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Timestamp: 2019-04-18 18:25:25+00:00

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Maximizing Termination For Convenience Settlements/Edition II - Part II - Seidman & Associates, P.C.
This Edition II Briefing Paper is the second of two Papers that update and expand Briefing Papers No. 95-5, “Maximizing Termination for Convenience Settlements,” which focused on fixed-priced contracts. These Briefing Papers provide new strategies and cover new topics such as cost-reimbursement contracts, indefinite delivery/indefinite quantity contracts, Federal Acquisition Regulation Part 12 commercial item contracts, and avoiding the “Termination for Convenience” clause prohibition on the recovery of anticipatory profits. Part I, Briefing Papers No. 08-3, provided a background discussion of the purpose and effect of the “Termination for Convenience” clause and a review of the standard “Termination for Convenience” clauses for various types of contracts, compared the cost-based formula used for traditional Government contracts with the modified price-based formula used in FAR Part 12 commercial item contracts, summarized pertinent cost principles, and presented general strategies for maximizing recovery. 1 This Part II addresses how to recover specific costs and provides strategies for specific contract types such as IDIQ, cost-type, and FAR Part 12 commercial item contracts.
The Government takes the position that a terminated contractor is not entitled to recover for periods of delay where the contractor is solely responsible, where both the Government and contractor are responsible (concurrent delay), where neither party is responsible, such as in the case of strikes, unusually severe weather, floods, fires, or epidemics, or where the Government is responsible in its sovereign capacity. Such a disallowance appears to be insupportable to the extent a contractor does not seek compensation in excess of the contract price.
Thus, if there is a sufficient contract price ceiling, a contractor should be able to recover for all days of delay irrespective of responsibility. If there is not sufficient contract price for such a recovery, the contractor can still recover for delays for which it is entitled to an equitable adjustment (delays caused solely by the Government in its contractual capacity).
Since there is no need to show entitlement to an equitable adjustment unless the contractor seeks to recover an amount in excess of the contract price, 6 the total time method could be used to calculate days of delay. Under this approach, the number of days of delay is the difference between (1) the number of days in the original contract schedule to reach the stage of performance at the time of termination, and (2) the number of days between the time of award and the termination for convenience.
You should therefore claim all delay costs associated with the terminated effort up to the contract ceiling regardless of responsibility and costs for Government-responsible delays as equitable adjustments to raise the contract ceiling. Recoverable delay costs include the increased cost of performance in a later time period (inflation), disruption, and unabsorbed overhead.
1. Compute the overhead allowable to the contract. This is done by (a) dividing contract billings by total billings for the contract period; and (b) multiplying the ratio resulting from step 1.a. by the total overhead for the contract period.
2. Compute a daily overhead rate by dividing the overhead allocable to the contract by the days of performance.
3. Compute unabsorbed overhead by multiplying the daily overhead rate by the number of days of delay.
(4) If initial costs are claimed and have not been segregated on the contractor’s books, they shall be segregated for settlement purposes from cost reports and schedules reflecting that high unit cost incurred during the early stages of the contract.
(5) If the settlement proposal is on the inventory basis, initial costs should normally be allocated on the basis of total end items called for by the contract immediately before termination; however, if the contract includes end items of a diverse nature, some other equitable basis may be used, such as machine or labor hours.
Nevertheless, the Government may be expected to argue that (a) the Federal Circuit has held that Eichleay is the only permissible method for calculating unabsorbed overhead, and (b) in Applied Cos., 11 the ASBCA, relying on Nicon, 12 held that a terminated contractor cannot recover unabsorbed overhead under the Eichleayformula without proving a Government-responsible delay. This argument is flawed.
The Government may attempt to disallow the cost of defective work based on the FAR requirement that the Contracting Officer must deduct the “fair value” of termination inventory that is “destroyed, lost, stolen, or so damaged as to become undeliverable” before title or the risk of loss transfers to the Government. 22 However, this requirement applies only to termination inventory–“property purchased, supplied, manufactured, furnished, or otherwise acquired for the performance of a contract subsequently terminated.” 23 It does not deny a contractor the right to claim its incurred costs for defective or nonconforming work. 24 You should therefore claim the cost of defective or nonconforming work in your settlement proposal.
Precontract costs means costs incurred before the effective date of the contract directly pursuant to the negotiation and in anticipation of the contract award when such incurrence is necessary to comply with the proposed contract delivery schedule. These costs are allowable to the extent that they would have been allowable if incurred after the date of the contract.
Under the FAR “Termination costs” cost principle, a terminated contractor is entitled to recover “[c]osts continuing after termination” that “despite all reasonable efforts by the contractor…cannot be discontinued immediately after the effective date of termination” 30 The cost principle further states that “any costs continuing…due to the negligent or willful failure of the contractor to discontinue the costs shall be unallowable.” 31 Examples of costs continuing after termination are idle facilities and idle capacity costs, employee compensation and severance pay costs, and warranty and hardware or software upgrade costs.
(c) Sales have increased. The DCAA often disallows all costs claimed for idle facilities or idle capacity if the contractor has experienced an increase in sales. This approach begs the question. The issue is whether the contractor experiences idle facilities or idle capacity as a result of the termination– not whether the contractor’s sales volume has changed.
(d) The facilities are not “special tooling.” The Government sometimes disallows idle facility or capacity costs because the facility at issue is not “special tooling.” The FAR defines “special tooling” as tooling, machinery, or equipment of such a specialized nature that its use is “limited to the development or production of particular supplies or parts” or “performance of particular services.” 40 Although facilities must qualify as “special tooling” to recover for “loss of useful value” under the FAR “Termination costs” cost principle, 41 there is no similar requirement to recover for idle capacity or idle facilities.
