The contract is CPAF. The issue - An ECP to the contract was negotiated (which the contractor included award fee in their cost, but did not receive a plan from the Gvmt.) The ECP was accepted, a modification and Purchase Order was issued for the entire amount, and the money is now almost spent after numerous months. The Contractor claims that none of the money was set aside for the award fee (which is true.) However, a modification was never done to the contract putting an Award Fee Plan in place. Therefore, without an Award Fee Plan telling the contractor how they would be rated, and all work and funds are almost completed/spent, is the Gvmt obligated to pay them additional money. The purpose of the Award Fee Plan is to motivate the Contractor before performance to earn additional money by exceeding the Gvmt's requirements. Any thoughts/ideas would be appreciated.

By joel hoffman on Wednesday, January 24, 2001 - 08:04 pm:

Anon, I admit that I can't substitute for Vern Edwards or others who have much more experience with CPAF than me. Come on folks, jump in here and help out Anon. Don't be shy!!!!

I read your post as saying "the negotiated modification authorized the proposed total amount (including an allowance for award fee) as the target cost, not including fee?" Am I missing something? Is there a base fee, in addition to an award fee? Anon, please clarify how the mod was settled. Thanks!

Happy Sails! Joel

By JD on Wednesday, January 24, 2001 - 10:03 pm:

Anonymous:

I have some questions.

First, you note that the contract is a CPAF contract. Since it is a CPAF contract, is there an existing award fee plan in or part of the contract--regardless of what happened on the ECP?

Second, you said the government accepted the contractor's ECP proposal and the modification covered the total amount. Did the contractor's proposal break out the estimated cost, base fee, and award fee?

Third, do you have access to the contracting officer's record of negotiations? If so, how was the contracting officer's record of negotiations worded? Did the memo clearly acknowledge the estimated cost, base fee, if any, and award fee?

By Ramon Jackson on Thursday, January 25, 2001 - 12:40 am:

JD's first question seems crucial. If it is CPAF contract it must have an AF plan of some sort. Unless the negotiated ECP contained negotiated modification to that plan it would normally remain in place on the whole, now to include the negotiated change.

We went through a discussion long ago on AF not being subject to protest and such. I wonder if "We forgot" would suffice? I believe, but have not checked and may be mistaken, there was something in one of the court cases we looked at about "arbitrary and capricious" as being an exception to the normal non-review of AF claims. Forgetting of this type seems to fit such possible exception.

At the least it is a black eye for the agency's ability to tend to business!

By joel hoffman on Thursday, January 25, 2001 - 08:08 am:

Ramon, I don't have time to research this but do believe that award fee administration has been determined to be subject to claim under the Contract Disputes Act.

It appears to me that the crux of the problem may be a problem or misunderstanding about what was included in the modification. From Anon's description, I got the impression that the Government issued the mod, making the whole amount of funding available for "costs" related to the change, including the amount proposed by the Contractor for an award fee. Now, the money, including that amount of funding is almost spent. Now the Contractor wants an award fee but the money is gone.

Other questions, raised by JD and Ramon, and which I also thought about, relate to the base contract award fee plan and whether that plan applies to the in-scope change (I assume that the engineering change proposal - "ECP" is in-scope).

Am I on the right track, Anon? Happy Sails! joel

By joel hoffman on Thursday, January 25, 2001 - 08:11 am:

Anon - another question comes to mind. Are you stating that there is no award fee for the basic contract work? Happy Sails! joel

By JD on Thursday, January 25, 2001 - 08:50 am:

Joel + Ramon:

The Burnside-Ott (award-fee) and Rig Masters (Value Engineering clause) cases, (explained in the Analysis article entitled something like the FAR Councils V the Federal Courts) states that these clauses are under the Contract Disputes Act.

By joel hoffman on Thursday, January 25, 2001 - 08:54 am:

Thanks, JD. I knew I read it recently but didn't have time for the research. OK, Anon, please send us some clarifications - thanks. happy Sails!

By Ramon Jackson on Thursday, January 25, 2001 - 11:42 am:

All

I believe the discussion we had on the old Water Cooler involved Burnside-Ott. Unfortunately, the WC archive index remains with dead links to text.

Anyway, I've only taken time to do a quick scan of the decision, but it jogs the memory of the nature of the discussion. The crux of that case was the jurisdiction issue. Some quick key quotes:

Before the Board, the government moved to dismiss for want of jurisdiction, citing Clause H-21 of the contract and arguing that the effect of the clause is to deprive the Board of jurisdiction to hear the dispute. Burnside-Ott countered that the clause is ineffective to remove the statutory right of appeal found in the Contract Disputes Act of 1978 (CDA), 41 U.S.C. §§ 601-613 (1994), and that the appropriate standard of review of CO decisions is de novo before the Board.

