contracting officer to sign the novation agreement only after the transferor and transferee have signed.

As with novation agreements.1203(f)(4) A change-of-name agreement is a legal instrument executed by the contractor and the Government that recognizes the legal change of a contractor’s name without disturbing the original contractual rights and ob-ligations of the parties. 5-36 . Sometimes you will receive an administrative modification based on a change-of-name agreement signed for the Government by a contracting officer in another contracting office that affects your contract. The contractor must submit proper documentation to support a change-of-name agree-ment. The contracting officer or ACO administering the largest unsettled balance has the responsibility to execute the change-of-name agreement for the Government.CONTRACT MODIFICATIONS AND OPTIONS Step 5 FAR 42. and All who received a copy of the contract currently being administered.1201 Dealing With Change-of-Name Agreements FAR 42. first look at the list of all affected contracts and purchase orders. Each contracting office listed by the contractor as having current contracts that would be affected by the agreement.1. If you do.1203(f) Distribute the modification. Obtain any missing or deficient documentation if your contract has the largest unsettled balance of the listed contracts. then distribute it as you would any other such modification. 5. if different from the contracting office. The transferee. Each administration office.12 Implement Contract Modifications for Name Changes FAR 42. Such documentation is shown in Exhibit 5-8. listed by the contractor as having current contracts that would be affected by the agreement. Send a copy of the modification to the following: The transferor.

authenticated by a proper official of the State having jurisdiction. As with any legal documentation about which you are generally unfamiliar. A novation agreement or an assignment of payment may suit the circumstances. obtain Government counsel’s clearance on this issue. ♦ A list of all affected contracts and purchase orders remaining unsettled between the contractor and the Government. you would include it with the review of legal sufficiency obtained in Step 1. If the contractor’s basic rights are affected. Total dollar value. showing for each the: Contract number and type. When it is consistent with the Government’s interest to sign the agreement and the contractor has provided a signed agreement. ♦ The document effecting the name change. Exhibit 5-8 Processing and Executing Change-of-Name Agreements The processing and execution of a change-of-name agreement involves the following five steps. ♦ The opinion of the contractor’s legal counsel stating that the change of name was properly effected under applicable law and showing the effective date. Name and address of the contracting office. Step 1 Verify that the contractor’s rights and obligations are unaffected. a change-of-name agreement is inappropriate. and Remaining unpaid balance. as amended. Step 2 5-37 . Execute the change-of-name agreement.CHAPTER 5 Documentation Requirements for Change-of-Name Agreements ♦ Three signed copies of the change-of-name agreement.

listed by the contractor as having current contracts that would be affected by the agreement. Each contracting office listed by the contractor as having current contracts that would be affected by the agreement. A contract modification (using a SF 30 unless otherwise directed by agency requirements) must: Reference the change-of-name agreement. and Have attached a complete list of affected contracts.1205 Follow the format provided in the FAR for executing name changes when the contractor has not provided the agreement. Incorporate a summary of the agreement in the modification. Prepare a contract modification incorporating the agreement. Each administration office. and All who received a copy of the contract currently being administered. Make any changes that might be necessary to the standard change-of-name agreement. Step 3 Step 4 Step 5 Distribute the modification. Provide one copy to the contractor and retain one copy of the signed agreement in the contract file as backup for a subsequent contract modification. Send a copy of the modification to the following: The contractor. if different from the contracting office. Obtain the contractor’s signature on the agreement.CONTRACT MODIFICATIONS AND OPTIONS FAR 42. 5-38 . Obtain the contractor’s signature before the contracting officer’s.

Determine whether to exercise an after: • A formal solicitation. • Market Exercise the option? No Obtain required supplies services through other Yes 5.CHAPTER 5 STEPS IN EXERCISING OPTIONS 1-2. Determine whether a synopsis is for an 4. Identify available options and the need for additional supplies or 3. Provide written notice and an 6. Prepare a written determination for contract 5-39 .

g. the Service Contract Act) may place additional restrictions on the use of contract options.1 Identify Available Options FAR 52. and statutes applicable to various classes of contracts (e. the total of a contract’s basic and option periods cannot exceed: Five years in the case of services. but only for a specific period of time.CONTRACT MODIFICATIONS AND OPTIONS 5. then it uses the clause’s standard language..208-70(a) DFARS 252. DoD Options for Foreign Military Sales and Surge Requirements DFARS 217. These limitations do not apply to information technology contracts. Options are usually contained within the contract as a separate line-item in the schedule. If the clause is incorporated by reference.217-7001 Time for Exercising Options FAR 17.217-7000 DFARS 217. 5. The first enables DoD to fulfill foreign military sales commitments.2 Options FAR 17. Every option will state a time period during which it may be exercised. and/or To accelerate the rate of delivery originally called for in the contract.2. These are summarized in Exhibit 5-9.204(b) 5-40 . or Five years’ requirements in the case of supplies. because the contracting officer has the discretion to alter the language to fit a particular situation.208-70(b) DFARS 252. It may not be exercised at any other time.204(e) Options provide the Government with firm prices for additional quantities or periods of performance. DoD has two options in addition to the four standard FAR options. Your contract administration plan should include a suspense date for review of options that allows sufficient time prior to their expiration for verifying the need and researching current market prices. Unless agency procedures specify otherwise. The second enables DoD to support an industrial mobilization program by: Increasing the quantity of supplies or services at a stated percentage rate. Read the clause provided in the contract carefully.102-1(b)(2) There are four standard FAR option clauses. That time period may extend beyond the basic contract period and must be identified in the contract.

in which case. you may order less than the stated quantity. authorizes partial deliveries.4 Determine Whether to Exercise Options Additionally.3 Determine Whether Option Requires Synopsizing FAR 5. not the basic contract. and Funds are available for exercising the option.207(b) FAR 16.2. but only if: The contract contains specific terms that allow economic price adjustment in contract prices. FAR 17. You may never order more than the stated quantity. or Economic price adjustment. You may not change quantities. Options must be exercised exactly as stated in the contract.203 5-41 .CHAPTER 5 5. unless the option itself.2.2. FAR 5. you may use a “Research and Development Sources Sought” announcement as a market research tool.205(a) 5. or Another exception to synopsizing applies.202(a)(11) A notice in the Commerce Business Daily (CBD) is required prior to exercising an option unless: The original contract’s synopsis provided sufficient detail on the option.1007(b) Any increase in wages contained in a new wage determination from the Department of Labor when services a contractor will provide under an option are subject to the Service Contract Act. and The contractor specifically requests a price revision in strict compliance with those terms. 5. You may not mutually agree to vary the price or any other term or condition for a stated additional quantity or continued performance period except for: FAR 22.2 Determine Need for Additional Supplies or Services Consult requiring activities to verify that: The requirement covered by an option fulfills an existing Government need.

Substance The contracting officer may increase the quantity at the unit price specified for the appropriate line-item. and The option quantity identified as a separately priced line-item is the same as a corresponding basic lineItem with the same nomenclature.217-7 Option for Increased Quantity—Separately Priced Line Item Used if the contract— Is not a service contract. Provides for a written notice within a time frame specified in the contract’s Schedule. FAR 52. Calls for a written notice within a specified period of time. unless the parties otherwise agree. unless the parties otherwise agree. Exhibit 5-9 (continued on next page) 5-42 .217-6 Option for Increased Quantity Use Used if the option quantity is expressed as a percentage of the basic contract quantity or as an additional quantity of a specific line-item. Specifies that option deliveries will be at the same rate as for the basic requirement.CONTRACT MODIFICATIONS AND OPTIONS Standard Contract Clauses for Options Clause FAR 52. Option deliveries will be at the same rate as for the basic requirement.

Consider whether the contract awarded is an indicator of current market conditions.CHAPTER 5 Standard Contract Clauses for Options Clause FAR 52. apply the following four steps.217-9 Option to Extend the Term of the Contract Used if— Work covered under the option requires start-up or phase-in. Limits the total contract duration to a specific time frame. the savings realized by issuing a new procurement may be worth the time and expense of a resolicitation. tract’s FAR 52. Provides for a preliminary written notice of the Government’s intent to exercise the option at least 60 days before contract expiration. Provides for a written notice within a time frame specified in the conSchedule. and The contract applies to either supplies or services. Exhibit 5-9 (continued) Consider Alternatives to an Option When exercising an option.217-8 Option to Extend Services Use Used if the contract is recurring and continuing services are required to assure continued performance in the event of delays in the follow-on procurement process. and Step 1 5-43 . This consideration is only valid when: Options were considered in evaluating the basic contract. States that a contract extension extends the option as well. Substance Limits the total extension of line-item services to six months. or Contract extensions should be addressed. In considering alternatives to an option. if market conditions changed favorably for buyers of the supplies or services contained in the option. Allows adjustment in line-item prices only for Service Contract Act wage rates. you save considerable time and administrative expense. Specifies a time frame for exercise of the option. However.

405-1 FAR 5. These mechanisms avoid the expense of a formal solicitation if there are still no other sources available.207(c) FAR 15. Factors for Obtaining Comparative Data to Assess Option Prices ♦ The relationship of the option price to the price for the initial contract period. Exhibit 5-10 Step 3 Issue a formal solicitation if market research is insufficient. Your primary tool for seeking competition will probably be a “Research and Development Sources Sought” announcement in the CBD or a solicitation for information or planning purposes. ♦ The adequacy of competition at the time of initial award compared with competition at the time of the potential exercise of an option. ♦ The findings of an informal poll of other contracting activities surveying significant changes in offered prices for similar items or services. 5-44 .CONTRACT MODIFICATIONS AND OPTIONS The time between contract award and exercising the option is negligible. Use a formal solicitation only if the first two steps do not provide sufficient data. ♦ Administrative or budgetary constraints that cause an inability to process a new solicitation. including service disruption costs.205(a) Decide whether market research provides sufficient evidence. Some factors to consider for an informal investigation of market prices are contained in Exhibit 5-10. your research is primarily to identify whether any competitors have entered the market. When the contract award was noncompetitive. ♦ Changes in the general economy having a potential effect on the cost of performance. and To take advantage of a lower option price. ♦ Potential savings in administrative costs in exercising the option compared with awarding a new contract. The purpose of using an option is twofold: To avoid the expense of a formal solicitation. Step 2 FAR 17.

2.217-6 through -9 Provide a preliminary notice. Step 2 FAR 22. The four standard FAR option clauses require a preliminary written notice to a contractor within a period specified in a contract’s Schedule.5 Provide Written Notice and Exercise Option Remember that an option in a basic contract represents a considerable risk for a contractor. items or services under an expired option must be procured using another contracting procedure. but the option applies only to supplies. Step 1 FAR 52. A contractor will usually agree to waive its right to a preliminary notice when market pricing is the same as or lower than its contractually specified option price. or Funds were not available. The only time it will not is when one of the following occurs: The basic contract contained both supplies and services. unless the contractor waives its right to a preliminary notice. Step 4 Make a decision based on the evidence at hand.1007(b) 5-45 . You may discover that the Government’s right to exercise an option has expired because: A proper preliminary notice was not given.CHAPTER 5 So use a formal solicitation as a last resort when there is no other way of confirming that the option price is at least equal to current market prices. In providing a written notice and exercising an option. If the basic contract contained a Service Contract Act wage determination. If still required. When you discover that the required date for a preliminary notice has passed. Obtain a new wage determination for services subject to the Service Contract Act. This notice must be provided within the specified time period or the Government loses its unilateral right to exercise the option. then the option will probably require one. Therefore. then the contractor must absorb the loss represented by the difference between the market price and the option price. If the cost of deliverables increases after contract award beyond what a contractor anticipated when initially pricing an option. it may not consent to the exercise of an option. the Government’s right to exercise it cannot be restored. apply the following three steps. 5. discontinue the option process unless the contractor is willing to waive its right to a preliminary notice. When the actual date for exercising an option is passed. when required. if costs have risen and the contractor has not received a preliminary notice.

question the contractor on the categories of labor to be used in performing specific option services.2. Step 3 5-46 . In the rare instance when you might be issuing a bilateral modification for the contractor to acknowledge it has waived a required preliminary notice.CONTRACT MODIFICATIONS AND OPTIONS No personnel within the service categories subject to the Service Contract Act will be used to perform services contained in the option (as when both professional services and services subject to the Service Contract Act are in the basic contract. use a SF 30 or the form that you agency prescribes for modifications. Provide a note to the contracting officer highlighting the expiration date. Notice of Intention to Make A Service Contract and Response to Notice. double-check to ensure that there is enough time to provide it to the contractor within the period specified in the basic contract. indicate “Mod-Exercise of Option” in Block 2 of the form. 5.6 Prepare Written Determination for Contract File FAR 17. When in doubt. generally follow the procedures in 5.9. Exhibit 5-11 provides content requirements for a determination to exercise an option.207(f) As contract administrator. Generally follow the procedures in 5.8.1. This ensures that everyone who was provided a copy of the basic contract is aware of the additional requirement. FAR 22. Exercise the option. for implementing supplemental agreements. Before presenting the SF 30 to the contracting officer for signature. above. you will prepare this determination for the contracting officer’s signature.1008-6 When filling out the SF 98a.1. for implementing unilateral contract modification changes. but only professional employees will be used to provide services contained in the option). It also provides the most uniform way of documenting it. To exercise a contract option. above. which asks for the estimated solicitation date.

CHAPTER 5 Content Requirements for a Determination to Exercise An Option ♦ The option exercise complies with the terms of the option. not services.” 5-47 . He then examined the solicitation’s addendum in which the applicable option clause was referenced. Going to FAR 17. ♦ A statement that the option exercise was synopsized or a reference to the exception that authorized not synopsizing. “how we use terminology without really un-derstanding what it’s all about. “When it comes time to exercise it. ♦ The requirement covered by the option fulfills an existing Government need. “we’re dealing with supplies here. you just do it.208(c)(1). Looking toward dealing with the option available to the Government in Platform’s contract. and he realized how superficial his knowledge had been of this important area. and thus the cited clause. Exhibit 5-11 GETTING IN SHAPE TO EXERCISE AN OPTION “It’s amazing.” Eric thought to himself. “Okay. price and other factors considered. ♦ The exercise of the option is the most advantageous method of fulfilling the Government’s need. “An option clause is an option clause.” he remembered himself saying. he found that the solicitation document (a SF 1449) had referenced the inclusion of the provision under FAR 52. ♦ Funds are available.217-6 (Option for Increased Quantity). things could get downright complex in the business of options.217-5 (Evaluation of Options). He consulted his on-line FAR to read the clause under FAR 52.” He had listened carefully during that part of his training experience that covered the subject of options.” he thought to himself. Eric thought he would try to get a bit of a head start by examining the con-tract’s terms and conditions related to exercising the option. First. As a matter of fact.” He had learned that things were not quite that simple. ♦ The option exercise complies with the requirements of FAR Part 6 regarding full and open competition. he confirmed why this particular solicitation provision had been used.

Eric zipped into his computer and banked a series of questions concerning the exercise of an option under Platform’s contract. “for Joanne’s mill!” ♦ When should I start to consider exercising the option? ♦ With whom should I consult about the option. and what questions should I ask? ♦ What responsibility do I have to test the marketplace before deciding to exercise the option. “More grist. What if Platform comes at me claiming increased costs based on unknown and un-controllable conditions at the time of initial award? ♦ Why might we reject exercising the option? 5-48 .” he muttered smilingly. and how do I execute that responsibility? ♦ The price of any option quantity has been fixed in the basic ID/IQ contract.CONTRACT MODIFICATIONS AND OPTIONS Yet again.

And the pressure for its resolution is very strong. or so I’m told. the aerial photography had to do with something about the shifting curvatures of the earth’s continental surfaces. but they were more than enough for a Monday morning. Just got a call from our field office in Dallas. “Eric: I need your help. We bought the paper under FAR Part 12 as a commercial item. There were only three. and several other countries. and began to read messages in his E-mail system. The first message was from Pat Fazio in the agency’s finance and payment office. Seems that on-the-spot inspection at destination found several of the engines had cracked casings. Then he turned to his computer. and. is that it is not light-sensitive enough to record some of the minute shifts in geologic formations surfaced by the aerial photography.S. I need your advice in this matter. in checking the contract. we accepted Argo’s price as representing a best-value deal. Rather. principally because of the demonstrated quality of its paper. a colleague of Eric’s in contract administration. one that’s being co-sponsored by the U. Kelley wants me to stop payment on Argo’s recent invoice for the delivery of its tenth lot of generator engines. Kind of a mess. I find that we neither included an express warranty for the paper nor did we accept the lowest offered price. I was called to stop payment before Kelley called Argo’s production chief to inform the contractor of the problem and to make immediate arrangements for transporting the delivered generator engines back to its plant. Far as I can determine. who sounded quite upset. He checked his voice mail and found a few messages. The problem with the mapping paper. was uncertain of the cause or the extent of the damage. 6-1 . especially with the international conference only a stone’s throw away. “Eric: Received a call from Terry Kelley in inspection and acceptance concerning Argo’s current contract. booted-up. Seems that a call came in from a requisitioner in Houston about the delivery of 500 boxes of mapping paper that appear useless. Please respond within 48 hours. and after a restful weekend Eric had settled in at his desk for what he knew would be a busy few days. None was of any real consequence. Kelley. The paper was to be used for the transposition and recording of information related to aerial photography taken from a spacecraft.CHAPTER 6 CONTRACT REMEDIES ACCOUNTABILITY WHEN THINGS GO WRONG It was Monday morning.” The second message was from Harry Kaplan. The bottom line is that what is to be transposed and recorded from the aerial photography has got to be done within the next month so that it’s ready for distribution and use at an international conference in Houston.

once you’ve isolated accountability. Obfuscation is too lenient a term to characterize my reaction to it. he knew that Joanne would cut to the chase. It came through to him as a reasonable. he decided to call Pat Fazio before mid-morning. while required. four-step methodology. you’ve got to verify what appear to be the facts. His immediate thought was that there could be a real problem with Rapid Response. And then would answer her own question. “Eric: In checking Rapid Response’s vouchers for the past month. one of Joanne’s CORs.” thought Eric. And these people have been warned on prior occasions about charging for things that we feel are purposely misleading. When are we going to learn? If you have the time. “welcome to Monday!” Aside from other work in front of him.” “Well. and then plugged in a title page to make it seem appropriate. Harry Kaplan’s plea for help would have to wait until Eric found some time. given the cause you’ve got to ascertain accountability. Eric?” she might ask. consult. ascertain.CONTRACT REMEDIES What would you do about all this? start?” And more important. 6-2 . “First. Second. then you can reach for an appropriate remedy. He could hear her now. And fourth. where would you The third message appeared as if in some form of code. I’ve run into a real problem in trying to separate fact from fiction. The contractor’s most recent voucher for the past two weeks includes costs incurred for direct labor activities that bear no relationship to what we expected. Third. You’ll recall that I never felt that Rapid Response should have gotten this job. and he wondered how helpful each contract file would be in getting after each case. evidence no correspondence between their titles and contents. she would zero in on them unflinchingly. Oh yes. It was sent by Dawson Gibbs. It’s like someone took something off the shelf. The message from Dawson Gibbs left him with an uncomfortable feeling. and determine the cause. Where would you look for remedies. Documentation of costs has referenced four reports which. For all three situations. Eric?” Verify. you’ve got to consult with the parties. and apply the appropriate remedy. “What’s common to all three. including our in-house people. perhaps you’ll respond to this. housed it in a three-ring binder.

4 6. reduce. Invoke liquidated damages. Determine whether to use a cure or a show cause notice. Prove the existence of latent defects. Invoke an implied warranty.5 6.3 6. Determine whether to withhold. Invoke an express warranty. or demand payment from a contractor.CHAPTER 6 COURSE LEARNING OBJECTIVES At the end of this course. or gross mistakes amounting to fraud. 6-3 . Select one or more remedies as the best for a particular performance problem. fraud.6 6.9 Identify remedies that might be appropriate.2 6.7 6. you will be able to: Overall: Individual: 6. Select and pursue a formal contract remedy for performance problems associated with a contractor’s nonperformance or noncompliance under a contract.8 6.1 6. Reject nonconforming supplies or services.

however. These are: Actions preliminary to a termination for default. Sometimes. Pursuing rights under a warranty. Rejecting work and demanding reperformance. or Seeking postacceptance rights due to: Latent defects. 6-4 Government Policy on Choosing Contract Remedies . unilateral action is required. Addressing Remedies Not Covered Elsewhere This chapter addresses contract remedies that are not discussed separately in other chapters. Reaching a bilateral agreement on solutions to contract problems is always preferred to unilateral Government action. Government policy requires its agents to: Document and verify the sufficiency of evidence for the remedy sought. in commercial contract law.CONTRACT REMEDIES INTRODUCTION TO CONTRACT REMEDIES Government Contract Remedies Government contract remedies are forms of relief that can be pursued in light of a contractor’s nonperformance or noncompliance with a contract’s terms or conditions. Notify the contractor of the Government’s intention to seek relief. Liquidated damages. and Seek and obtain contractor feedback on a proposed Government action. Accepting work with minor nonconformities for a reduced contract amount or other consideration. Fraud. In seeking contract remedies. occasionally. or Gross mistakes of the contractor. These forms of relief can be provided by contract clauses or from basic rights provided in Government contract law and.

steps involved in seeking some specific remedies are charted at the beginning of each section and then discussed in detail. Following the flowchart.CHAPTER 6 Steps in Performance The general steps in seeking corrective actions to defective performance are charted on the next page. each step is discussed in detail. In subsequent sections. 6-5 .

7.CONTRACT REMEDIES PRELIMINARY STEPS FOR CHOOSING CONTRACT REMEDIES Identify and select one or more contractual remedies. Rejection of noncomforming supplies or services. Remedies for latent defects. Remedies 1. Invoke rights under an implied warranty. Any other remedy specified in a specific clause at issue. 3. 2. Cure or show cause notice. or gross mistakes. 5. 6-6 . Invoke rights under an express warranty. 4. 6. Liquidated damages. fraud.

CHAPTER 6 IDENTIFYING TYPES OF REMEDIES 6. Failure to control costs adequately. fraud. 6-7 . Imposing liquidated damages.1 Identify Types of Remedies Monitoring identifies or permits the surfacing of performance failures or other breach of contract situations. These include: Issuing cure or show cause notices. such as: Anticipated or actual late delivery. Invoking written warranties. Invoking implied warranties. Selecting the most appropriate remedy for a situation is covered in 6. Remedies Without Resorting to Termination The Government has several methods at its disposal to remedy a given situation without resorting to contract termination. Rejecting nonconforming supplies or services. and Proving the existence of latent defects.8 of this chapter. or gross mistakes amounting to fraud. and Unsatisfactory performance.

Issue a notice and obtain a response. 2. Options Based on the Contractor’s Response to a Cure or Show Cause Notice 1. 3. Defer termination action.CONTRACT REMEDIES STEPS IN ISSUING A DELINQUENCY NOTICE 1. Evaluate the contractor’s response. 2. Select and implement a course of action. Claims. Seek alternatives to default. 3-4. and Terminations) 6-8 . Initiate proceedings as detailed in Chapter 9 (Disputes.

if practicable.607(a) At a minimum. Be in writing and sufficient to support a default termination.. a cure notice must: Specifically state the failure believed to be endangering perfor-mance. Allow the contractor at least 10 days to “cure” the failure. resulting in that termination’s conversion to one for convenience. be notified of the possibility of being terminated for failing to perform their contractual obligations. At least 10 days or more remain for contract performance and correction of the problem can reasonably be expected to take place within the remaining time.CHAPTER 6 DELINQUENCY NOTICES 6. a cure notice should not be issued. The FAR format for a cure notice is shown in Exhibit 6-1. Issue Cure Notice A cure notice is used when: The contractor fails to make progress and performance is endangered. Failure to issue a cure notice when required will probably result in an invalid termination for default. In this case. Contents of Cure Notice FAR 49. Notification will take one of two forms: Cure notice.2 Issue Cure or Show Cause Notice Contractors should. 6-9 . Cautions About Cure Notices Issuing a cure notice when the time remaining for performance does not permit a “cure” period of 10 days or more endangers the Government’s position (i. it would appear that the Government is permitting the contractor to extend performance beyond the required delivery date). or The intent is to terminate the contract prior to the delivery date.e. and Be sent with proof of delivery requested. or Show cause notice.

and Be sent with proof of delivery requested. the Government may terminate for default under the terms and conditions of the ________ ___________ [insert clause title] clause of this contract.” The notice must afford the contractor an opportunity to provide evidence that a delinquency. was beyond its control. a show cause notice must: Inform the contractor of its liabilities in the event of default.607(b) Permit the contractor to show cause why the contract should not be terminated for default. however. for instance. unless there is evidence of wrongful conduct or repudiation by the contractor. FAR Format for a Cure Notice You are notified that the Government considers your _______________________ [specify the contractor’s failure or failures] a condition that is endangering performance of the contract. invite the contractor to discuss the matter at a conference. At a minimum. Usually a show cause notice is issued when there are fewer than 10 days remaining. a contract cannot be terminated until the time for cure specified in the notice has expired. When appropriate. Contents of Show Cause Notice FAR 49. Therefore. Inform the contractor that failure to explain the cause of the deficiency may be taken as admission that no valid explanation exists. The FAR format for a show cause notice is shown in Exhibit 6-2. unless this condition is cured within 10 days after receipt of this notice [or insert any longer time that the contracting officer may consider reasonably necessary]. Exhibit 6-1 Issue Show Cause Notice A show cause notice is used when there is insufficient time remaining in a delivery schedule for the contractor to cure or correct the delinquency.CONTRACT REMEDIES After a cure notice has been issued. it can be used at any time when you can determine there is not sufficient time within the delivery schedule to permit a realistic “cure. 6-10 .

A contractor’s response to delinquency notices can take several forms. Your failure to present any excuses within this time may be considered as an admission that none exist. or Termination notice.CHAPTER 6 FAR Format for a Show Cause Notice Since you have failed to _______________________[insert “perform Contract No. any facts bearing on the question to ____________ [insert the name and complete address of the contracting officer]. the Government is considering terminating the contract under the provisions for default of this contract.402-3(e)(4) FAR 49.402-3(e)(3) Copies of either a cure or show cause notice must be sent to: The contracting office’s small business specialist and the Small Business Administration Regional Office nearest the contractor when the contractor is a small business. in writing. Exhibit 6-2 Requirement for Sending Copies of Notices FAR 49.” or “cure the conditions endangering performance under Contract No. within 10 days after receipt of this notice. Any assistance given to you on this contract or any acceptance by the Government of delinquent goods or services will be solely for the purpose of mitigating damages. Your attention is invited to the respective rights of the Contractor and the Government and the liabilities that may be invoked if a decision is made to terminate for default. Accordingly. A contractor is not required to respond to a cure notice since the contractor is told to correct the problem before the contract becomes delinquent. Evaluate Contractor Response Cure Notice Response 6-11 . Pending a final decision in this matter. the Government. However. upon expiration of the delivery period. ____ within the time required by its terms. it will be necessary to determine whether your failure to perform arose from causes beyond your control and without fault or negligence on your part. ____ as described to you in the Government’s letter of _______(date)”]. you are given the opportunity to present. and it is not the intention of the Government to condone any delinquency or to waive any rights the Government has under the contract. has the option of issuing either a: Show cause notice. and The contractor’s surety when a payment and a performance bond were required for contract performance. unless the problem is actually cured.

It is possible to unintentionally waive the Government’s right to default. ♦ No response. the Government may: Defer termination action. For instance: The Government fails to terminate within a reasonable time after the condition for the default occurs. Defer Termination Action Forbearance is the more formal term used to describe deferring termination action. Exhibit 6-3 Actions After Evaluation of Response Commensurate with a response. Typical Contractor Responses to Show Cause Notices ♦ An offer to “cure” performance. or Begin default proceedings. Waiver of Right to Default 6-12 . but only under certain conditions. This strategy is appropriate when a contractor has provided a workable solution to the performance deficiency you formally brought to its attention. Typical responses are summarized in Exhibit 6-3. the contractor has 10 days to respond. ♦ An offer to provide substantial performance in exchange for relief from some terms or conditions of the contract. Modify the contract. but no offered solution. ♦ Agreement with the facts of the notice.CONTRACT REMEDIES Show Cause Notice Response If you choose to issue a show cause notice (either with or without a prior cure notice). ♦ Presentation of a case for an excusable delay.

Necessary Elements of a Forbearance Notice To ensure preservation of the right to future remedial action for deficient performance. ♦ Declare the Government’s intention to pursue corrective contractual remedies. and Continue with default proceedings immediately after the contractor’s commitment for correcting performance has expired. Exhibit 6-4 6-13 . obtaining a receipt for the notice. An example of a forbearance notice is shown in Exhibit 6-5. the contractor may choose to discontinue performance. When the Government indicates its concurrence with continued perfor-mance. ♦ Document a finding of facts that forms the basis for the Government’s actions. ♦ Put the contractor on notice that the Government is deferring its right to future corrective actions only if the contractor fulfills its commitment to remedy deficient performance.CHAPTER 6 The contractor relies on the Government’s failure to terminate and incurs additional expenses in its continuation of efforts to complete performance. Protection of Right to Default To protect the Government’s right to further action: Provide a notice to the contractor that includes all of the elements contained in Exhibit 6-4. including default. such an indication must be clearly demonstrated to the contractor in order for it to constitute a waiver of the Government’s right to terminate. a letter of forbearance must: ♦ Acknowledge the contractor’s stated method for and commitment to “cure” performance. if the contractor fails to fulfill its commitment. If the contracting officer does not make such a clear indication. or The Government has indicated a willingness for the contractor to continue performance. you eliminate the contractor’s defense of relying on the Government’s inaction to own its detriment. By outlining the conditions of forbearance.

to the cure notice I issued on January 11. 1996. 3. and The late delivery on January 4. by a material supplier of chemical compound X3-NY that is necessary to complete the final stage of production. LX74920-97-C-0891. you outlined your company’s plan for making delivery of the first run of 160 widgets that was due. 1997. Exhibit 6-5 (continued on next page) 6-14 . 2. I would presume it was not excusable. I am unable to determine if its late delivery was excusable under paragraph (b) of the Default clause. I find the following facts are very pertinent: 1. 1996. Corporate Official: SUBJECT: Contract No. 1997. Deficient Performance This notice is a direct response to your reply of January 18. 1997. the day you signed the proposal on which the Government contract award was based. 2. 1997. In response to these statements. Your company “projected” delivery of the first run of widgets by February 1. according to the delivery schedule of the subject contract. In your January 18 reply. by December 31.CONTRACT REMEDIES Sample Forbearance Notice Dear Mr. Since the holiday season was a well-established fact on June 28. Since you provided no evidence to the contrary. 1997. The delinquency of the first run of widgets was due to: (a) (b) Employee absenteeism and overall lack of production during the end-of-year holiday season. 1997. Your company “projected” that the second production run of widgets would be delivered on time on April 1. Since you offer no explanation for the delinquent delivery of your material supplier. by adding a third production labor shift for the five-day work week beginning January 21. any delay that may have been caused by it is not excusable under paragraph (b) of the Default clause in this contract. to the ABC Company. stating in part that: 1.

this forbearance is conditioned on the following events: 1. please contact me immediately. 2. It was only on my questioning your intent during a telephone conversation on January 15. If I may be of assistance in further explaining the Government’s position in this matter. 1997. 1997. including the right to terminate for default. however. Sincerely Jane Justice Contracting Officer Exhibit 6-5 (continued) Inadvertent Waiver of Right to Default If the Government does inadvertently waive its right to default. the Government is prepared to temporarily defer default action. Delivery of the first run of widgets on February 1. Any new delivery date must be reasonable considering the contractor’s capabilities to meet it at the time it is established. Delivery of the second and third widget production runs as scheduled in the contract. and in spite of the apparent non-excusability of the delayed shipment. the contracting officer can regain this right by establishing a new delivery date either unilaterally or bilaterally. 6-15 . Based on this evidence. and under the general rights provided by Government contract law based on all of the evidence it has accumulated to date concerning the initial late delivery and any subsequent late deliveries. If delivery is not made as indicated above. the Government reserves its right to take all remedies available to it under the contract.CHAPTER 6 Sample Forbearance Notice Your use of the term “projected” does not convey to me a firm commitment on the part of the ABC Company to meet the February 1 delivery date for the first run or the contractually scheduled delivery dates for the second and third. that you affirmed your company’s commitment to these delivery dates.

A delivery date can be extended. and/or other terms and conditions of the contract. 6-16 . without consideration in order to set forth the contractor’s obligation and protect the Government’s rights to damages. The contract may be terminated at no cost when a requirement is no longer needed. The contractor may be permitted to use a third party to continue performance. For instance: A revised delivery schedule can be established. Execute a supplemental agreement. however. Negotiate sufficient consideration for appropriate relief from terms and conditions. Document the contract file to explain the reasons for the action taken. Seek Alternatives to Default There are alternatives to termination for default. pursue and execute the following: Establish the Government’s position for any consideration. a new delivery schedule. Whatever the alternative.CONTRACT REMEDIES Seek consideration from a contractor in establishing a new delivery date.

6-17 . Document all evidence pertinent to the liquidated damages clause and compute the amount due. 3. No 4.CHAPTER 6 STEPS IN IMPLEMENTING LIQUIDATED DAMAGES 1-2. 5. Discuss the case for invoking liquidated damages with the contractor. Obtain and analyze the contractor’s reply. Entitled to relief? Yes Do not impose liquidated damages. Prepare and issue liquidated damages notice. Withhold payment. 6.

In deciding whether to include coverage for liquidated damages for delay. on the recommendation of the head of a concerned agency. In deciding whether to include coverage for liquidated damages in a contract. is authorized and empowered to make a remission (the act of refraining to enforce the damages either in whole or part) that in the discretion of the CG is just and equitable.3 Liquidated Damages Liquidated damages represent a predetermined rate(s) or amount of damages expressed in a contract that is payable to the Government by a contractor for that contractor’s breach of contract or failure to perform. competition. 6-18 . and the cost and difficulties of contract ad-ministration. If a liquidated damages provision is to be used in a contract. Policy on Liquidated Damages FAR 11. then the applicable clause and appropriate rate(s) or amount of such damages must be included in the procurement’s solicitation document. a contracting officer should consider the probable effect of such coverage on pricing.502(a) and (d) Contracts should contain liquidated damages clauses only when both: The time of delivery or performance is such an important factor that the Government may reasonably expect to suffer damage if de-livery or performance is delinquent. the Comptroller General (CG). and The extent or amount of such damage would be difficult to ascertain or prove.CONTRACT REMEDIES LIQUIDATED DAMAGES 6.

For use when a fixed-price type of contract is contemplated. to ensure that the result is not an unreasonable assessment of such damages. Services. the contracting officer should take appropriate action expeditiously to obtain a contractor’s performance or to terminate the con-tract.502(b) A contract’s provision for liquidated damages may include both an overall maximum dollar amount or period of time.504(b) FAR 11. then efforts must be made to obtain delivery or performance elsewhere within a reasonable time. Where Right to Terminate for Default Exists Differing Applications The following may be inserted in solicitations and contracts when liquidated damages are appropriate. except for construction contracts awarded on a cost-plus-fixed-fee basis.211-13. FAR 52. requires the use of FAR 52. FAR 11. in turn. FAR 11. This clause is mandatory in DoD for all construction contracts greater than $500. FAR 52.000 except CPFF contracts or those in which the contractor cannot control the pace of work. This. Liquidated Damages—Supplies.504(a) FAR 11. If a liquidated damages clause is included in a contract and a basis for termination exists. It is discretionary on contracts of less than $500. during which damages may be assessed.CHAPTER 6 Importance of Reasonable Liquidated Damages The rate(s) of liquidated damages used must be reasonable and considered on a case-by-case basis.211-12. Time Extensions. and therefore unenforceable. A contracting officer must take all reasonable steps to mitigate (to lessen in force or intensity) liquidated damages. This is so because such damages fixed without any reference to probable actual damages could be held to be a penalty.504(c) 6-19 .504(b) DFARS 211. If delivery or performance is desired after a termination for default. the contracting officer must use FAR 52. For use for construction. Liquidated Damages—Construction. The efficient administration of contracts containing liquidated damages clauses is essential to prevent undue loss to defaulting contractors and to protect the Government’s interests.211-12 with its Alternate I.000.211-11. or Research Development. When a construction contract specifies different completion dates for separate parts of stages of the work.