Employee compensation is another type of cost continuing after termination. Just as with any other cost continuing after termination, the contractor must demonstrate it could not reasonably discontinue the cost for the cost to be allowable. 42 Post-termination employee compensation is generally not recoverable unless an employee is needed to wind up the terminated contract. 43 A “moral obligation” does not make costs recoverable. 44 Payment for the time it takes to reassign employees working on the terminated contract to other work would appear to be allowable.
As discussed in Part I, the FAR suggests COs consider the inclusion of a provision in a settlement of a “complete termination” preserving the Government’s rights “concerning defects, guarantees, or warranties” and imposing other contractor obligations concerning terminated work. 47 A contractor should not agree to any continuing obligations in a complete termination other than those in the “Termination for Convenience” clause without adequate compensation. The Government could agree to compensate a contractor for such costs as a cost continuing after termination. Alternatively, a contractor could protect itself by obtaining a release from all post-termination performance obligations. Such a release should expressly include but not be limited to warranty services, repair or replacement of defective work, providing software or other upgrades, and similar efforts. A termination for convenience ispartial if the Government does not terminate the contractor’s obligations to provide warranties and hardware or software upgrades. When a termination is partial, a contractor is entitled to an equitable adjustment for the increased cost of performing the nonterminated portion of the contract. 48 If you find yourself in such a situation, you should claim the increased cost of performing the nonterminated portion of the contract, as discussed in Part I.
Rental costs are not limited to the contract period. They are allowable for the contract period existing before the termination and “such further period as may be reasonable.” 51 A lease period exceeding the contract period is reasonable where the contractor obtained the shortest available lease term for necessary facilities. 52 As with other cost issues, you should avoid Government second-guessing, as addressed in Part I. The reasonableness of the lease term is determined by the contractor’s judgment and circumstances existing at the time of the lease–not the post- termination hindsight of a Government official.
Following a termination for convenience, you may be entitled to recover “facilities capital cost of money” (FCCOM) under the FAR “Cost of money” cost principle. 57Unfortunately, terminated contractors often overlook this cost.
“Cost of money as an element of capital assets under construction” is another type of “cost of money” allowable under the FAR cost principle. 65 This type of “cost of money” is rarely an issue in termination cases since it is added to the cost of the capital assets under construction rather than expensed.
Merely because the items are of a type the contractor uses on other work does not justify disallowance as common items. For disallowance to be justified, the contractor must have existing projects for the materials or be in a position to hold the materials for future projects without incurring a loss. 67 You can rebut a “common items” disallowance by demonstrating that the items cannot be retained at cost without sustaining a loss.
Costs relating to production units may also be allowable if their incurrence before first article approval was necessary to meet the delivery schedule. For example, in one case, 71 the ASBCA held that the cost of special steel for production units purchased before first article approval was allowable where 30 days were required for its delivery and production units were due 25 days after first article approval. In another case, 72 the ASBCA allowed recovery of the cost of one long-lead-time component requiring advance purchase to meet the delivery schedule but denied recovery for the costs of other components and production effort not necessary to meet the schedule. Although the board in these two cases only allowed costs for long-lead-time materials, the language and rationale used appear to extend to other production costs that must be incurred before first article approval to meet the contract delivery schedule.
Under the “Termination costs” cost principle, a contractor is entitled to recover as “settlement expenses” the accounting, legal, clerical, and similar costs of preparing and negotiating its settlement proposal, of terminating and settling subcontracts, and of storing, transporting, and disposing of termination inventory. 83 The settlement expenses you may recover include the reasonable fees of outside professionals, as well as your in-house personnel costs. As discussed in Part I, in the event of a termination for convenience, you should obtain professional help from qualified Government contract attorneys and accountants. Terminations for convenience present arcane legal and accounting problems, and the use of qualified professionals can greatly increase your recovery.
You should set up a separate account to accumulate settlement expenses for in-house personnel. 87 To avoid double counting, in-house personnel costs charged directly as settlement expenses should be removed from indirect cost pools.
The FAR provides that “indirect costs” for settlement expenses for in-house personnel “normally…shall be limited to payroll taxes, fringe benefits, occupancy costs, and immediate supervision costs.” 88 The DCAA at one time took the position that this provision limited indirect charges for all personnel irrespective of whether the costs are normally charged directly or indirectly. By Memorandum dated November 22, 1996, the DCAA revised its Contact Audit Manual to conform with cases holding that the FAR limitation only applies to employee costs normally charged as indirect costs.89 The DCAA no longer disputes that a contractor is entitled to follow its normal overhead practices for employee costs normally charged as direct costs.
A contractor is entitled to charge its normal G&A expense rate to settlement expense for outside professionals such as lawyers and accountants. However, if such charges are normally in the G&A expense pool, the pool and rate must be reduced to reflect these normally indirect costs charged as direct costs.
A cost-reimbursement contractor should also claim settlement expenses in excess of cost or funding ceilings where appropriate, as discussed below.
Thus, to recover interest under a pure termination for convenience settlement proposal–i.e., one that does not include a request for equitable adjustment–a contractor should submit the required certification and request a final decision at the first indication of an impasse. If a contractor is entitled to an undefinitized equitable adjustment on the terminated contract, it could recover interest on its equitable adjustment by submitting it separately as a CDA claim as the contractor did in Ellett. However, this may make the cost of preparing the request for equitable adjustment unallowable claim preparation costs, as discussed below.
