Payment Delay& Invoice Rejected on FFP contract (service)

Read the Disputes clause, FAR 52.233-1. It will answer all your questions.

1. What does the contract say about payments? If nothing, it is assumed payment is made upon completion of work or delivery (I.e. Commercial delivery payment) of a specific line item. You are only entitled to payment in arrears (i.e. commercial interim payments) if the contract authorizes it.

2. Unless the contract says you can stop work, you will be in default of the contract if you stop work without the agency's explicit direction. I strongly, highly, really, really recommend you continue to perform. See FAR Clause 52.212-4(d) that says you will continue to perform.

3. You could try to file a claim or REA. However, it sounds like you have failed to meet your contractual obligations. I recommend carefully reading FAR Clause 52.212-4(f) and consider whether to notify the CO of an excusable delay due to delay of the sovereign. If there is an excusable delay, and you meet the terms of paragraph (f), you are entitled to certain remedies.

Try looking at the situation from the Goverbment's perspective. You may have delivered reports, but you did not adhere to the staffing requirement. When you submitted your invoice, you essentially said you adhered to all contract requirements, but you admitted to is that you did not, but possibly because of mitigating circumstances.

P.S. I am not your lawyer.

Ji, just to clarify and based upon OP's statement that this is a commercial item acquisition (inclusion of FAR Clause 52.212-4), FAR Clause 52.233-1 is not applicable. The correct reference is FAR Clause 52.212-4(d).

The clause at FAR 52.233-1 is applicable, and is a good reference. Para. (d) of 52.212-4 explicitly refers to 52.233-1 and incorporates that clause into the commercial contract.

Woops, I should not have said "not applicable" - you're correct.

Disputes under 52.212-4[d], are not necessarily the same as disputes under 52.233-1.

Understanding that 52.233-1 is referenced in 52.212-4[d], note that 52.212-4[d] "requires" continued performance pending final resolution of any "dispute" "arising under" the contract.

Contractors duty to continue performance under the standard Disputes clause is "authorized" not "required" continued performance pending final resolution of any "claim" "arising under", OR "relating to" the contract (see FAR 33.213).

I don't think it's easy enough to suggest reading 52.233-1 is all that is needed.

My two cents.

Jamaal, the contractor's duty to continue performance is stated in 52.233-1(i) not in 33.213. The clause requires continued contractor performance in regard to disputes arising under the contract. If the government wishes for the contractor to continue performance when a dispute relates to a contract, then 52.233-1 Alt I is used.

Disputes under 52.212-4[d], are not necessarily the same as disputes under 52.233-1.

Understanding that 52.233-1 is referenced in 52.212-4[d], note that 52.212-4[d] "requires" continued performance pending final resolution of any "dispute" "arising under" the contract.

Contractors duty to continue performance under the standard Disputes clause is "authorized" not "required" continued performance pending final resolution of any "claim" "arising under", OR "relating to" the contract (see FAR 33.213).

I don't think it's easy enough to suggest reading 52.233-1 is all that is needed.

My two cents.

Jamaal, a contractor's duty to continue performance under the standard Disputes clause under 52.233-1, paragraph ( i ). generally* "requires" continued performance, pending "final resolution of any request for relief, claim, appeal, or action arising under the contract..."

Alternate I may be substituted, per 33.213 and 33.215, to require continued performance, "pending final resolution of any request for relief, claim, appeal, or action arising under or relating to the contract"... , thus adding a requirement for continued performance pending resolution of any request for relief, claim, appeal, or action "relating to the contract".

33.213 -- Obligation to Continue Performance, states, in part under paragraph ( a ) (emphasis added; external links are to the FARSITE at Hill AFB):

(a) In general, before passage of the Disputes statute, the obligation to continue performance applied only to claims arising under a contract. However, the Disputes statute at 41 U.S.C. 7103(g), authorizes agencies to require a contractor to continue contract performance in accordance with the contracting officer’s decision pending a final resolution of any claim arising under, or relating to, the contract. (A claim arising under a contract is a claim that can be resolved under a contract clause, other than the clause at 52.233-1 Disputes, that provides for the relief sought by the claimant; however, relief for such claim can also be sought under the clause at 52.233-1. A claim relating to a contract is a claim that cannot be resolved under a contract clause other than the clause at 52.233-1.) This distinction is recognized by the clause with its Alternate I (see 33.215)...