FAR 52. Small. because the Government can terminate for default or take other appropriate action.CONTRACT REMEDIES FAR 19. Compute Amount Due FAR 11. In contracts with contractors who have approved comprehensive subcontracting plans under the DoD test program this clause should not be used. or its Alternate I. FAR 22. Contract Work Hours and Safety Standards Act—Overtime Compensation. The probable amount of damages sustained by the Government. For all solicitations and contracts containing the clause at 52.219-16. the rate of assessment of liquidated damages may be in two or more increments that provide a declining rate of assessment as the delinquency continues. Focus this documentation on: The stage of completion.708(b)(2) DFARS 219.708(b) and (c) FAR 52. It is critical to identify all factors that control how to compute the amount of liquidated damages in order to determine an accurate maximum amount authorized under a specific contract clause.503(b) and (c) When an assessment of liquidated damages is appropriate. but also on actual events that occurred during the administration of the contract. document any evidence of a contractor’s failure to deliver supplies or perform services within the time specified in the contract. Other exceptions also apply. the contracting officer withholds payment based on an accurate computation of the a-mount due. 6-20 . Liquidated Damages—Subcontracting Plan. if appropriate. Small Disadvantaged and Women-Owned Small Business Subcontracting Plan.219-9. if appropriate. The excusability and reason therefore of a delay. unless a contract not exceeding the simplified acquisition threshold or a contract for commercial items under FAR Part 12. and The contractor’s capability to complete the contract. For use when a contract may require or involve the employment of laborers or mechanics. If appropriate to reflect the probable damages. The actual computation will depend not only on the specific amount or formula set forth in the contract.222-4.305 Document Evidence for Liquidated Damages When enforcing liquidated damages.

CHAPTER 6 Construction Contracts FAR 11. a penalty). advise the contractor of: The Government’s intention to assess liquidated damages unless the contractor provides evidence to the contrary by a specified date that such an assessment would be improper. The rental of buildings and/or equipment. Evaluate Calculated Amount for Damages FAR 32. Compute amounts that would be authorized under each clause. discuss the situation with the contractor. Generally.e. For instance. 6-21 .503(b) The rate(s) of liquidated damages to be assessed against a contractor should be for each day of delay and the rate(s) should. detailing the reasons for any reduction in a specified amount stated in the contract. To ensure that the total liquidated damages amount is reasonable and not a penalty. you may have special contract terms limiting the overall amount or period of time. and The amount of the planned liquidated damages assessment. or both. or The continued payment of quarters allowances. The basis or bases for the Government’s assessment of the damages. a contract will restrict a total amount to be withheld to the greatest amount that can be withheld under the authority of a single contract clause. the rate(s) should also include an amount for these items. as a minimum. the following are examples of specific losses: The cost of substitute facilities. Discuss Assessment With Contractor After determining the Government is entitled to assess liquidated damages. Prior to the actual assessment of liquidated damages. Whenever the Government will suffer other specific losses due to a contractor’s failure to complete work on time. for assessing liquidated damages. cover the estimated cost of inspection and superintendence for each day of delay in completion. Explain the Government’s position and permit the contractor to present evidence to refute that position. Courts and administrative boards have traditionally denied liquidated damages that are excessive to the extent that they can be construed as punitive (i..111(c)(2) Examine a contract for any restrictions.

Withhold Payment Based on gathered evidence. destination).B. you will either: Forego assessing liquidated damages. Obtain and Analyze Contractor Response A contractor’s response may: Document the case for an excusable delay. Assess a reduced amount. When you decide that it would be fair to forego a liquidated damages assessment.g. By issuing this notice. Underscore that this case of nonassessment is not indicative of probable action in other similar circumstances. Claim impossibility of performance. or Assess maximum allowable liquidated damages. F.O. the contractor has one last opportunity to provide evidence for not assessing the damages.” Substantial completion occurs on the day the product is ready for use in the manner intended by the Government at the place required by the contract (e. this theory has limited application to supply and service contracts—applying mainly to equipment installation—and is based on decisions of courts and boards of contract appeals. However. provide the contractor with a written explanation of the reason. The dollar amount of the damages. Assess Reduced Amounts Reduced amounts may be assessed when the total amount of liquidated damages is excessive relative to: 6-22 . Liquidated damages are generally not appropriate after the work can be considered “substantially complete..CONTRACT REMEDIES Prepare and Issue Liquidated Damages Notice A liquidated damages notice should indicate: The reason for assessing the damages provided in the clause. or Claim that the work is substantially complete. The practical basis for this theory is that minor defects that do not affect use are not a reason to continue the liquidated damages period. and Any steps the contractor may be able to take to avoid further assessment of liquidated damages.

When the contractor has been authorized partial payments based on Government acceptance of some of the supplies or services under a contract. you must advise the contractor that the contracting officer has made a decision to deduct a specific amount. apply the amount due from your computations and consideration to the invoice the contractor submits for payment of late partial shipments. This is true even when acceptance results from a repurchase against the contractor’s account.CHAPTER 6 The total dollar amount of the contract. Do not deduct the amount of liquidated damages due the Government on requests for progress payments. or The probable amount of damages sustained by the Government. 6-23 . deduct the amount on the final invoice. If payment is not due until final acceptance. Before you actually deduct this amount from any payment. Wait until the supplies or services have been accepted by the Government before actually deducting the amount due.

Determine whether to accept a “minor” nonconformance. Yes 2. Reject and notify contractor.CONTRACT REMEDIES STEPS IN REJECTING NONCONFORMING SUPPLIES OR SERVICES 1. Determine whether to accept the nonconforming deliverable(s). 6-24 . Minor? Yes Notify the contractor that the nonconformance has been deemed minor. Gather evidence for rejection. Sufficient? No Do not reject and/or obtain sufficient evidence. 4. No 3.

There are. any accepted supplies or services must be accepted as authorized by the prescriptions of FAR 46. the government’s position tends to be one of persuasion rather than legal entitlement. The general rule is that contracting officers should reject supplies or services not conforming to contract requirements. contracting offices are responsible for ensuring that nonconformances are identified and for establishing the unacceptability of supplies or services that do not meet contract requirements.103(d) and (e) Policy on Nonconforming Supplies or Services When they retain contract administration responsibility. and: The defect appears to be the contractor’s fault.407(a) and (b) DFARS 246. specified situations that permit contracting officers to deviate from the general rule. Any warranty has expired. and There are no other contractual remedies. however. and FAR 46. When correction or replacement is permitted. as might be the case in some cost-reimbursement types of contracts. A request for repair or replacement at no cost to the government. Contractors ordinarily should be given an opportunity to correct or replace nonconforming supplies or services when this can be done within the required delivery schedule. Discoveries After DoD Acceptance DFARS 246.CHAPTER 6 NONCONFORMING SUPPLIES OR SERVICES 6.407(f) If the nonconforming defect is discovered after acceptance. unless the contract specifies otherwise.407. In this situation.4 Rejection of Nonconforming Supplies or Services FAR 46. The contracting officer is authorized to solicit and accept consideration (including a refund) if supplier or services that are nonconforming will nevertheless be accepted by the Government.407 6-25 . For instance: Where deviation from the general rule is in the Government’s best interest. the possible steps the contracting officer or administrative contracting officer may take include: Notification to the contractor of the defects. it must be without additional cost to the Government.

the contracting officer must obtain the concurrence of the requiring activity responsible for the requirement. reasons of economy or urgency) when acceptance may be in the Government’s best interest. as well as the concurrence of appropriate agency health officials where health factors are involved.407(d) When a nonconformance is minor. there may be circumstances (e. a request from the contractor for acceptance of the deliverable. the contract administration office may establish a joint contractor-contract administration office review group. The acceptance of nonconforming supplies or services considered to be critical or major requires that the contract under which they are accepted be modified to provide for an equitable reduction in price or cost or for some other consideration.407(c)(2) and (f) A contracting officer’s determination to accept nonconforming supplies or services considered to be critical or major must be documented in writing. the cognizant contract administration office may make the determination to accept or reject. Minor Nonconformances FAR 46. To assist in making this determination. If feasible. FAR 46. a contracting officer must base a decision to accept supplies or services on the following: Advice by the requiring activity that the nonconforming deliverable is safe to use and will meet its intended purpose. unless this authority has been retained by the contracting office. Information concerning the nature and extent of nonconformance.CONTRACT REMEDIES Acceptance of consideration if offered. including any adjustment offered by the contractor. In such circumstances. a contracting officer must ordinarily reject the nonconforming supplies or services. But even in these instances. A recommendation for acceptance or rejection with supporting rationale. Critical or Major Nonconformances When a nonconformance is critical or major. but such a group can-not deal with critical or major nonconformances.g. Sealing Acceptance FAR 46.. except that in urgent cases it may be furnished orally and later confirmed in writing.407(c)(1) 6-26 . and A contract adjustment considered appropriate. In any case.

or performance. An example reinforces the point: The acquisition of a fire truck may require the inclusion of 300 feet of hose. The missing 50 feet of hose may cause a different inspector to recommend rejecting the work. and that reason must be determined to assess which party is responsible. durability. Excusability There is a reason for nonconforming supplies or services. therefore. or The Government’s interests otherwise require a contract modification. You will need to verify. 6-27 . If a Government official (e.g. Weight or appearance. and what may be taken as an acceptance or rejection action under one does not. a minor nonconformance does not adversely affect one or more of the following: Safety or health.CHAPTER 6 FAR 46. Interchangeability of parts or assemblies. Conditions for Accepting Minor Nonconformances Generally. or Any other basic objective of the contract. if contract requirements. then a constructive change has occurred. Accepting a minor nonconformance on one contract or order does not provide relief for correcting similar defects on pending or future work. Each contract is its own arrangement. automatically apply to another. Reliability.407(f) The acceptance of minor nonconformances does not require that the contract be modified unless: It appears that the savings to the contractor in making the nonconforming supplies or providing the nonconforming services will exceed the Government’s cost in processing the modification. that one or more Government officials involved in a procurement did not direct a contractor to make any changes that may have contributed to nonconformances. assuming the Government official had the authority to make such a substitution.. a COR/COTR) tells the contractor to provide only 250 feet of hose and in place of the other 50 feet provide five fire extinguishers. for instance.

Gather Evidence for Rejection Investigate the circumstances of a nonconformance to: Establish that acceptance has not already occurred. Fraud. Investigate whether: The work has been explicitly accepted. A notice of rejection must be in writing if: The supplies or services have been rejected at a place other than the contractor’s plant. determine if the Government still has the right to reject nonconforming supplies or services. and Determine if the contractor is at fault. or Delivery or performance was late without an excusable delay. 6-28 .CONTRACT REMEDIES Rejection Before Acceptance Supplies or services that do not conform to contract requirements should be rejected before acceptance. Notices of Rejection FAR 46. Provide a basis for rejection. or by retention and use of delivered items or performed services). A written notice of rejection requires a written receipt from the contractor. Acceptance is final except for: Latent defects. Determine the seriousness of the problem.407(g) Notices of rejection must include the reasons for rejection and be furnished promptly to the contractor. or Gross mistakes amounting to fraud. After a product or service has been accepted. The contractor persists in offering nonconforming supplies or serv-ices for acceptance. or The Government accepted nonconforming work under a prior contract for the same requirement. Because acceptance is final. including a stated time period for the contractor’s reply. There is any evidence of implied acceptance (e. If timely notification is not provided. by silence. acceptance in certain cases may be implied as a matter of law. you cannot later reject it..g. by late rejection.

Remember: A notice of rejection does not extend the specified delivery schedule.CHAPTER 6 Timeliness of Notices The requirement for the Government to provide “prompt” notice is measured within the context of the rejected supplies or services. Exhibit 6-6 illustrates several situations of nonconformance and a decision that could result from an analysis of each. the contractor may have grounds for asserting that the notice was not prompt. Make Final Decision on Acceptance A contractor may reply to a notice of rejection by submitting: A proposal to repair or correct the work. 6-29 . Likewise. No reply. For instance: The Government may not delay issuing a notice of rejection to the point where the contractor is prevented from reworking or correcting a defective item. a notice may not be considered prompt if a delay in its issuance caused a contractor additional work or expense. and the contractor remains obligated to provide supplies or serv-ices that conform to the contract within that delivery schedule. or A refusal to repair or correct the work or to offer any consideration. A proposal to provide a downward adjustment in price or cost as a basis for acceptance. In this case.

and • Is justified on the basis of economy or urgency. The contractor refuses to make repair or provide appropriate consideration. Exhibit 6-6 6-30 . Accept as is. or • Terminate for default and reprocure. Then Accept as is (once). None. Substantive Nonconformance If The contractor agrees to correct the deliverable (or reperform the service) within the delivery schedule. Accept as is. Consideration would be greater than the cost of modifying the contract. Accept as is (once). Consideration Cost to reinspect or retest. Consideration comparable to the value of the loss sustained by the Government.CONTRACT REMEDIES Nonconforming Deliverables Minor Nonconformance If Consideration would be less than the cost of modifying the contract. Withhold acceptance until receipt of the corrected deliverable (or reperformed service). Then Withhold acceptance until receipt of the corrected deliverable (or reperformed service). Either: • Correct the product or service through other means (contract or in-house). Contractor to pay all costs for the correction or reprocurement. Acceptance: • Would not affect safety or performance. Repair can be accomplished through warranty provisions. The contractor agrees to correct the deliverable (or reperform the service) but needs an extension of the delivery date. Cost to reinspsect or retest. Consideration comparable to the value of the loss sustained by the Government. Appropriate consideration for the delay. Consideration None.

6-31 .CHAPTER 6 Acceptance of Contractor Proposal Accept a contractor’s proposal for correction of the nonconforming supply or service based on: Advice of the technical activity concerning safety and performance. A request from the contractor for acceptance of the supplies or services. A recommendation by the requiring activity and. Information regarding the nature of the nonconformance. and An appropriate contract adjustment. If you are ordering correction of defects at the contractor’s expense. a program office for acceptance or rejection with supporting ration-ale. when appropriate. be sure to give the contractor a chance to correct the work. if feasible. The contractor is liable for the cost of Government or third party correction costs only if it was given the opportunity to make the correction itself and failed to do so within a reasonable time.

Will the contractor honor the warranty? Yes Document the file. Select the appropriate remedy. Yes 2. 6-32 . Verify that a contract’s warranty applies. Does it apply? No Pursue other remedies. Correct or replace nonconforming deliverables from another source and charge the contractor.CONTRACT REMEDIES STEPS IN IMPLEMENTING EXPRESS WARRANTIES 1. 3. Notify the contractor that the Government is invoking its rights under the warranty. No 4.

The requirements for administration and enforcement (i. 6-33 . Belvoir. end use.. An express warranty is a written promise or affirmation given by a contractor to the Government regarding the nature.770-2 The use of warranties is not mandatory. The cost (i. complexity and function.. Virginia. difficulty in detecting defects before accept-ance).e. the acquired item may be customarily warranted and cost to the Government may be the same whether or not a warranty is included). the contracting officer must consider the following: The nature and use of the supplies or services (i. Written warranties limit the Gov-ernment’s risk when relying on the contractor’s own inspection methods or systems to ensure the quality of performance requirements. usefulness.e. In determining whether a warranty is appropriate for an acquisition. or condition of the supplies or performance of services furnished under a contract. Criteria for Use of Warranties FAR 46. contractor’s cost created by the warranty and Government administration and enforcement of the warranty).703 and 246.703 DFARS 246. The use of a warranty is mandatory in the acquisition of weapon systems.e. Ft. to the extent that the contractor’s liability may be partially or completely offset and its warranty provides adequate assurance of a satisfactory product). and The reduction of the Government’s quality requirements (i.CHAPTER 6 EXPRESS WARRANTIES 6. A useful reference for the development.e.. The existence of a trade-practice warranty (i. negotiation and administration of weapon systems warranties is the Warranty Guidebook prepared by the Defense Systems Management College. the ade-quacy of an administrative system for reporting defects).. the Government specifies its requirements and validates that they have been met through the inspection and acceptance process..5 Express Warranties FAR 46.701 In typical procurements for supplies and services.e.

Warranties of Commercial Items FAR 46. Warranty clauses do not limit the Government’s rights under an inspection clause relative to latent defects. Any express warranty must meet the Government’s needs. Warranty clauses. fraud. and a contracting officer should analyze any commercial warranty to determine if: 6-34 .246-8 (Inspection of ment—Cost-Reimbursement. or other clauses or terms of a contract.705 Contracting officers must not include warranties in cost-reimbursement types of contracts unless authorized by agency regulations. Three prescribed exceptions to this rule call for the use of warranties under: FAR 52.404(b) When used in a contract for commercial items.CONTRACT REMEDIES Limitations on Warranties FAR 46.302(d) Express Warranties for Commercial Items FAR 12. such as minimum duration. including extended warranties. is an exception to the prohibition of the use of warranties in cost-reimbursement contracts.705 FAR 52. FAR 12. must provide that the warranty applies notwithstanding inspection. DFARS 246. To the maximum extent practicable. or gross mistakes that amount to fraud. Conducting market research may surface customary commercial warranty practices that are appropriate for the acquisition of many supplies or services. Solicitations may specify minimum warranty terms. appropriate for the Government’s intended use of an item. including offers of extended warranties. express warranties are included by an addendum.246-7001 (Warranty of Data). that are offered to the general public in customary commercial practice. except for those in construction contracts. Such practices should be considered for incorporation into solicitations and contracts if a contracting officer determines them appropriate for business arrangements satisfactory to both parties and not otherwise precluded by law or executive order. as offered by a contractor for the repair and re-placement of commercial items. acceptance.709 Contracting officers are exorted to take advantage of commercial warranties. where appropriate and in the Government’s best interests.246-3 (Inspection of Supplies—Cost-Reimbursement). solicitations for commercial items must require offerors to offer the Government as least the same warranty terms. and Research and Develop- DFARS 252.

and economical operation under normal operating conditions. The contractor is not liable for patent defects after acceptance by the Government unless a warranty clause was made a part of the contract. Acceptance by the Government imposes a major limitation on its rights. Examine Express Warranties FAR 12. In such cases. a contracting officer must ensure that the express warranty provides for the repair or replacement of defective items discovered within a reasonable time after acceptance. A patent defect is a defect that was either known by the Government or could have been made known through reasonable inspections or tests prior to acceptance. Warranties. Standard inspection and acceptance clauses make acceptance by the Government final and conclusive (unless otherwise stated in a contract). are a necessity whenever there is concern that inspection and testing may not be diligently carried out by the Government before acceptance. it may be customary commercial practice for contractors to exclude or limit the implied warranties contained in the provisions of an express warranty. The collection of performance information. expressed in a written specification provision or other written form.CHAPTER 6 The warranty is adequate to protect the Government’s needs. Procedures for the return of warranted items to the contractor for repair or replacement. and Will conform to a contract’s requirements. Specification Provisions Specification provisions that focus on the quality of the requirement can be a warranty provision.” This provision 6-35 Post-Acceptance Rights Through Warranties . both in terms of the items covered and the length of the warranty. Warranties preserve the Government’s rights after acceptance.404(b)(2) In some markets. and The warranty is cost-effective. efficient. An example of a provision routinely found in a specification is: “The contractor’s design shall ensure safe. The warranty’s terms allow the Government to exercise effective postaward administration of the warranty to include: The identification of warranted items. Express warranties are the contractor’s way of assuring the Government that supplies or services: Are free from defects in workmanship.

The Government would have to test this provision prior to acceptance to determine if an item conformed to it. provided above. Clauses requiring written warranties from a contractor are shown in Exhibit 6-7. or Incorporating its commercial warranty in a contract.CONTRACT REMEDIES is an attempt to protect the Government from defects discovered after acceptance. Remember: Oral guarantees of a contractor are not considered warranties. Warranty Inclusions Express warranties (including specification provisions) must: State the duration of the warranty. the 30 days represent both the duration of the express warranty and the period of time for notification. Unlike specific warranty clauses or provisions. The Government’s rights would be protected after acceptance for the 30-day period. this specification provision would not survive acceptance. Warranties included in a contract define the rights and obligations of the contractor and the Government concerning defective items and services after acceptance. Written Guarantees A contractor can make written guarantees to the Government through: Accepting a warranty clause in a contract. and Specify a period during which notice of any defect must be given to the contractor. Assume that the specification provision example. were to read: “The product shall be capable of reproducing copies for 30 calendar days without experiencing failure to any nonconsumable part. (5.000 copies per day represent the estimated normal daily usage. In this case.)” If this were the case. 6-36 . the provision would be considered an express warranty. Warranty clauses extend the Government’s right to correction of defects or replacement of a deliverable until after acceptance.

Alt III (Fixed-price incentive contract) . 52. Exhibit 6-7 6-37 .Alt II (Fixed-price incentive contract) .Alt III (Contractor only source) .Alt II (Transportation costs to correct) .246-18 Warranty of Supplies of a Complex Nature 52.246-17 Title Warranty of Supplies of a Noncomplex Nature Purpose • Fixed-price supply .246-19 Warranty of Systems and Equipment under Performance Specifications or Design Criteria 52.246-20 52. Rights in Technical Data and Computer Software. • In firm fixed price contracts.Alt I (Brand name and model equipment specified in contract) When extended liability is desired: • Under contracts containing the clause at DFARS 252. service.Alt V (Disassembly required for inspection or replacement) • Fixed-price supply or R&D .Alt IV (Disassembly required for inspection or replacement) • Fixed-price supply.Alt I (Reserved) . or R&D when performance specifications or design are of major importance .246-21 Warranty of Services Warranty of Construction DFARS 252.249-19 is not used • Fixed-price construction . • In fixed price incentive contracts.Alt II (Transportation costs to correct) .246-7002 Warranty of Construction (Germany) When fixed price construction contracts are to be performed in Germany.246-7001 Warranty of Data DFARS 252.Alt IV (Fixed-price incentive contract) .227-7013.Alt I (Transportation costs to correct) .Alt I (Reserved) .Alt III (Disassembly required for inspection or replacement) • Fixed-price service when 52.CHAPTER 6 FAR Clause 52.

The contractor agrees to correct any deficiency in design. Warranty of Systems and Equipment under Performance Specifications or Design Criteria. Correction of deficiencies warranty. Data warranty. for an example of this type of warranty. Refer to FAR 52. This is similar to a repair warranty in a retail establishment. This warranty lasts for a period of three (3) years after delivery of the data. Warranty of Supplies of a Noncomplex Nature.246-20. the Government may elect a price or fee adjustment. Service warranty. material. Refer to FAR 52. The contractor agrees to reperform defective services if defects in workmanship existed at the time of accept-ance. for an example of this type of warranty. which generally fall into four basic categories: Failure-free or hardware warranty. This is very similar to a consumer warranty for commercial products.CONTRACT REMEDIES Types of Warranties Government warranty clauses provide for various types of warranties in supply and service contracts.246-17. 6-38 . The contractor is obligated to replace or reperform work on contract items if defects in material or workmanship existed at the time of acceptance. Refer to FAR 52. If correction or replacement is no longer required by the Government.246-19. The contractor agrees either to correct or replace data which does not at the time of delivery conform with the specification and all other requirements of the contract. for an example of this type of warranty. The contractor accepts the responsibility to correct any failure or defect that occurs during a specified or measured amount of use or operation. Warranty of Supplies of a Complex Nature. obtain a copy for a contract’s file and provide one to the user. Refer to FAR 52. This type of warranty in a major systems contract usually also applies to spare parts and other supplies included in the contract. or workmanship that becomes apparent during a test or early operation and that results in the specific item’s performing below the required standard. If a contractor’s standard warranty applies.246-18. for an example of this type of warranty. Supply warranty. Warranty of Services.

such as: A summary of warranties that applies to a specific product or serv-ice. and Packaging and transportation requirements. and Coverage for specific defects. Select Appropriate Remedy FAR 46.706(b)(2) DFARS 246. Examine the written terms and conditions of the warranty. Who has Government responsibility to report warranty incidents and the authority to implement a warranty’s clauses. The contractor must mark warranty items in accordance with Military Standards 129 and 130. Warranties may provide alternate remedies such as: Repair the defect. Determine if any Government obligations under the warranty were met or ensure that they will be met. if all components are not included.706(b)(5) It is important to determine the contractor’s responsibilities and the Government’s rights under the terms and conditions of a warranty. Duration of the warranty. Specific components to which a warranty applies. 6-39 . This is necessary in order for the Government to administer and seek enforcement of the warranties it has acquired under its contracts. Application of Warranties Verify that a warranty clause applies to a specific failure.CHAPTER 6 Enforcement of Warranties Since users are usually the first to identify defects under a warranty. Confirm that the facts support invoking the warranty. The contact person in the Government procurement office and the contractor’s contract person. if the latter is allowed. it is essential that they be provided information. Documentation and other warranty requirements. This examination should reveal: Duration of the warranty. The basic considerations for determining applicability are: Confirm that the Government has officially accepted the items or services.

Make an equitable adjustment. pack and mark the repaired or replaced items. but take this action only as a last resort when other actions have failed. at the expense of the contractor. Make other Government organizations aware of the need for quick internal Government coordination to ensure that the Government’s rights are not forfeited or lost. Repair or replace the defective items. There will be less room for argument if you notify the contractor before the warranty period expires. the Government has the right to choose the remedy that is in its best interest. Obligation of Contractor The contractor’s obligation to repair. Resolve the issue by: Obtaining the contractor’s position and reasons for taking that position. Unless a specific clause states otherwise. and Inspect. Warranties may be administered by other organizations besides the contracting office. and Documenting the results. or reperformance the Government has obtained from other sources. A supply organization or the user with this responsibility may issue the notification to the contractor. or another source. Correct or Replace Nonconforming Items or Services You may arrange for repair or replacement by the Government.CONTRACT REMEDIES Replace the item. or agree to a price or cost ad-justment includes the labor and material necessary to: Reinspect items the Government reasonably expected to be defective. replace. 6-40 . Reaching agreement on how and when the warranty will be applied. Notify Contractor Contact the contractor about a warranty problem. or Pay for repairs. replacements. Reperform the service. package.

CHAPTER 6 6-41 .

Does it apply? No Pursue other remedies. Yes 2-3.CONTRACT REMEDIES STEPS IN IMPLEMENTING IMPLIED WARRANTIES 1. 6-42 . Verify that an implied warranty exists. Notify the contractor that the Government intends to invoke its rights under the warranty.

The legal concept is one of fairness. Express warranty (UCC 2-313).6 Implied Warranties An implied warranty is an unwritten warranty that exists through the operation of commercial law. Since a warranty imposes a duty on the seller. Implied warranty of merchantability (UCC 2-314).404(a)(1) This implied warranty provides that an item is reasonably fit for the ordinary purposes for which it is used. Implied warranty of fitness for a particular purpose (UCC 2-315). the concept of a warranty is based on the seller’s assurance to the buyer that an item of supply or a service will meet certain standards. the buyer is generally entitled to a legal remedy through the concept of an implied warranty. the Uniform Commercial Code (UCC) designates five types of warranties that can arise: Warranty of title (UCC 2-312). fair.212-4(a). and Implied warranty arising from the course of dealing or trade usage (UCC 2-314[3]). If it does not. Implied Warranties for Commercial Items FAR 12. Uniform Commercial Code (UCC) For commercial buyer-seller arrangements. That is. The item must be of at least average. a breach of warranty is a breach of the seller’s promise. As noted previously.404(a) In terms of implied warranties. or medium-grade quality. Warranty of Merchantability FAR 12.CHAPTER 6 IMPLIED WARRANTIES 6. an item of supply or a service should live up to the claim of the manufacturer or provider. Additionally. the Government’s postaward rights for the acquisition of commercial items are: The implied warranty of merchantability. and it must be comparable in quality to 6-43 . and The implied warranty of fitness for a particular purpose. the Government’s rights extend to the remedies contained in the inspection/acceptance paragraph under FAR 52.

404(a)(2) This implied warranty provides that an item is fit for a particular purpose for which the Government will use the item. a contracting officer should consult with appropriate legal counsel.246-17.CONTRACT REMEDIES those that will pass without objection in the trade or market for items of the same description. or as otherwise provided in the contract.” FAR 52. Implied Warranty Cautions Remember: Warranties are invoked after acceptance. the Government may not invoke an implied warranty under the following: The inspection and acceptance clause of a contract provides for finality of acceptance.246-2. Warranty for a Particular Purpose FAR 12. fraud. FAR 52. FAR 52. For example. except for latent defects.” Under this condition. A warranty clause is included in a contract and it specifically excludes implied warranties. Before taking action in asserting any claim for a breach of an implied warranty. For instance.246-2 6-44 . Inspection of Supplies—Fixed Price. gross mistakes amounting to fraud. Acceptance shall be conclusive. Warranty of Supplies of a Noncomplex Nature excludes implied warranties as follows: “(4) All implied warranties of merchantability and ‘fit-ness for a particular purpose’ are excluded from any obligation contained in this contract. and The Government relied on the contractor’s skill and judgment that the item would be appropriate for the known particular purpose. But there are limits to doing so. The Government can rely on this implied warranty when: The seller knows the particular purpose for which the Government intends to use an item. a contractor is relieved of any obligation of an implied warranty once acceptance is made. covers acceptance as follows: “(k) Inspections and tests by the Government do not relieve the contractor of responsibility for defects or other failures to meet contractual requirements discovered before acceptance. For example.

Document the results and place it in the contract file. That is: Obtain the contractor’s position and its reason for taking that position. Invoke Appropriate Remedy The Government has the same basic rights under implied warranties as under express ones.” she had told him. The group meeting had been scheduled for a Friday afternoon. “Keep it simple and try to use examples. Notify Contractor Notify a contractor when the defect in an item is covered by an implied warranty. therefore. Have a contractor reperform a service. Joanne scheduled a group meeting for her contracts people to square things away.CHAPTER 6 Any defects are latent (i. or Have the deliverable corrected or the services reperformed by other means at the contractor’s expense. to begin after lunch and last for a couple of hours. You may. or condition of their deliverables has become a murky miasma for many.” the contract administrator had 6-45 . asking some to make brief presentations at the meeting about various aspects of contractors’ promises and af-firmations.e.. Make an equitable adjustment. The procedure for notification is essentially the same as the one for notifying a contractor concerning express warranties. Re-alizing there was a need to have everyone sing from the same sheet of music in this arena. Eric was not left without his. choose to: Obtain a corrected deliverable from a contractor. WARRANTY. WHICH IS IT .. OR GUARANTY? The whole business of contractors’ promises or affirmations regarding the nature. “What a time for a meeting.. The contracting officer made assignments among her staff. use-fulness. Reach agreement on how and when the warranty will be applied. Joanne had asked him to take about 15 minutes in delineating the differences between various types of warranties. a defect that was not known or would not be known through reasonable inspection and testing at the time of acceptance). GUARANTEE.

As Eric went to take his place in the audience. and reflected on how they mirrored customary commercial practices. He began by addressing the regulatory envi-ronment for warranties. While others presented. He capped his presentation by telling the group about the warranty of fitness for a particular purpose that had been included in Platform’s ID/IQ arrangement. and sat down. smiled. Where can I find out about that? Seems to me that a warranty and a guarantee may be synonymous. Joanne adjourned the session by thanking everyone and wishing them all a pleasant and restful weekend. it had seemed to go well.CONTRACT REMEDIES said to himself.” she started. “Who’ll be listening at the end of a busy week?” And then he caught himself when he remembered who had scheduled the meeting. 6-46 . mostly questions. crisply citing pieces of FAR Subpart 46. What sources exist to help me uncover information about commercial warran-ties. Why don’t you look into that for our next group meeting. both express and implied. where can we go to find out what they are. “Good job. I’m sure there are those among us who have no practical feel for what’s becoming increasingly important to our business. And came the opportunity for Eric to give his pitch. And of equal importance. Guaranty? Sounds like some assurance for something. Isn’t this supposed to give us a heads-up about warranties? She’s bound to ask me about advantages and disadvantages among commer-cial warranties. inform us of the distinction between (and here she spelled them out) a warranty.7 and in the process moving smartly into the Government’s use of warranties for commercial items. and more specifically customary commercial practices for warranties? Check out the results of some recent market research that we’ve done. Came the staff. And he was prepared or so he thought. he cheated a bit and made some notes to himself. “but I thought you might have expanded somewhat on your coverage of com-mercial warranties. Like what? It was about three o’clock when the group meeting ended. a guarantee. Came the Friday. and a guaranty. For the latter he used examples dealing with standard commercial items and services.” He nodded affirmatively. Indeed. Check this out. That is the need to know about warranties as they relate to customary commercial practices in the private sector. Eric. his boss spoke up. Products? Debts? Security instruments? Check this out. And while you’re at it.

CHAPTER 6 6-47 .

. OR GROSS MISTAKES 1. Verify that the failure has been caused by a latent defect. 4. FRAUD. a warranty).CONTRACT REMEDIES STEPS IN DETERMINING LATENT DEFECTS. 1. 6-48 . Notify the contractor--coordinating with the Inspector General or debarring official when fraud is suspected. A latent defect? No 2.g. Determine if acceptance resulted from fraud (or a gross mistake amounting to fraud). Correct or replace nonconforming deliverables at the contractor’s expense. Adjust price downward and collect from the contractor. If the contractor refuses to make restitution. Unilateral Actions . Fraud or a gross mistake? No Pursue other remedies (e. if any. Yes 3. 2. select a course of action.

♦ Identify whether such tests would have been reasonable under the circumstances. When defects are found after award and no warranties apply to their correction. Verify Failure Due to Latent Defect For a defect to be latent it must be: Not susceptible to discovery using inspection methods that are reasonable under the circumstances. 6-49 . or There is evidence of a gross mistake amounting to fraud. FRAUD. ♦ Determine if the Government has fulfilled its obligations for inspection and acceptance. Exhibit 6-8 summarizes the necessary evidence. your final task in proving or clearing contractor liability is to determine that a latent defect. or a gross mistake was not involved. OR GROSS MISTAKES 6. Steps in Verifying a Latent Defect ♦ Identify the contractor’s liability for the defect.7 Latent Defects. and In existence at the time of acceptance.CHAPTER 6 LATENT DEFECTS. There is evidence of fraud. fraud. A reasonable inspection is one that would normally be performed as a custom of the trade. or Gross Mistakes The Government’s acceptance of a contractor’s supplies or services is final unless: A defect or failure is latent. ♦ Identify what test could have revealed the defect at the time of acceptance. Deciding what is “latent” is essentially deciding what is reasonable. Fraud.

the contractor is responsible for latent defects discovered at any time after final acceptance. To provide a gross mistake you need only prove that the mistake was truly irresponsible. There is no expiration to liability for a latent defect. Prepare Finding of Facts Document evidence of fraud in a finding of facts. you must show that a misrepresentation or con-cealment of fact was made with an intent to mislead. but the extent of the liability is prorated over the useful life of the item. ♦ Government injury suffered as a result of the misrepresentation or concealment. or a concealment of a material fact. When the Government cannot establish a contractor’s intent to mislead. Exhibit 6-9 6-50 .246-12(i) Determine Existence of Fraud (or Gross Mistake Amounting to Fraud) Under the standard inspection clauses. ♦ Contractor knowledge of the fact concealed or misrepresented. A summary of all the Necessary Elements of a Finding of Facts for Fraud A finding of facts for fraud must show evidence of: ♦ A misrepresentation of fact (actual or implied). necessary elements for a finding of facts is contained in Exhibit 6-9. but all the other factors are present.CONTRACT REMEDIES Exhibit 6-8 Contractor Responsibil-ity for Latent Defects FAR 52. then basing its case on a gross mistake amounting to fraud is an alternative to pursue. For instance: A latent defect can be in the design of a product rather than in the manufacture of it. The only difference between fraud and a gross mistake is intent. To prove fraud. ♦ An intent to mislead the Government into relying on a misrepresentation or concealment.246-2(k) FAR 52.