A contractor should insist on the payment of interest as part of any settlement. The Federal Circuit’s decision in Rex poses the question of what came first, the chicken or the egg. If there is no settlement, there is an impasse. To extricate itself from the impasse, the Government must therefore pay interest.
If a contractor is entitled to an equitable adjustment on the terminated contract, it should consider submitting its equitable adjustment separately as a CDA claim as the contractor did in Ellett. If the termination settlement proposal includes a request for equitable adjustment that could be submitted as a CDA claim or follows a termination for default that is being challenged, the contractor should consider certifying it and submitting it separately as a CDA claim.
A contactor wants to recover both its (a) cost of preparing a termination settlement proposal and (b) interest on such submission. However, steps taken to recover proposal preparation costs can preclude the recovery of interest and vice versa.
It is impossible to concoct a single strategy to deal with all scenarios. What is in a contractor’s best interests will depend upon balancing the amount recoverable as settlement expense or REA preparation cost against the amount recoverable as CDA interest.
(a) File an REA separately and as part of a termination for convenience settlement proposal. To avoid allegations of fraud, be sure to indicate in each submission that although recovery based on the same facts is sought in separate submissions, only one recovery is sought.
(b) Convert the submissions into a CDA claim if the Government disputes them or fails to act within a reasonable time.
(c) Refuse to settle without payment of CDA interest.
This strategy may enable a contractor to maximize recovery of both settlement expenses/REA preparation costs and CDA interest.
This is a rapidly changing area of law. Before deciding on a course of action, you should check the most recent judicial pronouncements, especially those by the Federal Circuit.
As noted in Part I, the Government’s failure to order the guaranteed minimum in an IDIQ contract is a breach of contract unless the Government terminates the unordered portion of the guaranteed minimum for convenience during the contract period. 120Often contractors will notify the Government of its failure to order the guaranteed minimum before the end of the performance period in order to obtain additional business. This is not to the contractor’s advantage since the Government can avoid liability for anticipatory profits by terminating for convenience. 121 The contractor could recover more if it lets sleeping dogs lie and files a claim for breach of contract, including anticipatory profits, after the period for performance has expired.
Service contracts, other than FAR Part 12 contracts for commercial services, may contain either the FAR 52.249-2 “Termination for Convenience of the Government (Fixed-Priced)” clause, which is not limited to services, or the FAR 52.249-4 “Termination for Convenience of the Government (Services) (Short Form)” clause.
After a termination for convenience, a service contractor is faced with two issues. First, does the contract include the short form services clause, which limits recovery to services rendered? If the short form clause is not included, the contractor’s termination for convenience recovery is not limited to services rendered. Second, if the short form clause is included, was its inclusion reasonable under the standards set forth in the FAR?
(1) Invoke the “fair compensation” principle. The general principle that a contractor whose contract is terminated for convenience is entitle to “fair compensation,” discussed in Part I, is set forth in FAR 49.201. FAR 49.201 is a part of FAR Subpart 49.2, “Additional Principles for Fixed-Priced Contracts Terminated for Convenience.” It would therefore appear to apply only to fixed-priced contracts. However, the Federal Circuit has applied the “fair compensation” principle to a cost-reimbursement contract. 128 A cost-reimbursement contractor terminated for convenience should therefore invoke the “fair compensation” principle and use the techniques set forth in these Briefing Papers where necessary to recover fair compensation.
(2) Avoid disadvantageous advance cost agreements. Cost-type contractors often enter into advanced cost agreements with the Government concerning the allowability of costs. Such agreements often unfairly restrict the allowability of termination costs. The Federal Circuit has held that the “Termination for Convenience” clause in a cost-reimbursement contract overrides advance cost agreements. 129 A cost-reimbursement contractor terminated for convenience should therefore not limit termination costs proposed to those allowable under an advanced cost agreement.
The Government waives cost limitations for settlement expense where it terminates a cost-reimbursement contract for convenience with knowledge that cost limitations have been exceeded. 133 Should you find yourself in such a situation, be sure to claim settlement expense in excess of the LOC and LOF ceilings.
The FAR provides that COs may use FAR Part 49, which applies to noncommercial item contracts, “as guidance” to the extent that it does not conflict with FAR Part 12 and the “Contract Terms and Conditions–Commercial Items” clause at FAR 52.212-4.137 Unlike the FAR clauses and implementing rules for traditional Government contracts, the commercial items clause and rules do not provide a deadline for submitting a termination settlement proposal 138 or proposal for costs resulting from a partial termination for convenience, 139 do not limit recovery to the contract price (including undefinitzed equitable adjustments), 140 do not provide for partial payments before settlement, 141 and do not require submission of settlement proposals on required forms with certifications. 142 There has been little case law regarding the applicability of the FAR Part 49 requirements governing traditional Government contracts to commercial item contracts.
In Jon Winter & Associates, the Department of Agriculture Board of Contract Appeals stated in dictum that “[c]osts incurred are not the measure of relief…rather relief is to reflect the percentage of work performed and reasonable charges that have resulted from the termination.” The board held that amounts due for deliverables under the “Payments” clause do not necessarily reflect the percentage of work performed. It also stated in dictum that reasonable charges include “reasonably incurred costs in anticipation of performing the entire contract.” Such cost would be allowable as initial costs under the FAR 31.205-42 cost principle for traditional Government contracts. 143 Based on this rationale, it would appear that unamortized costs allowable under traditional Government contracts such as loss of useful value and alterations of leased property would also be allowable under a commercial item contract.