33.215 is the prescription for the clauses, including 52.233-1 (emphasis added; external links are to the FARSITE at Hill AFB):

33.215 -- Contract Clauses.

(a) Insert the clause at 52.233-1, Disputes, in solicitations and contracts, unless the conditions in 33.203 ( c ) apply. If it is determined under agency procedures that continued performance is necessary pending resolution of any claim arising under or relating to the contract, the contracting officer shall use the clause with its Alternate I.__..

* However, there have been some legal decisions (probably not applicable here) that addressed circumstances that could excuse continued performance where the contractor needed information or instructions from the government to perform and the government refused or failed to provide the needed information or instructions. Vanguard Construction, Inc. v. United States, 2015 U.S. Claims LEXIS 1158 (Fed. Cl. Sep. 8, 2015); Seven Sciences, Inc., ASBCA 21079, 77-2 BCA ¶12730; Remm Co., ASBCA 18430, 18545, 74-2 BCA ¶10876 .

Retreadfed also said it while I was posting.

My questions are:

(1) this is a FFP type contract. Should the payment be in lump-sum as long as all deliverables are met?

(2) If the government refuses to pay, do we (contractor) have right to suspend our operation/on-site personnel?

(3) Any other options can we take? Such as file a claim or REA?

Answers:

(1) According to the payment term in FAR 52.212-4(i), the Government must make payment "for items accepted by the Government that have been delivered to the delivery destinations." Look at the list of items in the contract. How do they stipulate payment? By unit of work or in lump sum? That will be the answer to your question.

(2) If the Government refuses to pay, whether you have a right to stop performing depends on whether the refusal is a breach of contract or a rightful refusal due to nonperformance by you. If it's a breach, then you have the right to stop performing, unless the contract includes the clause at FAR 52.233-1, Disputes, Alternate I. If it includes Alternate I, then you have no right to stop performing.

(3) If the Government has refused to pay and you dispute that course of action, then you may submit a claim to the CO seeking the payment due plus interest. The claim should be a demand for payment of the amount due with both Prompt Payment Act interest and interest on the amount claimed. The claim should not seek an equitable adjustment.

Thanks for setting me straight.

So 52.212-4[d] and 52.233-1 are essentially the same, and Alt I is where the differences manifest?

Alt I is not used commercially?

Thanks, all.

As mentioned in contract facts, this particular contract was awarded under GSA schedule. It is a delivery order so terms and conditions are quite simple and invoicing/payment instructions are also very succinct. For example, the contract does not say how payment will be made, either upon completion of work or meet certain line item.

However, I checked terms and conditions on my GSA schedule, 52. 212-4 and 52.212-4 (Alternate I) and 52.233-1 are all included. That said, as you all mentioned, contractor must continue performance even if without payment/pending final resolution.

Metteeec - thanks for mentioning excusable delay. I understand it is contractor’s obligation to notify our customer per 52.212-4(f) excusable delay because getting TSC in 1 day for all personnel including subs is impossible and customer should understand this fact. We have been doing that and will continue to do if there are any other delays.

If continuous engagement with the government does not work, we will have to seek REA/Claim but in the meantime, paying subs becomes a real struggle. How should we deal with that? Any suggestions?

You will have to answer the questions: Why did you not provide the staffing levels you promised on the date you promised? Why did you accept that obligation if you did not intend or would not be able to honor it?

Once you have developed answers to these questions, then you will be ready to try to change your contracting officer's mind. If your order promised a certain staffing level by a certain date, and you didn't meet that promise, then the Government didn't get what it bargained for. I don't think you can force the contracting officer to do anything. If you can't get on his or her good side quickly, then file a claim quickly if you think you are entitled to full payment.

Everything here is based on the information above. Your attorney, with the order in front of him or her, can give you better advice.

EDIT: This comment was based on the blurb in the original posting: "...contract requires all personnel be available when PoP Start..." Does the contract or order specify staffing levels?

huwen, you indicated that the order is for services. However, you have not identified what services are required of you. Further, you state that all deliverables, i.e., reports, have been submitted on time. You have not stated that you provided all the services required by the order. Although you have provided the deliverables, you may not have met your performance obligations in regard to the services that are required of you. You need to do some soul searching and honestly determine if you have met your performance requirements. If not do you have some excusable reason as to why you have not.