The designated debarring officials in DoD are set forth in DFARS 209.403. Report Evidence of Potential Fraud DFARS 209.4 Your agency’s debarring official will probably be identified in your a-gency’s supplement to FAR Subpart 9. you are responsible for: Obtaining the contractor’s position and its reasons for taking that position. document the results and include it in the contract file. but use normal supervisory channels to report information for considering a suspension or debarment. Preparing the Government’s position. and Correcting or replacing nonconforming deliverables from another source and charging the contractor for the costs incurred by the Government. Contact Contractor Take Unilateral Action You may take unilateral action if a contractor refuses to make restitution. and other officials who have a need to know. including termination for default. Requesting a proposal to repair or replace the deliverable or reperform the service and/or make a downward adjustment in price or cost. As with any other negotiation. 6-51 . Unilateral action includes: Determining a downward price or cost adjustment and collecting it from the contractor. using principles of price or cost analysis as you would on any other proposal. and Negotiating a supplemental agreement with the contractor reflecting a new delivery schedule and/or some other consideration. Otherwise.4. If you suspect fraud. The Government can avail itself of all other remedies as well. Provide evidence of potential fraud to your agency’s debarring official.CHAPTER 6 Contractor Responsibility to Correct The contractor can be forced to repair or replace supplies or reperform services at its own cost any time after acceptance when fraud is proven. notify the contractor only in coordination with your agency’s Inspector General or debarring official. Most agencies have “hot lines” for reporting incidences of fraud to the agency’s Inspector General. Inspector General.

CONTRACT REMEDIES 6. As with any modification. Reduce. The Government has the right to demand payment from the contractor when the contract has been paid in full. or Demand Payment From Contractor 6-52 . attempt to secure a supplemental agreement. Notice the type of remedy selected is based on the delivery of an item or service.8 Select Most Appropriate Remedy Exhibit 6-10 provides a decision table for selecting a remedy for given situations. You may reduce payment on a unilateral modification under the authority of the Disputes clause in the contract when negotiations for a supplemental agreement fail. 6.9 Withhold. Withholding or reducing payment to the contractor is appropriate when sufficient funds remain for payment.

2. When there is a reasonable expectation that a satisfactory replacement will be provided by the delivery date in the contract. Send a cure notice (10 days or more prior to the contract’s delivery date) or a show cause notice (immediately upon expiration of the delivery period). 1. But only if there is a reasonable probability of delivery by a date that the requiring activity can tolerate. Postpone the delivery date in exchange for consideration. or. When there is little probability of delivery by a date that the requiring activity can tolerate and/or the contractor has not offered adequate consideration. (2) there is a reasonable probability of delivery by the new date. Exhibit 6-10 (continued on next page) 6-51 . 3. When the nonconformance is minor and obtaining consideration is not in the Government’s interest. When there is little expectation of receiving an acceptable deliverable within a reasonable time. 4. Comment Appropriate when (1) no liquidated damages clause was included in the original contract. within a reasonable time thereafter. When the requiring activity can tolerate nonconformance. Reject the deliverable and send a cure or show cause notice. 5. Accept the deliverable in exchange for consideration. 2. Accept the deliverable without consideration. Accept late delivery and invoke the liquidated damages clause. and (3) the requiring activity can live with the new date. Accept the deliverable and invoke an express warranty to have the deliverable brought up to specification after acceptance. for consideration. When there is an express warranty and immediate acceptance will benefit the requiring activity.CHAPTER 6 Decision Table for Selecting a Formal Contractual Remedy Problem LATE DELIVERY Note: When the contracting officer has determined that the deliverable has been or will be delivered late and that the delay is other than excusable. 3. Reject the deliverable and obtain correction or replacement at no cost to the Government. THE DELIVERABLE HAS NOT BEEN ACCEPTED AND DOES NOT CONFORM TO CONTRACT REQUIREMENTS Note: When the contracting officer has determined that the deliverable has not been implicitly or explicitly accepted and does not conform to contract requirements. Options 1.

If there was a latent defect or acceptance was based on fraud or a gross mistake. Send a cure notice (10 days or more prior to the contract’s delivery date) or a show cause notice (immediately upon expiration of the delivery period).g.CONTRACT REMEDIES Decision Table for Selecting A Formal Contractual Remedy Problem THE DELIVERABLE HAS BEEN ACCEPTED BUT DOES NOT CONFORM TO CONTRACT REQUIREMENTS Note: When the contracting officer has determined that the Government has a reasonably strong case based on the terms and conditions of the contract. When the breach is of sufficient magnitude to warrant a termination for default if not corrected. 1. Invoke an implied warranty. Comment If an express warranty applies. Invoke an express warranty. 2. 3.. OTHER BREACHES Note: When the contracting officer has exhausted all efforts at informal resolution of the problem. If an implied warranty applies. Exhibit 6-10 (continued) 6-52 . Invoke whatever remedy (if any) is established by a clause (e. liquidated damages for failing to comply with the subcontracting plan). Demand that the deliverable be replaced or corrected and/or that the price or cost be adjusted downward. 2. Options 1.

” she would say.232-32.” He made a short list of questions for himself. one for partial payment on the delivery of the first of three lots of roofing material.232-32. the first one dealt with a performance-based payment arrangement for the comprehensive operation and maintenance of an agency facility.” As he reviewed the invoices. And the third had to do with the withholding provision for fee under a cost-plus-fixed-fee arrangement. If so. The contractor asserted that it was due interest on the invoice in question. This first lot. “Whether you’re buying the simplest of supplies or the most complex of systems. The contract had included the clause at FAR 52. This complaint came on top of the contractor’s phone call of a few days ago that the agency had violated its obligation to pay in accordance with the prompt payment period specified for contract financing. who should know better. however.” A few more questions for himself. ♦ Seems like we should get something for late delivery. what might it be? 7-1 . Getting this into a solicitation is important and covering it by an appropriate contract clause is critical. and taking it on the chin in the process. ♦ Get to and read FAR 52. everything from housekeeping requirements to building upkeep and repair. It read as follows: “Roofing material in both quantity and quality is accepted as delivered. The second invoice.CHAPTER 7 CONTRACT PAYMENT QUID PRO QUO … PAYMENT FOR PERFORMANCE Joanne had always cautioned her contract specialists and administrators about the importance of proper terms and conditions for payment under a Government contract. had a note appended to it from the requiring activity’s inspection representative. and the contractor was complaining that the agency had applied a liquidation rate to the contract’s line-item for exterior building care in excess of what the contractor was owed. does the Prompt Payment Act apply? Also check out the contractor’s invoice to determine if it was submitted properly. mance-based payments? What does it say about liquidation of perfor- ♦ Check out the performance criteria for exterior building care. was delivered ten days late. What dollar amount did we place on this line-item? ♦ Aren’t performance-based payments to be treated like progress payments? If so. “we seem to end up confusing contractors. “For all that we do to try and make things clear.” he said to himself. “Okay. “you must give attention to the basis for paying a contractor relative to the job to be done. Two involved invoices under firm-fixed-price contracts. “I’ve got to check this out. Performance-Based Payments.” Eric had reflected on Joanne’s point in dealing with three situations before him.” Eric mumbled.

was whether or not to recommend that a portion of the fee be withheld. He checked his contract file and noted that.216-8. plus the rental of a four-wheel drive vehicle for use in visiting what the contractor described as remote agency sites for required interviews with field personnel.CONTRACT PAYMENT ♦ Wonder who’s at fault for this? Check out why the late delivery. The issue. He was certain these could be resolved. ♦ What constitutes the Government’s best interest as a basis for withholding fee? (Better get to Joanne on this one. as Eric saw it. ♦ If we suffered no damage or inconvenience. do we have any right to some sort of adjustment? Get to counsel on this one. The voucher had cleared the technical people who had a few comments about questionable costs concerning some travel the contractor’s staff had incurred in conducting three field visits over the past month. Fixed Fee. He was ready to get on with it. 7-2 . the Government had the right to withhold further payment beyond the 85 percent level if in its best interest. Eric called his administrative assistant to bring him the three contract files associated with the invoices and voucher he had examined.) ♦ With approximately $75. a bit more than 85 percent of the fixed fee had been paid.000 of fixed fee yet to be vouchered. Under the clause at FAR 52. as of the last voucher. These had to do with airport-to-location cab fares and return. The third situation dealt with a voucher submitted under a cost-plus-fixed-fee contract. Is this a factor to consider in any determination to withhold fee? “And away we go!” he thought. A final set of questions for himself. how much could be withheld? ♦ The contractor’s expended almost 65 percent of the estimated cost and reportedly completed about 50 percent of the envisioned effort.

Determine the total amount due a contractor.8 7. Identify terms and conditions of the contract that are pertinent to the amount to be paid. 7-3 . Notify a contractor of a final decision on paying a lesser amount.9 7. Forward the invoice or voucher to a payment office and set up a follow-up file. Identify withholdings and deductions or other corrections that are necessary. Process contractor invoices and vouchers by determining whether they are accurate and make a further disposition according to that determination.2 7.7 7.1 7. Determine the basis for and use of performance-based payments. you will be able to: Overall: Individual: 7.6 7.4 7.CHAPTER 7 COURSE LEARNING OBJECTIVES At the end of this course. Determine whether an assignee is protected from a deduction or withholding.10 Inspect an invoice or voucher for completeness and notify a contractor of any defects.5 7.3 7. Contact a contractor to explain any differences between the amount of a submitted invoice or voucher and the amount the Government proposes to pay. Obtain documents and determinations that are pertinent to the amount to be paid.

g. whether one refers to it as an invoice or a voucher. This is Standard Form (SF) l034 (Public Voucher for Purchases and Services Other Than Personal) and SF 1035 (Public Voucher for Purchases and Services Other Than Personal — Continuation Sheet). company. What must be presented on an invoice is set forth in a contract’s terms and conditions for payment (i. or it may have agreed to the submission of periodic invoices based on the acceptable delivery of partial quantities (partial payments). There is no FAR-prescribed standard form for an invoice. where it is to be sent. Even though the distinction between invoices and vouchers is correct. When this occurs. What type of payment may apply in a given situation depends on the type of financing that the Government has agreed to. or governmental organization—expects promised contract performance and good work. a billing under any fixed-price type of contract is called an “invoice. so there is nomenclature for different types of payments under Government contracts.e. The fundamental premise for payment under a cost-reimbursement type of contract requires the submission of a SF 1034/35.CONTRACT PAYMENT INTRODUCTION TO CONTRACT PAYMENT The Language of “Billings” Every buyer—whether a private consumer. a contractor is entitled to compensation based on whatever financial arrangement was agreed to. Vouchers Terms Sometimes Confuse Types of Payments Lump Sum or Partial Payments FAR 32.111 7-4 . Under a firm-fixed-price supply contract. the contractor will present its “billings” to the buyer or buying organization and expect to get paid. the Government may have a-greed to the submission of one invoice for a total (lump sum) payment after the acceptable delivery of all items.” and a billing under any cost-reim-bursement type of contract is called a “voucher. FAR 52. Cost-reimbursement types of contracts are billed using vouchers..” Invoices Fixed-price types of contracts are billed using invoices. what is to be included. Do not be confused by this. As there is nomenclature for types of contractor billings. What must be presented on a voucher is set forth in a governmentwide standard form prescribed for use in a contract’s terms and conditions.216-7. Allowable Cost and Payment Clause).. That is. Whatever the financial arrangement. In Government contracting. and so forth). there are clauses in cost-reimbursement types of contracts that refer to both (e. the general notion of billings is dealt with in terms of specific terminology.

the Government may have agreed to provide progress payments to the contractor. usually based either on cost incurred or on a percentage of completion. the Government does not pay at the conclusion of the work. Customary uniform progress payments [DFARS 232. 7-5 .501-1(a)(i)] which establish set rates for large. from payments that otherwise would be due the contractor for completed contract items. Customary flexible progress payments [DFARS 232. The Department of Defense has authorized three basic forms of progress payments based on costs. it pays a contractor periodically based on the contractor’s incurred costs. Cost Incurred Payments FAR Subpart 16. A progress payment is a form of contract financing made before work or deliverables are accepted. The governmentwide standard form for requesting progress payments is SF 1443 (Contractor’s Request for Progress Payment).CHAPTER 7 Progress Payments FAR Subpart 32. When used. Contractors request progress payments. shipbuilding. determined by an expressed liquidation rate.5 DFARS 232. small and small disadvantaged businesses (see DFARS 252. They do not submit an invoice for them.5 DFARS 232.232-7004). This form of progress payment has not been permitted for use on contracts arising from solicitations issued on or after November 11. partially during it. Rather.102(e)(2) In some fixed-price types of contracts. Progress payments based upon percentage or stage of completion are only authorized for use in construction.232-7003).501-2(a)] which must be reviewed and approved by the Director of Defense Procurement. alteration or repair contracts. Other forms of progress payments are normally tied to or based upon costs incurred. or progressively along the way. this form of contract financing payment is made without direct reference to costs incurred.3 Under cost-reimbursement types of contracts. 1993. Unusual progress payments [DFARS 232. and ship conversion.501-1(a)(iii)] which base the rate on a formula that is keyed to the level of contractor investment in working capital to sustain contract performance (see DFARS 252. Progress is defined within the context of an affected contract and such payments are recouped by the Government through the deduction of liquidations. so long as those costs are determined to be allowable (which includes both allocable and reasonable).

232-7005 Steps in Performance The steps for determining the appropriateness of an invoice or voucher. In the case of in-voices submitted under fixed-price types of contracts. such payments become eligible for reimbursement to the mentor firm.9 DFARS 232. They represent billings for costs that have been incurred in the performance of work. FAR 52. however. do not represent billings for work completed (either partially or completely).232-7000) by which such payments are made in a consolidated manner involving more than one contract.202-2 DFARS 232. but aside from the use of “commercial advance payments” they must be issued sparingly. they are considered the least preferred method of contract financing. are charted on the next page. It is DoD policy to assist small disadvantaged businesses as much as possible in contract financing matters by paying their invoices as quickly as possible after receipt. 7-6 . Except for their possible use in limited situations. Advance payments may be made by a prime contractor to a small disadvantaged business subcontractor under a Mentor-Protégé Program (see DFARS 252. Advance payments may be involved in two special situations also: Advance payments can be made under an Advance Payment Pool Agreement (see DFARS 252. The Prompt Payment Act. the Prompt Payment Act (31 U. does not apply to vouchers submitted under cost-reimbursement types of contracts. irrespective of the payment timing guidelines in the Prompt Payment Act or other agency policy. as amended) applies. 3901. as differentiated from invoices.402(b) FAR 32.470 Advance payments may be provided on any type of contract. each step is discussed in detail.9 The general rule is that all contractor billings should be handled expeditiously and paid promptly. in-cluding the amount to be paid. The reason for this: A contractor’s voucher requires an interim or provisional payment subject to a final audit and resolution under the Allowable Cost and Payment clause. Following this flowchart.232-7005).S. Implications for Prompt Payment FAR Subpart 32.216-7 DFARS 252. When made by the prime contractor to the protégé firm. But there are also statutory requirements associated with the prompt payment of contractor billings.C. Vouchers.CONTRACT PAYMENT Advance Payments FAR 32. except to the final voucher submitted under the Allowable Cost and Payment clause.

7-7 . Actions associated with executing such equitable adjustments are included with the corrective steps outlined in Chapter 6. and/or schedule.CHAPTER 7 Several of the contract clauses discussed in this chapter require an equitable adjustment in a contract’s price. cost.

Identify contractual terms and conditions related to the invoice or voucher and other relevant documents and data. Determine whether an assignee is protected from any withholding or deduction. No 8.CONTRACT PAYMENT STEPS IN PROCESSING CONTRACT PAYMENT 1. Complete? Yes 2-3. Notify the contractor of a final decision on paying a lesser amount. 7. Inspect an invoice or voucher for completeness and provide notice of any defects. Compute the total amount due the contractor. 5. Forward the invoice or voucher and set up a followup file. Notify the contractor of any differences between the amount invoiced or vouchered and the payment. 9. 6. 4. 7-8 . Identify any withholding or deduction. Notify contractor of defects.

unit of measure. quantity.905 Under both fixed-price and cost-reimbursement types of contracts. Agencies must pay the contractor after the receipt of a properly completed invoice within strict time limits or the Government will owe interest for any late payment.1 Inspect Invoice or Voucher and Notify Contractor of Any Defects A contract may require the contractor to send its invoices or vouchers to: The contract administrator. The contracting officer’s representative (COR). Check Invoice for Completeness FAR 32. Shipping and payment terms. unit price. If so. and extended price of supplies delivered or services performed. Invoice date. The contracting officer’s technical representative (COTR). if any (involved Government bills of lading require that their numbers and the weight of shipment be shown). whether or not this person is designated as the office of payment. a contract will specify an office of payment. 7-9 An invoice for a fixed-price type of contract must contain eight basic elements in order to be considered complete or proper for payment purposes. the Prompt Payment Act infers that the person who first receives an invoice in an agency’s name “receives” it for the purpose of payment.CHAPTER 7 CONTRACT PAYMENT 7.905(e) Name and address of the contractor. or The payment office directly. A contractor may inadvertently send its invoice directly to the contract administrator. These are: . Contract number or other authorization for the items or services performed (including order number and contract line-item number). Receipt of Invoice and Importance of Prompt Payment Act FAR 32. The administrative contracting officer (ACO). the contract administrator should date stamp the invoice. Description. and this date will be used as the date of receipt by the Government. In the case of fixed-price types of contracts.

Annotate When Defects Are Corrected Keep a record of the number of days a contractor caused a delay by submitting an incomplete invoice. and mailing address of the person to be notified in event of a defective invoice. If you are sent a new invoice showing the date of the original invoice.” Review Voucher for Compliance A voucher for a cost-reimbursement type of contract must conform to the requirements of a SF 1034. except to their final vouchers. the invoice was not proper until __________ and any interest payment that may be due the contractor shall be based on this later date. Notify Contractor of Any Defects Notify the contractor of any defects found in an invoice. When applicable. the contracting office waited _____ days for the contractor to supply necessary information for invoicing. It may be possible to tailor some aspects of the SF 1034 that would represent an Advance Agreement between the parties. Remember: Even though the Prompt Payment Act does not apply to cost-reimbursement types of contracts. and Evidence of shipment or completion. There are two basic rules for this notice: It must be made within seven calendar days after the agency receives the invoice. and Any other information or documentation required by the contract such as: Taxpayer or Employer Identification Number. Therefore.CONTRACT PAYMENT Name and address of contractor’s official to whom payment is to be sent (must be the same name and address as shown in the contract or on a proper notice of assignment). it may be that the parties have agreed to the representation of certain costs in a certain way reflecting a negotiated contract man-agement procedure. name. it is important to deal with a contractor’s vouchers as expeditiously as possible. It must specifically state the defect(s). Then again. as follows. Where they may occur. annotate a statement. title. 7-10 . phone number. differences over incurred costs should be resolved with the contractor. before sending it to the payment office: “After receipt of invoice.

CHAPTER 7 7. Government acceptance is considered to have constructively occurred on the seventh day after delivery or performance. The actual acceptance (not the constructive acceptance) period used for computing interest when: Less than the constructive acceptance period was needed for acceptance. While the extent of such information and data may vary considerably under different types of contractual arrangements. and Service Contract Act. for work in process.905(a)(1)(ii) Implied or constructive acceptance may also have a bearing on the computation of interest owed a contractor. or for costs incurred for a specified period of time. although the contract may state a longer period. Method of payment. the principle of reasonable doc-umentation for expended public dollars rests behind every Government contract. or Acceptance was beyond the constructive acceptance period due to a properly documented disagreement over quantity. For the sole purpose of determining an interest penalty. Actual acceptance. quality. Discounts. Government acceptance is based on: A constructive acceptance period. Liquidated damages.3 Obtain Documents and Determinations Pertinent to Payment Supporting information and data for invoices and vouchers are essential to reinforce a contractor’s billings for work that has been completed.2 Identify Terms and Conditions Pertinent to Payment Terms and conditions that might generally have an effect on the payment amount for an invoice include: Contract price. Constructive Versus Actual Acceptance FAR 32. 7-11 . 7. Type of fixed-price contract. or contractor compliance.

All vouchered costs.e. refer-enced cost expenditure files wherein information or data are stored. That is.205-10). Voucher A contractor’s submitted SF 1034/35 must include corroborating information or data concerning all incurred costs. Vouchered Costs and Cost Principles and Other Rules Application of Cost Principles and Practices FAR 31. incurred or to be incurred. For any cost-reimbursement type of contract. Reports on contractor indebtedness. as under FAR 31..201-1 Ascertaining Costs 7-12 . Commercial or Government shipping documents. and Determinations for the adjustment of liquidation rates for progress payments. plus any allocable cost of money (i.CONTRACT PAYMENT Invoice Supporting information and data for invoice payments might include the following: Inspection or receiving reports. including cost properly adjusted for applicable variances. as in some cases. under applicable Cost Accounting Standards. In ascertaining what constitutes a cost under a cost-reimbursement arrangement: Any generally accepted method of determining or estimating costs that is equitable and consistently applied (unless a required accounting standard is invoked under Cost Accounting Standards [CAS]) may be used. such costs are subject to a determination of allowability by audit under the cost principles found in FAR Part 31. less any allocable credits. Determinations on billing rates. its total cost is the sum of allowable direct and indirect costs allocable to the contract. These may be provided as vendor or supplier billings. must ultimately stand the test of allowability (including allocability and reasonableness). Determinations for reductions in progress payments. and so forth. contractor internal cost sheets or displays. may be agreed to by the contractor and the Government and recorded in Advanced Agreements or some form of contract management procedures. or. even though their interim payment is provisional. facilities capital cost of money.

201-3].201-4].708 The quick-closeout procedure for negotiating the settlement of indirect costs must be used by a contracting officer if: A contract is physically complete. in advance of a determination of final indirect costs.CHAPTER 7 Cost Allowability FAR 31. that a contracting officer must use.201-2 Factors for determining whether a cost is allowable include the following: Reasonableness.) Allocability.. it does not exceed that which would be incurred by a prudent person in the conduct of competitive business [FAR 31. there is a quick-closeout procedure for negotiating the settlement of indirect costs for a specific contract.) Standards promulgated by the Cost Accounting Standards Board. Unless agency procedures provide otherwise.1 (Applicability). if applicable.000. Terms of the contract. but identified with two or more final cost objectives or an intermediate cost objective) can be a time-consuming process.e. final cost objective. (A cost is reasonable if. Any limitations set forth in FAR Subpart 31. The amount of unsettled indirect costs to be allocated to a contract is relatively insignificant. the closing out of indirect costs (i. and 7-13 . (A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship [FAR 31. in its nature and amount.000. (Otherwise generally accepted accounting principles and practices appropriate to the particular circumstances). Quick-Closeout Procedure FAR 42. the cumulative unsettled indirect costs to be allocated to one or more contracts in a single fiscal year do not exceed 15 percent of the estima-ted total unsettled indirect costs allocable to cost-reim-bursement types of contracts for that fiscal year. costs not directly identified with a single. Indirect Costs and Their Closeout Under a cost-reimbursement arrangement. Aside from the normal audit of costs toward contract closeout. Insignificant indirect cost amounts occur when: The amount of unsettled indirect cost to be allocated to any one contract does not exceed $1.

CONTRACT PAYMENT Agreement can be reached on a reasonable estimate of allocable dollars. (A contracting officer may waive the 15 percent restriction based. Contracts for architect-engineer services or construction.1002 Performance-based payments are fully recoverable. Performance-Based Payments Policy FAR 32. alteration. 7. performance-based payments are permitted. in the same manner as progress payments. No adjustments are to be made to other contracts for over.or under-recoveries of costs allocated or allocable to contracts using the quick-closeout procedure. For Government accounting purposes. and they do not apply to payments under: Cost-reimbursement types of contracts. performance-based payments should be treated like progress payments based on cost. and purchasing systems. in part.216-7 or -13) are final for the contracts they cover. Except when a contract provides for other methods of contract financing. estimating. These payments may be used for non-commercial acquisitions.) Cautions for Quick-Closeout Procedure Quick-closeout procedures provided for by the Allowable Cost and Payment clause (FAR 52. 7-14 . and they are not subject to the interest penalty provisions of prompt payment. or repair when progress payments are provided for based on a percentage or stage of completion. on a risk assessment that considers a contractor’s accounting. Indirect cost rates used in the quick closeout of a contract are not considered a binding precedent when establishing final indirect costs for other contracts. Performance-based payments are the preferred financing method when a contracting officer finds them practical and a contractor agrees to their use.10 Performance-based payments are contract financing payments that do not constitute payment for accepted items.4 Performance-Based Payments FAR Subpart 32. Contracts for research and development. in the event of a default.1001 FAR 32. or Contracts awarded through sealed bidding or competitive negotiation procedures. or for ship conversion.

or Other quantifiable measures of results. there must be assurance that the total contract price is fair and reasonable. a contracting officer must adjust the performance-based payment schedule to reflect any change or alteration resulting from the modification. may be used). Establish Performance-Based Finance Payment Amounts FAR 32. When used.1004(b) FAR 32. Bases for Payment Performance-based payments may be made on any of the following bases: Performance measured by objective. a contracting officer may include the same clause with a provision that the clause is not effective until the contract has been definitized and a performance-based payment schedule included in the contract. quantifiable methods.1005 A contracting officer must establish a complete. performance-based payments may be made either on a whole contract or on a deliverable line-item basis. Criteria for Use Performance-based payments are to be used only under the following conditions: Both the Government and a contractor are able to agree on performance-based payment terms. The contract is a definitized fixed-price type of contract. in the solicitation document and contract with a description of the basis for the prescribed liquidation of payments.CHAPTER 7 Unless otherwise prescribed by an agency’s regulations. Rationale for Performance-Based Financing The payment of contract financing has a cost to the Government in terms of interest paid by the Treasury to borrow funds to make the payment.232-32. performance-based contract financing must insert the clause at FAR 52. In case of a contract modification. fully defined schedule of events or performance criteria and payment amounts when negotiating a contract’s terms and conditions. With a contracting officer’s wide discretion as to the timing and amount of performance-based payments. In solicitations for undefinitized contracts. Performance-Based Payments. Accomplishment of defined events. and The contract does not provide for other methods of contract financing (except that advance payments or guaranteed loans. 7-15 . if appropriate. all factors considered (including the financing costs to the Treasury).

Whatever the method of liquidation. necessary contractual information.CONTRACT PAYMENT Payment Rules FAR 32. Engineering estimates of hours or other measures of effort to be expended in the performance of an event or the achievement of a performance criterion. or 90 percent of the delivery item price (if on a delivery item basis). and the contracting officer must specify the liquidation rate or designated dollar amount in the contract.1004(b) Performance-based payment amounts may be established on any rational basis determined by a contracting officer or agency procedures. Total performance-based payments cannot exceed: 90 percent of the contract price (if on a whole contract basis). Liquidation of Performance-Based Payments FAR 32. it must ensure complete liquidation no later than final payment under a contract.1004(d) Performance-based amounts must be liquidated by deducting a percentage or a designated dollar amount from delivery payments. or The estimated projected cost of performance of particular events. Specifying the amount to be paid. If payments are established on a whole contract basis.1007 The contracting officer responsible for the administration of a contract is responsible for the review and approval of performance-based payments. If payments are on a delivery item basis. liquidation must be by predesignated liquidation amounts or liquidation percentages. approving. and the appropriate account(s) to be charged for a payment 7-16 . the liquidation amount for each line-item must be the percent of that delivery item price that was previously paid under performance-based finance payments or the designated dollar amount. but is not limited to: Engineering estimates of stages of completion. and transmitting all performance-based pay-ment requests to the appropriate payment office. including the following: Receiving. Administration and Payment FAR 32. Such a basis may include.

a contracting officer may renegotiate the performance-based payment schedule to facilitate the contractor’s billings for any successfully accomplished portions of the delayed event or criterion. FAR 52. Date of request for payment. or The contractor is delinquent in the payment of any subcontractor or supplier under the contract in the ordinary course of bus-iness. liquidate such payments by deduction from any payment under the contract.32(e) A contracting officer may reduce or suspend performance-based payments. or take a combination of these actions after finding any of the following conditions: The contractor failed to comply with any material requirement of the contract.CHAPTER 7 Payment Cautions Entitlement to a performance-based payment is solely on the basis of the successful performance of specified events or performance criteria. Contract number and/or other identifier of the contract under which the request is made. If there is a Government-caused delay. signed by an official authorized to bind the contractor. In this regard: A contracting officer is prohibited from approving a performance-based payment for a specified event or performance criterion or for a cumulative event until whatever has been prescribed contractually has been successfully accomplished.232. and Contractor’s certification that the request for payment is true and correct. 7-17 . Performance is endangered by the contractor’s failure to make progress or its unsatisfactory financial condition.232-32(l) A contractor’s request for a performance-based payment must contain the following: Contractor’s name and address. Such information and documentation as is required by the contract’s description of the basis for payment. Request for Performance-Based Payment FAR 52.

CONTRACT PAYMENT

7.5 Identify Withholdings, Deductions, or Other Corrections

A withholding implies that a subtracted amount may be paid at a later date. A deduction implies that an amount is permanently subtracted, unless a contractor provides appropriate supporting evidence for the reinstatement of any deducted amount. The special terms of a contract may specify the Government’s right to deductions under certain circumstances. Likewise for the case of withholdings. Unresolved late delivery may serve as the basis for a deduction in a contract’s amount. Some service contracts specify deductions for defects that do not meet an “acceptable quality level,” usually referring to the number of defects in a sampled service area. Common deductions include amounts for items shown on Exhibit 7-1.

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Common Deductions
FAR Reference 52.232-8 46.407 52.232-11 52.232-1(b) 52.222-4 52.222-41 52.211-11 and 12 52.233-1(c) 52.233-1(c) 32.804 Discounts for prompt payment. Nonconforming supplies or services. Extras. Requested partial payments amounting to at least $1,000 or 50 percent of the total contract price. Violation of and liability for unpaid wages. Liquidated damages. Adjustments for amounts that are disputed. Adjustments the contracting officer makes by issuing a final decision on a claim. Setoffs for the collection of contractor debts, unless: An assignee has not made a loan or commitment for a setoff, or The amount due on the contract exceeds the amount of any loans made or in process under a firm commitment for financing. 52.216-10(c) that Payment on the basis of a lesser fee under cost-plus-incentive fee contracts; is, when the contractor is not likely to achieve the target cost. 52.242-1 52.232-10 52.216-7(g) Unallowable costs. Payment and withholding provisions under fixed-price architect-engineer contracts. Reduced or adjusted payments under audit rights. Costs that are in excess of an estimated amount. Restrictions may be in in reference to: 52-232-20 52.232-22 52.232-7 52.216-26 52.216-12 35.003(c) tors that sell, lease, or license products. Taxes the Government is exempt from paying when the tax is a state or local tax, furnishing the contractor evidence of the tax exemption. These include: 52.229-3 52.229-6 52.229-8 and 9 cost-reimbursement type of contract. 42.1403 Improperly supported reimbursement for transportation charges. “After-imposed” federal taxes; “After-imposed” or “after-relieved” foreign taxes; and Any tax or duty of a foreign Government from which the U.S. is exempt by specific agreement and that is vouchered under the terms of a A limitation of cost in a cost-reimbursement type of contract; A limitation of funds in a cost-reimbursement type of contract; Time-and-materials or labor-hour contract ceilings; The limitation of reimbursement and reimbursement rates in letter contracts; The cost-share limit on matching payments in cost contracts; or Recoupment under research and development contracts; that is, recovery by the Government of Government-funded nonrecurring costs from contracTopic

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CONTRACT PAYMENT

Exhibit 7-1 Royalties FAR 52.227-9 Another deduction covers royalties in excess of the amount the Government owes. Royalty payments are improper under circumstances in which royalty payments are excessive. Approving invoiced amounts under fixed-price types of contract for a royalty is improper when: The Government has a royalty-free license covering the royalty. Amounts are billed at a rate in excess of the rate for which the Government is licensed. The royalties in whole or in part otherwise constitute an improper charge. The Government is entitled to a refund under FAR 52.227-9, Refund of Royalties. Identify Appropriate Withholdings

Common Withholdings
FAR Reference 52.232-16 52.216-11 52.216-8 52.232-7 Topic Suspended or reduced progress payments. Retaining 1 percent or $100,000, whichever is less, of total estimated costs, when appropriate, in a cost contract (with no fee). Retaining up to 15 percent or $100,000, whichever is less, of the fixed fee in a cost-plus-fixed-fee contract. Retaining up to 5 percent of amounts billed for time charges under time-and-materials and labor-hour contracts, but not greater than a total withholding of $50,000. Reduction or suspension of contract payments based upon a findof fraud by the head of the agency.

DFARS 252.232-7006 ing

Exhibit 7-2 identifies several common withholdings.

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Exhibit 7-2

7.6 Determine If Assignee Is Protected From Deductions or Withholdings FAR 32.804

An assignee is a bank, trust company, or other financial institution that has been transferred the right to receive a Government contractor’s payment due under a Government contract. You may find a no-setoff commitment in a Government contract that protects the assignee from withholdings and deductions that might otherwise be appropriate according to the contract’s terms and conditions. Any contract of a department or agency of the executive branch of the U.S. Government, except a contract under which full payment has been made, may include a no-setoff commitment only when a determination of need is made by the head of the department or agency in accordance with the Presidential delegation of authority of October 3, 1995, and after such a determination has been published in the Federal Register. The following guidance for the Presidential delegation of authority has been approved by the Office of Federal Procurement Policy (OFPP) for the appropriate use of a no-setoff provision: To facilitate the national defense, To meet the exigencies of a national emergency or natural disaster, or When its use may facilitate the private financing of contract performance. In any case, a contracting officer must consider whether the inclusion of a no-setoff provision is in the best interests of the U.S.