In Individual Development Associates, Inc., 144 the ASBCA addressed the partial termination for convenience of a FAR Part 12 commercial item contract. The contractor did not submit evidence of percentage of completion at termination or costs incurred as a result of the termination. Based on this failure of proof, the ASBCA denied the contractor’s appeal and ordered the contractor to make a partial refund.
There is insufficient case law to provide definitive guidance on the applicability of the FAR Part 49 provisions to commercial item contracts. Nevertheless, several observations can be made.
First, there is nothing in the FAR commercial item provisions inconsistent with a contractor’s right to “fair compensation” as set forth in FAR 49.201. Therefore, the same techniques for maximizing convenience termination recovery would appear to apply to contracts for commercial items subject to the FAR Part 12 rules.
Second, questions remain to be resolved regarding application of the formula for contractor recovery following termination for convenience of a commercial item contract, such as (1) how to measure the “percentage of the work performed” and (2) how to determine what charges “directly resulted from the termination.” 145 For example, is percentage of performance to be mechanically calculated based on units delivered or physical progress or does it include initial costs allowable as under noncommercial item contract terminations? Are charges resulting “directly” from termination limited to settlement expenses or do they include “continuing” (post-termination) costs that are expressly allowable for noncommercial item contracts? Although the commercial item formula for recovery is ambiguous, as noted above, the FAR permits COs to continue to use FAR Part 49 for guidance to the extent it does not conflict with FAR Part 12. 146 There appears to be no authority permitting a CO to reduce a contractor’s recovery below costs allowable under FAR Part 49.
Third, there is much similarity between the principles for commercial item and traditional Government contracts. Payment of the portion of the contract price reflecting the percentage of work performed in a commercial item contract results in a loss adjustment like that in traditional Government contracts. Costs resulting from the termination in a commercial item contract may be similar to traditional Government contract termination costs such as unamortized initial costs, loss of useful value, rental under unexpired leases, alterations of leased property, and settlement expense. 147 In the event of a partial termination for convenience, costs resulting from the termination may be the same as costs of an equitable adjustment on the nonterminated portion of the contract or unamortized initial costs in a traditional Government contract.
Fourth, although there is much similarity between the commercial item and traditional Government contract formulae for recovery following a convenience termination, failure to present the amount claimed using the commercial item formula verbiage may result in a Government refusal to pay.
Finally, the commercial item contract provisions deprive the Government of its right to audit the contractor’s records after a termination for convenience. 162 However, a contractor still has the burden of proving its costs. If a CO issues a final decision denying the costs, thus forcing the contractor to litigate, the Government would be entitled to obtain the information in discovery in litigation.
1. Keep in mind that a termination for convenience converts a fixed-price contract to a cost-reimbursement contract. As a result, a contractor is entitled to recover all allowable costs up to the contract price without demonstrating entitlement to an equitable adjustment. The contract price includes any equitable adjustments to which a contractor is entitled.
2. Remember that because of the conversion to a cost-reimbursement contract, a fixed-priced contractor should be entitled to recover all delay costs, including those for contractor-caused or concurrent delays up to the contract price. Be aware of the arguments to counter the Government position that such costs are unallowable.
3. Bear in mind that because of the conversion to a cost-reimbursement contract, a fixed-priced contractor is similarly entitled to recover the cost of defective or nonconforming work.
6. Be aware that the FAR suggests that a CO consider including a provision in a settlement agreement for a complete termination that would require contractors to correct defects, provide warranty work on delivered items, and perform other terminated work. You should not agree to such a provision without adequate compensation.
7. Claim unexpired lease costs if the lease cannot be terminated or the property sublet and the leased property and the lease term were necessary when acquired.
8. Be aware that (a) you are entitled to facilities capital cost of money under the FAR if you claimed cost of money in prior cost proposals or the termination settlement proposal is the first cost proposal, and (b) the ASBCA has held a terminated contractor was entitled to FCCOM under the “fair compensation” principle when all requirements under a prior version of the regulation were not met.
9. Do not accept “common items” disallowances for items you cannot use or hold without incurring a loss.
10. Bear in mind that production costs incurred before first article approval are allowable if (a) the costs were incurred due to a supplier’s requirements for minimum order quantities or were necessary to meet the production schedule, (b) the “First Article Approval” clause is waived, or (c) the costs were also necessary for manufacture of the first article. The recovery of costs incurred before first article approval is not limited to the line item price of the first article.
11. Remember to claim G&A expenses on subcontractor settlements. Do not be confused by the layout of the standard forms for termination settlement proposals for traditional Government contracts. Note that there are no forms for FAR Part 12 commercial item contracts.
12. Remember that you are entitled to recover settlement expense for attorneys, accountants, and other costs of preparing and presenting your termination settlement proposal. It is to your advantage to retain knowledgeable professionals since this is an arcane area of law where knowledge and experience can make a significant difference in the amount of recovery.
13. Do not use contingent fee arrangements for the preparation and presentation of your termination settlement proposal. Contingent fees are unallowable under the FAR.
14. To facilitate recovery of settlement expenses, make sure that in-house personnel keep time sheets. Charge the time of in-house personnel directly in your termination settlement proposal.
15. Remember to claim the cost of post-litigation efforts to reach a negotiated resolution of a termination settlement proposal as settlement expense.
16. Follow normal G&A expense practices on settlement expense for in-house personnel normally charged directly and outside professionals. The FAR limitation on G&A expense on settlement expense only applies to normally indirectly charged personnel charged directly.
