Posted on 12/1/2011 9:30 AM

Lately, we have run across a number of cases where the government has issued delivery orders on indefinite delivery contracts at fixed prices or straight fixed priced contracts based on labor hour calculations only to refuse to pay the fixed price.  The "menu" agreement says the delivery orders will be fixed priced.  They are issued at fixed prices, even for the labor hour portion of the delivery order, but the government only pays for the number of hours actually used.  In straight fixed priced contracts, the government simply refuses to pay the full fixed price if it decides not to use all the labor hours.

Do you really have a fixed priced contract?  Yes, you do.  What is going on is this.  The government is supposed to move away from time and materials to fixed priced work.  But, the government contract administrators are used to paying only hours actually worked and they also have a mandate to save money.  So, what do they do?  They issue a firm fixed priced delivery order or straight firm fixed priced contract with projection of hours at a fixed price.  If the delivery order or contract line item actually is stated in fixed price terms, the contractor is able to recover the fixed price even if the total hours are not used.  This may be "counter-intuitive" to quote one expert, but the law is the law.

This issue is far from resolved, however.  There are cases pending now before judicial tribunals to answer this question once and for all.  However, in the meantime, examine the terms and conditions of your basic agreement or contract line items and the precise language on pricing.  If the contract says the delivery orders or contract line items are to be fixed priced and the order or line item displays the pricing, even for labor hours, in terms of fixed prices, you can recover the total.  You are obliged to have the personnel available for the total.  You have the risk of having them at the ready under threat of termination for default.  You are entitled, one way or the other, to be compensated for accepting that risk.  You can recover the fixed price for the entire amount as breach of contract damages or you can submit a constructive termination for convenience settlement proposal for the costs of having your personnel at the ready.

And do not forget your consulting fees for putting together your claim or termination for convenience settlement proposal and negotiating the settlement all are recoverable under FAR from the government.


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#1 - Posted on Friday, December 9, 2011 1:57:00 PM by dan tuck

Good article. A fixed price contract lists deliverables, a price for each and acceptance criteria. If you don't have those, you don't have a fixed price contract. On the other hand, Labor Hours or T&M have no requirements on deliverables and no warranties. Show up, try hard, get paid.

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