on Tuesday, September 26, 2000 - 05:50 pm:
FAR 52.232-7 Payments Under Time and Materials and Labor-Hour
Contracts (MAR 2000) specifies paragraph (a)(2) "Unless
otherwise prescribed in the Schedule, the Contracting Officer
shall withhold 5 percent of the amounts due under this paragraph
(a), but the total amount withheld shall not exceed $50,000. The
amounts withheld shall be retained until the execution and
delivery of a release by the Contractor as provided in paragraph
(f) of this section".
1. What is the purpose of this withholding?
2. Under what circumstances may the contract schedule specify
that the money will not be withheld, or will be withheld in a
lesser percentage/amount? In what part of the schedule (seeing
how the schedule is Sections B-H) should I specify this and what
documentation of my decision to waive/reduce this requirement
should I provide?
3. Who does the withholding? Does the contractor take the amount
out of his invoices, or does the payment office, and how do I,
as a PCO/ACO, make sure that everyone is aware of the
requirement for the withholding and eventual release?
ISSUE B: The principle concerns of a T&M/L-H contract appear to
be the ceiling price of the contract, the fixed price of the
labor hours (and NOT the amount of time associated with those
hours - they're just estimates used to develop the ceiling, but
after award, its only the ceiling that matters) and the
contractor's requirement to notify the Government appropriately
when we're either approaching the ceiling or in danger of going
beyond it. (Sorry for any oversimplification. Please indulge me
for brevity's sake).
Any way, now to my question. I find that I specify a period of
performance to go along with my T&M contracts and I'm suddenly
asking myself "Why?" (that and I've got contracts with room left
below the ceiling that specify the performance period as the end
of the fiscal year).
Is the performance period an enforceable term of the contract?
Have I contracted for a contractor's best efforts up to a
ceiling using fixed labor rates for a fixed period of time, or
have I just contracted to a ceiling using a fixed labor rate
(but not time) and he and/or I can take as long as he/I want as
long as the other terms of the contract related to T&M/labor
hours are obeyed?
Specifically, if I still have room up to the ceiling, but
specified a 30 September end of performance, can I unilaterally
require the contractor to continue working (even though his
labor rates may otherwise be changing at that point and he'd
understandably like them to be adjusted accordingly) and, if I
can do it unilaterally, do I have to modify the contract to
reflect a new performance period? If I can't do it unilaterally
and the contractor isn't interested in working with me (let's
say things haven't worked out as he/I planned), can I reduce my
ceiling to its actual amount and deobligate dollars to use
somewhere else (don't think my money people are gonna want to
None of the T&M clauses (52.232-7, 52.243-3, 52.246-6) discuss
period of performance, although 52.243-3 Changes (T&M/L-H) does
mention "delivery schedule". Is that "delivery schedule" my
period of performance and is he entitled to consideration for
any changes in that period in accordance with the "CHANGES"
Sorry for any run-on sentences or confusing/convoluted logic.
Please help me understand T&M/Labor Hour a little better.
on Wednesday, September 27, 2000 - 12:55 am:
Question 1. The purpose of withholding is to protect the
interests of the government. Under a T&M contract, the
contractor's payment is based upon incurred hours. The
government has the right to audit the contractor to verify the
contractor's invoices, but the government usually pays the
contractor before it conducts an audit. The 5 percent
withholding is designed to protect the government in the event
that the contractor has billed the government for more hours
than it actually incurred.
Question 2. The Schedule includes Sections A through H of
the Uniform Contract Format. The most appropriate place to state
that you do not intend to withhold would probably be in Section
B, G, or H. It probably doesn't matter which of those sections
As to documentation of your decision not to withhold, do it in
accordance with agency policy. If there is no agency policy, but
you still want to document your decision, then prepare a
memorandum to file and place it under the most appropriate file
Question 3. It depends on your agency payment procedure.
Presumably, someone must review and approve each invoice for
payment before the paying office cuts a check. Whoever that is
should mark the invoice as approved for the amount requested
less 5 percent until you reach the $50,000 withholding limit.
The paying office should then cut the check in accordance with
the approval. This procedure should be coordinated with the
paying office in advance.
Yes, the period of performance of a T&M contract is enforceable.
Under a T&M contract the contractor promises to make its best
effort to complete the work within the ceiling price and
the period of performance. If it fails to make its best effort
to do that it will have breached the contract. The contractor
cannot take as long as it wants to do the job.
You can require the contractor to continue to make its best
effort until it reaches the ceiling price or the end of the
period of performance, whichever comes first. You cannot require
the contractor to continue to perform after the expiration of
the period of performance. The fact that the T&M clause does not
mention the period of performance doesn't mean anything, since I
assume that the parties agreed to a period of performance
stipulated in Section F of the contract. You must read the
contract as a whole, the clause and the other parts.
In order to change the period of performance, you must negotiate
a supplemental (bilateral) agreement with the contractor.
If at the expiration of the period of performance the contractor
has not finished the work despite making its best effort to do
so, and has not reached the ceiling price, but does not want to
continue to work with you, then the contract is over. You should
deobligate any funds remaining on the contract, but I don't see
any need to modify the ceiling amount.
If you changed the contract in ways that affected the time
required to perform, then the contractor may be entitled to an
equitable adjustment to the period of performance (delivery
schedule) in accordance with the terms of the changes clause.