17. Be aware of the tradeoff between the recovery of settlement expense/REA preparation costs and CDA interest. Settlement expense and REA preparation costs are generally allowable before a termination settlement proposal and/or REA are converted into a CDA claim by certification and request for a final decision. However, interest is not recoverable until a termination settlement proposal and/or REA are converted into a CDA claim.
18. Keep in mind that a termination for convenience settlement proposal cannot be a CDA claim when submitted unless the contractor is simultaneously attempting to convert a default termination to a convenience termination.
19. Remember that efforts to reach a negotiated resolution after suit is filed may be recoverable as settlement expense or allowable contract administration costs in the case of an REA not combined with a termination settlement proposal.
20. Be aware of possible strategies for maximizing the amount recovered for the combined total of settlement expense/REA preparation costs and interest.
21. Let sleeping dogs lie. The failure to order the guaranteed minimum on an IDIQ contract is a breach of contract entitling a contractor to anticipatory profits unless the contract is terminated for convenience during its performance period. If you do not call the failure to order the guaranteed minimum to the Government’s attention during the performance period, it is less likely to terminate for convenience.
22. Do not let the FAR 52.249-4 “Termination for Convenience of the Government (Services) (Short Form)” clause for services limit recovery if it has been improperly included in the contract. The clause limits recovery to payment for services rendered and can be used only if the CO determines the contractor would not incur significant costs in preparing to perform and in performing the contract. Where the short form clause has been inappropriately included, judges have used the Christian doctrine to substitute the appropriate termination for convenience clause.
23. Remember that the Federal Circuit has extended the “fair compensation” principle to cost-reimbursement contracts. A cost-type contractor should therefore use it and other strategies set forth in these Briefing Papers to maximize recovery.
24. Keep in mind that a “Termination for Convenience” clause overrides advance cost agreements that may be disadvantageous to a contractor following a termination for convenience.
25. Remember that when the Government terminates a FAR Part 12 commercial item contract for convenience, the contractor is entitled to recover (a) the percentage of contract price reflecting the percentage of work performed before the notice of termination and (b) any charges the contractor can demonstrate resulted directly from the termination. This is a modified price-based formula different from the cost-based formula used to determine recovery in traditional Government contracts.
26. Remember that when a commercial item contract is terminated for convenience, the CO may use principles applicable to traditional Government contracts in determining recovery if not inconsistent with the FAR commercial item provisions.
27. A contractor should use the same techniques for maximizing recovery in commercial item contracts as in traditional Government contracts. There is nothing in the FAR commercial item provisions inconsistent with a contractor’s right to fair compensation.
28. Remember that although the commercial item clause does not set forth a time limit for the submission of a settlement proposal, submission may be barred by the six-year statute of limitations on claims against the Government or the judicial doctrine of laches.
29. Be aware of the potential similarity between the principles for commercial item and traditional Government contracts. Payment of the portion of the contract price reflecting the percentage of work performed in a commercial item contract results in a loss adjustment like that in traditional Government contracts. Costs resulting from the termination in a commercial item contract appear to be similar to traditional Government contract termination costs such as unamortized initial costs, loss of useful value, rental under unexpired leases, alterations of leased property, and settlement expense. In the event of a partial termination, costs resulting from the termination appear to be similar to an equitable adjustment on the nonterminated portion or unamortized initial costs in a traditional Government contract.
30. Keep in mind that although there is much similarity between the commercial item and traditional Government contract formulae, failure to present the amount claimed using the commercial item formula verbiage may result in a Government refusal to pay.
31. Be aware that the termination for convenience of a commercial item contract is not subject to the cost principles and the Government does not have a right to audit.
1 Seidman & Seidman, “Maximizing Termination for Convenience Settlements/Edition II–Part I,” Briefing Papers No. 08-3 (Feb. 2008).
2 Seidman & Banfield, “Preparing Termination for Convenience Settlement Proposals for Fixed-Price Contracts,” Briefing Papers No. 97-11 (Oct. 1997).
3 See, e.g., Durette, GmbH, ASBCA 34072, 91-2 BCA ¶ 23756.
4 See, e.g., FAR 52.249-2, para. (f); see also FAR 49.207, 52.243-1 (“Changes–Fixed-Price” clause), 52.243-2 (“Changes–Cost-Reimbursement” clause); Agrinautics, ASBCA 21512 et al., 79-2 BCA ¶ 14149, 22 GC ¶ 200.
5 Worsham Constr. Co., ASBCA 25907, 85-2 BCA ¶ 18016, at 90,369, 28 GC ¶ 243 (Note).
6 See, e.g., Durette, GmbH, ASBCA 34072, 91-2 BCA ¶ 23756.
7 Nicon, Inc. v. United States, 331 F.3d 878 (Fed. Cir. 2003), 45 GC ¶ 262; see Eichleay Corp., ASBCA 5183, 60-2 BCA ¶ 2688, 2 GC ¶ 485, aff’d on recons., 61-1 BCA ¶ 2894, 3 GC ¶ 138(a).
8 Nicon, Inc. v. United States, 331 F.3d at 885; see FAR 31.205-42(c); see also FAR 52.249-2(g)(2)(i).
9 FAR 31.205-42(c) (emphasis added). See generally Manos, Government Contract Costs & Pricing ch. 49 (Thomson West 2004 & Supp. 2007).