Guidance on No-setoff Commitments FAR 32.803(d)

DFARS 232.803

The Director of Defense Procurement issued a determination on May 10, 1996 that DoD would not reduce or set off any money due or to become due under a contract the proceeds of which had been validly assigned. When it applies, this protection from withholding and deduction extends to: Any contractor liability to the Government independent of the con-tract you are administering;

Assignee’s Protection FAR 32.804

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CONTRACT PAYMENT

Any of the following contractor liabilities to the Government resulting from the assigned contract you are administering: Renegotiation under any statute or contract clause, Fines, Penalties except for amounts being withheld or collected for failure to comply with the terms of the contract, Taxes or social security contributions, Withholding or nonwithholding of taxes or social security contributions. However, even when there is a no-setoff commitment, you can still pursue withholdings or deductions when: The assignee has not made a loan under the assignment and has not committed to do so, or The amount due on the contract exceeds the amount of any loans made or loan commitments. In the latter case, you can withhold or deduct as long as the setoff does not exceed an amount that it is in excess of loans or loan commitments. You will have the amounts of any loan assignments in your contract file. 7.7 Determine Amount Due Contractor 7.8 Notify Contractor of Differences Between Invoiced or Vouchered Amounts and Amounts to Be Paid With all appropriate withholdings and deductions identified, determining the amount due is merely a mathematical calculation. As with other notifications you make to contractors, your main reason for giving notice of payment for a lesser amount is to get feedback. Present all factual data that justifies the lesser amount and be willing to listen to any evidence for paying an increased amount or the full amount. Another reason for prior notice is to defuse any unfavorable reactions. Providing the supporting facts in a businesslike manner may diminish an adverse emotional response. If a contractor presents no evidence rebutting the initial decision, advise the contractor of the Government’s final decision to: Pay in full, Pay after withholding or deducting an appropriate amount, or

7.9 Notify Contractor of Final Decision on Paying Lesser Amount

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Reject the invoice or voucher, specifying the exact reasons for rejection and return it to the contractor for correction and resubmission. In the case of an invoice under a fixed-price type of contract, make this notification within seven days after receipt of a properly submitted invoice and carefully document it to avoid any interest payment that might otherwise be due the contractor under the provisions of the Prompt Payment Act. 7.10 Forward Invoice or Voucher Certify the proper invoice or voucher for payment and send it on to the payment office. Follow your agency’s procedures. One of the purposes for certifying the invoice or voucher is to acknowledge that the supplies or services were acceptable or the effort expended is reflected in incurred costs. Paying offices cannot make a payment until they have received: A proper invoice or voucher, and Evidence that the supplies, services, or performance were acceptable. You may be required to provide a certification on an original or duplicate invoice or voucher, or you may need to provide a separate receiving report evidencing the approval of supplies or services. Create a Follow-up File DFARS 232.905 A reasonable follow-up date is 30 days after receipt of a proper invoice under a fixed-price type of contract. However, individual contract terms may require quicker payment. They would rarely, if ever, authorize a later payment. DoD paying offices are encouraged to make payments to small disadvantaged businesses as soon as possible after receipt of a voucher or invoice. Examples of standard earlier payment requirements are: FAR 8-709 Payments under contracts with a sheltered workshop for the Blind or Other Severely Handicapped, for which a payment within 30 days is normal; Payments under contracts with UNICOR, a program associated with Federal Prison Industries, Inc., for which a 20-day payment is standard. Carefully read payment terms for individual UNICOR product schedules.

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CHAPTER 8

CONTRACT CLOSEOUT
THE WHOLE IS GREATER THAN THE SUM OF ITS PARTS Joanne had convened another of her Friday sessions for contracts people. This topic of this one was contract closeout. As he expected, Eric was assigned 15 minutes to deliver a message on the contract administrator’s role in preparing a contract administration office contract file as a principal function of the contract closeout process. As he chatted with others about the upcoming session, he wondered how difficult it all could be. “After all,” he muttered to himself, “by the time one gets to closing out contracts, it doesn’t take much more than a storage box to deposit all the paper. Tape it up, store it away, and that’s that.” He was to leave the session far more educated than he suspected would be the case. For his own time frame, he went to the well and ferreted out from FAR Subpart 4.8, Government Contract Files, the requirements for a contract administration office contract file. He had never really examined much of FAR Part 4, Administrative Matters, and he assumed others were in the same boat. As one of his colleagues had mentioned earlier, “Closeout is really a clerical function. Lots of mechanical requirements. One of those things you get to when you’ve got the time, which, or so it always seems, you never have.” In preparing his 15-minute pitch, Eric noted there were 19 specified content requirements for a contract administration office contract file. And these requirements were by no means the lengthiest of those set forth for Government contract files. Looking at what a contracting office contract file should generally consist of, he noted 43 specified content requirements. There seemed to be no end to it. Curious, he looked beyond the content requirements for contracting office and contract administration office contract files and found yet another set of four requirements for a paying office contract file. Indeed, it was revealing. Eric decided to titled his presentation “The Blind Contract Administrator and the Elephant.” That seemed engaging enough, and the group was filled with smiling faces, including Joanne’s, when he began. His initial burst went right to the content requirements for a contract administration office contract file. He laid those out in crisp and definitive fashion in about 10 minutes. But he saved the best for last, at least as he saw it. Eric may not have had them on the edge of their seats, but his concluding remarks brought everyone to appreciate his presentation’s title. In sum, he made the following points: ♦ If you think that a contract administration office contract file is something that grows independent of other actions ... take off your blinders and look around. ♦ If you think that contract administration documentation is cut from its own cloth ... take off your blinders and look around.

8-1

CONTRACT CLOSEOUT

♦ If you think that the content requirements for contract administration documentation derive entirely from postaward management actions ... take off your blinders and look around. ♦ And if you think that your piece of the contractual elephant is a separate, sovereign state .... take off your blinders and look around. And then to the joy of Joanne, whose face would have cracked wide open had she smiled any more brightly, he made his final point. “The problem with all of us ... in contract administration ... contract formation and placement ... or whatever ... is that we fail to recognize that we’re all touching the same contractual elephant. Hey, read ... no study ... FAR Part 4 and let the sun shine in!” As he was about to sit down, four of Eric’s buddies held up individual 8 1/2 by 11 sheets of paper. On each had been recorded the number 10. Not a bad Friday afternoon. Not bad at all!

8-2

2 8.8 8.4 8. for phase-in. Prepare a contract completion statement and dispose of contract files. Develop the ability to carry out closeout procedures effectively and efficiently.6 8. Continuity of Services. you will be able to: Overall: Individual: 8. Obtain all forms. Determine whether to invoke the Government’s rights under the clause at FAR 52. and clearances required for closeout. 8-3 . Settle any outstanding issues. Identify and recommend the deobligation of excess funds.5 8. Verify that there are no outstanding claims or disputes.237-3. Verify that the Government and a contractor have met other applicable terms and conditions for closeout. phase-out services. Make final payment or collect overpayments from a contractor.1 8.3 8. reports.9 Verify that a contract is physically complete.CHAPTER 8 COURSE LEARNING OBJECTIVES At the end of this course.7 8.

804-5(b) DFARS 204. Files for contracts requiring the settlement of indirect cost rates should be closed within 36 months of the month in which the contracting officer receives evidence of physical completion. Files for firm-fixed-price contracts. The cognizant paying office must close the contract file on its issuance of the final payment instrument.804-1 Files for contracts using simplified acquisition procedures should be considered closed when the contracting officer receives evidence of completed performance and final payment. Contract Closeout Checklist. the following are time standards for closing out contract files: Policy on Contract Closeout FAR 4. Contract Completion Record.804 8-4 . -3. The office administering a contract is responsible for initiating (automated or manual) the administrative closeout of a contract after receiving evidence of its physical completion. unless agency regulations specify otherwise. These forms help to ensure that all required actions have been planned and executed and that all involved parties have been appropriately informed of actions required and taken to complete the closeout process. should be closed within six months af-ter the date on which the contracting officer receives evidence of physical completion. This statement is authority to close a contract file and must be made part of the official contract file. The cognizant contracting officer must ensure that all contractual actions required have been completed and prepare a statement to that effect. That is. In preparing for and performing contract closeout. Except for a contract in litigation or under appeal. and -5 FAR 4. the contractor has delivered the required supplies or performed the required services and the Government has inspected and accepted them. other than those using simplified acquisition procedures. DD Form 1593. Contract Administration Completion Record and DD Form 1594. the contract administration office will normally use DD For 1597. or in the case of an incomplete termination action.CONTRACT CLOSEOUT INTRODUCTION TO CONTRACT CLOSEOUT Contract Closeout Contract closeout refers to the procedure for verifying that all administrative matters have been concluded on a contract that is otherwise physically complete.804-2. Time Standards for Closeout FAR 4.

to reduce administrative costs and to enable the deobligation of excess funds. The steps in closing out a contract are charted on the next page.804-5 for closing out contract files with the following exceptions: Closeout actions may be modified to reflect the extent of administration that has been performed.CHAPTER 8 Files for all other contracts should be closed within 20 months of the month in which the contracting officer receives evidence of physical completion. Steps in Performance 8-5 . Following the flowchart. when appropriate. each step is discussed in detail. Required Closeout Procedures FAR 4.804-5 FAR 42.708 Contracting officers are required to use the procedures set forth at FAR 4. Quick-closeout procedure must be used.

9. 4. Verify that there are no outstanding claims or disputes. phase-out rights under FAR 52. dispose of files. 8. reports. Determine whether to invoke phase-in. Make final payments and. Verify that the contract is physically complete. 8-6 . and clearances. 3. deobligate funds.237-3.CONTRACT CLOSEOUT STEPS IN CONTRACT CLOSEOUT 1. 6-7. if appropriate. 5. Prepare contract completion statement. 2. Settle any outstanding issues. Verify that all other terms and conditions have been met. Obtain all forms.

Contractor’s closing statement or release of claims. Final patent report. and Closeout audit report for cost-reimbursement types of contracts. Plant clearance report. use. Clearance for the final patent report. Final royalty report. accepted and all existing options have been exercised or have expired. 8-7 . Property clearance. Clearance for the final royalty report.804-4 A contract is considered to be physically complete when one of two events has occurred: All required supplies or services have been delivered or performed. or A notice of complete contract termination has been issued to the contractor. reports. Part of this task is to make sure that all paperwork has been submitted. Facilities contracts and rental. 8. and Clearances Required at Closeout FAR 4.CHAPTER 8 CONTRACT CLOSEOUT 8.2 Obtain Forms.1 Verify Contract is Physically Complete FAR 4. Forms. inspected.804-5 The purpose of closeout is to ensure that there is no further administrative action necessary on a contract. Reports. or The contract period has expired. and clearances that may be outstanding after a contract is physically complete include: Contractor’s final invoice or voucher. and storage agreements are considered physically complete when: The Government has given the contractor a notice of complete con-tract termination.

such as: Return or other disposition of Government-furnished property. Settlement of terminated subcontracts. To avoid having to reopen a contract file that has been closed. say. Document the contractor performance file in whatever form or format your agency requires. The final fee of a cost-plus-incentive-fee contract. document the file with as much information as you can gather on the issue that the contractor excepts from the general language of the release. 8-8 . and Procedural requirements of termination proceedings. An example of a format for obtaining a release of claims and other required information is contained in Exhibit 8-1. Final payment cannot be authorized until a contractor has accomplished all administrative tasks. 8. The final total price of a fixed-price incentive contract. Administrative tasks incidental to contract performance may need to be accomplished before a contract file can be closed out.3 Verify Other Terms and Conditions Have Been Met Your agency may also have forms to evaluate contractor performance.CONTRACT CLOSEOUT Meet Agency Requirements FAR 4. If the contractor does pursue the issue. Proper disposition of classified material. When a contractor provides a conditional release. Disallowed costs. some agencies make it a standard practice to request a release of claims from a contractor as a condition of final payment.5 Verify No Outstanding Claims or Disputes There may be some issues that a contractor may not have raised before contract closeout action is undertaken. These kinds of unsettled issues include: Unresolved value engineering change proposals. The award amount of an award-fee contract. the unrecorded memories of your contract administration team may be of little value. 8. and Contractor settlement costs under terminated contracts. a year after closeout.4 Settle Any Outstanding Issues There may be unsettled issues related to basic contract performance that have not been resolved.801 8.

) 1. a warranty (describe) is still in effect. Other (cite specific requirement). 2. Inventory schedules for Government property.) Under the terms of the contract. Final voucher (cost-reimbursement types of contracts only).CHAPTER 8 Notification of Closeout Action Format (Contractor name and address) Dear _________________ : Reference __________(agency) for Contract No. 3. Contractor’s release of claims (form enclosed). (describe supplies or services) In order to expedite final payment and contract closeout. renumbering paragraphs after deleting an item. Any outstanding reports or data items such as technical manuals or instruction manuals per (reference contract line-item number or paragraph citation) . 6. please forward the following items to my attention by (date) : (List only items that apply. Government-furnished property. 5. (Use the following paragraph only if it applies. Final payment and contract closeout do not relieve you of your obligations to the Government under the warranty clause. . (signed) ________________________________ Contracting Officer Exhibit 8-1 8-9 . 4.

Assessing excess costs of reprocurement on a defaulted contract.804-5(b) 8-10 .8 Prepare Contract Completion Statement and Dispose of Files FAR 4. the contracting officer in charge of contract administration is required to sign a contract completion statement that contains all of the information required by Exhibit 8-2. this step becomes increasingly important in order to maximize the use of scarce funds. Overpayments can result from a variety of reasons. Adjustments after an audit on a cost-reimbursement type of contract. 8. Retroactive price reductions. Since many agencies have taken cuts in some basic programs. On more complex requirements.7 Identify and Recommend Deobligation of Excess Funds Identify the amount of any funds remaining on a contract. For instance. Assessing liquidated damages can result in an overpayment. 8. As noted earlier. then recommend their deobligation. The payment office may make payment based on the contractor’s invoice or voucher and its receipt of a receiving report from a requiring activity.CONTRACT CLOSEOUT 8. and Advance payments. Unliquidated progress payments. It may be the contract administrator’s job to prepare this statement. a contract administrator may have a much more active role. and if there is no known potential for their future use on the contract.6 Make Final Payment or Collect Overpayment From Contractor A contract may not give its contract administrator an active role in final payment.

♦ Contractor’s name and address. forward the original to the contracting office for inclusion in its official contract file and place a copy in the contract administration office file. ♦ Contracting office name and address. 8-11 . if any. ♦ Invoice or voucher number and date. ♦ Date. ♦ Dollar amount of excess funds. ♦ A statement that all required contract administration actions have been fully and satisfactorily accomplished. ♦ Name and signature of the contracting officer. ♦ Invoice or voucher number and date. if the final approved invoice or voucher has been forwarded to a disbursing office of another agency or activity and status of the payment is unknown. Exhibit 8-2 Placement of Contract Completion Statement FAR 4.CHAPTER 8 Content Requirements of a Contract Completion Statement ♦ Contracting administration office name and address (if different from the contracting office). ♦ Last modification number. ♦ Last call or order number. if final payment has been made. When preaward and contract administration responsibilities are split between two offices. ♦ Contract number.804-5(c) Place the signed original of the contract completion statement in the contracting office contract file.

The storage facility may not retain such and may not be able to locate your particular contract without this number. This clause specifies that the incumbent contractor agrees. to: Furnish phase-in. it includes the clause at FAR 52.110(c) FAR 52. These record retention requirements are sometimes the result of a statutory requirement and sometimes the result of administrative regulations. storage. on written notice from the contracting officer and subject to the contracting officer’s approval. If the exact date of final payment cannot be accurately determined.805 Individual agencies prescribe procedures for the handling. The date the file was physically transferred to a storage center.237-3 8-12 .237-3. Continuity of Services. thus making your thoroughness of closeout review particularly important. The contract administration activity may keep a log of closed out files containing such information as: The date the file was closed out. then such files must be retained for 9 years after contract completion. Any files relating to certified cost and pricing data must be retained for 6 years following final payment. including a training program and a date for transferring re-sponsibilities. 8.804-5(a) DFARS 204. When the Government anticipates difficulty in transitioning from an incumbent contractor to a follow-on (successor) contractor for essential services. phase-out services for up to 90 days after its con-tract expires.805(b) Some information in contract files must be kept for a specific number of years. phase-out services. and Negotiate in good faith a plan with the follow-on contractor to determine the nature and extent of required phase-in. (It is of vital importance to record and safeguard the container number for stored contracts. Sometimes files are stored in a different building and occasionally in a different part of the city or even in another city. Completed contract files are to be held by the office responsible for the contract for a period of 12 months after completion. and A filing location provided by the storage facility.) FAR 4. retrieving files to deal with and settle unresolved issues can be time-consuming.CONTRACT CLOSEOUT Disposition of Files FAR 4.9 Determine Whether to Invoke Rights Under Continuity of Services Clause FAR 37. In these cases. Where it was sent for storage. and disposal of contract files.

during which the Government requires phase-in. the Government must notify the incumbent contractor of its need for phase-in. When continuity of services is required. or Is hiring a substantial number of employees of the incumbent contractor for work on the successor contract. Such a notice must include all the elements shown in Exhibit 8-3. phase-out services should be administered like any other contract. ♦ Specify a date for the contractor to submit a training program for Government review. the requirement for phase-in. phase-out services. by calendar date. ♦ Outline specific areas that the training program should cover. ♦ Specify a date when the responsibility for contract performance will be transferred from the incumbent contractor to the follow-on (successor) contractor. Minimum Content Requirements for Phase-In. Exhibit 8-3 8-13 . phase-out services. When Continuity of Services May Not Be Required A requirement for continuity of services may not be appropriate if the follow-on contractor: Has provided the services under another contract. Once activated. phase-out costs and a profit or fee not to exceed a pro rata portion of the profit or fee under its current contract.CHAPTER 8 The incumbent contractor must be reimbursed for all reasonable phase-in. Phase-Out Notice ♦ Specify a time frame.

Fortunately. his lunch bag in its usual desk drawer. Eric was quick to respond. Several contract modifications had been issued over the past year. Can I help you?” At the other end of the line was Pat Frazier. The procurement had been competitive and resulted in a firm-fixed-price contract of $850. all of these changes had been mutually agreed to as required by FAR 52. Grabbing it quickly. “Tell me. and picking up the phone. Gordon Rotchfort. the contract administrator began to take some notes. Inc. The specification for the buy was straightforward.CHAPTER 9 DISPUTES. Do you think that Rotchfort’s complaint has any legitimate basis in fact?” 9-1 . AND TERMINATIONS TO BE FOREWARNED IS TO BE FOREARMED One of the contracts that Eric had inherited as a contract administrator had been assigned by Joanne. the contractor’s project manager. that required repair. including cited intersections. The bottom line is that the inspector found subsurface gravel levels not deep enough and the consistency of sidewalk concrete susceptible to cracking at the first sign of a deep frost. It was an ongoing effort performed by Rotchfort. “Rotchfort’s upset about our inspection of the recent quarter-mile stretch of road and accompanying sidewalk repairs that were completed about two weeks ago. He’s complaining that the applied inspection standards went way beyond what the contract calls for. The contract was for road paving and general sidewalk repair. It had been awarded under FAR Part 12 (Acquisition of Commercial Items) using FAR Part 14 (Sealed Bidding) as the method of contracting. Pat. he blurted out “Schmidt here. Why? What’s the problem?” Frazier was equally quick to respond to Eric.. this is Pat Frazier. left my office yesterday afternoon in a huff. “In a huff you say.000. a well-known and highly regarded firm. CLAIMS.212-4(c). a road construction engineer and the COTR for Rotchfort’s contract. A bit late for work one morning.” With pen and paper in hand. “Eric. why would our inspector apply any different inspection standards now than have been applied over the past several months? That doesn’t seem to make much sense to me. including specific stretches of roadway requiring paving and designated walkways. Pat. Got to talk to you about Rotchfort’s contract. Most were required to deal with changed conditions associated with subsurface problems that neither the Government nor Rotchfort anticipated at the outset of the work. Eric arrived at his office and found his phone already hard at work ringing persistently.” Having navigated himself into his chair after placing his briefcase on the floor.

” An audible sigh was heard from Frazier. and relate the key points that you believe he made. Nobody ever wins those things. But I don’t want us to get involved in some useless shouting contest with Rotchfort. Eric. for moving to resolve the situation. is E-mail me a note … doesn’t have to be long … about what occurred in your office yesterday with Gordon Rotchfort. if any. Maybe he mistook. But to be forewarned is to be forearmed. Eric? I haven’t the foggiest notion about any ploys or forms of relief. see Joanne and be ready to: (1) give her the facts. Pat. he added some final sentiments about Rotchford’s good performance track record and that he didn’t want that compromised by an inspector who appeared to be on a different wavelength. done that. CLAIMS. I’ve got to check it out. I briefed him on the job over a month ago. He left saying that unless things were rectified. Been there.DISPUTES.” All kinds of things were going through Eric’s mind. I thought you should be informed. Is there something substantive to it. “Okay. I’ll get after the E-mail and talk with the inspector. “and I don’t want something like this to blossom into a needless problem. AND TERMINATIONS “Well. I don’t know. what I told him about the importance of staying on top of it. Check with former inspector. that Rotchfort’s … anger. and ask him about Rotchfort’s complaint. Pat. “What I want you to do. or may it be a matter of personalities? We don’t want something like this to fester for any length of time. Any problems he had with inspection and acceptance? If not. and we’ve got to be prepared to deal with it. he’d have to turn the inspection problem over to his company lawyer. or something about which he might pursue some form of relief?” “What? What do you mean. Pat. and (3) lay out the risks. When he left.” “And right you are. or better yet in your office. and it takes time for wounds to heal. Then get your inspector on the phone.” interrupted the contract administrator. the guy was in my office wearing a wrinkled brow and evidencing a testy voice. Given everything. Check on receipt of E-mail from Frazier and call him to see what inspector related about the Rotchfort job. 9-2 . Make it as factual as you can.” Having ended the conversation with “Have a nice day. I guess … is a ploy to get the inspector off his back. (2) discuss the chronology of events. He just sounded mad.” said Eric.” Eric turned on his computer and clicked in the following: Get Rotchfort contract file and check requirements for inspection and acceptance.” “I hear you. The inspector is a new guy but not unfamiliar with the contract. or overreacted to. Pat. why the difference now? When information gathered. “Do you think. Eric. Hey.

Worst case … overzealous inspection resulting in a dispute with Rotchfort and a claim for damages if unnecessary rework is required.” he thought to himself. Is there anything else I should get after?” 9-3 . “Seem like there’s always a wrinkle or two. “that one fails to consider in these cases.CHAPTER 9 Best case … only a misunderstanding between the parties. Eric was careful to save his notes and paused to think about what else he might jot down.

♦ Recognize when a dispute becomes a claim. ♦ Know the prescribed procedures once a demand becomes a claim.2 Use the termination remedy as a last resort.2. 9-4 . ♦ Identify the features of a contractor’s demand that establish the validity of a claim. Termination for default. Identify the actions required for terminating a contract for default or convenience.DISPUTES.2 9.2.1 9. Individual: 9. Termination for convenience. 9. you will be able to: Overall: Understand when a claim is valid and know the steps for processing claims. CLAIMS. AND TERMINATIONS COURSE LEARNING OBJECTIVES At the completion of this course.1 Given a dispute between the Government and a contractor: ♦ Identify the major provisions of the Contract Disputes Act of 1978.

CLAIMS AND TERMINATIONS Disputes FAR 52. The Government’s termination of a contract requires a: Written notice to the terminated contractor.201 A claim is a written demand or written assertion by one of the contracting parties seeking. and terminations. is a right of the Government if a contracting officer determines that exercising this right is in the Government’s interest. or Money due to either party. Being responsible for final decisions that must be made under the Disputes clause of a Government contract. as a matter of right: Payment of money in a sum certain. Adjustment or interpretation of contract terms.CHAPTER 9 INTRODUCTION TO DISPUTES. Claims FAR 33. 9-5 . Determination as to the method of termination settlement. for either convenience or default.233-1 A dispute is formed under a contract when a controversy develops as to the interpretation of: Payment. claims. For instance: Being the “arbiter of first resort” concerning contract disputes. or Other relief arising under or relating to a contact. either in whole or in part. and Final accounting of all matters affected by the termination. and Resolving dilemmas concerning possible termination actions. Time. Terminations FAR 49. Contracting Officer’s Role The contracting officer plays a major role prior to and during matters involving disputes.101 Termination of contract.

Where not possible to do so. by mutual agreement at the contracting officer’s level.000. ♦ Introduced the language all claims “relating to a contract” as opposed to “arising under a contract. suit. as amended. The Contract Disputes Act (CDA). ♦ Provides the contractor a choice to proceed to boards of contract appeals or directly to the United States Court of Federal Claims. Exhibit 9-1 9-6 . ♦ Allows agencies to require the contractor to continue performance pending final appeal. to the maximum extent practicable. ♦ Provides that all claims must be in writing and submitted directly to a contracting officer. It requires that its disputes procedures be used by all federal agencies. ♦ The payment of interest regarding claims. remedies usually exist within the construct of a Government contract that may be opted (or must be followed) in pursuit of protecting the public interest. and Terminations The Government’s policy is to try to resolve all contractual issues. ♦ The requirement for contracting officers’ final decisions. establishes procedures and requirements for asserting and resolving claims by or against contractors arising under or relating to a contract subject to the Act. ♦ Certification of contractor claims in excess of $100.” ♦ Gives the Government the right to appeal board decisions to the courts. Claims. The major provisions of the Act are illustrated in Exhibit 9-1. if permitted and appropriate.202 Major Provisions of the Contract Disputes Act of 1978 ♦ Civil penalties for contractor claims that are fraudulent or based on a misrepresentation of fact. CLAIMS. This includes. or settlement. the use of alternative disputes resolution procedures. AND TERMINATIONS Policy on Disputes.DISPUTES. Contract Disputes Act of 1978 FAR 33.

♦ Receiving a barrage of correspondence from a contractor requiring replies to very insignificant matters. Some are subtle. are graphic. ♦ Repeated safety violations or accidents. ♦ Receipt of complaints from subcontractors concerning late payments or nonpayment. or requirements of the inspector or contract administrator that are found to be without foundation.CHAPTER 9 DISPUTES AND CLAIMS 9. Exhibit 9-2 9-7 . in turn.1 Disputes and Claims There are usually warning signs that signal a potential dispute. creating a nightmare of paperwork. others Warning Signs of a Potential Dispute ♦ A lack of specific information from a contractor during a preproposal conference as to how the job will be completed. indicating poor management. Exhibit 9-2 explores some of the signals that may indicate a potential dispute which. ♦ Persistent complaints from a contractor concerning the behavior. ♦ Failure of a contractor to begin work within approximately 10 percent of a contract’s total duration. ♦ Refusal by a contractor to sign bilaterally negotiated contract modifications or agreements containing the required “release” language. ♦ Complaints from site workers to Government personnel about conditions. ♦ Repeated incidents of poor quality or rework. may ultimately lead to a claim. ♦ Letters received from a contractor that allude to field problems. ♦ Repeated failure of a contractor to meet dates on the critical path of a project’s schedule. but without specific details regarding those problems. motives.

Constructive changes can result from well-intended actions. The resolution of disagreements that lead to disputes under contracts may determine the: Amount or quality of work to be performed. it is appropriate to consult with legal counsel to review the various rules of interpretation that courts and boards of contract appeals have applied. Unforeseen conditions can create downstream problems. extrinsic to contract documents.DISPUTES. logical interpretations. Would render any provision meaningless. pertaining to facts and circumstances surrounding contract formation and performance. Changing weather conditions can disturb delivery schedules and create nonperformance ramifications. or Would cause a conflict. If this fails to provide an applicable interpretation. Ascertaining a party’s intent requires: Performing an analysis of the language contained in contract doc-uments. CLAIMS. 9-8 . and Identity of the party responsible for problems that occur. AND TERMINATIONS Sources of Disputes and Outcomes Many controversies stem from disagreements over an agreed-to bargain. Price to be paid. For instance: The complexity of projects in terms of interrelationships can be troublesome. courts and boards of contract appeals look to find the real meaning of contract language and usually reject interpretations that: Are twisted or strained. there is no set of standard rules or well-defined analytical framework to follow as far as courts and boards of contract appeals are concerned. Lengthy contract documents and numbers of drawings can create misinterpretations. Ascertaining Intent When interpreting contract clauses. and Examining evidence. In reasonable.

Pre-dispute actions that may have led to evidencing an interpretation. ♦ Post-interpretation ambiguities. which was interpreted to be acquiescence by the Government. that those items not listed are not included.CHAPTER 9 Exhibit 9-3 outlines the interpretive rules that are generally followed by courts and boards of contract appeals.e. it will take its coloring from. ♦ If enumerated items are called for in one place and not in another. such as: Requests for clarification. Pre-dispute interpretations. Where words of qualification are included. extrinsic evidence): Discussions and concurrent actions. absent other contract provisions to the contrary. and be limited by. the words with which it is associated. ♦ Determine the order of precedence by reading the clauses. or Failure to act. and where the meaning of a word is doubtful. Duty to seek clarification.. Interpretation against the drafter of the specification. Even 9-9 . Exhibit 9-3 Good Intentions Sometimes Fail Remember: Honest disputes over performance and the interpretation of contract clauses occur in the smoothest of contractual relationships. Rules in Aid of Contract Interpretation ♦ Read the contract as a whole. Custom and trade usage. This type of evidence consists of parties’ discussions and actions occurring prior to the submission of offers. Prior dealings in similar matters. the contractor may reasonably assume. ♦ Consider evidence outside the contract document (i. apply one of two basic rules: If the contract contains a specific list of items without words of qualification. Pre-bid or proposal conferences.

212-4(d) covers disputes and relates that: The contract is subject to the Contract Disputes Act of 1978. Alternate I of this clause is to be used when: acquiring aircraft. space craft and launch vehicle. missile systems. AND TERMINATIONS clear contract terms and conditions can give rise to the necessity of interpretation.215 9-10 .DISPUTES. and negotiate the various elements of any disagreement. appeal or action under or related to the contract is a dispute to be dealt with under FAR 52. Resolving Disputes Techniques for avoiding a claim and settling a dispute include: Continuing to consider.212-4(d) DFARS 233. Talking with individuals who have not participated substantially in the matter. as amended. tracked combat vehicles related electronic systems. such as the technical and monetary aspects. (This method provides the parties with an opportunity to discuss the merits of the technical aspect without considering the dollar impact. Dividing a problem into its separate elements. discuss. and either the contracting officer determines that continued performance by the contractor is vital to national security or the public welfare. From that may spring the basis of entitlement and the financial aspects can then be considered). FAR 52. Documentation is Essential Both the Government and contractor must be in a position to “rebuild” on paper the events leading to a dispute. particularly if an impasse is reached. especially during the early stage of any potential controversy. Failure of the parties to reach agreement on any request for an equitable adjustment. or Disputes and Acquiring Commercial Items FAR 52.233-1. CLAIMS. naval vessels. The acquisition of commercial items under FAR Part 12 requires the use of terms and conditions set forth in FAR 52.212-4 (Contract Terms and Conditions—Commercial Items). claim. Only by careful documentation can the interest of both parties be protected.

and The contractor is obligated to proceed diligently with performance pending the final resolution of any dispute under the contract.CHAPTER 9 the head of the contracting activity determines that continued performance is necessary while the matter is being resolved. 9-11 . Effective Disputes Management The need for effective disputes management is critical. Exhibit 9-4 lists criteria that reinforce the importance of good disputes management.

but act with purpose to bring about closure. be professional. It may be helpful in analyzing a current dispute or claim to obtain information from other contracting officers concerning previously filed claims by the contractor (DFARS 233. there are constant pressures brought to bear. Separate the side issues and concentrate on the real ones. Resolution is often difficult because of “unreasonable” positions.” Whether you are looking at internal disposition procedures. fair.” Reassess your own position and request the contractor to do the same. or time constraints pursuant to regulations. Avoid the attitude that a situation is “hopeless. Don’t personalize an issue. Don’t hesitate to ask for assistance. the contractor’s demands. take reasonable time to act. ♦ Recognize that disputes are “time sensitive. the parties should move to resolve disputes quickly. Before arguments and disputes escalate. This is the key to having the critical documentation the Government requires in order to provide a timely response to a dispute. and once a bona fide compromise is reached. both parties should recognize that a difference of opinion exists. ♦ Resolve disagreements quickly.DISPUTES. ♦ Manage the dispute. AND TERMINATIONS Criteria for Effective Disputes Management ♦ Meet the issues head-on. After the issues have been identified and the facts gathered.204). Be ♦ Perform proper contract file maintenance. delineate all the matters discussed and promptly obtain full accord and a satisfactory agreement. Exhibit 9-4 Be timely. be prepared. Managing a dispute does not end with its identification. ♦ Negotiate the dispute. Given the nature of what may be required. and know the issues for which you may (or may not) be able to compromise. 9-12 . CLAIMS.

the adjustment or interpretation of contract terms. However.CHAPTER 9 Claims A contractor that believes your arguments over a dispute carry little or no merit will usually make it known to you that a claim will be filed.206(a). and clear knowledge of the regulations concerning disputes and claims in order to deal with them. From the time that a dispute manifests itself until final action is taken. This is referred to informally as “putting you on notice of a claim. The submission may be converted to a claim. is a claim that can be resolved under a contract clause that provides for the relief sought by the claimant. Definition of Claim FAR 33. the manner in which claims are handled is a reflection on your organization. or other relief arising under or relating to the contract. or other routine request for payment that is not in dispute when submitted is not a claim. unlike a claim relating to that contract. a written demand or written assertion by the contractor seeking the payment of money exceeding $100. as a matter of right.201 “Claim” means a written demand or written assertion by one of the contracting parties seeking. persistence.207.” Exhibit 9-5 defines a claim. Exhibit 9-5 The Ubiquitous Element of Claims Everyone involved in contracting needs to develop an appreciation of claims because they are an important element of managing contracts.000 is not a claim under the Contract Disputes Act of 1978 until certified as required by the Act and 33. Handling Claims It takes skill. You need to know not only the basics for analyzing a claim but to be able to put together a quality claims package as well. A claim arising under a contract. and you may find that there are few new skills required for analyzing them. if it is disputed either as to liability or amount or is not acted upon in a reasonable time. invoice. 9-13 . A voucher. For example: The same skills are used in evaluating the merits of an agency protest against a proprietary specification or an “experience” clause in a construction contract. by written notice to the contracting officer as provided in 33. the payment of money in a sum certain.

Non-Monetaray Claims The bulk of contract claims involve equitable adjustments resulting from contract performance. and 9-14 . you may be responsible for: Assembling all of the needed information. CLAIMS. you have performed the same kind of examination that takes place when reviewing a claim submitted under the Disputes clause. although there are other claims issues such as: Data rights.210 and 243.105(a) Contracting Officers are authorized to decide or settle all claims arising under or relating to a contract subject to the Contract Disputes Act. Everyone who participated in the situation leading to “the trouble” will be directly or indirectly involved. 1983) arising out of events that occurred more than 18 months before submission of the claim or request. or Identifying and consulting with those who will be: Conducting the legal review. Responding to a Claim When “trouble” initially appears and a claim seems to be inevitable. Claims requesting an adjustment in price under a shipbuilding contract (entered into after December 7. and Responsible for making a final decision at a higher level. Although the contracting officer is ultimately responsible for arriving at and issuing a final decision. Providing a technical analysis. Proposing a recommendation based on your analysis.211 DFARS 233. or Claims covered by the False Claims Act. except for: Claims or disputes for penalties or forfeitures prescribed by statute or regulation that another federal agency is to administer. Contracting Officer Authority FAR 32. The skills required for allowing time extensions are the same as those used in analyzing a delay claim. AND TERMINATIONS If you have looked at a request for bid correction in terms of whether a contractor has presented clear and convincing evidence of the existence of a mistake and the intended bid.DISPUTES. the matter is not merely placed in the hands of a Government lawyer to resolve. Warranty responsibilities.