One thing we do not know is what representations you made to the government before award in regard to your ability to be fully staffed. It may be that you were ineligible for award to begin with.

Thanks, all.

As mentioned in contract facts, this particular contract was awarded under GSA schedule. It is a delivery order so terms and conditions are quite simple and invoicing/payment instructions are also very succinct. For example, the contract does not say how payment will be made, either upon completion of work or meet certain line item.

However, I checked terms and conditions on my GSA schedule, 52. 212-4 and 52.212-4 (Alternate I) and 52.233-1 are all included. That said, as you all mentioned, contractor must continue performance even if without payment/pending final resolution.

Metteeec - thanks for mentioning excusable delay. I understand it is contractor’s obligation to notify our customer per 52.212-4(f) excusable delay because getting TSC in 1 day for all personnel including subs is impossible and customer should understand this fact. We have been doing that and will continue to do if there are any other delays.

If continuous engagement with the government does not work, we will have to seek REA/Claim but in the meantime, paying subs becomes a real struggle. How should we deal with that? Any suggestions?

huwen, if this is a FFP order for commercial services, then 52.212-4 (Alternate I) doesn't apply, does it? That alternate is prescribed for time and materials or labor-hour orders. You said that no labor hours are specified on the contract. You said that deliverables are straight forward consisting of a monthly status report and a couple of other reports.

You are confusing me (not hard to do). What do the monthly "status reports" address? Progress toward completion of a final deliverable(s)?? What (in very general terms) do the other reports address? Are you performing certain services on a recurring basis, at specifically established prices?

Depending upon the type of service, recurring or final deliverable(s), it appears that the order may provide for periodic payments upon completion of recurring services (at some unit price?) or for payment only upon final completion of a service.

Like Jamaal, I too am a little confused about interpretating FAR Clause 52.212-4(d), 52.233-1, and 52.232-1 Alt 1. Vern indicated that the Contractor may stop work in the case of the Government not paying if it constitutes a breach and FAR Clause 52.233-1 Alt 1 is not included. I am assuming Vern said that because failure to pay may be a dispute "relating to the contract" where a "claim that cannot be resolved under a contract clause other than the clause at 52.233-1."

However, in the case of non-payment by the Government, couldn't you consider the Prompt Payment Act and the automatic interest adjustment under FAR Clause 52.212-4(i)(6) as the mechanism to resolve a payment-related dispute? If the answer is yes, wouldn't the contractor be obligated to continue performance in the case of non-payment, even if FAR Clause 52.233-1 Alt 1 was not included in the contract?

However, in the case of non-payment by the Government, couldn't you consider the Prompt Payment Act and the automatic interest adjustment under FAR Clause 52.212-4(i)(6) as the mechanism to resolve a payment-related dispute? If the answer is yes, wouldn't the contractor be obligated to continue performance in the case of non-payment, even if FAR Clause 52.233-1 Alt 1 was not included in the contract?

Prompt payment provides a remedy for late payments. rhuwen119 is not complaining that the government paid or is paying late. huwen is complaining that the government is refusing to pay what it owes. Refusing to pay despite entitlement is a breach. I know of no FAR contract clause that provides a remedy for a government breach. Thus, a claim based on a breach is a claim relating to a contract.

However, maybe it could be argued that the payment clause is itself the basis for the claim and that the remedy is payment with interest. If so, then it's a claim arising under, and the contractor must continue to perform. I'll do some research if I get a chance. Or one of you could do it.

Brings up a great opportunity to solicit research techniques. As of now I have the internet (FAR websites, Board/Court Websites, Wifcon, and Google) and hardback books. Where is everyone getting their information?

Retreadfed – Good point. Either way government could hold us accountable even if we made our deliverables on time due to insufficient staffing level.

Joel -In terms of Monthly Report, we are required to provide a summary of work performed, issues, future operations. However, something really confuses me is that this is FFP with only one labor CLIN (no SLINs). Govt still requires us to record burn rate for each LCAT on Monthly Report. In addition to Monthly Report, a couple of other reports include SOPs and some meeting briefings and documents.

The services provided to the government are on a recurring basis at established prices.