Permitting parties to contract away Board review entirely would subvert this purpose and return contractors to the position they occupied before the passage of the CDA. The government could insert jurisdiction defeating provisions in RFPs and contracts as desired, thus skewing the balance between it and contractors. As a result, contractors would lose the protections sought by Congress in enacting the CDA.

Thus, the CDA trumps a contract provision inserted by the parties that purports to divest the Board of jurisdiction, unless the contract provision otherwise depriving jurisdiction is itself a matter of statute primacy.

Indeed, the text of Clause H-21 unmistakably grants unilateral discretion to the government to determine the award fee. The choice of conversion method was left by contract to the FDO and should not be disturbed by the Board or by this court unless the CO's affirmance of the FDO's decision was arbitrary or capricious. There is no evidence of record to show that the CO acted arbitrarily or capriciously. Therefore, the decision of the Board is affirmed.

I believe the conclusion of the last discussion was that this case clearly nailed any attempts to opt out of the CDA through FAR or agency language at any contracting stage while leaving untouched the government's stated discretion rights under award fee schemes unless there is a a finding the "discretion" was "arbitrary or capricious." In the situation at hand I think I'd tend to find "forgetting" there was an award fee inherent in an ECP and burning the money allocated for the fee on costs was pretty arbitrary and capricious.

After posting I realized my comment "negotiated modification to that plan" was a poor choice of words. My intention was to convey that an ECP changing an aspect of performance requires a look at AF plans. Though it wouldn't be a subject for formal negotiation, a contractor failing to note a substantial impact on the plan and drawing that to the attention of the agency is also remiss.

Consider a descope ECP where maintenance involved in a delivered product was removed for agency or third party maintenance. Award fee plan criteria dealing with that maintenance certainly need modification. A contractor "forgetting" to remind the government about this is also not keeping up with business. It may be the government's sole responsibility to do the modification and most of the embarrassment may lie with the government. Still, if the contractor suddenly finds the invalid maintenance criteria alive long after removal of the work without record of a reminder they should blush.

To be blunt, this situation seems to display considerable unbusinesslike sloppiness in both the agency and the contractor's sense of orderly business.

By Eric Ottinger on Thursday, January 25, 2001 - 12:30 pm:

Ramon and all,

I don’t think this is all that complicated. The Government is contractually bound to do the award fee, even if the Government has botched up the preliminaries. That is all there is to it.

If, for some reason, the Government really can’t do the award fee, the Government and the contractor should negotiate a fixed fee with some allowance for the award fee that the contractor is giving up.

Eric

By Anonymous on Thursday, January 25, 2001 - 06:53 pm:

Joel, JD, and Ramon:

Thanks for your input! To answer all of your questions and hopefully not confuse the issue more, here I go. (1) The negotiated modification authorized the total amount (everything included) which was the estimated cost and award fee. I don't believe there was a base fee, but I'll check on it tomorrow when I review the ECP. Of course it included G&A, O/H, subcontractor costs, travel, etc. (2) Regarding if there is an existing award fee plan in or part of the contract, there was an award fee plan for a specific Contract Line Item Number (CLIN). (NOTE: This contract also includes IDIQ, FFP, labor hours and O&M CLINs.) The plan had specific milestones to accomplish with start and end dates, which was altered and issued as modifications before the period ended. This is an IT development contract, where each party has to re-evaluate where to go next after the contractor meets/or doesn't meet a milestone objective. (3) The crux of this issue - this ECP was not to be included under the existing award fee plan at that time - all parties knew this. A new sub-CLIN was assigned to it to make that clear (and included in the ECP) as it was to be managed by a different COTR (which was included in the modification.) It was an ECP within scope of the contract but the existing award fee plan did not include this sub-CLIN as the period of performance did not coincide in any way to the existing award fee plan schedule (the start and end dates for this new sub-CLIN did not coincide with the CLIN that did have a contract award fee plan in place.)

As I believe we all know, all development IT contracts have numerous things going on at one time, and this is just one example. These include software and hardware developments for various components of the system, COTS to be purchased, labor, and O&M. Many teams work on the individual areas to bring together a successful, working system, including integrating it all together so it works.

Back to the issue - an ECP was accepted for the total amount - an award fee plan was not put in place when accepting it through a modification - and the contractor has exhausted almost all of the money. They performed without an award fee plan and now want to have a chance to earn their award fee. As I stated in my posting, the purpose of an award fee is to motivate the contractor to perform by exceeding the Gvmt's expectations. I know that even if there was an award fee plan in place, it is up to the Gvmt to decide what the Contractor will recieve, if any, of the award fee. I know that it is not contestable (as written in the contract and the award fee plan.)