This six-year period does not apply to: Contracts awarded prior to October 1. offering at the same time some reminders about what needs to be furnished.206(a) Contractor claims must be submitted.CHAPTER 9 Reinstatements of terminations. For a contractor’s communication to constitute a claim it must manifest a clear intent to seek relief as a matter of right. determining what is a claim is neither obvious nor easy. to: A contracting officer within six years after accrual of a claim. A claim does not arise on the occurrence of a dispute or controversy. Consulting a staff attorney and seeking advice. you may consider: Talking to someone who may have dealt with the problem you are facing for the first time. or A Government claim based on a contractor claim involving fraud. or Writing a letter to the contractor that asks if a claim is being submitted. unless the parties agree to a shorter time period. The contracting officer’s denial of a contractor’s request (for whatever) does not automatically convert it into a claim.209 A contracting officer must issue a written decision on any Government claim initiated against a contractor within six years after accrual of the claim. Appropriate Claims Under the Contract Disputes Act In many instances.206(b) FAR 32. Unfortunately there is no criterion that can be applied in every instance to reach a fail-safe decision. unless the parties agree to a shorter time period. 9-15 .) Time for Government Decisions FAR 33. 1995. (This six-year time period does not apply to contracts awarded prior to October 1. If you receive a letter from a contractor that raises more questions than it answers and you are uncertain about the contractor’s intentions. in writing. The contractor must first assert a “demand” upon the Government by requesting that a final decision be issued by a contracting officer. Time for Initiation of Contractor Claims FAR 33. 1995.

but these may (or may not) give rise to Government or contractor claims for later monetary relief. An exception is made for SBA 8(a) contracts. Asserting rights under the Patents Rights clause. It must assert any specific rights or basis for the specific monetary relief being sought. Even though the prime contractor is technically SBA and the subcontractor is the 8(a) firm. Non-Monetary Actions There are some Government actions taken under a contract that do not involve immediate Government claims for money. For liability to be fixed: Some injury must have occurred. A subcontractor.207 9-16 .201 The accrual of a claim occurs on the date when all events. But monetary damages need not have been incurred. There is some uncertainty as to whether the Contract Disputes Act requires that these non-monetary actions be made the subject of a contracting officer’s decision in order to be adjudicated under the disputes process.DISPUTES. Before a dispute can achieve the formal status of a claim. In contrast. the Government has not followed these procedures in cases involving rescission. Written Requirements for Proper Certification FAR 33. It must be submitted directly to the contracting officer. therefore. Rejection of work under inspection or warranty clauses. however. were known or should have been known. Subcontractor Claims Subcontractors have no privity of contract with the Government. and Rescission (revocation) of a contract. In the case of default terminations. the Government has traditionally followed disputes procedures. Some common examples: Default termination. the following must occur: The contractor must submit the claim in writing. 8(a) contractors are allowed to submit claims directly to a contracting officer. which fix the alleged liability of either the Government or the contractor and permit assertion of the claim. AND TERMINATIONS Accrual of Claim FAR 33. CLAIMS. cannot file a direct claim but must file its claim through a prime.

unbiased.000 and an increase of $25. Proper certification means: A statement is provided that the claim is made in good faith. since the combination of the decreased and increased costs exceed $100. Although some claims may lack merit. The claim must be properly certified if in excess of $100. Solicit technical advisors to provide information that bears on the claim’s validity. For example: A $15.000 claim resulting from a contractual decrease of $85. Take advantage of technical expertise that is familiar with the project.000. When confronted with a contractor’s demand for extra compensation: Set personal feelings aside and give the claim careful.CHAPTER 9 The contractor must request a valid contracting officer’s final decision. On receipt of a claim. Determining Amount of Claim To determine the dollar amount of a claim.000 would require the claim to be certified. When the written demand does not meet all the criteria for a claim. you must aggregate the increased and decreased costs that are involved. Supporting data are accurate and complete. and reasonable consideration. Assuming that a contractor gives you a complete claims package. the recipient may develop an adversarial attitude. Reaction to a Claim 9-17 .000. thorough. the general procedure that should be followed in analyzing the claim is outlined in Exhibits 9-6 and 9-7. explaining how it is deficient according to the Disputes clause of the contract. not every one is fraudulent or inflated. return it. The amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable.

♦ Review the relevant contract provisions and identify the kind and type of information called for. It is the contractor’s claim. Using the data provided by the contractor and data you have collected.DISPUTES. ♦ Review the contract file and other contract documents to further develop or substantiate the chronology of events. CLAIMS. ♦ Review the contractor’s documentation to develop a chronology for each of the separate issues involved. prepare a point-by-point response to each of the allegations. Allow ample opportunity and give your undivided and impartial attention to examine the basis of the claim. AND TERMINATIONS Initial Claim Review ♦ Read the contractor’s letter and identify the issues involved. Exhibit 9-6 9-18 . ♦ Return to the contractor’s letter and identify each of the allegations made.

Exhibit 9-8 provides a checklist of factors to be reviewed prior to meeting with a contractor. ♦ Step Five: Subject the claim to a legal analysis. From an engineering standpoint. and Their recovery is not prohibited by law or regulation. They are allowable and allocable to the contract as claimed. Perform a cost analysis (including an audit if applicable)* of the costs claimed by the contractor to verify that: The costs are actually recorded on the contractor’s books in accordance with generally accepted accounting principles.CHAPTER 9 Detailed Analysis of Claim ♦ Step One: Based on the initial analysis. ♦ Step Three: Have a technical expert perform an analysis of the engineering approach that was employed by the contractor. not true. Make a technical analysis of the claim. if necessary. ♦ Step Four: *The Defense Contract Audit Agency or other audit organization. or partially true and determine if the claim has standing. for instance. Exhibit 9-7 Checklist for Claims A checklist of factors for analyzing claims is particularly useful in briefing team members and planning an agenda in preparation for negotiations to settle a claim. This should be performed. establish the reasonableness of any additional time and person-hours expended. both as originally written and as changed. which should consist of a thorough analysis of the specifications. 9-19 . ascertain whether the alleged basic facts are true. ♦ Step Two: ble. whenever possiby persons connected with the initial drafting of them or by someone who has the technical expertise to do so.

Number of change orders to date. ♦ ♦ List possible over-personing or over-equipping.DISPUTES. By _____ number of days. Overhead support. Audit available. Exhibit 9-8 An Early and Informed Start Once a claim has been identified it is never too early to begin preparing the claim’s file. 9-20 . Contractor on schedule. or dragged-out time. ______ Quantity and quality of materials has been verified. (List dates extracted from monitoring reports). CLAIMS. Contractor behind schedule. points. Supplier support. AND TERMINATIONS Factor Analysis Checklist for a Claim Contract Number ________________________________ Government Estimate _____________________________ Date ___________________________ Contractor’s Proposal _____________ ♦ Job size. and areas of work. wasted time. so it is worth doing at the outset and worth doing well. ♦ Note contractor diligence and production efficiency. ♦ ♦ ♦ ♦ Work environment factors: Dust. ______ Labor and equipment usage and cost. Morale. Weather. equipment and overhead over-consumption or diversions into this change. Access and congestion. (Brief description) _________________________________________________________________________________________ _________________________________________________________________________________________ ♦ ♦ ♦ ♦ Plans and specifications have been examined. Superintendency. Temperature. Quality of work. Government cooperation. Contractor quality control. Quality and availability of labor. labor. List materials. Cost $ ______ List idle time. The assembly of evidence must be undertaken if the case goes to litigation.

♦ Correspondence files. and legal files. Exhibit 9-9 presents a list of some important items that need to be assembled in order to research and prepare a claim file. Logs. if applicable. ♦ Copies of interim or final performance evaluations of the contractor. An analysis as to why changes were made. ♦ Inspection records.CHAPTER 9 Evidence can be obtained from many places and take many forms. and logs or reports by inspectors and contractor personnel. contract administration. At minimum. Daily records. ♦ All progress charts and information concerning progress. Of particular importance are those that were originally approved. Photographs can and should be used to document key points whenever possible. The documents submitted by both parties constitute the appeal file. Bar and other charts and all changes. ♦ Working drawings. ♦ Copies of pertinent logs. These will usually point out weaknesses. plus those that have incorporated all of the changes. ♦ Memoranda of meetings. Include only those pertinent to the claim. is important. these should include the engineering preaward. Exhibit 9-9 9-21 . These may be particularly useful because these notes are frequently of critical value in establishing expectations and understandings of both parties concerning a particular provision of the specifications or anticipated problems. or submittal approval logs are often beneficial. Preparation of a Claim File ♦ The contract specification and drawings. such as change order logs. These are important for general reference purposes and should be reviewed during the course of a claim’s preparation. In some cases. Interim evaluations are sometimes issued during a contractor’s performance. the contract may incorporate by reference a clause that should be studied in full text. ♦ Copy of the postaward orientation meeting notes. ♦ Copy of all photographs taken (as for a construction contract). ♦ Copy of contract clauses. and their dates. Include all modifications.

A determination and reasons therefore supporting a rationale and a statement of factual areas of agreement and disagreement. A Decision of Last Resort FAR 52. Content Requirements The decision must be in writing and should be dispatched to the contractor by certified mail. including a reference to particular parts of the specification (and drawings.211(a) Conceptually. the contract specialist. 9-22 .233-1 A final decision under the Dispute clause is the last resort after efforts to settle the matter by agreement have failed. Complete acceptance of the claim. the analysis process leading up to a contracting officer’s final decision may be categorized into five phases: Identify the issue(s). Evaluate project documentation. AND TERMINATIONS The Final Decision FAR 33. Perform a price/cost analysis and damage apportionment. and a succinct statement of the factual basis of the contractor’s claim. return receipt requested. In some offices. with technical assistance. and A closing statement. if applicable). It should contain the following elements: Reference to the contract involved. The decision may reflect: Complete rejection of the claim. Findings of fact. or Partial acceptance or rejection of the claim. or by any other method that provides evidence of receipt. Perform an impact analysis. and Prepare a report. and how the contractor uses them to support its position. including a statement of the additional compensation sought. A summary of the contractor’s claim. identifying it as the final decision of the contracting officer and advising the contractor of the right to appeal.DISPUTES. is expected to perform this process. CLAIMS.

Such payment should be made without prejudice to either party’s rights. less any portion already paid. there is no issue. of the time within which a decision will be issued. or Government agency unless appealed by the contractor after receipt of the decision to: A board of contract appeals within 90 days. and no review. the contracting offer must notify the contractor.211(f) Failure to Issue Decision FAR 32. however. tribunal. Timely Response FAR 33.000. Undue Delay in Decision FAR 33. 60 days after receiving a certified claim. without awaiting a contractor’s action concerning an appeal. or within a reasonable time after receipt of the claim if the contractor does not make such a request. within that period. or 9-23 . should be paid. Personal and independent. 60 days after receiving a written request from the contractor that a decision be rendered within that time period.211(c) The contracting officer must issue a decision within the following statutory time limitations: For claims of $100.211(g) Amount Payable Under Decision FAR 32. A contracting officer’s final decision is final and conclusive and not subject to review by any forum. Impartial and unbiased. no appeal. The final decision must be: Responsive to all issues of the claim. For claims over $100. provided. Without it. The amount determined payable under a decision.211(h) Appealing the Final Decision In the event of an undue delay by the contracting officer in rendering a decision on a claim.CHAPTER 9 Coverage of Decision The contracting officer’s final decision is the very foundation of the appeal process. the contractor may request the tribunal or board concerned to direct the contracting officer to issue a decision in a specified time period determined by the tribunal or board. A contracting officer’s failure to issue a decision within a required time period is deemed a decision by the contracting officer denying the claim and authorizes the contractor to file an appeal or suit on the claim. that if a decision will not be issued within 60 days. if otherwise proper.000 or less. and Able to withstand a sound legal opinion.

If a contractor procrastinated in deciding whether to appeal.000 or less). Where to File DFARS 233.) 9-24 . A contractor may proceed under a board’s small claims procedure (for claims under $50. or The acceptance or rejection of nonconforming items. particularly for smaller claims. An appeal made to a board of contract appeals is considered an administrative review while an appeal to the United States Court of Federal Claims is a judicial review. Termination of a breached contract for default. Settlement of contract claims. Generally this is less expensive for a contractor. (This may be important to contractors for claims involving an agency-wide practice that is not standard Governmentwide. A contracting officer’s final decisions committed to discretionary measures by law or contract terms are not reviewable by boards of contract appeal under the Contract Disputes Act. CLAIMS. Reinstatement of a previously terminated contract. The contractor must initially choose one or the other. its possessions or Puerto Rico.DISPUTES. decisions concerning the following: Processing of payment invoices or vouchers. For example.000) or its accelerated procedure (for claims of $100. it may have no other choice than to “take it to court.215-70 and 252. It may not seek a ruling from both. the contractor must normally waive any right to invoke the jurisdiction of a foreign court or tribunal. AND TERMINATIONS The United States Court of Federal Claims within 12 months.” If a contract is to be performed outside the United States.233-7001 The Contractor may make its selection of where to file as follows: Board of Contract Appeals: Offers a quicker review. United States Court of Federal Claims: The Court’s time limit on filing an appeal is longer than the board’s time limit: 12 months as opposed to 90 days after the contracting officer’s final decision is issued. A contractor may feel the Court is a wiser choice because of its organizational independence and broader experience with practices of other agencies.

♦ Express discontent with the final decision. the agency. ♦ Provide the contract number and description. Notice of Appeal Requirements ♦ Be in writing. Exhibit 9-10 9-25 . ♦ State the decision from which relief is being sought. a contractor must submit a Notice of Appeal. The contracting officer may settle a claim during litigation at boards of contract appeals but not during litigation at the United States Court of Federal Claims. and Extent of disruption. The issuance of a final decision and the filing of an appeal by a contractor does not deprive the contracting officer of the authority to negotiate and execute an agreement settling a claim at any time. or departmental location. There are practical and legal considerations a contractor must weigh in deciding whether or not to appeal a final decision. ♦ State an intention to seek review of the decision by higher authority. To be legally effective. ♦ Identify the contracting officer. Cost of litigation. Continuing Effort to Settle Decision Not to Appeal Notice of Appeal To appeal the contracting officer’s decision. it must contain six basic requirements as noted in Exhibit 9-10. Desire to establish a legal precedent.CHAPTER 9 Further Appeal A decision rendered by either a board of contract appeals or the United States Court of Federal Claims can be further appealed to the Court of Appeals for the Federal Circuit. Some of the most frequently cited are: Chance of success. Impact on business relations.

but may also be obtained from the appropriate office within your agency. The Government must pay interest on a contractor’s claim on the amount found due and unpaid computed from: The date the contracting officer receives the claim (certified if required by FAR 33. whichever is later. interest must be paid from the date of receipt by the Government of the proper certificate. or Demands for excess costs in reprocurement resulting from a default.208 Interest rates are adjusted every six months by the Secretary of Treasury and vary considerably. the contracting officer must: 9-26 . These rates are published in the Federal Register every six months. In order to file a claim against a contractor. after submitting a defective certificate. Violation of statutes (civil and criminal). For claims having defective certifications: Interest must be paid from either the date the contracting officer initially processes the claim or October 29. The Government may also file claims “under the contract” and seek remedies against the contractor for reasons such as: Defective performance. In any event. the contracting officer may negotiate an equitable adjustment. Claims Against Contractor The filing of a claim and the availability of remedies are not one-way streets. unless the dollars and time have already been established in the decision. 1992.DISPUTES.207(a)). or The date payment otherwise would be due. A claim that has gone from a “final decision” through the appeal process can span several periods of different interest rates that must be calculated on a daily basis. AND TERMINATIONS Modify the Contract If an appeal’s decision favors a contractor. Pay Interest FAR 33. If a contractor provided a proper certificate prior to October 29. if that date is later. a contract modification is the vehicle that would be used. CLAIMS. 1992. until the date of payment. Violations of the regulations.

or there is reason to expedite collection. the demand should be cast in the form of a final decision. Guidelines for Filing Claims Against Contractors ♦ Take prompt action to determine the claim’s dollar amount and collect it. the conduct that gave rise to the liability. Have it reviewed by engineering. a supplement to an excess reprocurement cost claim.. and legal experts in order to assure that the claim is well founded.CHAPTER 9 Be familiar with all of the available remedies and what actions are necessary. accounting. Where there is reason to believe that negotiations may be futile. a statement of original contract requirements. and the amount and nature of the price adjustment or damages claimed. Exhibit 9-11 9-27 . delay in performance.g. and Fully understand the principal elements of each type of claim. ♦ The demand for payment should contain a concise statement of the claim. its defenses. ♦ Make sure any deferment agreement is in agreement with agency policy. ♦ The claim must be thoroughly researched and reviewed before it is asserted. ♦ Do not overlook the possibility of asserting common law damage claims (e. Guidelines are found in Exhibit 9-11 on what steps to take when the Government wishes to file a claim against a contractor. at least. ♦ Make sure that all Government claims are represented in bankruptcy proceedings. and how to invoke the best remedy. ♦ Final decisions should be prepared in the same manner as for a contractor claim and include. It should state that it is issued under the Disputes clause and contain advice concerning the appeal process. and defective performance not covered by the inspection and warranty clauses).

CLAIMS. but only if: The contractor will accept one. 9-28 . Termination for Convenience: The contractor is required to discontinue performance when it is in the Government’s best interest. No Government property was furnished under the contract.2 Terminations Contract termination involves the administrative process that exercises the Government’s contractual right to discontinue performance under a contract. The preferred method of contract termination is to effect a no-cost settlement without using termination procedures. There are two types of termination: Termination for Default: The contractor fails to perform in accordance with the contract. Exhibit 9-12 lists some criteria to consider before initiating a termination action. based on the business judgment of the contracting officer and the advisors who will assist in making it.DISPUTES. either in whole or in part. AND TERMINATIONS TERMINATIONS 9. It may be decided that the most promising of choices is to continue working with the contractor in spite of a continued delinquency. Resorting to Termination The high price that may be paid for a wrongful termination warrants a careful review of contract clauses and surrounding circumstances before making a decision to recommend termination. or other contractor obligations. There are no outstanding payments. The most crucial issue is how best to complete the project or the work. or Immediate default action may be the quickest and best means of completing the project or work. debts due the Government. The Government’s legal right to do so is not the only factor to be considered. The decision to terminate is highly discretionary. and The supply or service can readily be obtained elsewhere.

Bankruptcy. ♦ Availability of supplies or services from other sources. ♦ Specific failure of the contractor and “reasons” provided by the contractor for such failure.CHAPTER 9 Considering Factors Before Terminating FAR 49. Exhibit 9-12 Termination Action Alerts Events that surface the possibility of a termination action include: A contractor’s response to the Government’s cure or show cause notice fails to show that a contract will be completed in accordance with its terms. ♦ Degree of essentiality of the contractor. 9-29 . ♦ Any other pertinent facts and circumstances. There has been a radical change in the requirement that goes beyond the contractor’s expertise. ♦ Availability of funds to finance reprocurement costs that may prove uncollectible from the defaulted contractor. Funds are not available for continued contract performance. There is no longer a need for the item or service called for under the contract. ♦ Urgency of the need and the period of time that would be required for work by other sources as compared with the time in which completion could be obtained from the delinquent contractor.402-3 ♦ Clauses of the contract and applicable laws and regulations. A surety notifies you that it is aware that the bonded contractor is in default and requests the Government to withhold progress payments because of the contractor’s: Failure to progress. and the availability of funds to finance termination costs if the default is determined to be excusable. such as unique contractor capabilities. or Failure to pay subcontractors.

in 1966 the former Court of Claims issued an important decision indicating that contractors may be entitled to a reasonable time after the contract completion date to correct minor deficiencies in work that was considered substantially complete. it is in default and its contract can be terminated. because timely delivery on any Government contract was considered “of the essence.2. A repudiation or anticipatory breach occurs when a contractor clearly indicates that it cannot or will not perform. AND TERMINATIONS (Not complying with the bonding company’s request may result in the Government being liable to the surety. In the years following this decision. boards and courts have increasingly applied the doctrine of substantial completion. Prior to 1966. If a contractor fails to perform in a timely manner. Whenever possible it should be obtained in writing. the general rule was that the Government could insist on completion by the exact due date. In most cases the Government does not consider termination for default actions when only minor corrective work remains to be done.DISPUTES. The contractor’s intent must be clear and unequivocal.1 Termination for Default FAR Subpart 49. Failure to deliver supplies or to perform services within the time specified.” However. and A bankruptcy filing. or regulations. Contracts may be terminated for default in accordance with the following: Failure to make progress so as to endanger performance. Termination or default clauses are not the only elements in a contract that authorize terminating a contract for default. Failure to perform any other provisions of the contract. CLAIMS. Repudiation of the contract by the contractor. 9-30 . Examples pointing to an anticipatory repudiation include: A letter stating an intention of nonperformance. statutes. Job abandonment.) 9.4 The right to terminate a contract may originate from either the general principles of contract law or the express terms of the contract. Exhibit 9-13 provides a list of other clauses.

♦ Fraud or other criminal behavior. ♦ Defective workmanship. A termination for default decision has broad ramifications for all parties. Statutes. In determining matters such as the Government’s “good faith. Service Contract. Exhibit 9-13 Exercising Termination in Good Faith Even though the power to terminate is expressly reserved by a contract. ♦ Equal Opportunity clause. Protecting the Government’s Interest Default clauses are included in a contract solely for the purpose of protecting the Government from loss or damage. ♦ Failure to obtain required bonds within a specified time. or Davis Bacon Acts. ♦ Failure to submit progress schedules or reports.” courts will look beyond the facts that immediately proceeded the termination and investigate all the circumstances under which a contract was executed. the power of termination must be exercised in good faith based on the stipulated conditions of a termination clause or on a material breach of contract terms. ♦ Walsh Healey. 9-31 . including the conduct of the parties throughout performance.CHAPTER 9 Termination Clauses. They are not to be used for arbitrary. or Regulations ♦ Covenant Against Contingent Fees clause. or punitive damages. coercive. ♦ Anti-Kickback Act violations. Exhibit 9-14 examines some of them from each party’s viewpoint.

It also subjects a contractor to possible liability for the Government’s extra costs of having the contract completed by another source. with still further delays to be encountered in carrying out the procedure. Termination for default procedures under fixed-price types of contracts provide for excess costs to the Government in reprocurement. the extra administrative burden must somehow be absorbed into an already busy schedule. It has a negative connotation concerning the contractor’s management and ability to perform on future contracts. during. Since termination causes a cessation of performance. When a contractor files for bankruptcy. it is not mandatory. In such cases. for example. Not only does the action put an end to contract performance but in all probability to a contractor’s hopes for a profit. however. There are. Government Contracting Officer Bankruptcy Court Exhibit 9-14 (continued on next page) 9-32 . Occasionally. Since the procedure is unanticipated. It also allows priority in recovery. the Government is generally bound by the same restrictions as any other creditor. CLAIMS. It is a necessary act at times. it can lead to a contractor’s financial ruin. to terminate for default is considered a drastic action. that “contingent debts and contingent contractual liabilities” and “claims for anticipatory breach” may be proved and allowed. second to that of payment of taxes. or after termination proceedings. The Bankruptcy Act provides. Not infrequently. but one that no contracting officer relishes. AND TERMINATIONS The Effect of Default Termination on Parties Viewpoint Contractor Impact Termination for default is a traumatic experience for any contractor. For the Government. For this reason. The default action for failure to perform is permissive. the Government will find itself “holding the bag” by a contractor filing for bankruptcy and abandoning the project either before.DISPUTES. a default termination is the ultimate method of dealing with a contractor’s unexcused present or prospective failure to perform in accordance with a contract’s specification and schedule. some important exceptions. the Government must participate in the bankruptcy proceedings to protect its interest. it is unusual for the Government to immediately take action to default a contractor on its initial failure to perform.

US. the Government’s decision to terminate may be overturned for such reasons as: Terminating too soon. suppliers. 12 Cl. v. The surety has a right to demand partial payments be made directly to it in certain instances when default is imminent or in process. or Government actions constituted a waiver due to lack of discretion. or rely on the Government to complete the work in-house (cases were there is substantial com-pletion) or via a reprocurement contract. However. In Ohio Casualty Ins. the bonding company has the right to decide whether to complete the work. When the courts or boards are convinced that discretion has been exercised in making the decision to terminate a contract. the Claims Court held that by failing to terminate an irresponsible. courts have ruled that the Government owes an equitable obligation to a contractor’s surety. and abusive contractor whose performance was two years behind schedule. provide a subcontractor to complete the work. Bonding Company Exhibit 9-14 (continued) 9-33 . 590 (1987).CHAPTER 9 The Effect of Default Termination on Parties Viewpoint Boards and Courts Impact A termination for default is considered by the courts to be a drastic measure. Co. Courts have consistently held that a surety which satisfies a contractor’s obligations to pay laborers and material persons under a payment bond has an equitable interest in the contract. The obligation of a surety under a performance bond is to indemnify the Government up to the amount of the bond in the event of a contractor’s default. or for other expenses. Substantial completion by the contractor has been accomplished. thus. incompetent. the Government is accordingly required to be strictly accountable for any such termination. Ct. the Contracting Officer had abused the discretion and consequently violated the equitable duty owed to the surety. Absent complete substantiating evidence. it will not substitute its judgment for that of a contracting officer. In addition. A surety does not contract to assume the risk of a contracting officer’s unreasonable conduct that results in excess payments to subcontractors. Terminating too late. dishonest..

With this method. [See FAR 49.. ♦ Completion of the contract by a third party contractor.402-4(c)]. you can quickly resolve the issues and complete the project by other means. this can be accomplished by a four-party agreement (i. CLAIMS. Occasionally. [See FAR 49. Permit the contractor to continue as long as it provides clear and convincing evident that performance will be cured by the completion date already established. you may use the no-cost settlement arrangement if the contractor has not incurred costs and is not liable for damages. Exhibit 9-15 9-34 . Permit the contractor or the surety to continue under a revised completion schedule. Advise the contractor that under the revised schedule liquidated damages will not be assessed until after the revised delivery date passes. or whatever. will be provided. the Government. You may allow continued performance by a subcontractor or other comparable arrangement. and The contractor’s failure to cure performance and/or to fulfill contractually specified requirements will reinstate the Government’s right to terminate for default. The third party must be acceptable to the Government. ♦ Deductive contract modification. and the surety). Obtain consideration for the change in the form of a reduced price. the Contracting Officer should document the findings of fact and notify the contractor in writing that: The Government accepts the contractor’s commitment to cure performance.DISPUTES. You may consider a deductive modification for a project that is nearing completion. This is normally an agreeable arrangement unless there is evidence that the proposed contractor is neither competent nor qualified. a requirement is no longer valid and default proceedings are contemplated. ♦ Revision of the completion schedule.404]. If the surety for the failing contractor offers another firm to complete the work. [See FAR 49. Alternatives to Default Action ♦ No action with respect to default proceedings. as well as insurance.e. In this case. However. Assurances must be provided that performance and payment bonds. AND TERMINATIONS Alternatives to Default The Government does have some alternatives that should be considered in lieu of default. ♦ No-cost settlement. the existing contractor. a new contractor. improved work methods.402-4(b)] ♦ Surety-Takeover Agreement. Some of the Government’s alternatives to default that must be considered in order to demonstrate that discretion was used are contained in Exhibit 9-15.

Every situation must be evaluated on its own merits. Precluding a Waiver of Rights 9-35 . Exhibit 9-16 contains general information that offers guidance concerning waivers based on court and board findings. (ii) acceptance of delinquent deliveries. waiver. boards of contract appeals and courts generally recognize the need for some period of time beyond scheduled performance during which the Government may pause and reflect on such action. not to use these statements as precedents. One version included in a “show cause” letter states: “Any assistance given to you on this contract or any acceptance by the Government of delinquent goods or services will be solely for the purpose of mitigating damages. During the forbearance period. You are cautioned. the contracting officer may terminate at any time without notice. and (iii) acceptance or approval of samples submitted either after default in delivery or in insufficient time for the contractor to meet the delivery schedule.CHAPTER 9 Forbearance Because of the gravity and consequences of a decision to terminate for default. and it is not the intention of the Government to condone any delinquency or to waive any rights the Government has under the contract. The Government frequently attempts to preclude a finding of waiver of rights by expressly reserving its right to terminate during a period of reasonable forbearance.” Another version is more specific: “None of the following shall be regarded as an extension. Exercising a reasonable period of forbearance also demonstrates the exercise of discretion. however. nor have higher authorities agreed about what constitutes a reasonable time. However. it is frequently difficult to establish when a forbearance period ends and a waiver of rights has occurred. or abandonment of the delivery schedule or a waiver of the Government’s right to terminate for default: (i) the delay by the Government in terminating for default. A default termination is a drastic sanction. This is called a period of forbearance. Waiver of Rights A waiver of the Government’s right to terminate may come into play if the forbearance period is too lengthy.” The exact time that may be allowed for forbearance is not clear.

of a willingness to have a contractor continue performance.102 Contracting officers must terminate contracts for convenience or default by giving written notice to a contractor. it does not constitute a waiver. CLAIMS. it must be sent by certified mail. This can be accomplished by giving a contractor notice of a new completion date established unilaterally by the Government or by bilateral agreement. you have an obligation to act quickly in making a decision on whether to terminate. ♦ If a contractor is incurring costs in a continuing effort to perform. return receipt requested. AND TERMINATIONS General Guidance Concerning Waivers ♦ If you encourage a contractor to continue performance and in reliance on this inducement the contractor does.” ♦ If by silence your action would be interpreted as meaning that you have elected (or acquiesced) to permit a contractor to continue performance. Failure to do so will waive future rights to terminate. the right to terminate must be reestablished. 9-36 . the Government has the burden of proving that the date is reasonable. Exhibit 9-16 Maintaining the Right to Terminate If statements are made reminding a contractor that liquidated damages will be collected on late completion. If the date has been set unilaterally. If hand delivered. a written acknowledgment must be obtained from the contractor. making express statements to a contractor about a delinquency. Notice of Termination FAR 49. in some manner. you may have waived the right to default. ♦ An indispensable element toward waiving the Government’s right to terminate for default is an indication. This demonstrates that withholding liquidated damages has not waived the Government’s right to default. ♦ Entering into negotiations for or issuing a change order to the contract will constitute a waiver if a new completion date is required but not established.DISPUTES. ♦ Approving a revised schedule may create a waiver if the contractor follows the approved schedule. then a waiver may have occurred. This can be manifested by such actions as stalling for an unreasonable length of time in initiating default actions. When the notice is mailed. and in order to assert that time once more is of the essence. Following a waiver. or leading a contractor to believe that a late completion “is forgiven.

249-700 9-37 .105-1 A termination notice must be distributed to: A surety. When a contract administration office receives notice of a termination it will prepare and distribute a Contract Termination Status Report (DD Form 1598). The effective date of the termination. This Agreement provides for special processing of the actual termination actions by Canadian authorities.CHAPTER 9 Distribution of Notice DFARS 249.501-70 and 252.249-7000). Exhibit 9-17 gives five practical rules you should remember when exercising the right to issue a termination notice. the contractor and the contracting officer must work together to establish the amount and procedures for the special termination costs. Notice Inclusions A termination notice must state: The contract is being terminated for convenience or default under the contract clause authorizing the termination. In these cases. and The same Government personnel to whom an initial distribution of the contract was made. will result in a significant reduction in the contractor’s workforce. together with all other outstanding terminations. The extent of the termination.S. DFARS 249. Any special instructions. DFARS 249. In certain incrementally funded R&D contracts the head of the agency may approve the inclusion of a clause covering special termination costs (DFARS 252.7000 The U. and The steps the contractor should take to minimize the impact on personnel if the termination. Any known assignee or guarantor of the contractor. Department of Defense and the Department of Defense Production (Canada) are parties to a special letter of agreement that covers the termination of contracts with the Canadian Commercial Corporation. if any.

7003 DFARS 252. ♦ You may not call a termination for default a termination for convenience in order to protect the contractor’s reputation. reinstate a terminated part of a contract. termination or significant reduction in major defense programs may give rise to a requirement to notify the Secretary of Labor and all affected prime con- Rules to Remember in Issuing Termination Notices ♦ If the contractor receives notice of a termination and it does not state whether it is for default or convenience.7001 DFARS 249. AND TERMINATIONS DFARS 249.249-7002 Congressional notification of a termination or potential termination may be required if the impact of the termination involves a reduction in employment of 100 or more contractor employees. ♦ If there is genuine uncertainty on the part of the Government when either a termination for default or one for convenience is appropriate. You will need to work closely with the disbursement officer during all phases of any reprocurement or takeover procedures.DISPUTES. ♦ You can. Exhibit 9-17 Involvement of Surety and Disbursing Office You must accompany a notice of termination for default with a request that the Government be advised if a surety desires to enter into any arrangement for completion of the work. Also. the termination for convenience should be used. but only with the contractor’s written permission. either in whole or in part. 9-38 . you must also notify your activity disbursement officer to withhold further payments under the terminated contract pending further advice that will be furnished at the earliest practicable time. you cannot issue a termination for convenience and tomorrow change it to a termination for default. boards of contract appeals and courts have held that under these circumstances it will be considered a termination for convenience. CLAIMS. in fact. In addition. tractors. ♦ Termination for convenience is a final action. and the contractor believes it to be a termination for convenience and acts accordingly.

♦ Government has the right. Inventory of material on hand must be initiated. (not duty) to appropriate any residual material. basis. Telephone calls go unanswered.” Warnings of an impending bankruptcy or financial difficulties sometimes go hand in hand with a delinquent contract when: A contractor fails to pay subcontractors on time. Late deliveries are being made of materials to the job site. progress. 9-39 .CHAPTER 9 Exhibit 9-18 explores the impact from the Government’s and contractor’s points of view as to what takes place on the issuance of a termination for default notice under a fixed-price type of contract. advanced. (Negotiate a price for material.O.) ♦ Delays. or partial). Contractor Liable for excess costs of reprocurement. Must cooperate with any bonding company in an effort to mitigate damages. A contractor is falling behind the schedule. ♦ Entitled to return of all payments for defaulted work (e. Some Consequences of Termination for Default Government ♦ Government not liable for unaccepted work.. Exhibit 9-18 Warning Signs On occasion you may see evidence or hear rumors that a contractor is in “financial trouble. Liable for actual and liquidated damages. Subcontractors are notified to stop work immediately. usually brought in on a C.g.D. Complaints occur by laborers on the job. Sloppy performance and workmanship is evident.

the Contractor agrees to furnish.e. written notification of the bankruptcy to the Contracting Officer responsible for administering the contract. Exhibit 9-19 is the full text of the Bankruptcy clause (FAR 52. CLAIMS.242-13) that sets forth the actions a contractor must take on entering into bankruptcy proceedings. the identify of the court in which the bankruptcy petition was filed. or Proceeding with a reprocurement. Exhibit 9-19 Surety Having notified the surety of a termination for default. discuss your concerns with the contracting officer and legal counsel at once. you must provide an opportunity for a bonding company to assess the situation and make its decision as to what course it may choose to follow.DISPUTES. This notification shall include the date on which the bankruptcy petition was filed. If the surety decides to complete the work. whether voluntary or involuntary. AND TERMINATIONS If all indications point in the direction of a possible bankruptcy and you are already contemplating default actions. and a listing of Government contract numbers and contracting office for all Government contracts against which final payment has not been made. by certified mail or electronic commerce method authorized by the contract. 9-40 . unless you have reason to believe it is not in the Government’s best interest (i. you believe that the firm the surety proposes to employ would be neither reliable nor competent under a surety-takeover agreement). This notification shall be furnished within five days of the initiation of the proceedings relating to bankruptcy filing. Bankruptcy (JUL 1995) If the event the Contractor enters into proceedings relating to bankruptcy.. then other options include: Accomplishing the work by other forces. completion should normally be permitted. If the surety decides not to complete the work and you are so informed in writing. This obligation remains in effect until final payment under this contract.

subject to several conditions. which will be the balance of the contract price at the time of default. The Government will pay the surety’s costs and expenses. 9-41 . It is done with the approval of a bonding company. if applicable. a surety may condition its offer of completion on the execution by the Government of a surety-takeover agreement. the proceeds from the contract will not be available to the surety unless it enters into an agreement with the bank.404 Because of the possibility of conflicting claims over the unpaid. prior earnings of a defaulted contractor. ♦ The agreement does not waive or release the Government’s rights to liquidated damages. ♦ If the contract has been assigned to a financial institution. Under a surety-takeover agreement: The surety will take over management of the contract in order to assure its completion. ♦ In no event will the surety be entitled to be paid any amount in excess of its total expenditures made in completing the work and discharging its liabilities under the payment bond. including retained percentages and progress estimates for completed work prior to default. Exhibit 9-20 Accomplishing Work by In-House Forces The default clause gives the Government the right to take over the work and complete it by contract or otherwise. This normally occurs only when the work is substantially complete. This will be done in accordance with all the terms and conditions of the original contract. (See Exhibit 9-20) Conditions of a Surety-Takeover Agreement ♦ Any unpaid earnings of the defaulted contractor. are subject to claims by the Government against the contractor.CHAPTER 9 Surety-Takeover Agreements (Primarily for Construction FAR 49. fixing the surety’s rights to payment from those funds.