11 Applied Cos., ASBCA 54506, 06-1 BCA ¶ 33269, 48 GC ¶ 182.
12 Nicon, Inc. v. United States, 331 F.3d 878.
13 Worsham Constr. Co., ASBCA 25907, 85-2 BCA ¶ 18016, at 90,369, 28 GC ¶ 243 (Note).
14 Applied Cos., ASBCA 54506, 06-1 BCA ¶ 33269, 48 GC ¶ 182.
15 Nicon, Inc. v. United States, 331 F.3d 878.
16 Nicon, Inc. v. United States, 331 F.3d at 885; see FAR 31.205-42(c); see also FAR 52.249-2(g)(2)(i).
17 Applied Cos., ASBCA 54506, 06-1 BCA ¶ 33269, at 164,881, 48 GC ¶ 182.
18 Nicon, Inc. v. United States, 331 F.3d 878.
19 James M. Ellett Constr. Co. v. United States, 93 F.3d 1537 (Fed. Cir. 1996), 38 GC ¶¶ 426, 477, 574.
20 Caskel Forge, Inc., ASBCA 7638, 1962 BCA ¶ 3318, 4 GC ¶ 258.
21 Morton-Thiokol, Inc., ASBCA 32629, 90-3 BCA ¶ 23207, 32 GC ¶ 254.
22 FAR 49.204, 52.249-2, para. (h).
24 See Youngstrand Surveying, AGBCA 90-150-1, 92-2 BCA ¶ 25017.
25 FAR 31.205-32. See generally Manos, Government Contract Costs & Pricing ch. 39 (Thomson West 2004 & Supp. 2007).
26 Penberthy Electromelt Int’l, Inc. v. United States, 11 Cl. Ct. 307 (1986), 29 GC ¶ 40; see also Radant Techs., Inc., ASBCA 38324, 91-3 BCA ¶ 24106, 33 GC ¶ 253. See generally Wiener, “The Allowability of Precontract Costs,” 91-11 Costs, Pricing & Acct. Rep. 3 (Federal Publications Inc., Nov. 1991).
27 FAR 49.113, 49.201(a); see Kasler Elec. Co., DOTCAB No. 1425, 84-2 BCA 17374; Codex Corp. v. United States, 226 Ct. Cl. 693 (1981), 23 GC ¶ 239.
28 RHC Constr., IBCA 2083, 88-3 BCA ¶ 20991; see also Bennie J. Meeks t/a Lawn Grooming Serv., GSBCA 6605-REM, 85-2 BCA ¶ 17947.
29 See Metered Laundry Servs., Inc., ASBCA 21573, 78-2 BCA ¶ 13451.
32 FAR 31.205-17. See generally Manos, Government Contract Costs & Pricing ch. 24 (Thomson West 2004 & Supp. 2007).
33 FAR 31.205-42(b); see Fiesta Leasing & Sales, Inc., ASBCA 29311, 87-1 BCA ¶ 19622, aff’d on recons., 88-1 BCA ¶ 20499.
37 FAR 31.205-17(b)(2) (emphasis added).
38 General Dynamics Corp., ASBCA 19607, 78-1 BCA ¶ 13203, at 64,582 (quoting Aerojet Gen. Corp., ASBCA 15703 et al., 73-1 BCA ¶ 9932, 15 GC ¶ 355).
43 Engineered Sys., Inc., ASBCA 18241, 74-1 BCA ¶ 10492.
44 Kay & Assocs., Inc. GSBCA TD-17, 76-2 BCA ¶ 12127.
45 FAR 31.205-6(g)(2). See generally Manos, “FAR 31.205-6, ‘Compensation for Personal Services,”‘ Briefing Papers No.07-13 (Dec. 2007).
48 E.g., FAR 52.249-2, para. (l).
52 See TDC Mgmt. Corp., DOTBCA 1802, 91-3 BCA ¶ 24091.
53 FAR 31.205-36(b). See generally Manos, Government Contract Costs & Pricing ch. 43 (Thomson West 2004 & Supp. 2007).
54 FAR 31.205-36(c) (citing FAR 31.205-42(e)).
57 FAR 31.205-10. See generally Manos, Government Contract Costs & Pricing ch. 17 (Thomson West 2004 & Supp. 2007).
58 FAR 31.205-10(a); see 48 C.F.R. § 9904.414.
60 48 C.F.R. § 9904.414-50.
61 FAR 31.205-10(a)(1); see FAR 31.205-20.
63 See Spectrum Leasing Corp. v. General Servs. Admin., GSBCA 12189, 95-1 BCA ¶ 27317.
64 See Fiesta Leasing & Sales, Inc., ASBCA 29311, 87-1 BCA ¶ 19622, aff’d on recons., 88-1 BCA ¶ 20499.
65 FAR 31.205-10(a)(3)(ii); see 48 C.F.R. § 9904.417.
67 Essex Electro Engrs., Inc., DOTCAB 1025 et al., 81-1 BCA 14838, recons. denied, 81-1 BCA ¶ 15109, aff’d, 702 F.2d 998 (Fed. Cir. 1983), 27 GC ¶ 101 (Note); Fiesta Leasing & Sales, Inc., ASBCA 29311, 87-1 BCA ¶ 19622, aff’d on recons., 88-1 BCA ¶ 20499.
68 See generally Ewing, Lawrence & Zenner, “First-Article Contracts,” Briefing Papers No. 93-6 (May 1993).
69 FAR 52.209-3, para. (g) (“First Article Approval–Contractor Testing” clause), 52.209-4, para. (h) (“First Article Approval–Government Testing” clause).
