Price Redetermination (Retroactive) - Impact of Final Overhead Rates

You have a fixed-price incentive contract with a firm target, FPI(F), AND retroactive price redetermination? I have to admit, that's a new one on me.

Just to be sure that I understand you correctly, the contract includes both FAR 52.216-6, Price Redetermination--Retroactive AND FAR 52.216-16, Incentive Price Revision--Firm Target? Do both clauses apply to the same contract line item?

Vern -- Boy do I have my post messed up. Sorry for that. I meant to say I have FAR 52.216-16, Incentive Price Revision - Firm Target! I was reading a prior post and got my mind garbled. This is a straight-forward FPI(F) contract. I am asking that, once I settle up on my price revision, I have a firm price and there is no subsequent adjustment for Final Overhead Rates.

Steveatus, is there anything in the contract that requires the contractor to submit a proposal to establish final indirect cost rates?

Retreadfed, There is nothing in the contract that requires a submittal of final indirect cost rates. As a large company, we do establish final indirect cost rates as a course of business. As I'm sure you know, these are lagging several years behind in getting finalized. I came across a very helpful Vern post on the subject at: /threads/2931-closing-out-a-fpif-firm-target-contract

I believe Vern's post supports my understanding. IF final rates are available, they should be used by the Contracting Officer, but there is nothing that mandates them. Also, (not necessarily addressed in Vern's post), but I believe it to be true that once final price is established, it is indeed the final price and not subject to future adjustment when final rates are established.

As an aside, we have had cases where the PCO has requested us to delay submittal of the price revision proposal until final rates are established.

Having said all of that, I am hoping to confirm that there is not a later adjustment in the negotiated final price based upon later-determined final rates.

What do you make of 52.216-16(e)?

Steveatus:

This was your question:

I contend that, the price determination, once negotiated and definitized, is final, even when there are years of contract performance where final overhead rates have not been negotiated. In essence, the contract modification that reflects the negotiated redetermination of price converts the contract to FFP. There is no adjustment in price when final overhead rates are established. Am I correct on this interpretation?

You have not read the clause carefully. It answers your question. Basically, it depends on what the parties agree to when establishing total final price. Under an FPI(F) contract, if the parties do not reserve the issue of indirect cost rates as provided for in paragraph (e), then the total final price is, indeed, final, except for adjustments and credits otherwise provided for.

However, if the government learns that the contractor did not comply with paragraph (f) or (g), the CO could make a claim pursuant to the Disputes clause to seek appropriate adjustment based on the contractor's breach.

Vern, have you seen any instances where the parties have included a reservation as allowed under paragraph (e) of the clause to a later adjustment for final rates? I would guess they wouldn't want to do that because it would hold the contract open for an extended period of time. On the other hand, it might be a better option versus delaying submittal of the proposal until final rates are available. Obviously that would cause the contract to remain open longer than settling up and then adjusting the deal for final rate impacts.