The price obtained was reasonable. Accomplishing Work by Reprocurement FAR 49. CLAIMS. There is no reasonable alternative under the circumstances. but not yet incorporated. It can be proved that there would have been such excess costs if a completion contract had been awarded to a private firm. The Government can assess the costs of reprocurement against the account of the defaulted contractor. Failure to do so could result in the conversion of a termination for default into one for convenience if the contractor can demonstrate that the Government failed to act reasonably in mitigating costs.405 Reprocurement is one of the Governments rights in the event it suffers damages resulting from a contractor’s default under a fixed-price type of contract.DISPUTES. AND TERMINATIONS It may use materials brought to the site. In order to successfully assess damages against a defaulted contractor. you must present a good case that: Reprocurement was done within a reasonable time.402-6 FAR 49. Excess costs are generally recoverable when: An urgent need can be demonstrated. Reasonable efforts were made to mitigate damages. Reprocurement by the Government is subject to various limitations such as those found in Exhibit 9-21. 9-42 . The reprocurement contract was performed and the reprocurement contractor was paid. The Government is expected to act reasonably in the solicitation and award of a reprocurement contract in order to protect both the interests of the contractor and the Government.

It may also negotiate a sole-source award. ♦ The Government cannot recover overhead or routine administrative costs in the reprocurement. ♦ The Government must reprocure substantially according to the terms and conditions of the original contract. ♦ The contracting officer must exercise reasonable diligence to obtain the lowest price available for completing the contract. if justified. or price. time. and Failed to mitigate its damages as a result of an unreasonable reprocurement method. fluctuating steel prices may have escalated in price. 9-43 . or some other commodity may have taken a rapid increase. Timeliness The Government is allowed a reasonable time in which to conduct a reprocurement.CHAPTER 9 Guidelines for Reprocurement ♦ Work will need to be completed by awarding a new contract based on the same plans and specifications. Exhibit 9-21 Common Contractor Defenses Two of the most common defenses raised by contractors in excess cost assessment cases are that the Government: Acquired dissimilar work or the reprocurement contract was dissimilar in material respect. ♦ Failure to act reasonably to minimize reprocurement costs in awarding the reprocurement contract may result in a failure to recover excess costs. Unreasonable delays. however. ♦ Equitable adjustments due the contractor prior to default will have to be offset against excess costs. For example. Labor wage rates could have also escalated due to a new bargaining agreement. ♦ The Government may utilize negotiation rather than sealed bidding. that result in higher reprocurement costs can be used by a defaulted contractor to demonstrate that its case has been prejudiced by a delay.

2 Termination for Convenience The right of the Government to terminate a contract when its completion is no longer in the Government’s best interest has long been recognized. or technical staff. AND TERMINATIONS Appeals A contractor who believes that its contract has been defaulted unfairly or improperly can contest that action by appealing to: An appropriate board of contract appeals. except for some instances when it may be in the best interest not terminate a contract. The Government has the right to terminate without cause and limit the contractor’s recovery to costs incurred. incurred during a contractor-caused delay. and the cost of preparing a termination settlement proposal. Recovery of anticipated profit is precluded. For instance: The cost of Government supervisory personnel. such as inspectors and engineers.DISPUTES. There is little guidance in the FAR concerning criteria that should be considered before a termination for convenience. Decision to Terminate for Convenience FAR 49. Even when a contractor fails to take a timely appeal from a termination for default. it can still challenge the propriety of that termination. Although recommendations may be made by engineers. legal.2. or The United States Court of Federal claims. or Any unliquidated progress payments. 9. as well as the propriety of any reprocurement procedure. The costs caused by the delay that the Government had to pay to another contractor on the same or a related projected. it is the contracting officer who makes the final decision. profit on work done. Damages The Government is entitled to recover actual damages for breach of contract just as any other party to a contract.101(b) 9-44 . A logic chart in Exhibit 9-22 provides some criteria for making a decision to terminate for convenience. CLAIMS.

Exhibit 9-23 describes each briefly. courts. 9-45 .CHAPTER 9 Logic For and Against Termination for Convenience FOR ♦ When in the best interest of the Government. or boards of contract appeals. ♦ Termination for convenience would eliminate unnecessary losses. Relationship the termination may have to other contracts.000 or less. Requested by GAO. ♦ The requirement no longer exists.) AGAINST Cost of termination for convenience should not be expended when a no-cost settlement can be effected. there are procedures prescribed in the FAR that must be followed. (Termination for convenience should not be used in lieu of default merely to save a contractor’s reputation. ♦ Budgetary considerations make it necessary. Contractor’s reputation would be affected if terminated for default. The propriety of an award must be resolved. The undeliverable balance of a contract is $5. Exhibit 9-22 The Termination for Convenience Process Once a decision is made to terminate.

102 Initial Conference: FAR 49. If the parties fail to agree. This determination may be appealed. The contractor must submit a proposal for compensation. The terminated inventory must be disposed of by: purchase or retention by the contractor.110 Settlement Agreement: FAR 49.206-1 Inventory or total cost basis: FAR 49. The contracting officer. The Government and the contractor enter into a final agreement on the amount of the settlement. If some areas of the settlement are disputed.206-2 Audit Report: FAR 49. sale. the contractor. as appropriate. and important subcontractor personnel discuss the effect of termination and the procedures to be followed in effecting a settlement. Submission of Settlement Proposal: FAR 49.109 Memorandum of Negotiation: FAR 49.107 or FAR 49. the settlement is by negotiation. return of material to suppliers.DISPUTES. the contracting officer must make a unilateral determination of the amount due the contractor. The memorandum must be written explaining the basis for the settlement in order to assist reviewing authorities.508-1 Disposal of Termination Inventory: FAR 45.303-2 Settlement by Negotiation: FAR 49.109 or FAR 49. pending final resolution of an appeal concerning the disputed amount. CLAIMS. Obtain audit report. If both parties agree to a sum of money. Use of the inventory basis for termination proposals in preferred over the total cost basis. Termination inventory may result in a credit against the amount the Government owes the contractor in the final settlement. A contractor must submit its settlement proposal within one year from the effective date of a termination.303-4 Exhibit 9-23 9-46 . or by donation. The contractor must list the property acquired for and allocable to the terminated arrangement. destruction. or abandonment. AND TERMINATIONS The Termination for Convenience Process FAR Reference Notice of Termination: FAR 49. unless the Government extends this period. The Government and the contractor negotiate the amount of the final settlement. the contractor will be paid the amount the Government believes proper. use by the Government.603 Requirement The contractor must be notified in writing that the contract has terminated for convenience.105(c) Prepare and Submit Inventory Schedules by the Contractor: FAR 45.

When a termination for cause is appropriate. the Government’s preferred remedy is: To acquire similar items from another contractor. The Government’s rights after a termination for cause include all remedies available to any buyer in the marketplace. But in all instances for other than late delivery.212-4. and for acquisitions under FAR Part 12 it replaces the word “default” as traditionally used in Government contracting. of any excusable delay (see FAR 52. The termination clauses for the acquisition of commercial items contain concepts that differ from those contained in the termination clauses set forth in FAR Part 49.CHAPTER 9 Termination and Acquiring Commercial Items FAR 12. When a termination for cause occurs.403 The Government reserves the right to terminate a contract for commercial items either for convenience or cause. the following: Indicate the contract is terminated for cause. the follow prescriptions apply to FAR Part 12 acquisitions: The requirements of FAR Part 49 do not apply when terminating contracts for commercial items.212-4(m) Contractors are required to notify a contracting officer as soon as possible.212-4(f)). In most instances: Such notification should eliminate the need for a show cause notice prior to terminating a contract for cause. a contracting officer must send a cure notice. when to do so would be in its best interest. Commercial Items: Termination for Cause FAR 52. but they may use FAR Part 49 as guidance to the extent it does not conflict with FAR Part 12 and the termination provisions of FAR 52. a written notification must be sent to the contractor and include. Before taking action to terminate for cause. and To charge the defaulted contractor with any excess reprocurement costs together with any incidental or consequential damages incurred because of the termination. a contracting officer should consult with counsel. Contracting officers are not to follow the requirements of FAR Part 49. at least. after commencement. Because of this. The word “cause” related to a termination action is the term customarily used in the commercial marketplace. 9-47 .

AND TERMINATIONS Specify the reason(s) for the termination. the parties should mutually agree on the requirements for a termination proposal. The Government’s interest is to obtain sufficient documentation to support payment against the goal of having a simple and expeditious settlement. or To comply with the contract cost principles in FAR Part 31. The contractor must be paid: The percentage of the contract price reflecting the percentage of work performed prior to the notice of termination. Commercial Items: Termination for Convenience FAR 52. For any charges beyond the contract price reflecting the percentage of work performed. The Government has no right to audit the contractor’s records solely because of a termination for convenience. Specify that the notice constitutes a final decision of the contracting officer and that the contractor has the right to appeal the decision under the Disputes clause. the contractor is not required: To comply with Cost Accounting Standards. the contractor may demonstrate those charges using its standard record-keeping system. Indicate which remedies the Government intends to seek or provide a date by which the Government will inform the contractor of a chosen remedy. 9-48 . and Any charges the contractor can demonstrate resulted directly from the termination.DISPUTES. In doing this.212-4(l) When the Government takes action to terminate for convenience. CLAIMS.

And. Sorry if I sounded harsh. I’d appreciate your sending me a brief E-mail conveying what you heard and what your concerns might be as the result of it. “Is Excel behind in meeting the schedule? Do you have any proof that what you heard is other then the babbling of a disgruntled person who got up on the wrong side of the bed? Do you have any indication that Excel’s work is suffering from what might be attributable to an alleged failure to pay its subcontractors on time? “Whoa. OR WHAT? Excel Products was a small business concern that had been awarded a contract for grounds maintenance and external cleaning at an agency field installation. CAUSE. “I didn’t mean to take you to task. complaining loudly about Excel’s late payment of billings. Eric!” shot back Lawson. After-work cleanup was a general requirement. and the total firm-fixed price for the job was $87. the subcontractor had to delay some grounds maintenance until Excel could pay its bills.” Eric knew that he had reacted too quickly and sharply to Lawson’s call. About two months into performance. The work was to be completed in three months from the date of award.” 9-49 .” “Glad to. the subcontractor hired on mostly daily laborers to get the job done. Excel’s contract had been awarded using FAR Part 12 (Acquisition of Commercial Items) procedures and FAR Part 13 (Simplified Acquisition Procedures). and that’s exactly what you should have done. The outside surfaces of two small buildings were to be cleaned and painted. The work called for a series of general grounds maintenance tasks. But we’ve been there before with these kinds of things … and had to run through some troublesome wickets to make things right.” “So what’s the problem. from what he had overheard. “and I understand that you can’t do much with something if you don’t have some facts to support it. and I’ll get back to you over the next day. the COTR for the contract. Eric. As a small disadvantaged business concern. It had been a competitive set-aside for small business concerns. And in the case of grounds maintenance.500. Ray?” interjected Eric. ”I’m merely try to pass along what I believe is a fairly significant message that may have ramifications for the completion of Excel’s work. and the high-pressure hosing of some external surfaces and metal awning areas. Let me think about what you’ve said. Ray.” replied the COTR. including minor repairs. called Eric and explained that he had overheard Excel’s subcontractor. “I heard the guy say that his company simply couldn’t afford to carry some people over several weeks without being paid for them. Look. As Lawson told Eric. I appreciate your call. a failure on Excel’s part to pay for work that had been done was affecting the subcontractor’s performance of work. Until then. Ray Lawson. a small groundskeeping company.CHAPTER 9 CONVENIENCE.

Eric clicked into his computer. Someone says the contractor is not honoring the billings. AND TERMINATIONS “Okay. and tapped out the following notes: We’ve got an $87. “and thanks for the call.DISPUTES. in a timely manner. from a small disadvantaged business subcontractor. If we have a fixed-price deal.) But if we do. yet again. Right? But what if what Lawson heard was right? Do we have any recourse to effect a remedy on behalf of the subcontractor? Or is it none of our business? And if it comes to a no good end. why should we worry about any subcontracting relationships? There’s no privity between the Government and any subcontractor under a firm-fixed-price contract.” said Eric.” As he reflected on Lawson’s call. Ray.500 fixed-price deal with a small business that usually does good work. I’ll be back to you about this. might we have to consider a termination action? (I hope not. will it be for cause or convenience? And on what basis will Joanna make the decision? 9-50 . CLAIMS.

like last week!” “So.. Brenda... The whole thing comes to $130. and the cost-plus rings in at a respectable $90. was on the phone with Bradley Moore.. and I’ve got five on my desk that my boss wanted to award . what’s the problem?” she asked. especially those dealing with a contractor’s responsibilities to inform the Government about intended subcontracts.000. That’s about the size of it.000 plus change. and . oh yes. “What’s up. “The fixed-priced ones come to $30.” 10-1 .000. and Brenda has been assigned as the contract administrator.” he responded. Bradley’s call to Brenda concerned the Subcontracts clause of K&F’s cost-reimbursement arrangement. “Well. The agency had recently awarded the firm a completion-form. He was anxious to confirm his understanding of some of the clause’s requirements. and talked with Brenda on several occasions. The award has been made after an aggressive competition among several offerors. “What’s it all add up to in dollars?” “Ah . attended some training sessions. I’ve got two firm-fixed-price subcontracts for off-the-shelf items with Integron for analytical software programs. “Hey listen.500. Brad?” was Brenda’s opening question. cost-plus-fixed-fee contract. “I’m a bit confused about the business of what we have to do to award subcontracts. The T&M has a ceiling of $13. she had been helpful in pointing him in the right direction to better understand what cost-plus contracting was all about.” he replied.. Bradley Moore was fairly new to the firm’s purchasing function. the purchasing agent for Kingman & Foster (K&F). one on a time-and-materials basis for logistics support computer runs with Keltney Resources. one on a firm-fixed-price basis for the rental of a computer from Logomods that can do things that none of ours can. a firm known for its excellence in the field of integrated logistics support. let’s see. one on a cost-plus basis for constructing a logistics model dealing with inventory stockage levels with Logomods Inc.” the contract administrator commented..” “That’s sounds like a pretty husky group of subcontracts. Whenever possible. one of Joanne’s contract administrators. I’m not sure I really know.CHAPTER 10 CONSENT TO SUBCONTRACTS THERE’S MORE TO IT THAN MEETS THE EYE Brenda Stilson. He had been on the job for about 18 months..

CONSENT TO SUBCONTRACTS

Brenda breathed heavily. “That’s a good deal of work to subcontract, Brad. And what was the total estimated cost of K&F’s cost-plus-fixed-fee contract? I haven’t got it in front of me, but I think it was about $700,000, wasn’t it?” “You’re close, Brenda, but on the short side by fifty grand. It’s $750,000. So tell me, what do I have to do to get your approval of these subcontracts so I can award them?” Brenda had grown a bit impatient with the discussion, but as always her inclination was to help. She asked Bradley if he had a pencil in hand and a pad close by. He answered yes, and she advised him to take down whatever he felt would be helpful. She began with a series of questions, “Where did you get the idea that the Government has to approve your subcontracts? And do you remember that I pointed out the importance of your contract’s Subcontracts clause at K&F’s postaward orientation conference? I understand what you mean by fixed-price and time-and-materials deals, but what do you mean by cost-plus?” Then she added somewhat brusquely, “Cost-plus what, Brad?” He responded quickly. “I thought the approval business was because we have a relatively inexperienced purchasing system in dealing with Government contracts. Sure, I remember the post-award orientation, but that Subcontracts clause is included in our contract by reference, and I’m told the newest version is dated February 1997. Haven’t got that version in my computer-based FAR as yet. And cost-plus means cost-plus-fixed-fee.” The contract administrator continued on. “Your contract sets forth quite clearly what K&F’s responsibilities are in the matter of obtaining the Government’s agreement to specified subcontracts you want to award, including the requirement for advance notification in some cases and what that means.” “Excuse me, Brenda,” Bradley interrupted, “but I’m under considerable pressure to get these deals out the door to vendors that have been selected to deliver the goods or perform the work. Have you got any shortcuts I can use to get, as you put it, ‘the Government’s agreement’ to the subcontracts I’ve identified?” “Huh ...?” she interjected. “Shortcuts? No, I’m afraid not. Uncle Sam doesn’t deal in subcontracting shortcuts. I strongly suggest you get a current version of the Subcontracts clause for K&F’s contract. What you’ve got to do, or whoever has to do it, is set forth therein.” The purchasing agent felt that he had run into a stone wall. “Well look, Brenda, can you give me some key words or phrases that will help me zero in on the right things about what we’ve got to do?” “Sure,” she said. “I have no problem doing that, Brad. But I’ve got a few pressing things myself to handle before the end of this day. So here’s what I’ll do. I’ll call you ... or your voice mail ... before six o’clock this evening and leave some key words or phrases. Better yet, I’ll fax them to you. Let me do that, although I’ll call to see if you got them. In the meantime, I suggest you get the current version of that Subcontracts clause to read.”

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Bradley thanked her and said he looked forward to her fax and phone call later in the day. Tapping the keys of her computer, Brenda began a list of key words and phrases to send the purchasing agent. She titled the list, “There’s More to It Than Meets the Eye.” She came up quickly with the following: consent, proposed subcontract, dollar values, more than one subcontract with a single subcontractor, advance notification, ratification, and purchasing system. “What others can I add?” she asked herself.

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COURSE LEARNING OBJECTIVES
At the end of this course, you will be able to: Overall: Individual: 10.1 10.2 Determine whether Government consent to individual subcontracts is required under a contract. Determine if a contractor is required to submit advance notifications of subcontracts for consent and identify the types of subcontracts for which prime contractors must submit such notifications. Review advance notifications for subcontracts, obtaining revisions or modifications when necessary, as well as Equal Employment Opportunity (EEO) clearance from the Department of Labor, when required. Determine whether the Federal Acquisition Regulation (FAR) prohibits consent. Determine whether to withhold consent and identify any changes or corrections necessary prior to consent. Negotiate changes or corrections in a contractor’s subcontracting procedures or a contract itself, when appropriate, obtaining the contracting officer’s approval in writing for those changes or corrections if they conflict with previously approved plans. Consent, decline to consent, or make appropriate recommendations to a contracting officer concerning any changes or corrections for a contractor’s subcontracting procedures, or a contract itself, and obtain the contracting officer’s decision, document it, and transmit it in writing to a contractor. Monitor contract performance to ensure that subcontracts are not awarded without required consent. Consent or decline to consent to the placement of proposed subcontracts.

10.3

10.4 10.5 10.6

10.7

10.8

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INTRODUCTION TO CONSENT TO SUBCONTRACTS
Definition for Subcontracting FAR 44.101 Subcontract means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for the performance of a prime contract or subcontract, including purchase orders, and changes and modifications to purchase orders. Subcontractor means any supplier, distributor, vendor, or firm that furnishes supplies or services to a prime contractor or another subcontractor. Consent to subcontract means a contracting officer’s written consent for a prime contractor to enter into a particular subcontract. Policy On Consent Requirements FAR 44.102 Consent to subcontracts is required when a subcontract is complex, the dollar value is substantial, or the Government’s interest is not adequately protected by competition and the type of prime contract or subcontract. Consent requirements may be waived when a contractor’s purchasing system has been reviewed and approved in accordance with FAR Subpart 44.3 (Contractors’ Purchasing Systems Reviews). Consent Responsibilities FAR 44.202-1 Approval Versus Consent A cognizant administrative contracting officer is responsible for consent to subcontracts, except when the contracting officer retains a contract for administration or withholds the consent responsibility from delegation to an administrative contracting officer. While the Government may reserve the right “to approve” a contractor’s purchasing system, it grants its “consent” to subcontracts. What the Government consents to is not the capacity and credit of a subcontractor to perform, but rather the cost or pricing arrangement between one contractor (a prime) and another contractor (a subcontractor) or, in some cases, subcontracts selected by a contracting officer requiring special surveillance. Contractors and subcontractors, at all tiers, are required, to the maximum extent practicable, to incorporate commercial items or nondevelopmental items as components of items delivered to the Government. In doing so, contractors and subcontractors are not required to apply to any of their divisions, affiliates, subcontractors, or suppliers that are furnishing any commercial items or commercial components any clause, except those:

Subcontracts for Commercial Items and Components FAR 44.402

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CONSENT TO SUBCONTRACTS

Required to implement provisions of law or executive orders applicable to subcontractors furnishing such items or components, or Determined to be consistent with customary commercial practice for the item being acquired. Subcontracting Clause for Commercial Items and Components FAR 44.402(b) and 44-403 DFARS 244.403 FAR 52.244-6, Subcontracts for Commercial Items and for Commercial Components, implements the policy requirements of FAR 44.402(a) and is required for use in solicitations and contracts for supplies or services other than commercial items. Notwithstanding any other clause in a prime contract, only those clauses identified under FAR 52.244-6 are required to be in subcontracts for commercial items or commercial components. In contracts that contain the clause mandating a preference for domestic specialty metals (DFARS 252.225-7014), these requirements must be flowed down to subcontracts at any tier when the items being acquired under those subcontracts contain specialty metals. Steps in providing consent to subcontracts are charted on the next page. Following the flowchart, each step is discussed in detail.

Steps in Performance

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STEPS IN CONSENTING TO SUBCONTRACTS
1. Determine whether consent is required under the contract. 6. Negotiate changes or corrections in contractor’s subcontracting procedures where necessary.

7. Consent or decline to consent. Required? No Consent not necessary.

Yes 2-3. Identify types of subcontracts for which consent is required; obtain advance notifications.

8. Monitor to ensure subcontracts are not awarded without required consent.

Is consent required for subcontract at issue?

No

Consent not necessary.

Yes 4. Determine whether the FAR prohibits consent.

Consent prohibited?

Yes

Do not consent.

No 5. Determine whether to withhold consent for other reasons; establish conditions for consent.

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TO CONSENT OR NOT TO CONSENT
10.1 Determine Consent Requirements Step 1 There are three major steps involved in determining a contract’s requirements for consent to subcontracting. Review the contract. The key to determining whether the Government has the right to consent to or to reject a subcontract is found in the contract itself. The first step is to review it carefully. In this review, pay close attention to: FAR clauses incorporated in the contract, Special clauses relating to subcontracting, The type of contract and subcontract, and The contract and subcontract dollar amounts. Generally, Government consent to a subcontract is required in a prime contract when the Government’s interests in subcontract arrangements are not protected by the contract type or when the Government’s interests are not protected by the competitive practices of the prime contractor. Breadth of Consent FAR 44.201-1(b) Consent may also be required when a subcontract is recognized in the preaward phase of a procurement as being particularly critical to overall performance, even though the Government’s interests are generally protected by the contract type and/or competitive practices. Such subcontracts may be specified in the schedule of a prime contractor’s contract as requiring consent, while others will not. A prime contract may even specify other special surveillance requirements for critical subcontracts, such as approval of a subcontractor’s quality control program. Determine if the Government’s interests are protected by the contract type. Generally, consent to a subcontract is not required under prime contracts that are firm-fixed price or fixed-price with economic price adjustment clauses. Consent is generally required for other contract types. Consent may also be required under fixed-price prime contracts, depending on the nature of the subcontract. For instance, consent is required when: The subcontract results form an unpriced modification to a prime contract, or

Step 2 FAR 44.201

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The subcontract is a cost-reimbursement, time-and-materials, or labor-hour type of arrangement. Step 3 FAR Subpart 44.3 Determine if the Government’s interest is not adequately protected by competition. If a prime contractor has a Government-approved purchasing system, consent is generally not required, because part of the review for approval for such a system is its adherence to Government competition requirements and general good business practices. Exceptions occur when: Contracts that are not facilities contracts are issued as letter contracts or as cost-reimbursement types of contracts, or A contract is for a major system, subsystem, or for component parts of the system or subsystem. Contractors’ Purchasing Systems Reviews There is assurance that the Government’s interests in a prime’s subcontracting procedures are being protected when a contractor purchasing system review (CPSR) has been conducted and the system has been approved. These reviews are usually required for each contractor whose negotiated sales (not sealed bid or sales of commercial items pursuant to Part 12) to the Government are expected to exceed $25 million during the next 12 months. Generally, the Government analyzes a prime contractor’s overall purchasing system. A CPSR is not done to satisfy the needs of a specific contract.

SOME FOLKS JUST DON’T GET IT Joanne was at her desk at eight o’clock this morning and checking her voice mail for any messages. She noted a call from Harlan Shoemaker, Director of Purchasing and Supply Management for ACME Construction and Supply . “Wonder what he wants?” she said to herself. ACME was a worldwide company and recently had grown its business with the Government to the point where it anticipated more than $25,000,000 of negotiated prime and subcontract awards over the next 12 months. Given this expected level of sales, the company became a candidate under FAR Subpart 44.3, Contractors’ Purchasing Systems Reviews, for a CPSR. So far as Joanne knew, ACME’s CPSR had been conducted by the Defense Contract Management Command (DCMC), and she was expecting to hear the results in the near future. The “near future,” unbeknown to her, was about to occur when she responded to Harlan Shoemaker’s call of the previous day. “Mr. Shoemaker, this is Joanne Davidson responding to your phone call. What can I do for you?”

10-9

that all sounds mighty nice. Ms. small disadvantaged. Joanne ended the conversation.” “Really. Davidson. A prime contractor is not required to submit an advance notification for all of them. Turned the place inside out for them. and some other things as well.CONSENT TO SUBCONTRACTS “Thanks for calling. and you can put it any way you want. and began to deal with the many items on her desk. Wanted to call you to see what might be done about all this. I think it appropriate for you and your staff to take account of the period within which you’ve been asked to submit a plan that responds to the deficiencies in your purchasing system that require correction. Shoemaker. is to evaluate your purchasing procedures and practices to see if the business you conduct is compatible with requirements that speak to the protection of public funds spent for public purposes. our objective. in the case of a CPSR. Ms. No sir. Looked at more paper and records than I thought we had. Two steps may be used to ascertain substantial dollar value or complex requirements. 10-10 .” “Look.. “What seems to be the problem?” Harlan seized the opportunity to respond. I haven’t seen the CPSR report as yet. Mr.2 Identify Subcontracts Requiring Consent Having identified prime contracts that contain clauses requiring the submission of subcontract information. “all our company is trying to do is good work at a good price to be of good report. or what?” How many times had she heard this over the years? And she responded as she always had. “Mr.” Harlan interrupted. you must now consider which subcontracts need a notification for consent from the contractor. We got a letter from the cognizant DCMC leader indicating that the Government was withholding approval of our purchasing system.. but I’ll never understand why we just can’t do it the way we know that works. Ms.” Thanking Harlan for calling.” Joanne said with a sound of mild surprise in her voice. hung up the phone. Said we showed weaknesses in the submission of required cost or pricing data. that our small. Davidson. Prime contractors need only submit notifications for those subcontracts with a substantial dollar value or those that contain complex requirements. 10. we had DCMC in here for a CPSR. Chances are that if we had connected yesterday. and women-owned small business subcontracting practices were out of whack with our rules. but we came up short. But in the meantime. “Will probably be on my desk in a day or two. I appreciate your prompt response. Do you think it’s fair to do that .” “Well. Shoemaker. I’ve got to see what it says. our objective is not to run your business. They must have been here for the better part of a month. And it troubles me no end when the Gov-ernment steps in and tries to tell us how to run our business.” the contracting officer began. Then she added. Davidson. “As you know.” “Well. I guess. I’d have tried to chew your head off. Before I can suggest anything. Nice people.

000. other than firm-fixed price or fixed-price with economic price adjustment. or other acquisition of special test equipment valued in excess of $25. FAR 52. sets forth that a contractor must notify the contracting officer reasonably in advance of entering into any subcontract if the subcontract: Is one of the following types: cost-reimbursement. Cost-Reimbursement Types of Contracts FAR 52.) Has experimental. time-and-materials.244-1 Determine if the dollar value is substantial. rental. sets forth that a contractor must notify the contracting officer reasonably in advance of entering into any subcontract if the contractor does not have an approved purchasing system and if the subcontract: Is proposed to exceed $100.CHAPTER 10 Step 1 Fixed-Price Types of Contracts FAR 52. Is fixed-price and exceeds either $25. developmental. but advance notification is still required). installation.244-2 For cost-reimbursement types of contracts. Coast Guard. Is one of a number of subcontracts with a single subcontractor. (For DoD. the fixed-price amount is the greater of the simplified acquisition threshold or five percent of the total estimated cost of the prime contract. FAR 52. or labor-hour (the contractor may enter into these subcontracts without consent if it has an approved purchasing system. Subcontracts (Fixed-Price Contracts). For fixed-price types of contracts. or research work as one of its purposes.000 or of any items of facilities. for the same or related supplies or services that in the aggregate are expected to exceed $100. purchase. Subcontracts (Cost Reimbursement and Letter Contracts).244-2. 10-11 .244-1. or Is to be awarded under a non-facilities prime contract and provides for the fabrication. or Results from unpriced modifications to the contract.000 or five percent of the total estimated cost of the contract under which it would be awarded (the contractor may enter into this subcontract without consent if it has an approved purchasing system. but advance notification is still required). and NASA. under the contract.000.

When a contracting officer ratifies (after the fact). Check advance notifications for content requirements.201-2(a) Special test equipment valued at more than $25. four steps must be taken. such ratification constitutes the same consent as if it had been given before the fact.244-2 Step 1 In obtaining and reviewing advance notifications and identifying EEO required clearances. whether for the fabrication. 10-12 . FAR 44.201-3 A major system. Use this checklist to make sure that an advance notification meets all of the content requirements. 10. ment is considered complex if it is for: A subcontracted require- Step 2 FAR 44. or other acquisition of the special test equipment.244-1 FAR 52. consent to a subcontract. developmental.CONSENT TO SUBCONTRACTS Consent to Advance Notifications and Ratifications When advance notification is required. but also outline content requirements for it. or components. or the shipment and storage of personal property when an agency requires prior approval of subcontractor facilities. purchase. Mortuary services.000 under a cost-reimbursement type of prime or letter contract that is not a facilities contract. rental. These content re-quirements are listed in Exhibit 10-1. Experimental. subsystem. FAR Subcontract clauses at FAR 52.3 Obtain and Review Advance Notifications FAR 52. installation. or research work. or A subcontract selected by the contracting officer as needing special surveillance.244-1 and -2 not only require an advance notification. in writing. refuse services. A contractor may be required to submit an advance notification to subcontract for complex requirements not otherwise specified in a subcontracts clause.201-2(c) FAR 44. but only if such a requirement for advance notification is set forth in a contract’s schedule. Determine if the requirement is complex. a contractor is required to obtain a contracting officer’s written consent before placing any subcontract.

with an explanation of why and how it was selected. accompanied by the prime contractor’s cost or price analysis? ♦ If required by the contract. YES N/A ♦ Does the notification describe the supplies or services to be subcontracted? ♦ Does the notification identify the contract type of the proposed subcontract? ♦ Does the notification identify the proposed subcontractor. including the competition obtained? ♦ Does the notification identify the proposed subcontract price.CHAPTER 10 Assessing the Adequacy of An Advance Notification to Subcontract A “No” answer to any question on this list indicates that you do not have all the required content information. FAR 52. complete. as described in paragraph (c).244-1. does the notification include the subcontractor’s Disclosure Statement or Certificate relating to Cost Accounting Standards? ♦ Does the notification include a memorandum of negotiation. Subcontracts (Fixed-Price Contracts) (FEB 1995) and paragraph (b)(2) of FAR 52. does the notification include a Certificate of Current Cost and Pricing Data? ♦ If required by the contract.244-2. Subcontracts (Cost-Re-imbursement and Letter Contracts) (FEB 1997). and current cost or pricing data? ♦ If required by the contract. if appropriate. does the notification contain the subcontractor’s accurate. from the prime contractor for the proposed subcontract? Exhibit 10-1 (continued on next page) NO 10-13 .

if any. to which it was recognized in the negotiation that the subcontractor’s cost or pricing data were not accurate. taken by the prime contractor and subcontractor as a result of any defective pricing? The effect of any defective pricing data on the total price negotiated? The reasons for any significant difference between the prime contractor’s price objective and the price negotiated? If incentives were used in the subcontract. a complete explanation of the incentive fee or profit plan? NO Exhibit 10-1 (continued) 10-14 .CONSENT TO SUBCONTRACTS Assessing the Adequacy of An Advance Notification to Subcontract YES N/A ♦ Does this memorandum of negotiation reflect: The principal elements of any subcontract price negotiations? The most significant considerations controlling the establishment of initial or revised prices? The reason why cost or pricing data were or were not required? The extent. if any. complete. or current? The resulting action. if any. to which the prime contractor did not rely on the subcontractor’s cost or pricing data in determining the price objective and in negotiating the final price? The extent.

THEN EEO clearance is required. One piece of information contained within an advance notification is the proposed subcontract price. Refer to the decision chart in Exhibit 10-2. AND The proposed subcontract price is: 1. Otherwise. tract. return the original notification and request a revised one that conforms to content requirements. Equals or exceeds $1 million. This. determines if an EEO clearance is required for the subcon- Determining When EEO Subcontract Clearances Are Required IF The prime contract contains: FAR 52. or otherwise corrects deficiencies in the original notification. request revisions or additions to the advance notification. Equal Opportunity Preaward Clearance of Subcontracts. If so. adds omitted material. For a first-tier subcontract. Exhibit 10-2 10-15 . and 2. along with other notification content requirements. or Other deficiencies. Step 3 Check advance notifications for any EEO clearance requirements. Request a modification only when a few corrections are required.222-28. request either a revised notification or a modification that clarifies mistakes or inconsistencies.CHAPTER 10 Step 2 If all required information is not received. A review of the content requirements as referenced in Step 1 may surface: Any obvious mistakes or inconsistencies. Omissions.

After determining that all advance notification content requirements have been met. examine the notification for any FAR prohibitions requiring the contracting officer to withhold consent to the subcontract. These prohibitions are shown in a checklist format in Exhibit 10-3.203 10-16 .CONSENT TO SUBCONTRACTS Step 4 Request the EEO clearance. 10. Your agency must request the EEO clearance from the appropriate regional office of the Department of Labor’s Office of Federal Contract Compliance Programs. A contracting officer may not consent to a subcontract unless fully within the conditions shown on Exhibit 10-2. and the prime contractor cannot award it unless this clearance is obtained.405-2 FAR 44.4 Determine If FAR Prohibits Consent FAR 9.

other discretionary factors must be considered by the contracting officer before making a determination on whether to consent to a subcontract.CHAPTER 10 FAR Prohibitions Against Subcontracting A “Yes” answer to any question on this list indicates that the FAR prohibits consent to a subcontract. does the fee exceed 10 percent of the subcontract’s estimated cost? ♦ If the subcontract is for a cost-plus-incentive-fee or cost-plusaward-fee subcontract and a deviation has not been obtained. and specifications exceed 6 percent of the estimated cost of construction? ♦ If the subcontract is for another cost-plus-fixed-fee arrangement. does the estimated cost and fee for the production and delivery of designs. plans. See FAR 44. YES N/A ♦ If the subcontract is for experimental. does the fee(s) exceed 15 percent of the estimated cost for experimental. development or research work performed under a cost-plus-fixed-fee agreement. If your checkmarks appear in the “No” or “N/A” columns. developmental or research work or 10 percent of the estimated cost for other requirements? ♦ Are payments under the subcontract to be made on a cost-plus-apercentage-of-cost basis? ♦ Does the subcontract obligate the contracting officer to deal directly with the subcontractor? Exhibit 10-3 (continued on next page) NO 10-17 . does the fee exceed 15 percent of the subcontract’s estimated cost? ♦ If the subcontract is for architect-engineering services for public works or utilities. drawings.202-2 and Exhibit 10-4.

judicial determination. 2 The contracting officer has some leeway to consent to a subcontract award to a firm on this List. as long as this clause does not attempt to obligate the contracting officer or the appeals board to decide questions that do not arise between the Government and the prime contractor or that are not a matter for dispute under FAR 52. or voluntary settlement between the prime and subcontractor binding on the Government as well?1 ♦ Does the subcontract. Disputes.405-2. has it been refused clearance by the appropriate regional Office of Federal Contract Compliance Programs? ♦ If the proposed subcontract contains a requirement for jewel bearings and related items. in consonance with other subcontracts under a prime contract. is a clause requiring that these items be obtained from the William Langer Plant absent from the subcontract? NO 1 You are not to answer “yes” to this question merely because the subcontract contains a clause giving the subcontractor the right of indirect appeal to an agency board of contract appeals.CONSENT TO SUBCONTRACTS FAR Prohibitions Against Subcontracting YES N/A ♦ Does the subcontract make the results of arbitration.209-6 and DFARS 209. See FAR 9. show a repetitive or unduly protracted use of costreimbursement.233-1. Exhibit 10-3 (continued) 10-18 .405. FAR 52. time-and-materials or labor-hour contracts? ♦ Is the proposed subcontractor on the List of Parties Excluded From Procurement and Nonprocurement Programs?2 ♦ If the subcontract requires an EEO clearance (see Exhibit 10-2).