Sure, the Gvmt could have issued an award fee plan but did not, the Contractor signed the bilateral modification without an award fee plan in place, and the Contractor never asked about the plan in order to motivate their employees to receive a bonus for a job well done. The Contractor just decides to exhaust the entire funds (including their award fee) after almost 1 year. Now they are asking about an award fee - I can not justify it.

I'll look at the ECP tomorrow to see if it included a base fee and get back to you. Thanks again for all your input! Happy Sails to Joel!

By JD on Thursday, January 25, 2001 - 08:56 pm:

In looking at your example, you have a mistake that must be settled. From your statement, it appears you also have a partially invalid contract. If your contract has language in it that says the award fee cannot be contested under the Contract Disputes Act, that part of the contract cannot be enforced. Burnside-Ott clarified that by making clear the obvious that a federal bureacrat cannot write a regulation that overrules the law.

You have a fair fight with the contractor in a Board of Contract Appeals if you are a contracting officer and you make a decision that there is no award fee because of the government failing to issue an award fee plan. It is clear there was an intent to have an award fee plan. The contractor proposed an award fee and the government accepted it. In fact, it appears the government negotiated it. I still have another question that you may answer if you wish. That is, did the contractor notify the government when it spent a certain percentage of its estimated cost. If the contractor did not and I were the government, I would use that as a negotiating tool.

Let's try to be fair and settle this thing. By the way, as it now stands I favor the contractor in this because the government accepted that proposal and it is the government's responsibility to issue an award fee plan.

This is what I would do to settle it. I would ask the contractor to identify what part of the amount spent represents costs. I would compare that to the proposed costs to identify the cost overrun. Then I would go back to the original proposal and identify the fee proposed. You now have the negotiated and agreed to estimated costs and fee and the amount of the cost overrun.

This is the deal I would offer if I were the government. Will the contractor sit down and negotiate a fixed-fee (from the award fee and/or base fee negotiated amount) based on the original estimated costs or will the contractor want the government to write a current award fee plan drawn up by the government at this point. If the contractor wants the new award fee plan, fine. Just perform an honest evaluation of performance based on a realistic award fee plan. One thing you want to avoid. Do not negotiate any fee on actual costs.

Now, you still have the matter of the cost overrun. Whatever, you negotiate on the cost overrun, add that amount with a modification to this line item. Do not add any new fee in this modification. If the contractor did not notify the government when it reached the 80 percent notification threshold, I would slap him around during negotiations with that.

In the end, the government may save some funds on the new fee amount and lose some funds on the cost overrun negotiation. However, you will avoid a dispute, save legal costs, and have a better business relationship.

By Ramon Jackson on Friday, January 26, 2001 - 12:52 am:

Good grief.

First, when the government tries to be the integrator of what you describe there is pretty solid history that it fails. Government historically has made a very poor ring master of this kind of circus -- good reason to hire an integrator and hold them responsible for all those pieces fitting together, including schedule, schedule, schedule!

You may still be right on an AF plan's criteria and awarded amount not being subject to contest, but read Burnside-Ott. As JD makes clear again, you can't contract yourself out of CDA. A contractor using that approach to contest amount or the criteria would probably be wasting time and most likely tossed out. One presenting this record might find an interested panel. If "we forgot" to plan and administer AF for an AF CLIN as you describe isn't capricious I'm not sure what in a contract environment might qualify.

The only mitigation I see is the contractor being pretty negligent too. I gather the performance may not be anything to brag about as well. It sounds like an expensive mess all around. As JD says, you have some chips to use. Be thankful for that!

If the only difference in plan in place and plan forgotten is period of performance I might at least attempt to use its criteria as a stick: "Fine, you want an evaluation. We'll use the other CLIN's criteria and you got 25% of the AF that would have been set aside within the ECP in a demonstrated and documented fair application of them to your actual performance."

By joel hoffman on Friday, January 26, 2001 - 07:54 am:

Anon, one thing which sounds clear is that the mod authorized the Contractor to spend the entire amount as costs (I'm reading that the the whole amount was authorized in the performance CLIN(s)), contrary to what was negotiated).

If the negotiator wrote the MOD - they should be ashamed. If the negotiator didn't review the mod - the ACO and the negotiator should both be ashamed.

I'm thinking along the lines of JD. You may end up having to negotiate an adjustment to add some fee (negotiate based on originally negotiated ceiling, not including the overrun)and possibly an adjustment to the performance CLIN for the overrun. You may have some leverage due to the Contractor's own negligence in not making sure the mod reflected the agreement. Use the fact that the contractor overran beyond the negotiated performance cost as a bargaining tool.