70 See Switlik Parachute Co., ASBCA 18024, 75-2 BCA ¶ 11434.
71 Young Metal Prods., Inc., ASBCA 15701, 71-1 BCA ¶ 8827.
72 Century Elecs., ASBCA 29123, 85-3 BCA ¶ 18232.
73 AVCO Corp., ASBCA 15252, 73-1 BCA ¶ 9958.
74 AVCO Corp., ASBCA 15252, 73-1 BCA ¶ 9958.
75 Marvin Eng’g Co., ASBCA 18356, 74-1 BCA ¶ 10587.
76 See AVCO Corp., ASBCA 15252, 73-1 BCA ¶ 9958.
77 Varo, Inc., ASBCA 16606, 72-2 BCA ¶ 9720.
78 Cape Tool & Die, Inc., ASBCA 46433, 95-1 BCA ¶ 27465, 36 GC ¶ 482.
79 Concord Elec. Co., ASBCA 31012, 85-3 BCA ¶ 18484, 28 GC ¶ 243 (Note).
81 FAR 53.301-1435, -1436, -1437. See generally Seidman & Banfield, “Preparing Termination for Convenience Settlement Proposals for Fixed-Price Contracts,” Briefing Papers No. 97-11 (Oct. 1997).
82 Worsham Constr. Co., ASBCA 25907, 85-2 BCA ¶ 18016, 28 GC ¶ 243 (Note); Bolinders Co., ASBCA 5740, 60-2 BCA ¶ 2746, 2 GC ¶ 562.
83 FAR 31.205-42(g). See generally Manos, “Allowability of Legal Costs,” Briefing Papers No. 05-5 (Apr. 2005); Vacketta, Yesner & Snyder, “Recovery of Legal Costs,” Briefing Papers No. 93-12 (Nov. 1993).
85 American Elec., Inc., ASBCA 16635, 76-2 BCA ¶ 12151.
86 See Baifield Indus., Div. of A-T-O, Inc., ASBCA 20006, 76-2 BCA ¶ 12096, aff’d on recons., 76-2 BCA ¶ 12203.
89 DCAM ¶ 12-309 (Nov. 16, 2007); see Celesco Indus., ASBCA 22460, 84-2 BCA ¶ 17295, 26 GC ¶ 326; Condec Corp., ASBCA 14234, 73-1 BCA ¶ 9808, 15 GC ¶ 295.
90 Acme Process Equip. Co. v. United States, 171 Ct. Cl. 251, 347 F.2d 538, as corrected 171 Ct. Cl. 251, 351 F.2d 656 (1965); Baifield Indus., Div. of A-T-O, Inc., ASBCA 20006, 76-2 BCA ¶ 12096.
91 Baifield Indus., Div. of A-T-O, Inc., ASBCA 20006, 76-2 BCA ¶ 12096, aff’d on recons., 76-2 BCA ¶ 12203.
93 41 U.S.C.A. § 611; FAR 33.208.
94 FAR 2.101; see Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995), 37 GC ¶ 411 (interpreting FAR “claim” definition regarding requirements 1, 2, and 3).
95 FAR 2.101; 41 U.S.C.A. § 605(c)(1); see FAR 33.207(a).
96 See FAR 33.206; 41 U.S.C.A. § 605(a); see James M. Ellett Constr. Co. v. United States, 93 F.3d 1537 (Fed. Cir. 1996), 38 GC ¶¶ 426, 477, 574 (requiring at least an implicit request for final decision for a claim to exist).
97 41 U.S.C.A. § 605(c)(1); FAR 2.101, 33.207(a).
98 FAR 33.207(c); see 41 U.S.C.A. § 605(c)(1).
99 41 U.S.C.A. § 605(c)(6); FAR 33.211(e); see FAR 33.201 (defining “defective certification”).
100 41 U.S.C.A. § 605(c)(2); FAR 33.211(c).
101 FAR 53.301-1435, -1436, -1437, -1438. See generally Seidman & Banfield, “Preparing Termination for Convenience Settlement Proposals for Fixed-Price Contracts,” Briefing Papers No. 97-11 (Oct. 1997).
102 41 U.S.C.A. § 605(c)(6); FAR 33.207(f).
103 See Cibinic, “Contractor Claims: The Need for Definitions,” 16 Nash & Cibinic Report ¶ 58 (Dec. 2000).
104 James M. Ellett Constr. Co. v. United States, 93 F.3d 1537, 1543-44 (Fed. Cir. 1996), 38 GC ¶¶ 426, 477, 574.
105 James M. Ellett Constr. Co. v. United States, 93 F.3d at 1544. See generally Cibinic, “The Ellett Case: What’s All the Fuss About?,” 11 Nash & Cibinic Rep. ¶ 8 (Feb. 1997).
106 James M. Ellett Constr. Co. v. United States, 93 F.3d at 1546.
107 Rex Sys., Inc. v. Cohen, 224 F.3d 1367 (Fed. Cir. 2000), 42 GC ¶ 405.
109 Bill Strong Enters., Inc. v. Shannon, 49 F.3d 1541 (Fed. Cir. 1995), 37 GC ¶ 141.
112 James M. Ellett Constr. Co. v. United States, 93 F.3d 1537 (Fed. Cir. 1996), 38 GC ¶¶ 426, 477, 574.
113 James M. Ellett Constr. Co. v. United States, 93 F.3d 1537.
115 Information Sys. & Network Corp., ASBCA 42659, 00-1 BCA ¶ 30665, 41 GC ¶ 522.
116 Bill Strong Enters., Inc., ASBCA 42946, 96-2 BCA ¶ 28428 (on remand); Grumman Aerospace Corp., ASBCA 50090, 01-01 BCA ¶ 31316, 43 GC ¶ 122.