219-14.5 Determine to Withhold Consent for Other Reasons or Establish Conditions for Consent FAR 44. you are ready to consider whether consent would be appropriate and to make a recommendation to the contracting officer. Provide your recommendation promptly to the contracting officer on the evaluation of the contractor’s advance notification to subcontract.CHAPTER 10 10. Follow three steps in doing so. The term “make-or-buy program” is that part of a contractor’s written plan for a contract that identifies: Major items to be produced or work efforts to be performed at the prime’s own plant. and Those items to be subcontracted. since no refusal to consent was provided. depending on the terms of the contract: An excusable delay for additional time or compensation. is only required for prime contracts that were awarded as a small business set-aside or are Section 8(a) procurements. this clause requires that at least 50 percent of the cost of performance must be expended for employees of the subcontractor. Limitations on Subcontracting. The clause at FAR 52. Step 2 Pay close attention to previous commitments the prime has made that affect subcontracting.3 and after discarding all FAR consent prohibitions as inapplicable. For nonconstruction services. Notice the third item in Exhibit 10-4. or Implied consent.202-2 and in Exhibit 10-4. Notice the first item in Exhibit 10-4. Research the appropriateness of providing consent.202-2 Step 1 After examining a contractor’s advance notification to subcontract as detailed in 10. A delay in acting on this notice may constitute. 10-19 . Base your research on the considerations listed in FAR 44.

219-14. ♦ The necessity for subcontracting. Types of CAS Coverage. is included in the prime contract. or services. ♦ The type of subcontract given the risks involved and current policies on the use of that type of contract. ♦ The availability of special test equipment or facilities from Government sources that would otherwise be procured under the subcontract. as discussed in FAR Subpart 19.CONSENT TO SUBCONTRACTS Discretionary Factors in Consenting to Subcontracts The contracting officer may take the following discretionary factors into account in deciding whether to consent or withhold consent to a subcontract. and current cost or pricing data. ♦ The technical justification for the selection of specific supplies. and women-owned small business subcontracting. ♦ The contractor’s assessment and disposition of alternate proposals from subcontractors. ♦ The adequacy and reasonableness with which the contractor has translated prime contract technical requirements into subcontract requirements. ♦ The adequacy of price competition or justification for its absence. ♦ The adequacy of consideration to the Government for any proposed subcontract involving the use of Government-furnished property or facilities. if applicable. ♦ The basis for selecting the particular subcontractor and determining its responsibility. ♦ Compliance with applicable Cost Accounting Standards for awarding the subcontract as discussed in FAR 30. small disadvantaged. Subcontracting plans requirements. complete. ♦ Whether the contractor obtained accurate. ♦ The subcontract’s effect on the total amount of subcontracting when the clause at FAR 52.201-2. including any required certifications. ♦ The prime contract’s requirements concerning small. Exhibit 10-4 10-20 . ♦ The consistency of the subcontract with the prime contractor’s make-or-buy program. including. Limitation on Subcontracting. if offered. its subcontracting plan.704. equipment. ♦ The adequacy of the contractor’s cost or price analysis.

215-21. Reasons to Examine Variations From Make-or-Buy Programs ♦ When a make-or-buy program has been incorporated into a contract. Any divergence from that program warrants an inquiry. Changes or Additions to Make-or-Buy Program. Exhibit 10-5 10-21 . it is an enforceable contract requirement. it may be necessary to review and agree on the program during an acquisition’s postaward phase. ♦ If a program was an evaluation factor for award. the requirements for a formal make-or-buy program applies to actions with a minimum value of $1 million. the Government may be entitled to an equitable reduction in contract price for any alteration to an agreed-to make-or-buy program.7 DFARS 215. is in a contract. including the technical or financial risk involved. Approval of a make-or-buy program involves careful consideration in the preaward phase of an acquisition and constitutes an endorsement of the way the prime contractor intends to manage contract performance. quality.CHAPTER 10 Make-or-Buy Considerations FAR Subpart 15. In DoD procurements. and performance. delivery. allowing changes that would be less beneficial to the Government may prejudice the rights of others who competed for the acquisition. Exhibit 10-5 summarizes why. prospective prime contractors are generally required to submit make-or-buy programs for negotiated acquisitions with an estimated value of $5 million or more. When the Government obtains a make-or-buy program.704 Although there are some exceptions. ♦ If a program was not incorporated into a contract. ♦ When FAR 52. it is required to give primary consideration to the effect of the proposed program on price.

Small Disadvantaged and Women-Owned Small Business Subcontracting Plan. The DoD is participating in a test program through the end of fiscal year 1998 in which contractors will prepare corporate. Small.704 DFARS 219. and women-owned small business subcontracting plans are. Reasons for closely observing subcontracting inconsistencies with these Reasons to Examine Variations From Subcontracting Plans ♦ When FAR 52. ♦ Examining inconsistencies fulfills other responsibilities you have in monitoring these programs (see FAR 19.702 FAR 19.000. small disadvantaged. Liquidated Damages—Subcontracting Plan. division or plant-wide subcontracting plans that are comprehensive of all contracts in those business units. with few exceptions. condoning changes that would be less beneficial to the Government may prejudice the rights of others who competed for the acquisition. (see DFARS 252. small disadvantaged.702 DFARS 219. Exhibit 10-6 10-22 .000 ($1. and historically black colleges and universities and minority institutions.219-16. ♦ The DoD can also utilize an incentive provision to encourage aggressive subcontracting to small. Under this provision. if a subcontracting plan were an evaluation factor for award. required in contracts that are: Expected to exceed $500.706. the Government may be entitled to monetary damages for the prime contractor’s divergence from its Small. is included in a contract. a contractor can earn incentive payments (of up to 10 percent) of the excess subcontracting actually done with such organizations. This incentive may not be used in contracts with contractors who have comprehensive subcontracting plans.704 Notice the sixth item in Exhibit 10-4. or Otherwise offer a substantial potential for subcontracting. ♦ As with a make-or-buy program.CONSENT TO SUBCONTRACTS Small Business Subcontracting FAR 19.219-7005) plans are summarized in Exhibit 10-6.000 for construction). Responsibilities of the cognizant administrative contracting officer).

The Office of Federal Procurement Policy (OFPP) recommends that agencies develop procedures to reach this goal in specific areas. It is useful. Step 1 Step 2 10-23 . In fixed-price types of contracts. and you now have all the information your contract requires for the submission of a consent notification. and Technical experts. Concentrate negotiation efforts on the extent of subcontracting competition. Exhibit 10-7 summarizes these recommendations. Competition at the subcontractor level should be strongly encouraged. Micromanaging them is not appropriate. Voice subcon-tracting concerns about fixed-price types of contracts only when there is an obvious cause for them. Three steps should be taken in coming to a conclusion about consent.CHAPTER 10 Step 3 Obtain assistance in the evaluation from Government support personnel. For instance. when you discover that the subcontractor is on the List of Parties Excluded From Procurement and Nonprocurement Programs. to keep the other goals in mind when asked to participate in early acquisition planning. 10. Use their expertise especially when you have cause for concerns but do not have enough information to base a reliable judgment on your concerns. Pricing specialists. you can strongly support the goals for the second and fourth items on Exhibit 10-7. however. Support personnel who may provide valuable assistance in deciding the appropriateness of factors listed in Exhibit 10-4 include: Auditors.6 Negotiate Subcontracting Changes or Corrections Assume you have contacted the contractor regarding missing or inconsistent data. you normally would be. In the process of consenting to subcontracts. Distinguish between legitimate concerns and micromanagement. The prime has assumed most of the risk of successful contract performance under these arrangements. You may be in complete accord with the prime’s subcontracting decision.

you would have a legitimate concern if the submission of cost or price analysis information shows that an estimate of cost or price for a subcontract was based on a prime’s own estimate because no offers were received from prospective subcontractors.CONSENT TO SUBCONTRACTS Ways to Increase Subcontractor Competition ♦ Plan for subcontract competition early in the acquisition process. A contractor may consider it to be a form of harassment. if problems should arise that cast doubt on the wisdom of the decisions you made or recommended. Query your technical experts about the contractor’s estimate. Exhibit 10-7 Step 3 Voice legitimate concerns. Voicing concerns based on suspicions or baseless information does not encourage an effective business relationship. then so inform the contractor in a businesslike way. Have the contractor document. if the case. that an attempt to solicit subcontracting competition produced no results and why. For instance. 10. ♦ Direct prime contractors to seek second sourcing on key noncompetitive subcontract components in major contracts where a potential for competition exists. you must back up the decision for your actions so there is no second-guessing at some later date. one that obstructs its authority to manage its own business. where appropriate. Most certainly query the contractor about what appears to be a lack of competition. ♦ Use award fee provisions. 10-24 . ♦ Emphasize the importance and benefits of competition in subcontracting and consider it in the evaluation and source selection process. ♦ Increase emphasis on Contractors’ Purchasing Systems Reviews. Where changes are required or additional information is necessary to support a consent decision. As for other aspects of contract administration. to motivate prime contractors to increase competition for subcontracts. Do not hesitate to voice legitimate concerns. Use the checklists provided in this chapter as means for documenting the decision process.7 Document the Decision Document the consent or nonconsent decision in the contract file.

You might include suggestions for enhancing competition. There is one instance when close and timely monitoring of subcontract consent clauses is most appropriate. In this case. That is. even though price analysis appeared adequate. you could voice concern over any noncompetitive aspects of the subcontract. Those are the requirements. informal inquiries will usually get to the cause and indicate if and when further action is necessary. In this case.8 Monitor to Ensure Subcontracts Are Awarded Properly When the Government exercises its right to inspect a prime’s books and records. perhaps with the help of your agency’s Competition Advocate’s Office. The prime may have decided to perform the work originally earmarked for subcontracting.202-1(b) Document the decision to the prime contractor. It can include a requirement for changes or corrections. in consenting to a subcontract. but you might include suggestions for the prime’s consideration. It must be in writing. For example. when the Government has refused consent to a subcontract and an unusual period of time elapses without any feedback from the prime. 10. specific monitoring efforts are justified. or the prime may just be ignoring subcontract consent requirements. 10-25 . There are only a few rules regarding this documentation: It must be prompt.CHAPTER 10 FAR 44. There may be legitimate reasons for a lack of feedback. compliance with contract clauses requiring the Government’s consent to subcontracts should be among an auditor’s checklist of items.

including a required worldwide search for bibliographic resources on the subject of pollution-induced illnesses. as Eric had come to believe. when added to all previously incurred cost. and work had been in progress for about 12 months. we are required to inform you in writing when we expect to reach an expenditure level over the next 60 days. She asked her contract administrator to check it out. a different world. Most of Eric’s contracts were firm-fixed price. As of our last voucher. we have expended about 87 percent of the estimated cost and. Dealing with cost-pluswhatever arrangements was. Among these contracts. the contractor’s chief financial manager. in part. The estimated cost of performance was $350. An intended one-week trip to London by half of the team and a similar trip to Moscow by the other half resulted in unexpected difficulties attributable to translation problems and breakdowns in the transmission of electronic databases. Maynard had sent the contracting officer. the following: “Under our contract. the increase in our rate of expenditure was the result of conditions beyond our control. 11-1 . per diem. It was a cost-plus-fixed-fee contract with Haverford Laboratories for a research study on environmental pollution controls. These represented performance requirements that were difficult to describe in other than reasonably well-written statements of work.232-20 . He was working on it now. one was a cost-plus-fixed-fee arrangement that had been near the top of Eric’s agenda for the past 48 hours. but he had several cost-reimbursement arrangements to administer. Our expenditure rate for the past month rose rather precipitously as a result of unforeseen circumstances encountered by our team of professional bibliographic researchers.Limitation of Cost).000. Eric’s attention had been drawn to Haverford’s effort when Joanne forwarded a letter she had received three days ago from Casey Maynard. of course. I had no indication. given our ongoing effort. Haverford had been performing well. of any anticipated cost growth as it happened over the past month. Quite clearly. So far as he could determine from progress reports and talking with the requirements side of the house. with all the associated costs of travel. that will exceed 75 percent of the estimated cost of performance (FAR 5. salaries. and the like.CHAPTER 11 LIMITATION OF COSTS COST PLUS WHATEVER … A DIFFERENT WORLD Among the most interesting facets of a contract administrator’s responsibilities are those associated with the administration of cost-reimbursement types of contracts. will reach the 100 percent mark over the next month. Our accounting system reports to me on a monthly basis concerning incurred costs for the preceding month. As of this date. exclusive of fee. What had been planned as oneweek trips developed into at least two-week trips.

and considering what is yet to be done under our contract. Contact finance and payment. plus fee. “what do I do with Haverford Laboratories?” It appeared from the company’s letter that there was enough money left for about one month of effort. to complete performance. we estimate that completing performance will require an additional $70.” “Okay. when supplemented by our current 6 percent fee. And while Casey Maynard sounded almost a bit naïve. approximates $74. 11-2 . Another set of questions for himself before he dug into it. What’s the status of Haverford’s vouchers? What does Joanne know about them? Bottom line: What alternatives are open to us? Much to do as Eric picked up the phone and tapped in the number of the agency’s project leader for the study.000 which. They’ll be anxious to know what’s in an additional $70.LIMITATION OF COSTS Given what has occurred. How come we get a letter at the 87-percent level when reporting was required at the 75percent level? Aside from what may have happened. We stand ready to be advised by you in this matter. They’re not going to take lightly to all this.000. the contract administrator had the strong feeling that the company’s next letter might indicate that the money had run out and the contractor was under no further obligation to perform. and trust that you will understand the circumstances that have caused cost growth to occur.” Eric thought. do we have a case of breach here? Better check with the requirements people.200.

as reflected in an estimated amount in a cost-reimbursement type of contract. including requiring activity representatives and/or a contracting officer’s technical representative to examine and resolve cost limitation problems.3 11. Meet with contract administration team members. you will be able to: Overall: Individual: 11.4 11-3 . Resolve cost limitation problems by making appropriate choices among possible solutions.1 11. Know the steps to take in responding to situations of cost overruns or funding depletions on cost-reimbursement types of contracts. Deobligate and remove excess funds in the event of a cost underrun.CHAPTER 11 COURSE LEARNING OBJECTIVES At the end of this course.2 Determine if a contractor is approaching the estimated cost or limit of funds allotted. 11.

funds are obligated to cover the amount allotted and any corresponding increment of fee. a protection not needed under fixed-price types of contracts. Although the general policy is that fixed price contracts shall be fully funded.703-1 DFARS 232. or the head of contracting activity approves the practice for base services or hazardous/toxic waste remediation contracts. Overruns are the contractor’s to pay.705-2 DFARS 232. If a contract is fully funded. such fixed price contracts shall be fully funded as soon as practicable after sufficient funds are available. of a cost-reimbursement type of contract. and either Congress has incrementally appropriated program funds.703-1 DFARS 232. Basic Differences in Fixed-Price and CostReimbursement Arrangements Under a fixed-price type of arrangement: The contractor bears the greater cost risk. Limitation-of-cost and limitation-of-funds coverage provides protection for both the Government and a contractor in cost-reimbursement arrangements. In any event. The contractor guarantees completion of the job or work. the funding limitation concept is termed a limitation of the Government’s obligation. funds are obligated to cover the price or target price of a fixed-price type of contract or the estimated cost and fee.LIMITATION OF COSTS INTRODUCTION TO LIMITATION OF COSTS Contract Funding Requirements FAR 32. Under a cost-reimbursement type of arrangement: The Government bears the greater cost risk. Limitation of Cost or Funds FAR 32.705-70 DFARS 252. if any.232-7007 For incrementally funded fixed price contracts.703-70 If a cost-reimbursement arrangement is incrementally funded. 11-4 . An important part of the backbone of cost-reimbursement contracting is the function served by limitation-of-cost coverage for fully funded contracts and limitation-of-funds coverage for incrementally funded contracts. they may be funded incrementally if: the contract is funded with an R&D appropriation.

exclusive of any fee(s). There is no obligation of the contractor to continue performance when costs exceed the negotiated cost estimate or funding level in the contract unless and until the Government provides additional funding and a revised estimated cost of performance. may not be of a cost plus fixed-fee type when funded under an annual military construction appropriations act. Government personnel encouraging a contractor to continue performance in the absence of funding may be subject to a civil or criminal penalty (Revised Statutes. The contractor’s promise is to use its best efforts to perform the work within the negotiated cost estimate. each step is discussed in detail.S.C. Additional Cautionary Note: Military construction contracts. and this promise is contingent on performance within this estimate. Steps in Performance The steps in monitoring and controlling costs through cost-limitation provisions are charted on the next page. Caution Concerning Anti-Deficiency No officer or employee of the Government may create or authorize an obligation in excess of available funds. Section 3670 (31 U. There is no obligation by the Government to pay for any work the cost of which exceeds the negotiated cost estimate.CHAPTER 11 The parties agree that performance of the work will not cost the Government more than the negotiated cost estimate. 11-5 . Following the flowchart. other than those for environmental restoration at installations being closed or realized or those specifically approved for environmental work. 1341).

4. Yes 2. Take no action (if the contract is on schedule). Terminate the contract. 2. Meet with Government contract administration team members. No Nearing the limit? Continue monitoring. 5. Defer a decision until factfinding. if any. Deobligate excess funds. Determine if the contractor is approaching the estimated cost or allowed limit of funds. 4. 3. 1. Downscope the work to fit remaining funds. 11-6 . Possible Solutions 3. Resolve the problem. Provide additional funding and/or time to complete the contract.LIMITATION OF COSTS STEPS IN LIMITATION OF COSTS 1.

based on the percentage of work completed relative to the total work called for under the contract. and FAR 52. Contractual Coverage A cost-reimbursement arrangement may contain either or both of the following clauses: FAR 52. Limitation of Funds. cost-reimbursement arrangements for consolidated facilities. for an incrementally funded contract. Limitation of Cost (Facilities). Contracting Officer Responsibility When learning that a contractor is approaching the estimated cost or the limit of allotted funds.232-20. if any. in a specified amount. There will be no further funding of the contract and the contractor should submit a proposal for an adjustment of fee. facilities acquisition. Limitation of Cost. or facilities use must contain the clause at FAR 52.232-22. or The limit of allotted funds. or the estimated cost has been increased. you must be able to determine if a contractor is approaching: The negotiated cost estimate specified in a contract’s schedule. or The Government. Whether or not they provide for the payment of a fee.CHAPTER 11 LIMITATION OF COSTS 11. 11-7 .232-21. The contract is to be terminated. a contracting officer must promptly obtain funding and programming information pertinent to the continuance of work and notify the contractor in writing that: Additional funds have been allotted. Is considering whether to allot additional funds or increase the estimated cost. for a fully funded contract.1 Determine If Contractor Nearing Estimated Cost or Limit of Funds To monitor and control costs and stay within the funding limitations of a cost-reimbursement type of contract.

exclusive of any fee(s). will be either greater or substantially less than had been previously estimated. Consequence of Contractor Notification If a contractor’s notification specifies that the estimated cost will not permit the completion of performance until the Government increases the estimated cost. Under the clauses at FAR 52. when it has reason to believe one or the other of the following: 11-8 .LIMITATION OF COSTS Recognizes the contractor is entitled to stop work when the funding or cost limitation is reached.704-70 That the total cost for performance expected to be incurred within an expressed time period (set forth in the clause) when added to all costs previously incurred will exceed an expressed percentage (also set forth in the clause) of the estimated cost.232-7007 DFARS 232. As a part of this notification. or That the total cost for performance. A contractor is usually the first to become aware of any problem concerning the amount of available funds. For incrementally funded fixed price contracts. Contractor Responsibility FAR 52. especially those that remain for the performance of work. The concepts of and processing for these types of contracts are similar to incrementally funded cost reimbursement type contracts. the contractor has responsibility to notify the contracting officer.232-20 and -22. the contractor must provide a revised estimate of the total cost of performance. Obtain Input From Other Government Representatives Relying solely on a contractor’s indication of cost problems could create some last-minute difficulties. then any contractor incurred costs before the increase that are in excess of the initially estimated cost: Are to be treated as allowable To the same extent as if incurred after the increase in the estimated cost. and Reaffirms that any performance done beyond the funding or cost limitation will be at the contractor’s own risk. Effective monitoring should provide early warnings when cost or available funds are approaching a specified percentage of cost under limitation of cost or funding clauses.232-20 FAR 52. in writing. the contractor has an obligation to report to the contracting officer when total cost to the Government will reach 85 percent of the allotted amount within the next 90 days.232-22 DFARS 252.

2 Meet With Government Contract Administration Team When a problem of limitation of cost or the availability of funds is identified. The purpose of this meeting. is to discuss: Alternatives available under a contract’s terms and conditions. For instance: 11-9 . reinforcing what has been mentioned earlier. This meeting should result in: Funding and program information pertinent to the contractor’s continuance. Time required to complete the work. Minimum tasks yet to be completed. The best estimate of the requiring activity or program office concerning the following: Cost to complete the work.CHAPTER 11 Receiving input from other Government representatives is particularly important when it may alert the contract administration function to problems that otherwise might have gone unnoticed and caused a work stoppage prior to the completion of performance. and Sufficient information to determine an appropriate course of action. and Prohibit a contractor from performing without funding.3 Resolve the Problem Based on the information provided by the contractor and other Government officials. select the most appropriate course of action. and What can be accomplished within the current level of funding. you will need to meet with involved Government officials. 11. 11. Early warning systems provide the contract administrator with the ability to: Verify a contractor’s notification under limitation-of-cost or limitation-of-funds clauses. and The ability and willingness of the requiring activity or program office to provide sufficient additional funds to cover a cost overrun.

♦ Determine what consideration is due the Government (frequently completion of the contract with no increase in fee(s). ♦ Negotiate the contractor’s proposal for additional cost and/or time to complete performance. Downscope the statement of work. ♦ Prepare and execute a supplemental agreement. if necessary. ♦ Either: Allot additional funds to the contract or increase its estimated cost. ♦ Obtain the contractor’s proposal for an adjustment of any fee(s). ♦ Obtain clearance from the finance office to obligate additional funds. or Stop work when the dollar limitation under the contract has been reached.. End the contract. Then perform these steps ♦ Meet with the contractor to review the statement of work and verify that the contractor and the Government understand the remaining tasks or work. a new delivery schedule. if a fee-bearing contract).LIMITATION OF COSTS If the course of action is to: Provide extra funds or time. ♦ Either: 11-10 . ♦ Negotiate an altered statement of work and fee(s). ♦ Prepare and execute a supplemental agreement. ♦ Advise the contractor that any work done beyond the limitation of cost or funds is at the contractor’s own risk. ♦ Establish the amount of additional funds required and. Defer the decision.

Take no action (Expectation that limitation of cost or funding will not be exceeded). but never a whisper from anyone that an overrun was in the making. what can we do now? What I’d like to do is shut the whole thing down.” he started. “I don’t believe it. How come we’re in this position.” “How’s that?” interjected Volker. Ever since then.” He seemed to swallow hard with that. especially dollars. Eric. Volker. Volker. the agency’s Administrator has got to face a congressional committee and the first question will probably be. the contract administrator interrupted. In about three months. the contract administrator informed the project leader that the contractor was at the 87-percent expenditure level and projected a cost overrun of 20 percent. in all likelihood. if they want more money.CHAPTER 11 Close out the file. the agency’s project leader for the study being conducted by Haverford Laboratories. And then he quickly added more. “What!” was his initial response. let them print it! Our budget is down to virtually nothing. Dr. “We’ve got a timetable to meet. Terminate for convenience. ♦ Continue to monitor costs closely. We’ve got a situation staring us in the face that requires a decision of some kind. ‘What can you tell us about the report on environmental pollution controls you promised to 11-11 . “What may have been. He added that there would be. with what Haverford contracted to do for us. After exchanging amenities. WHEN EMOTIONS RUN HIGH Eric’s call to Dr. and you guys are perhaps the most important piece of the decision-making process. Hey. they’ve been all smiles and doing decent work. Terminate for default. or ♦ Terminate for convenience at no cost to the Government. We haven’t got 70.000 of anything. Volker’s reaction was unexpected. take what we’ve gotten thus far. started slowly and threatened to become explosive. Dr. “Aside from wishing that we had been tougher along the way with Haverford. “When we cut the deal almost a year ago. ♦ Record the decision for the contract file. a need to extend Haverford’s delivery schedule. Eric? I thought we had the right kind of deal with the right kind of controls in place to obviate anything like this. is now all past tense. Haverford swore up and down that the probability of an overrun was zero. and then finish the work in-house. but then added.” As Volker drew a deep breath.

there’s not a whole lot we can do about that. “Where is Haverford at in terms of the overall study? What do you guys require to meet the Administrator’s need for an appearance on Capitol Hill? Could we cut off Haverford’s effort at this point.LIMITATION OF COSTS deliver the last time you appeared before the committee?’ If the Administrator’s not ready for that one. Assuming that those costs have been expended for legitimate. Dr. “I need to know the following from you. “We can dump all over Haverford. allowable purposes under the contract. the costs therefor—including settlement expenses—and the time it will take to get through it all. it would be foolish even to consider anything other than a termination for convenience. and the contractor has incurred more costs than either of us anticipated. And if we were to terminate the contractor. but do it within the next 24 hours. Consult the requiring activity or program office and prepare a revised cost estimate: To complete the work. Eric?” From the tone of his voice. “And if we’re as important at this point as you indicate. what about having Haverford continue but under a reduced scope of work which might have them get the job done in a reasonable time?” “Nothing’s easy. and To record the amount of excess funds remaining. And if we do that. Obtain feedback from the contractor regarding this action. I’ll be landed on unmercifully.” While sympathetic to the project leader’s state of mind. Volker. Volker posed a question. but let’s consider the facts. Dr.” With that.” To which Eric added a final note. We’re not in a fixed-price situation here. yet get what you require. the phones clicked at both ends. “So what do you suggest.” Listening intently.” Eric began. “Hey look.4 Deobligate Excess Funds After a contract is completed and you find provided funds exceeded the amount needed: Informally notify the contractor of the Government’s intent to remove excess funds from the contract. is it?” Volker responded. and then have you folks finish it? If you don’t believe that bringing it in-house to finish it is really feasible. what do you require of us to set things straight?” Things were looking up just a bit. the contract administrator could tell that the project leader had simmered down somewhat. 11-12 . let me get with our folks and get back to you. “No problem with that Dr. Volker. Those things alone will chew up the remaining dollars in the contract. the contract administrator tried to move their conversation in a more productive direction. 11. we’re faced with a set of termination procedures. because I’ve got to brief my contracting officer before the close of business tomorrow.

CHAPTER 11 Issue a unilateral modification to the contract deobligating and removing the excess funds. 11-13 .

” his boss said with a grimace.” “Well. it’s what we don’t know that hurts us. Did you?” Eric responded unhesitatingly. Sitting at his desk and having read the company’s Notice of Assignment.” Leaning forward. Fairlington was a midsized firm and had performed well over the years in providing various types of building supplies and related hardware items. One of our better suppliers. “But as is so many times the case. it comes as a total surprise to me. Currently. They’ve got a good requirements contract with us. “Your remember the Fairlington Company. “This morning I received a Notice of Assignment from Fairlington that assigns any further payments under its requirements contract to the United Bank and Trust Company. His response was immediate. Joanne! If it’s true. I rarely hear much about them. “I want you to gather whatever the facts might be. it had expanded its distribution capability to service a wider geographic area. “Have we a problem with Fairlington.” The contract administrator looked perplexed. or so it seemed.000. “What is there in the strange and unexpected world of contract administration that doesn’t 12-1 .” Joanne continued. “I want you to look into this for me. and this was the reason for Joanne’s discussion with her contract administrator.CHAPTER 12 ASSIGNMENT OF CLAIMS THE ASSIGNMENT OF … WHAT? At the end of a long day. Joanne had called Eric into her office to discuss one of the agency’s contracts with the Fairlington Company. and given the emphasis on FAR Part 12 (Acquisition of Commercial Items) over the past few years. which as things go in this business probably means they’re doing a good job. “so that if the assignment of payments is to be made we can properly document the contract file.” she told him. and issued firm-fixed-price delivery orders had amounted to approximately $750. and Joanne was the contracting officer for three of them. I had no idea they were in some sort of trouble or facing financial difficulties. and let’s see what gives. the contracting officer asked him to report back over the next day or so.” With that. “Sure. About six months had expired under the contract. Eric. Eric mumbled to himself. But all. was not well with the contractor. One of them was a one-year requirements contract for the delivery of heating and plumbing supplies to the agency’s five facilities located in the Mid-Atlantic region.” “That’s what we all think. don’t you. Joanne. Each delivery order had exceeded $10.000. Fairlington had four contracts with the agency. Eric?” she began. “Absolutely not. and Eric returned to his office. Joanne?” “It just may … or may not be. she gave Eric the Notice of Assignment from Fairlington. The firm was competitive in its pricing.” she replied quickly.

”) Okay . In examining the contract file. Yet again. read the notice again. which set forth the following: “Assignment. and now we have to get after what’s involved to protect the Government’s interests. They have the right of assignment. Assignment of Claims. or other financing institution. Whoa! We have a commercial items deal here under FAR Part 12. The Contractor or its assignee’s rights to be paid amounts due as a result of performance of this contract.S. he noticed that the contract contained the terms and conditions set forth under FAR 52. the contract administrator committed himself to a series of questions.C 3727). That says a lot more than the current contract about assignment. Must determine if the Notice of Assignment is properly executed. Wonder what commercial practice is in the matter of the assignment of claims? Note that the contract’s payment clause is a standard one (“Payment shall be made for items accepted by the Government that have been delivered to the delivery destinations set forth in the contract. the contract administrator had his work cut out for him. Assignment of Claims. The Assignment of Claims Act seems an important driver here. Eric found that FAR Part 12 had been used as the basis for the buy. Plain as the nose on Fairlington’s face. In looking for any coverage concerning the assignment of claims. Must check out FAR Subpart 32.” As was his style. we have a Notice of Assignment from the contractor. it would contain the clause at FAR 52.. so we’re not involved with advance or installment payments. including any Federal lending agency in accordance with the Assignment of Claims Act (31 U. and call for Fairlington’s contract file. he noticed item (b). Therein.232-23. to see what it says. “there it is. If this were a non-FAR Part 12 deal.. trust company. I guess that helps keep it cleaner for any assignment of claims. the answers to which he would use in getting back to his boss sometime over the next day or so.ASSIGNMENT OF CLAIMS cross my desk every time I turn around?” His answer was to sigh a bit.” Eric said out loud.212-4 (Commercial Terms and Conditions—Commercial Items).” “Well. may be assigned to a bank.8. 12-2 . and the requirements contract had been negotiated under FAR Part 15 (Contracting By Negotiation).

12-3 . Approve the release of an assignment.1 12.2 12. Determine if the assignment request is proper.5 Determine if the assignment is permitted by a contract. Determine if an assignment already exists.3 12. Review and approve a contractor’s request for the assignment of contract payments.4 12. you will be able to: Overall: Individual: 12. Execute and return an assignment.CHAPTER 12 COURSE LEARNING OBJECTIVES At the end of this course.

or other financing institution. trust company.802(a) .ASSIGNMENT OF CLAIMS INTRODUCTION TO ASSIGNMENT OF CLAIMS Assignment of Claims FAR 32. except that any assignment may be made to one party as agent or trustee for two or more parties participating in the financing of the contract.(d) The assignment is made to a bank.000 or more may be assigned. including any federal lending agency) may thereafter be further assigned and reassigned to any such situation if the conditions in FAR 32. FAR 32. of its right to be paid by the Government for contract performance.000 or more.. and Unless otherwise expressly permitted in the contract.803 (d) and (e) continue to be met.803 DFARS 232. or other financing institution. as security for a loan to the contractor. Is made to one party. The contract does not prohibit the assignment. to any type of financing institution (i. trust company.801 Assignment of claims means the transfer or making over by the contractor to a bank. and Is not subject to further assignment. the Government may apply against payments to the assignee any liability of Any assignment of claims made under the Assignment of Claims Act of 1940. as amended. Only contracts for personal services may prohibit the assignment of claims. a bank. A contractor may assign moneys due or to become due under a contract if: The contract specifies payments aggregating $1.803(b) A contract may prohibit the assignment of claims if determined to be in the Government’s interest. When an assigned contract does not include a no-setoff commitment. amounts due for individual orders for $1. the assignment: Covers all unpaid amounts payable under the contract. Under a requirements or indefinite-quantity contract that authorizes ordering and payment by multiple Government activities. including any federal lending agency. or other financing institution. Policy on Assignment of Claims FAR 32. trust company. Conditions for Assignment of Claims 12-4 .e.

to the extent permitted by the Assignment of Claims Act of 1940. Use of No-Setoff Commitment FAR 32. Government) to the assignee under an assignment of claims will not be reduced to liquidate the indebtedness of the contractor to the Government.. When an offeror is significantly indebted to the U. The assignee’s immunity is effective whether the contractor’s liability arises from or independently of the assigned contract.CHAPTER 12 the contractor to the Government arising independently of the assigned contract if the liability existed at the time notice of the assignment was received. 1996 that DoD would not reduce or set-off any money due or to become due under a contract the proceeds of which had been validly assigned. even though the liability had not yet matured so as to be due and payable.S. a contracting officer should consider whether the inclusion of a no-setoff commitment is in the best interests of the Government. as amended. Use of a no-setoff provision may be appropriate: To facilitate the national defense.801 DFARS 232. Extent of Assignee’s Protection FAR 32. however. may include a no-setoff commitment unless a determination of need is made by the head of the agency in accordance with the Presidential delegation of authority of October 3. except a contract under which full payment has been made. may be recovered on account of any liability of the contractor to the Government. or When its use may facilitate private financing of contract performance. exclude this no set-off commitment in the case of a significantly indebted contractor. Any contract of a designated agency. The head of an agency or a contracting officer may. The Director of Defense Procurement issued a determination on May 10. and after such determination has been published in the Federal Register.803(d) Conditions for NoSetoff Commitment FAR 32.804 No payments made by the Government to the assignee under any contract assigned in accordance with the Assignment of Claims Act of 1940.S. No set-off commitment means a contractual undertaking that. In the event of a national emergency or natural disaster. 1995. payments by the designated agency (any department or agency of the executive branch of the U.803(d) 12-5 . as amended.