If there is a base fee (I would think it should also have be identified in a separate CLIN or SubCLIN), I might stand fast; pay only a base fee. I'd remind the Contractor that he signed the mod with no award fee, knowing the performance CLIN was overstated and try to make him live with the base fee.

On the other hand, if you are satisfied with performance and feel you received a benefit, commeasurate with the overrun in negotiated costs, you may want to consider that in the decision or justification to obtain more funds, if you end up having to use some of the money put on the performance CLIN to fund a fee.

Yep, this could be subject to a claim, despite what the language in the Contract says.

Good luck! Happy Sails! Joel

By bob antonio on Friday, January 26, 2001 - 09:07 am:

Joel and all:

In reviewing government contract performance issues, I start with the most basic of rules in contracting. Those include (1) the requirement for the government to cooperate with the contractor during the performance of the work and (2) the government's right to strict performance from the contractor in accordance with the contract.

Here we have a clear case where the government did not cooperate with the contractor. The award fee plan should have been ready to go near the start of the modification work. The contractor has the right to begin work to meet the schedule. The governmnet could have issued a stop work order until the award fee plan was ready. Of course, this would have simply confirmed that the government did not cooperate. On the other hand, I assume there is some requirement in the contract for the contractor to notify the government that it reached a certain percentage level of the modification costs.

That sounds like the situation. In settling this, we have to avoid one thing. That is the illegal cost plus a percentage of costs system of contracting. I may have even worded that right. Anyway, few people can identify one. The easiest one to identify is a modification that adds fee but not new work on a cost reimbursement contract. These illegal contracts are defined in one GAO decision and in a Court case. I could find them in a real pinch. It goes something like this for an illegal cost plus contract. The fee is not fixed at the time of award and the fee is allowed to grow in consonance with the costs. There are two other parts to the rule but that is the basics. That s why your settlement on some fee should be based on the original estimates. The important reason to avoid this type of illegal contracting is because it is illegal. If a competent second-guesser finds it, it is thrown out and must be done over again.

If this is a subclin, it does not sound like we are dealing with a huge amount of money. If I was the government, I would invite the contractor in to reach a reasonable settlement and move on.

By Ramon Jackson on Friday, January 26, 2001 - 11:35 am:

Both sides in this should seek a quiet place, dress in sack cloth and ashes and settle hoping it does not become a spectacle of some sort. I think if I were designing a settlement fair to the taxpayer I'd dictate the fee be calculated at maximum with the contractor getting zero and the agency required to escrow the full amount for training. The only basis for fee amount here has to be that amount designated in the ECP estimate to keep it from falling into that illegal form mentioned. With this record of forgetfulness I hope someone still has the thing!

I have one suggestion that people might want to kick about. While I have and still do strongly advocate careful tailoring and frequent tuning of AF criteria I also recognize a majority are fairly generic. Those tend to fall into the management of an effort, often dealing closely with cost and schedule. They are the heart of AF criteria. The others take an AF scheme from general form to real substance by precisely targeting risk and concerns of the particular effort at appropriate periods in its completion.

A safety valve for a contract with mixed CLIN types, where AF is one, might be to use a standard base plan covering those generic management type things and technical "goodness." Call it "Plan A." The contract would then state something along these lines:

Plan A shall be the award fee plan for all award fee efforts undertaken under the base contract including any that are new or modified through changes. Such efforts are encouraged to add specific criteria covering risk and concerns peculiar to their performance. These efforts may also make modifications to the Plan A criteria to better reflect specifics. In both modifications and additional criteria the plan shall be approved and incorporated within the change adding or modifying effort. Plan A shall govern in the absence of an approved modified or extended award fee plan for any award fee sub tasking under this contract.

I'm sure some rewording and concept definition is needed, but the drift should be clear. Call it a safety net for those unwilling to use award fee contracts as precise tools for maximum benefit.

By Eric Ottinger on Friday, January 26, 2001 - 12:00 pm:

Bob,

CPPC is a serious issue. Cibinic and Nash cover this issue very well. There are four guidelines established by the Comp. Gen. However, as Cibinic and Nash point out, an arrangement that works the same way as a contract described by the four guidelines would probably be illegal. It is not a good idea to write something that is effectively a CPPC and try to weasel around the prohibition on a technicality.