117 Plano Builders Corp v. United States, 40 Fed. Cl. 635 (1998), 40 GC ¶ 208.
118 Acme Process Equip. Co. v. United States, 171 Ct. Cl. 251, 347 F.2d 538, as corrected, 171 Ct. Cl. 251, 351 F.2d 656 (1965); Baifield Indus., Div. of A-T-O, Inc., ASBCA 20006, 76-2 BCA ¶ 12096.
119 Rex Sys., Inc. v. Cohen, 224 F.3d 1367 (Fed. Cir. 2000), 42 GC ¶ 405.
120 See Maxima Corp. v. United States, 847 F.2d 1549 (Fed. Cir. 1988).
122 See, e.g., FAR 52.249-2, paras. (f), (g), (i); see also FAR 49.113, 49.201, 49.202, 31.205-42.
125 G. L. Christian & Assocs. v. United States, 160 Ct. Cl. 1, 312 F.2d 418, reh’g denied, 160 Ct. Cl. 58, 320 F.2d 345, cert. denied, 375 U.S. 954 (1963).
126 Guard-All of Am., ASBCA 22167, 80-2 BCA ¶ 14462, 23 GC ¶ 128.
127 Carrier Corp., GSBCA 8516, 90-1 BCA ¶ 22409.
128 Jacobs Eng’g Group, Inc. v. United States, 434 F.3d 1378 (Fed. Cir. 2006), 48 GC ¶ 49.
129 Jacobs Eng’g Group, Inc. v. United States, 434 F.3d 1378; see also Edwards, “Termination of Cost-Reimbursement Contracts: A Novel Interpretation of the Termination Clause,” 20 Nash & Cibinic Rep. ¶ 17 (Apr. 2006).
131 FAR 52.232-22. See generally Feldman, “Cost Overruns,” Briefing Papers No. 03-8 (July 2003).
132 FAR 52.232-20, para. (d)(2); FAR 52.232-22, para. (f)(2).
133 HTC Indus., Inc. ASBCA 40562, 93-1 BCA ¶ 25560; TDC Mgmt. Corp., DOTBCA 1802, 91-2 BCA ¶ 23815, recons. denied 91-2 BCA ¶ 24061.
134 FAR 12.403(d), 52.212-4, para. (l).
135 See, e.g., FAR 52.249-2, paras. (f), (g), (i); see also FAR 49.113, 49.201, 49.202, 31.205-42.
136 FAR 52.212-4, para. (l).
138 Cf. FAR 49.206-1(a), 49.303-1; e.g., FAR 52. 249-2, para. (e) (requiring the prime contractor to submit its “final” termination settlement proposal to the Government within one year of the effective date of the termination).
139 Cf. FAR 52.249-2, para. (l) (requiring a prime contractor to submit any request for an equitable adjustment following a partial termination within 90 days unless this period is extended in writing by the CO).
140 Cf. FAR 49.207, 52.249-2, para. (f).
141 Cf. FAR 49.112-1(a), 52.249-2, para. (m)(1).
142 Cf. FAR subpt. 49.6.
143 Jon Winter & Assocs., AGBCA 2005-129-2, 2005 WL 1423636 (June 20, 2005).
144 Individual Dev. Assocs., Inc., ASBCA 55174, 2007 WL 4565893 (Dec. 20, 2007).
145 See FAR 12.403(d), 52.212-4, para. (l).
147 See Jon Winter & Assocs., AGBCA 2005-129-2, 2005 WL 1423636 (June 20, 2005).
149 41 U.S.C.A. 605(a); see FAR 52.233-1 (“Disputes” clause).
151 A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992).
152 See FAR 49.112-1(a), 52.249-2, para. (m)(1).
154 FAR 12.210. See generally Chierichella & Gallacher, “Financing Government Contracts/Edition II–Part II,” Briefing Papers No. 04-13 (Dec. 2004).
155 31 U.S.C. § 3729. See generally Wimberly, Plunkett & LaSalle, “The Presentment Requirement Under the False Claims Act,” Briefing Papers No. 07-12 (Nov. 2007); Brackney & Solomson, “Current Issues in False Claims Litigation,” Briefing Papers No. 06-10 (Sept. 2006); Silberman, “False Claims Issues in Subcontracting,” Briefing Papers No. 06-8 (July 2006); Huffman, Madsen & Hamrick, “The Civil False Claims Act,” Briefing Papers No. 01-10 (Sept. 2001); Goddard, “Business Ethics in Government Contracting–Part II,” Briefing Papers No. 03-7 (June 2003).
156 18 U.S.C. § 287.
157 James M. Ellett Constr. Co. v. United States, 93 F.3d 1537 (Fed. Cir. 1996), 38 GC ¶¶ 426, 477, 574.
158 See J.W. Cook & Sons, Inc., ASBCA 39691, 92-3 BCA ¶ 25053.
160 See, e.g., Jericho Sash & Door Co. v. Building Erectors, Inc., 286 N.E.2d 343 (Mass. 1972); Distribu-Dor, Inc. v. Karadanis, 90 Cal. Rptr. 231 (Cal. Ct. App. 1970); Vitex Mfg. Corp. v. Caribtex Corp., 377 F.2d 795 (3d Cir. 1967); Huffman Towing, Inc. v. Mainstream Shipyard & Supply, Inc., 388 F. Supp. 1362 (N.D. Miss. 1975) (relying on U.C.C. § 2-708(2) for recovery of overhead in a maritime case).
161 FAR 12.403(d)(1)(ii), 52.212-4, para. (l).
162 FAR 12.403(d)(1)(ii), 52.212-4, para. (l).

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