In the January issue of “Contract Management” there is an interesting case regarding Limitation of Cost and ID/IQ contracts with Task Orders: “Marine Design Technologies, Inc.” ASBCA 43142, 43914, 99-1 BCA 30,224 (January, 1999).

Each task order had a separate LOC.

The contractor’s business base was shrinking, the actual overhead rate was increasing. The contractor waited for the audit report before providing notification to the PCO.

The ASBCA decided that the overrun was allowable for some of the earlier task orders because the contractor had no particular reason to anticipate the rate increase before these task orders were complete. The overruns on subsequent task orders were not considered allowable because the contractor should have seen the rate increase and provided notification while the task orders were ongoing.

This seems like a pretty straightforward application of the foreseeability rule to me.

Robert D. Witte comments, “Ordinarily, limitation of cost is inviolable … Seldom do courts or boards substitute their power for that of the authorities who do the acquisition.”

This ties back to Mary Thompson’s inquiry regarding LOF on an ID/IQ with CPFF orders.

For LOC/LOF purposes, each order under an ID/IQ is separate contract. Depending on the circumstances during the period of performance for each order, overrun costs may be recoverable on some orders but not on others.

By John Ford on Tuesday, January 02, 2001 - 02:47 pm:

Eric, I hope you are not relying on this case to support your last paragraph. The Board applied the LOC clause to each order because there was a clause in each of the contracts at issue that explicitly made the LOC clause applicble to each DO issued under the contracts. The Board did not hold as a universal truth that each order under an IDIQ contract is to be treated as a separate contract for LOC/LOF purposes or for any other purposes. In this regard, the language of the LOC/LOF clauses refers to the "contract" not to "orders" under the contract. Moreover, FAR Part 16 does not state that each order under an IDIQ contract is to be treated as a separate contract. It does say orders under a BOA are to be treated as separate contracts though. Finally, there is an earlier ASBCA case dealing with withholdings under T&M contracts that says that each DO under an IDIQ contract is not considered a separate contract. If you have some other authority to support your statement, please share it with us as it would be most useful and would eliminate the need to use special clauses such as those used in this case.

By Eric Ottinger on Tuesday, January 02, 2001 - 03:46 pm:

John,

Could you provide the ASBCA cite. Was this before or after FASA?

We went around this issue in an earlier thread in the previous “Water Cooler.”

“Contract” is defined under FAR 2.101 Definitions.

““Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. IT INCLUDES ALL TYPES OF COMMITMENTS THAT OBLIGATE THE GOVERNMENT TO AN EXPENDITURE OF APPROPRIATED FUNDS and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; ORDERS, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see Part 16.”

Note particularly, that funds are obligated by the order under an ID/IQ.

FAR 16.501-2(c) allows the orders under an ID/IQ to be any type under Part 16. Part 16 is “Types of CONTRACTS.” If the order is a “contract” as defined in FAR 2.10, and each order has a contract type and everything that goes with the contract type (like an LOF or LOC), how can we conclude that the order is not a contract.

If I can risk a side comment, I think it is interesting that we are even debating this issue.

Eric

By John Ford on Thursday, January 04, 2001 - 04:46 pm:

Eric, the ASBCA case was before FASA. I cannot remember the name of the contractor only that it began with an S.
The definition of contract does not appear to cover orders under IDIQ contracts. Thus, I don't find that helpful. As I mentioned before, the ASBCA decision you commented on was based on specific language in the contracts involved that made the LOC clause applicble to individual orders. It did not rest on a universal truth that each order under an IDIQ contract is to be treated as a contract. So far as I have been able to tell, no board or court has held that they are.
If they are, it seems to me that it would have been unnecessary for the FAR to say orders under BOAs are to be treated as separate contracts. If IDIQ orders were intended to be treated in the same way, the FAR would have said so. Silence on this point indicates that they are not.
Turning to the definition of "contract" in the FAR, it expressly mentions BOA orders, but does not mention IDIQ orders.
From what you have said, I take it your statement is based only on your interpretation of the FAR instead of board or court decisions or an express term of the FAR directing that such orders be treated as individual contracts.
We are discussing this because this point is not clear, and I believe many agencies are resorting to the practice of including special clauses like the one in your case. As I stated in my earlier post, if you have some authoritative pronouncement that such clauses are unnecessary, it would allow for their elimination.

By joel hoffman on Thursday, January 04, 2001 - 05:31 pm:

Eric, You appear to be using the FAR 2.101 definition of "contract" to base your argument that each task order on an IDIQ contract is a "separate contract."

Then, it must follow that every "bilateral contract modification" is a separate contract, for the same reasons. I don't think anyone here believes that a bilateral contract modification is a "separate contract." Is there another source for your belief? Happy Sails! Joel

By Eric Ottinger on Friday, January 05, 2001 - 09:54 am:

Joel,

Good Point.

We agree that a FASA task order/delivery order is a “contract” as defined in FAR 2.101 It is a, “mutually binding legal relationship obligating the seller to furnish the supplies or services … and the buyer to pay for them.” Also, each order obligates “the government to an expenditure of appropriated funds.”

Further, FAR 2.101 includes “…; orders, such as ….”

The ID/IQ ordering vehicle is a “contract” by this definition because the seller is obligated to furnish and the buyer is obligated to pay for the minimum.

(However, the idea that we obligate ourselves to acquire a minimum quantity of dollars always makes my head hurt. But we do, frequently.)

The order under the ID/IQ is also a “contract” by this definition. We can have a "contract" under a "contract."

An ID/IQ is an “indefinite” vehicle and a CPFF is a definite type of contract. (See MUSCHANY ET AL. v. UNITED STATES; ANDREWS ET AL. v. SAME., (Feb. 05, 1945) “Congress, by changing the original prohibition in the act from one outlawing any “cost-plus” system of contracting so as to expressly authorize use of a “cost-plus-a-fixed-fee” form of contract, indicated it did not care how the contractor computed his fee or profit so long as the fee or profit was finally and conclusively fixed in amount at the time when the Government became bound to pay it by its acceptance of the bid.)

(See also, FAR 16.306 (4) “The term form [of CPFF] shall not be used unless the contractor is obligated by the contract to provide a SPECIFIC level of effort within a DEFINITE time period.”)

The idea that a specific contract can be definite and indefinite at the same time seems illogical to me, to the point of absurdity.

A contracting officer who writes a CPFF contract with indefinite characteristics is skating on very thin ice for the reasons cited in Muschany.

Part 16 isn’t mix and match; pick a few clauses from column A and pick a few clauses from column B. However, I am sure that some offices have done exactly that.

Eric