2 CGEN 101,595 , Tero Tek International, Inc., (Feb. 10, 1988)
“We find that the travel reimbursement portion of the contract does not constitute a CPPC contract. The usual guidelines applied by our Office in determining whether a contract constitutes a CPPC contract are; 1) whether payment is at a predetermined rate; 2) whether this rate is applied to actual performance costs; 3) whether the contractor’s entitlement is uncertain at the time of contracting; and 4) whether it increases commensurately with increased performance costs. The Department of Labor--Request for Advance Decision, 62 Comp. Gen. 337 (1983), 83-1 CPD 429. Here, condition number 3, that the contractor’s entitlement is uncertain at the time of contracting, is not met. The contract limits the cost of travel to rates established in various Federal Travel Regulations. Further, the contract also provides that all travel requests by the contractor are subject to prior governmental approval. Thus, we cannot conclude this is a CPPC contract since the contractor’s entitlement is not uncertain at the time of contracting.”

Generally, as long as the Government has some discretion, to negotiate more or less fee or to award more or less fee, there is no predetermined rate and the contract is not CPPC. Whether the negotiated or awarded fee is the same rate or a different rate is irrelevant to the CPPC question as long as the Government is not locked in to the rate.

Normally, we want to negotiate a lower fee if a large percentage of the costs are actuals because the contractor’s risk is lower. This is a different issue from CPPC.

In this case the Government promised to pay a fee based on the quality of the contractor’s performance. The Government should do so. And, as much as possible, the amount should be the same as the contractor would have received if the award fee procedures had been accomplished in a timely manner.

I don’t see any reason why the contractor should suffer for the Government’s failure.

Before Burnside-Ott you could say that the amount awarded was strictly a unilateral determination and not subject to dispute. I don’t think you could say that the Government had a unilateral right to not do the award fee, before or after Burnside-Ott.

In this case it appears that the award fee pool amount was established based on the estimated cost. If so, there shouldn’t be any kind of CPPC issue.

Anon,

I learned more than I ever wanted to dealing with an overrun a few years ago. There is some precedent to the effect that under “Limitation of Funds” the contractor is expected to expend all of the funds allocated to continue performance, even if that doesn’t leave anything to cover the fee. Of course, the government will have to find some additional funds to cover the fee.

For this reason, incremental funding modifications should be very explicit about what funds are allocated to cost and what funds are set aside for fee.

I think what you have is an overrun issue. If the contractor has expended all of the funds including the amount which would cover the fee, and the contractor has not provided the appropriate notification, you probably don’t owe the contractor any more than what you have funded. But you need to take a hard look at the contract and the circumstances which resulted in the overrun, and, probably. to get some help from general counsel.

Eric

By Eric Ottinger on Friday, January 26, 2001 - 12:21 pm:

Anon,

On second thought, you indicate that the contractor has spent right up to the amount funded.

Is there more work to be done? If you are going to fund additional overrun costs to complete the work, the contractor can plausibly argue that he spent all of the money because he had reason to anticipate additional funding.

In that case, you would not be in a good position to deny him the fee because he is in an overrun status.

Eric

By Anonymous on Saturday, January 27, 2001 - 05:50 pm:

The Contractor did not give the Government notice that 80% of the work was completed, although about 90% has been completed. Regarding if there is more work to be done, the Gvmt has not requested any additional work or a new/revised CCP. However, as the effort doesn't end for another month, the Gvmt. is considering requesting a new CCP for additional work under the same CLIN, but with a separate, new SOW.

Also of note, originally the Contractor submitted the CCP as a CPFF, which was accepted through a mod. Then, @3 month later, the Contractor submitted a revision to the CCP as a CPAF, which was accepted. That is probably why an Award Fee Plan was never put in place. The Contractor was working on a Fixed Fee basis then changed it to award fee. An oversite on the Gvmt's part for not catching that and having the Contractor change the fee to fixed, or creating an Award Fee Plan.

Regarding the modification incorporating the CCP into the contract, it was a bilateral decision. Both the Contractor and the Gvmt accepted the CCP.

Lastly, there is not any fee in the accepted CCP's besides the Fixed Fee in the first CCP, and the Award Fee in the revised CCP.

Thanks for all of your input. I'll talk with legal council and see where to go from here.

By Ramon Jackson on Monday, January 29, 2001 - 04:19 pm:

Anonymous, the latest looks even worse! How can a change proposal from the contractor to change from the fixed fee to an award fee -- that thing so many fear because of extra work -- just slip by? It is bad enough to have a slip like that in a big package where someone sort of forgot to read the fee line, but when the change apparently was the fee/contract type change?

I'm also greatly puzzled by the scheme under which 90% is burned, a month is left, no "extension" by change proposal is contemplated, but some sort of new arrangement is being made for apparently very similar work with the same contractor. My imagination is displaying an ever growing mess.