806(a) An assignment of claims can be initiated by a contractor or by a federal court. each step is discussed in detail. When a federal court orders an assignment. an agency does not have the discretion to act against the court’s direction. The steps in assigning payments on a Government contract are charted on the next page.ASSIGNMENT OF CLAIMS Initiating Assignment of Claims DFARS 232. Following the flowchart. and under a court order the agency would be required to lift any contractual prohibition on payment assignments. This chapter concentrates only on those assignments initiated by a contractor’s request. Steps in Performance 12-6 . When contract performance will be in a foreign country. the prior written approval of the Contracting Officer is required for an assignment.

2. No 4. Determine if assignment already exists. Assignment already made? Yes Is there a writtten notice of release? No Do not process. Execute and return the assignment. Documents proper? No Do not process until corrected.CHAPTER 12 STEPS IN ASSIGNING PAYMENTS 1. Yes 12-7 . Determine if the assignment request is proper. Yes 3. Determine if assignment is permitted by the contract.

One of three clauses would apply: FAR 52.212-4. Prohibition of Assignment of Claims. Commercial Terms and Conditions .232-24.000. and There is no reason to prohibit an assignment of claims.1 Determine Contract Permits Assignment Before processing any requests for assigning payments. FAR 52. FAR 52. Conditions Permitting Payment Assignment ♦ The assignment must be properly executed based on the character of the contractor. ♦ The assignment is not inconsistent with any other terms and conditions of the contract.232-7008. Assignment of Claims (Overseas) You may process a request even if the contract is silent on the issue but only when: The contractor provides an appropriate consideration for modifying the contract to include the right to assign claims. either: A recognized financial institution. or An agent. Assignment of Claims. ♦ Remaining unpaid amounts exceed $1.Commercial Items. ♦ Classified information that would be disclosed is authorized by the Contracting Officer.232-23. ♦ The assignment covers only the remaining unpaid amounts due under the contract. DFARS 252.2 Determine Proper Request FAR 32. ♦ The assignment was made to only one party. determine whether the contract addresses this issue. 12. signment of claims.805 Exhibit 12-1 provides a summary of conditions required to permit an asThe contractor must submit a “true” copy of the assignment instrument. 12-8 . A “true” copy is either a certified duplicate or a photostat (a facsimile) of the assignment instrument.ASSIGNMENT OF CLAIMS ASSIGNMENT OF CLAIMS 12. A trustee.

The contractor should transmit an assignment by written notice. or ♦ Be accompanied by a certified copy of the resolution of the corporation’s board of directors authorizing the signing representative to execute the assignment. and ♦ Contain the signatures of all partners unless there is a certification for the signature of a general partner. if the case): ♦ Be executed by an authorized representative. ♦ Be attested by the secretary or assistant secretary of the corporation. Single Proprietorship. The Government must acknowledge receipt after examining the notice. 12-9 . ♦ Be impressed with the corporate seal. Partnership. The notice of assignment should contain language similar to the sample format in Exhibit 12-2.CHAPTER 12 Exhibit 12-1 If the contractor is organized as a: Corporation. and ♦ Contain a signature acknowledged before a notary public or other person authorized to administer oaths. ♦ May be signed by one partner if it is accompanied by an acknowledged certification that the signer is a general partner of the partnership. Written Notification. Then the assignment must (or may. ♦ Be signed by the owner.

Very truly yours.C.S. Payments due or to become due under this contract should be made to the undersigned assignee.) on . Moneys due or to become due under the contract described above have been assigned to the undersigned under the provisions of the Assignment of Claims Act of 1940. 31 U. By Title [Name of assignee] [Signature of signing officer] [Title of assignee] [Title of signing officer] [Address of assignee] ACKNOWLEDGEMENT Receipt is acknowledged of the above notice and of a copy of the instrument of assignment. 41 U.S. Please return to the undersigned the three enclosed copies of this notice with appropriate notations showing the date and hour of receipt and signed by the person acknowledging receipt on behalf of the addressee. A true copy of the instrument of assignment executed by the Contractor on [date] .ASSIGNMENT OF CLAIMS Suggested Format for Notice of Assignment To: Contracting Officer Disbursement Officer Surety Official This has reference to Contract No. as amended. entered into between [contractor’s name and address] agency.) (p.m.C. 12-10 .m. for and [Government [describe nature of the contract] . They were received at [Signature] [Title] On behalf of [Name of addressee of this notice] Exhibit 12-2 (a. and address]. 19 . is attached to the original notice._____________ dated _________. 3727. name of office. 15.

if appropriate. Assignment of Claims. and A copy of the actual document that further assigns or reassigns the rights to payment under the contract.805 The documentation to support reassignment requires the new assignee to submit: A written notice releasing the contractor from the assignment and restoring its rights to payment under the contract. The surety of any bond issued for the contract. and The disbursing officer designated to make payment. and The documents executing the reassignment are proper. Before processing any request for reassignment. A written notice that the rights to payment under the contract have been further assigned or reassigned.3 Determine Assignment Exists Once an assignment of claims has been made.802(e) The contractor must submit an original and three copies of the written notice with the true copy of the assignment to each of the following: The contracting officer or agency head. The assignee must provide these documents to the same officials as the original assignment: The contracting officer or agency head. but only if the contract allows further assignment or reassignment.CHAPTER 12 Number of Submissions FAR 32. or agent may further assign (or reassign) its rights to another qualified source. trustee. Reassignment is permitted under FAR 32. you must verify that: The contract permits reassignment. A copy of the release instrument itself.232-23. 12-11 . The surety of any bond issued for the contract.805(b) FAR 32. and The disbursing officer designated to make payment. Verify Before Processing Request for Reassignment Documentation to Support Reassignment FAR 32. the financial institution. The conditions of the reassignment are satisfactory. 12.

The surety of any bond issued for the contract. Separate sets of this documentation must be filed with: The contracting officer or agency head.ASSIGNMENT OF CLAIMS 12. 12. and A true copy of the release of assignment. or Provide the requestor with the reason an acknowledgement was not made because of: Improper or incomplete documentation. Advise the contractor of any problems with the documentation and of corrective steps it must take to reestablish its rights to payment. It is very important the assignment not be acknowledged unless it is determined to be: Complete. and Properly executed. dispose of the request by returning three copies of the notification and: Indicate acceptance by signing the acknowledgement block. Upon receipt of all appropriate documentation. The contractor can only reestablish its rights to contract payment by filing: A written notice of release by the assigning financial institution. ensure that the payment office will make payments directly to the contractor. 12-12 . and The disbursing officer designated to make payment.5 Approve Release of Assignment Sometimes an assignee will release the contractor from the assignment prior to full payment under a contract.4 Execute and Return Assignment The assignment of claims is considered approved when the Government acknowledges receipt. After completing your review of a request for assignment. or An assignment is not permissible.

Excel had been the source for 100 aircraft engines for the agency’s fleet of helicopters used for travel and air surveys across an eight-state region in the western United States. the agency saw no need for it to be bought by a successful offeror and become contractor-acquired property under the contract. would cost less than requiring a contractor to modify or buy such property on its own. Since the required property was available for use. The Standard Form (SF) 1447 (Solicitation/Contract/Order for Commercial Items) used for the engine procurement had included an addendum concerning Government property. Eric had become concerned over a few phone calls between himself and Kathy Meyers of Excel Aircraft Engines. reliability. which it knew was available from examining appropriate Governmentwide screening information. and operability over long stretches of time—the agency determined that furnishing the property. Certainly there was no need for a second set of what the agency was willing to provide. testing. But as he reminded her.245-2 (Government Property—Fixed Price Contracts). the agency’s acquisition team had targeted the engines as a commercial item. using FAR Part 15 (Contracting By Negotiation) as the method of contracting. 13-1 . The agency’s customer organizations seemed satisfied.245-18 (Special Test Equipment). Given some specified modifications to the engines—for reasons of safety. It was the requirements of Government property terms and conditions that had occasioned the calls between Eric and Kathy. that served as the company’s property area. She was Excel’s property manager and her office was located at the front of a large facility.CHAPTER 13 PROPERTY ADMINISTRATION THERE COMES A TIME FOR ACTION During the past couple of months. The engines were being acquired as commercial items under FAR Part 12 (Acquisition of Commercial Items). he had received several reports from the agency’s Government property administrator about Excel’s administration of Government property for the procurement. This spoke to the relevance of the property for the evaluation of offerors. All these were plus factors as Kathy never failed to remind Eric. equipment. and Excel had been delivering on time and performing all required maintenance. Under the precepts of acquisition reform. as well as referencing the inclusion of the clause under FAR 52. one covering several acres. flight trials. Excel had manufactured a similar type of helicopter engine and distributed it worldwide. A few terms and conditions concerning special test equipment were taken from FAR 52. and a few items of special test equipment. and preventive and corrective maintenance based on specified cycles. the agency determined it would be in the Government’s interest to provide certain manufacturing tools. The current contract called for engine production. For almost a year. Even though bought under FAR Part 12. For years.

“Look. and she simply couldn’t uncover it. I’ve received a report from our property administrator about the failure of Excel’s property administration system to measure up to its contractual responsibilities.. if we have erred in some way . “I’m referring to existing deficiencies like .” At the other end of the line. and he knew that she had received a copy of the Government property administrator’s periodic reports.. I’m telling you that we’re trying to measure up in getting after what your property administrator doesn’t like. Okay..” The contract administrator had little patience with Kathy’s being overworked or understaffed.. “Kathy. It was buried someplace on her desk. yet again. we’ll work to correct them equitably. “I better make one more phone call before I get on to other things. Kathy.. Eric. and then there is the matter of what may be the unauthorized use of special test equipment for some of your commercial work. Excel’s property administrator was feverishly attempting to uncover the most recent Government property administrator’s report she had received about a week ago. “Having ‘erred. He wanted to convey what had transpired..PROPERTY ADMINISTRATION Their conversations always began with Eric’s repeating what he had said the previous time.” “Well. My concerns are contractual.. All that was Excel’s problem. improper storage of tools and equipment .’ as you put it. You betcha.” Picking up the phone. lest she be left to infer that the Government’s failure to do something might be interpreted as acquiescence to Excel’s practices. Taking a gulp of cold coffee Eric thought to himself. It’s not a pretty picture. is not what I’m referring to. and my contracting officer wants some action taken to correct Excel’s deficiencies. 13-2 .” “The ball’s in your court. Eric. This the fourth call I’ve made about this.. “Whatever managerial and staffing problems you may have. I’ll look over the property administrator’s reports and get after it. are not mine to solve. If any of them are of our making.” She sensed the seriousness in his voice. the contract administrator pressed on. And your Government property is not the only property we have to deal with. and I suggest you bring them to someone’s attention within Excel. Kathy. I’ll call your property administrator as soon as we’re finished and schedule an appointment for next week.. he tapped in the number of the Government property administrator at Excel.. I urge you meet shortly with our property administrator and provide a written plan for the correction of cited deficiencies..” With that. But I’m working here with myself and a staff of four admin types trying to stay even with everything we’ve got to do. Eric Schmidt here. we’re going to get after these things. the phone call ended. unlabeled property . apparent commingling of our property and yours . Eric. Yet again. He was determined to make a clear case this time. a computer database of Government property that doesn’t square with what Excel has been furnished .” And then he unloaded. “Look.” No wanting to end the phone call with things left up in the air. and I suggest that it may be in Excel’s best interest to take some immediate action for the correction of its property administration deficiencies..

6 13. Identify the extent to which a contractor is liable for damage to Government property under a contract. Monitor a contractor’s property control system and use of Government property. 13-3 . Recover or dispose of Government property at the end of contract performance. destroyed.7 13. Monitor the delivery of Government property as stipulated in a contract.3 13. damaged. Evaluate and document evidence indicating that Government property has been lost. Determine whether to decrease property to be provided or substitute other property and the amount of any related equitable adjustment.CHAPTER 13 COURSE LEARNING OBJECTIVES At the end of this course.5 13.9 Establish reporting requirements to keep a contracting officer abreast of property administration.1 13. or misused. Determine contractor liability for Government property and assess appropriate amounts for losses or damage to Government property. you will be able to: Overall: Individual: 13.2 13.8 13. Issue a contractor a written demand for payment or make any equitable adjustment for the repair of property when the Government has assumed the risk.4 13. Prepare written conclusions on the extent and value of damages.

000 or more that is used in manufacturing. Industrial plant equipment (IPE) means plant equipment with an acquisition cost of $15. or directly acquired by. supply.301 Definitions of key classifications of Government property are essential to understand how policies and procedures are applied. Agency-peculiar property means military property that is not readily available as a commercial item. and The Government and the contractor must follow in reporting. digital or computerized formats. maintenance. upgrade or replace facilities for use by a contractor or subcontractor.PROPERTY ADMINISTRATION INTRODUCTION TO PROPERTY ADMINISTRATION Property Administration Property administration means those policies and procedures: Required for use when providing Government property to contractors. and disposing of Government property.101 DFARS 245. Contractor-acquired property means property acquired or otherwise provided by a contractor for performing a contract and to which the Government has legal title. the Government and subsequently made available to a contractor. Government property means all property owned by or leased to the Government or acquired by the Government under the terms of a contract. redistributing. charting and geodesy (MC&G) property means specialized data presented in maps and graphics. It includes both Government-furnished property (GFP) and contractor-acquired property (CAP). Government-furnished property (GFP) means property in the possession of. photographic. Contractors must follow in using and managing Government property. or charts and publications that is in simulated. Mapping. Classifications of Government Property FAR 45. processing. 13-4 . assembly or research and development operations. Facilities project means a Government project to provide.

CHAPTER 13 Other plant equipment (OPE) means equipment. then agencies must to the maximum practicable extent: 13-5 . Policy on Property Administration FAR 45. If. Require contractors to use it in performing Government contracts. Contractors are ordinarily required to furnish all property necessary to perform Government contracts. Permit its use only when authorized. Ordinarily require contractors to be responsible and accountable for it. however. regardless of dollar value. Charge appropriate rentals for it when authorized for use on other than a rent-free basis. Following the flowchart.102 Eliminate any competitive advantage that might arise from it. each step is discussed in detail. and Ensure maximum practical reutilization of contractor inventory within the Government. Require contractors to review and provide justification for retaining it when not in use. Steps in Performance The steps in supplying and controlling Government property provided to contractors under the terms of a Government contract are charted on the next page. other than that categorized as IPE. contractors possess Government property. including keeping the Government’s official records of it.

Monitor the delivery of property to the contractor. 3. Determine and demand consideration for loss. Determine whether to decrease or substitute property. 9. 2. Establish property reporting requirements.PROPERTY ADMINISTRATION STEPS IN PROPERTY ADMINISTRATION 1. 5-8. Monitor use of the property. or misuse of property. 4. Recover or dispose of property. damage. 13-6 .

Suitability Standard Repair or Replacement FAR 52. It is not necessary that material be defective in order to be unsuitable. Standard reports that have a bearing on property administration include: Reports on a contractor’s overall property control system. you must direct the contractor to: Repair it.245-2(e) FAR 52. When the property is deficient. Unless disclaimers are very clear. or misuse. the Government warrants that GFP will be suitable for its intended purpose except when the property is furnished “as is. damage.245-19 Ensure that Government property is made available according to the schedule.1 Establish Reporting Requirements Request a report from a contractor only when a contract contains a requirement for submitting it.2 Monitor Delivery of Government Property Suitability FAR 45. losses. Make certain the exact property described in the contract is provided in the quantities stated in the contract. that the Government is completely protected from contractor claims. Modify it. Contractor notification that property is damaged or in need of repair. it does so at its own risk. The contractor is required to provide written notification of any GFP deficiencies.245-5(e) 13-7 . however. This does not mean. The Government is responsible for providing GFP in serviceable condition.308 FAR 52. If a solicitation puts a contractor on notice that the property does not meet the industry norm and specifies the degree to which it does not. Reports of any shortages. Return it. The standard for suitability is the industry norm.CHAPTER 13 PROPERTY ADMINISTRATION 13. and Periodic property audits.” The contractor is put on notice that if it decides to use the property. 13. the courts and boards of contract appeals have usually found them ineffective. In effect. or Dispose of it. destruction. courts and boards will generally not provide relief for its substandard condition.

Furnishes a receipt. Uses the property for authorized purposes. Corrects inaccurate or incomplete inventory schedules. 13. Keeps required property records. if necessary. Maintains. repairs. and records property actually received. Prepares a DoD Property Record for IPE (DD Form 1342) 13-8 . Identifies. or damages. Obtains all required approvals for property use. Segregates Government property from contractor property. marks.505-6 DFARS 245. protects.505-74 DFARS 252. and preserves the property.5 DFARS 245. A contractor is required to maintain a property control system for all GFP provided to itself and subcontractors. Monitor that system and a contractor’s use of GFP to ensure that the contractor fulfills its responsibilities.245-7001 Contractor GFP Responsibilities ♦ Upon delivery of the property: Files a statement of any overages. Periodically inventories the property. Files all required reports. Prepares a DoD Property Record for IPE (DD Form 1342) ♦ During the contractor performance period: Maintains a property control system.PROPERTY ADMINISTRATION Equitable Adjustment A deficiency in as well as late delivery of GFP can result in delay for a contractor.3 Monitor Contractor Property Control System FAR 45. The contractor may be due additional time or money as a result. shortages. ♦ When the property is no longer needed: Prepares inventory schedules.104 FAR Subpart 45. Contractor obligations are summarized in Exhibit 13-1. Executes the inventory schedule certificate.

♦ Exact location of the GFP.505 FAR 45. issued. current. Exhibit 13-2 13-9 . These records must be: Readily accessible to authorized Government personnel. Exhibit 13-2 lists the basic information required for GFP records. and on hand.505-1 DFARS 245. if known or applicable. Basic Record Information for Each GFP Item ♦ Name and description. including National Stock Number. ♦ Quantity received (or fabricated). and Safeguarded from tampering or destruction.105 FAR 45.CHAPTER 13 Exhibit 13-1 Property Records FAR 45.5 A contractor’s property records must provide a complete. Some contracts may specify that the Government maintains property control records rather than the contractor. ♦ Disposition after use. ♦ Posting reference and date of transaction. ♦ Unit price and unit of measure. ♦ Contract number or equivalent code designation. and auditable record of all transactions that have occurred.

The cross-referenced system may be authorized for the following material categories: Material charged through overhead. Material under research and development contracts. raw and processed materials. It includes assemblies. issue.PROPERTY ADMINISTRATION Records of Material FAR 45. and is. Cross-Referenced System FAR 45. the Government sometimes allows substitution of a record-keeping system that is more suited for material control. This system depends on financial accounting rather than a physical accounting and allows: Commingling of GFM with other material from other contracts (but exceptions may exclude specific material. Because material is more cumbersome to control. For example: Material. Subcontracted material or outside production items. Cross-referenced system in lieu of stock records.505-3(f) DFARS 245. and not subject to spoilage. or Items issued from contractor-owned inventory direct to production or maintenance. Material produced for direct charge to a contract. Nonstock or special items. Material Control Substitute Systems A contractor is required to maintain custodial records for items issued to individuals for use in work under a contract. and Usage analysis to determine the reasonableness of consumption and expenditure of GFM.505-3(d) Multicontract Cost and Material Control System FAR 45. Government-furnished material (GFM) means property that may be incorporated into or attached to a deliverable end item or that may be consumed during contract performance. and small tools and supplies. or acquired for installation upon receipt. not entered in inventory records.301 Some specific categories of GFP require additional or more specific information. 13-10 .505-3 Multicontract cost and material control system in lieu of the requirement for a physical identification system. on the basis of high-dollar value or short supply). therefore. for example. This system evidences the receipt. and use of Government-provided material issued for immediate consumption. component parts.

Special test equipment means either single or multipurpose integrated test units engineered.505-6 . Special test equipment and tooling.7205 and DFARS 252. such as assembly tooling or critical tooling for spares. Criteria for Authorizing a Multicontract Cost and Material Control System Contracting officers may authorize a multicontract cost and material control system if: ♦ It will result in: A cost savings. Improved operations. Reflect separate inventory balances for GFM and contractor-acquired material. and Track GFM for one contract to another follow-on contract for which the same GFM is authorized. ♦ It is applied to existing Government contracts only. assuring credit for the initial contract. excluding special test equipment. ) Exhibit 13-3 Records of Special Test Equipment and Special Tooling Special test equipment and special tooling are other categories of GFP requiring additional or more specific information. that are so specialized that without modification or alteration their use is li13-11 FAR 45. They may also be identified and reported by a specific retention category.CHAPTER 13 Prerequisites for authorizing such a system are listed in Exhibit 13-3. ♦ The contractor’s accounting system is adequate to: Provide a clear audit trail. Special tooling means specialized items.505-4 DFARS 245.101 FAR 45. Determine material cost for each material item. like the requirement for referencing the identification number and the item to which it applies. or modified to accomplish special purpose testing in performing a contract. designed. fabricated. Calculate amounts for cost reimbursements and progress payments by applying or allocating unit costs to specific contract line-items.2427004. (See DFARS 242. or Other benefits to the Government. ♦ The contractor’s material management and accounting system (MAS) must have been reviewed and found adequate by the ACO.

calibration. Federal Supply Classification. or additional record-keeping requirements may be applied to plant equipment of $5. It excludes special test equipment and special tooling. 13-12 . chairs. must also include: Federal Supply Code for the manufacturer. Molds. All contractor records of GFP classified as plant equipment. Fixtures. Patterns. desks. if available.PROPERTY ADMINISTRATION mited to the development or production of specific items or to the performance of a specific service. and Original manufacturer’s model or part number. or maintenance. generators.505-6 DFARS 252. Records of Plant Equipment FAR 45. Plant equipment.505-5 DFARS 245. Government identification/tag number.245-7000 Plant equipment is another category of GFP that requires additional information.505-5 DFARS 245. to perform services. Dies.000 or more. compressors. Make an individual determination based on what is needed for effective control.000 or more or to specific equipment below that threshold.101 FAR 45. Common examples of special tooling include: Jigs. It can include such things as overhead cranes. For plant equipment that exceeds a unit cost of $5. and Gauges. or to achieve any administrative or general plant purpose. Plant equipment means personal property of a capital nature used to manufacture supplies. and References to acquisition and disposition documents and dates. contractor records must also include: Serial number and year built. and so forth. but includes general purpose test equipment and most machine tools.000. The use of summary stock records may be authorized for plant equipment of less than $5.

505-7 Real property is another category of GFP that requires additional information. buildings. deteriorated. has no reasonable prospect of sale or use as serviceable property without major repairs.CHAPTER 13 Contractors are encouraged to use DD Form 1342.101 FAR 45.505-8 DFARS 245. contractors must include a record of all alterations and construction work. 13-13 . These additional records would include such things as: Maps. damaged. Real property means land. and Specifications. Records of Scrap or Salvage FAR 45.501 FAR 45. The latter is commonly referred to as “air rights” to real property. or other things permanently attached to or growing upon the land and buildings.505-7 contains guidelines for when the contractor must capitalize costs associated with real property. but has some value in excess of its scrap value. or incomplete condition or specialized nature. Plans. because of its worn.601(2) Scrap and salvage are other categories of GFP that require additional information. to record transactions involving IPE and OPE. including sites connected with such alteration and construction. Scrap means personal property that has no value except for its basic material content. FAR 45. Salvage means property that. Records of Real Property FAR 45. Drawings. Record-keeping requirements for scrap or salvage items are listed in Exhibit 13-4. DoD Property Record. The contractor may be required to perform or arrange for the performance of “demilitarization” of equipment or material to prevent further military or lethal uses. In addition to basic record-keeping information. Special handling and control of MC&G is required. Real property. Scrap and salvage items. Real property includes the area below the surface of the land as well as the area above the land.

Exhibit 13-4 Noncompliant Property Systems FAR 45. if practical. ♦ Nomenclature or description of salvable items or classification (material content) of scrap. ♦ Disposition. ♦ Posting reference and date of transaction. and ♦ Advise the contractor that its liability for loss or damage to Government property may increase if approval is withheld or withdrawn. Exhibit 13-5 13-14 .104(c) When the contractor’s property control system is not in compliance. Requirements for this notification are contained Requirements for Property Control Deficiency Notices Property control deficiency notices must: ♦ Be in writing. or equivalent code designation from which the scrap or salvage is derived. in Exhibit 13-5.PROPERTY ADMINISTRATION Record Requirements for Scrap or Salvage Items ♦ Contract number. ♦ Establish a schedule for the completion of actions to correct deficiencies. ♦ Caution that a failure to correct deficiencies may result in withholding or withdrawing of system approval. ♦ Quantity on hand. notify the contractor in writing.

Government property must be physically separated from a contractor’s own property and the property of its commercial customers. The Government may require a contractor to insure such property against loss or damage.407 Any non-Government use of active plant equipment requires the contracting officer’s advance written approval. Scrap produced from Government-owned material is insignificant when compared to the cost of segregation and control.507 DFARS 245. Approval of non-government use of IPE exceeding 25% is vested at the Assistant Secretary levels of the services and the Director of DLA. and use of Government property in its possession. maintenance. There are exceptions. some degree of physical and financial co-mingling may be permitted. For example. Refer to Exhibit 13-6 for guidelines to assess the adequacy of a contractor’s preventive maintenance program. Preventive Maintenance Program FAR 45. Non-Government Use of Plant Equipment FAR 45. The contractor is responsible for the proper care. commingling of scrap or salvage items is authorized when: Scrap of a uniform nature is produced from both Governmentowned and contractor-owned material.407 DFARS 245. you monitor a contractor’s program that manages and schedules those tasks. or Otherwise approved by the property administrator.509 13-15 .CHAPTER 13 Commingling with Other Property FAR 45. special approvals are required. Preventive maintenance is maintenance performed on a regularly scheduled basis to prevent the occurrence of defects and to detect and correct minor deficiencies before they result in serious consequences.505-3 Generally. Before the contracting officer can authorize non-Government use exceeding 25 percent of total use for any piece of equipment. If the contractor has an approved material management and accounting system (MMAS). Rather than monitoring individual preventive maintenance tasks. making physical separation impracticable. Government contracts involved are fixed-price and provide for the retention of scrap by the contractor. These individuals may delegate approval authority to the heads of contracting activities. This obligation remains even when the property is in storage or is earmarked for transfer.

♦ Removal of sludge. and The reliability of the contractor’s property control system. 13-16 . and procedures for performing physical inventories of Government property under its control. repair. wear. and other substances. ♦ Adjustments for war. Exhibit 13-6 Contractor Inventory Practices FAR 45. The type and frequency of inventory procedures should be based on: The contractor’s established practices.245-7001 With the approval of the property administrator. The type and use of the Government property involved or the quantity and dollar value of Government property involved.505-14 DFARS 252. Contractors are required to file a report of all Government property accountable to a contract on an annual basis during the life the contract and at the end of the period of performance. ♦ Exercise of necessary precautions to prevent deterioration caused by contamination. a contractor establishes the type. or impending breakdown. ♦ Proper storage and preservation of accessories and special tools furnished with an item of plant equipment but not regularly used with it. or replacement of worn or damaged parts and the elimination of causes of deterioration. and cutting oils from equipment that will not be used for a period of time. corrosion.PROPERTY ADMINISTRATION Preventive Maintenance Program Requirements ♦ Inspection of buildings at periodic intervals to assure detection of deterioration and the need for repairs. frequency.508 DFARS 245. chips. personnel who perform the physical inventory should not be the same individuals who maintain the property records or who have physical custody of the property. Unless a contractor’s organization is extremely small. ♦ Inspection of plant equipment at periodic intervals to assure detection of maladjustment. ♦ Regular lubrication of bearings and moving parts in accordance with a lubrication plan.

13. Contractors may be authorized to perform certain plant clearance functions by the contract administration office. In the case of MC&G property. through past experience with that system. This is more common with material than with other types of property. the alternatives available are limited to destruction or return of such items at the completion of the contract. Quantity and condition of the property are correctly stated.508-1 The requirement for an end-of-contract physical inventory can be waived when the property is authorized for use on a follow-on contract. You may also need to substitute GFP when it is deficient or otherwise not suited for contract purposes. and The contractor accepts responsibility and accountability for inventory balances under the terms of the follow-on contract.245-2(b) FAR 52.603-70 DFARS 252. or return contractor-acquired property to the original supplier for appropriate credit at the close of the contract or when it is no longer needed. and The contractor provides a statement indicating that: Record balances have been transferred in lieu of preparing a formal inventory list. but must bilaterally modify the contract to increase the amount of GFP. Property is allocable to the contract. and FAR 45. You may want to decrease GFP when the estimated need for it was overstated.605-2 Contractor has tried to direct inventory items to other Government work. with an acceptable degree of variance. but only if: The Government has established the adequacy of the contractor’s property control system.4 Determine to Decrease or Provide Substitute GFP FAR 52.CHAPTER 13 Contractor’s Final Inventory Schedule FAR 45. accept the contractor’s inventory schedules only when you or a Government contract administration team member has verified that the: Property is present at the indicated location.245-5(b) 13-17 .245-7000 At the completion or termination of a contract.606 DFARS 245. The contracting officer is allowed to unilaterally decrease or substitute GFP. Completion or Termination Inventory FAR 45.

There are several standard FAR clauses that relate to the contractor’s loss liability for Government property. except for reasonable wear and tear to the extent that property is consumed in the performance of the contract. Government-Furnished Property (Cost-Reimbursement. Alternative I of this clause further limits the contractor’s risk to losses: Caused by contractor negligence. GFP (Fixed Price) FAR 52. Covered in fact by the contractor’s insurance. stolen. a contractor is responsible and liable for Government property in its possession. Due to a shorter standard clause. The contractor assumes the risk of loss.5 Evaluate and Document Evidence of Loss.6 Identify Contractor Liability FAR 45.103(a) Evaluate and document any evidence indicating that Government property furnished under the contract has been lost.245-2 GFP (Short Form) FAR 52. this clause is sometimes referred to as the “long-form” clause. Alternate II to this basic clause is used for basic or applied research at nonprofit institutions of higher education and has a limited risk of loss stipulation essentially the same as Alternate I. or Destruction 13. Expressly required to be insured under the terms of the contract. Alternate I is generally used for negotiated contracts that are not based on adequate price competition and for service contracts on a Government installation when Government personnel also have potential access to the property. time-and-material.245-5 13-18 . or misused.000 or less. This basic cost-reimbursement type clause assigns liability to the contractor only for negligence and for risks covered under its ordinary business insurance. Establish a complete record of such information for the official contract file. This clause is used for fixed-price. GFP (Other Types) FAR 52. Government Property (Fixed-Price Contracts) This is the basic fixedprice clause that places liability for all risk on the contractor except for reasonable wear and tear or consumption of the property in the normal performance of a contract. Time-andMaterial. Damage. or For which the contractor is otherwise reimbursed. damaged. or Labor-Hour Contracts).245-4 Government-Furnished Property (Short Form). Unless otherwise provided by a contract. The risk of loss is the same as the basic fixed-price clause without any of its alternates. destroyed. and labor-hour contracts involving property that is $100.PROPERTY ADMINISTRATION 13.

There remained things to be done. Lefty. That seemed like a good first move. it’s gonna hold us up in delivering engine housings. Among them: reviewing the liability provisions of the shipping document used to transport the machine to Kemo . Excel had a number of subcontractors that manufactured minor components for its engines. Right now. “At the moment. but I do know we’ve treated it like a baby. Seems that we can’t get it to work quite right most of the time. We’ve got a problem with that milling machine you folks sent us some time ago. and asked if it could use the machine for doing tighttolerance work on agency engine housings. And a good move or not. WHO’S TO BLAME AND WHAT TO DO? Government property administration at Excel Aircraft Engines had been improved considerably since Eric’s last phone call to Kathy Meyers. Kathy received a call from Kemo’s production floor manager. and if we don’t do something. Kemo Supplies and Parts. The property administrator agreed and made arrangements to ship the property to Kemo’s nearby facility. it’s a useless piece of expensive property.” And with that she indicated she would try to call before the end of the day. and both the contracting officer and contract administrator had closely followed the progress made by Excel.. The subcontractor said it would lead to less time for the work and produce a better end product. Ms. Sitting back and sifting things through her mind.. The Government property administrator advised her to think about a number of things. “Ms. About three weeks later. especially in the proper storage of Government property.CHAPTER 13 Overall Responsibility FAR 45. But I appreciate your calling. Meyers. I’ll have to get back to you. Meyers?” Kathy took a deep breath and responded. this is Lefty Jones at Kemo. “What next?” she thought to herself. I don’t know what to think about it. Thought it best to call you about it. saying that the machine had met its purpose for the recent lot of engines. it got some results. One of its subcontractors.245-7001 A prime contractor providing Government property to a subcontractor is not relieved of any of its responsibility to the Government under the terms of its prime contract. a plan had been put in place to correct cited deficiencies. What do you think about this. but the company had set aside a large area for this property and devised a special bar-coding system that would ease its use and require its return. The Government property administrator had met with Excel’s property administration team. 13-19 . including those being made for the Government.103(f) DFARS 252. she decided to call the Government property administrator at Excel. Excel’s production manager raised the point with Kathy Meyers. had noticed a Government-furnished milling machine at Excel’s production facility. I don’t know whether there was damage from shipment that dislocated some internal mechanism or what.

At the end of contract performance. 13.. Any demand for payment must be in writing. Thanking the property administrator. Prepare the Government’s position on the loss amount and the most appropriate Government remedy for the loss or damage.” she uttered softly. she decided to construct a series of questions or things to ask of the purchasing agent. obtain control of the property or properly dispose of it as outlined in your agency’s procedures. The value of lost or damaged items usually includes depreciation. 13. about the cost of repairing or replacing the machine.PROPERTY ADMINISTRATION Kemo’s written property administration procedures . “Oh boy.603 13-20 . would permit her to get back to the Government property administrator. having learned from the past. Kathy hung up and almost slumped over her desk. Excel’s subcontract provisions that flowed down responsibility for Government property.” 13. Methods of recovery or disposal are listed in Exhibit 13-7. “Let’s see. the answers to which. estimate the value of the loss or damage to Government property by: Obtaining proposals from the contractor to repair or replace the damaged property. If the Government’s position is that it must assume the risk of loss or damage. She was asked to call back when she had compiled her information.” she thought. Provide the contractor an opportunity to present its position and the supporting data for it.. or be able to gather. but a contract deduction is most commonly used.. and why? I’ve got to find out who’s to blame and what to do.504 In writing. “when and where does it all end with this property stuff?” Her first move was to call Excel’s purchasing department and speak with the person who negotiated Kemo’s subcontract. and Obtaining Government estimates and/or audit reports.8 Issue Demand for Payment.. When Appropriate The method used for the demand for equitable compensation for loss or damage when the contractor is liable depends on the contractual circumstances.7 Prepare Conclusions on Extent and Value of Loss or Damage FAR 45. she hoped.. or when Government property is no longer required. more specifically any relevant risk-of-loss coverage . But.. and any idea she might have. “what do I want to ask the purchasing agent . an equitable adjustment to the contract for property repair may be appropriate.9 Recover or Dispose of Government Property FAR 45.

Exhibit 13-7 13-21 . ♦ Donation to eligible donees (but the donation of surplus property to an authorized donee is subordinate to any need for property by a federal agency). ♦ Abandonment or destruction. ♦ Sale (including purchase or retention at less than cost by a prime or subcontractor). ♦ Utilization within the Government through the use of prescribed screening procedures.CHAPTER 13 Disposal or Recovery Methods for Government Property (Contractor Inventory Only—In Order of Priority) ♦ Purchase or retention at cost by a prime contractor or subcontractor of contractoracquired property. ♦ Return of contractor-acquired property to suppliers. ♦ Donation to public bodies in lieu of abandonment.

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