In terms of payment schedule, all it says on the contract is “The Government shall pay the Contractor as full compensation for all work required, performed and accepted under this contract, inclusive of all costs and expenses, the firm-fixed price stated in this contract.”

Having said that, we are stuck between a rock and a hard place...

Considering this is a delivery order from GSA, all terms and conditions from our schedule will govern this TO. Even though I don’t believe contract terms self-deletion rule, in this case, I am assuming 52.212-4 (Alternate I) doesn't apply.

Due to security requirements, it is impossible to staff all personnel when PoP starts, but my firm staffed all personnel in a month and during this time, all deliverables have been made and all reports have been turned in on time.

Simple question: Does the contract expressly specify staffing requirements? You said that the contract does not specify labor hours. Does it specify types and numbers of positions? Does it in any way indicate what job positions must exist and be filled? Or is staffing left entirely to the contractor's discretion?

Vern - yes, according to SOW, all required personnel must be on site when PoP starts and our price quote/proposal (with LCATs and estimated hours) was incorporated in the contract by reference.

However, as mentioned before, the contract was awarded on Friday and PoP starts on following Monday. All required personnel must have top secret clearance.

Now it is becoming a little clearer. Your proposal was incorporated into the "contract"? "Order"? It identified estimated numbers and types of labor categories to be used to perform the work and you didn't provide that many personnel for at least the first period. The KO is not happy. Is this now essentially a question of whether or not the detailed proposal is binding on a lump sum "order" ? "contract"?

If you accomplished all work and if the only shortfall in performance was failure to have everyone in place on Day One, then withholding the entire payment is over the top.

huwen119:

Forgive me for duplicating a previous question, but I want to be sure I understand.

Does the contract specify how many people you have to provide (by number)?

Vern,

I don't read that all the work was accomplished -- I read only that the required monthly report was delivered. huwen119 admits that it did not provide the required staffing early in the month, so that tells me that all the work was not accomplished. But I am hopeful that he or she will answer your question.

huwen119,

The contracting officer may have reasonably rejected the invoice because of "disagreement over quantity, quality, or Contractor compliance with contract requirements." We don't know what kind of service work this was. If this was an order for security guards, for example, and your firm failed to provide the required number of guards on every day of the month, then likely there is no entitlement to full payment even though you submitted the required monthly report and luckily there were no burglaries during the month.

Can you engage the contracting officer and maybe agree on a partial payment?

If you think you are entitled to payment of the full price for the first month even while admitting you did not provide the required staffing, you should read the contract clause at FAR 52.233-1, Disputes, and file a claim. If you think you are entitled to a partial payment for the first month for whatever staffing you did provide, you should read the contract clause at FAR 52.233-1, Disputes, and file a claim.

(I don't know, but I'm assuming this action was under FAR 8.405-2) Maybe for your next quote you might want to add a blurb something like, "This quotation is premised on an understanding that the start date for full performance will be at least thirty days after issuance of the task order."

ji20874:

You might be right about that. Let's stand by and see.

huwen: Did the CO give you a written explanation for why he refused to pay?

Just wondering whether the doctrine of commercial impractibility would be relevant to this situation. It is extremely unlikely, to the point of being impossible, that a contractor could receive a contract award on Friday and be fully staffed with TS-cleared personnel on the next Monday.

My 2 cents.

H2H

There is so much about this that we don't know, that it is almost impossible to comment intelligently on the issue. For example, we don't know if the solicitation had a requirement that all personnel proposed for performance on this order would have to have a clearance by the award date. We don't know what is the basis for payment. Is it so much for various reports or is it a fixed monthly amount for a specified service with the reports being NSP and secondary to performance of the services. Also, we don't know if there is a service level agreement in place for this order. So many questions.

Thanks for your kind comments and help.

There are personnel requirements on the SOW (by LCAT) that we shall furnish those personnel when PoP starts. That said, we did not honor what we promised. As Joel/Ji mentioned, that is probably why KO is not happy about performance quality and contractor compliance no matter what the circumstances are.

Due to slow security clearance processes, contractors are indeed facing a great deal of risks. To better perform/fulfill construal requirements, as Ji20874 suggested, adding a blurb to our quote might be something we should consider especially for some LCATs who need Top Secret clearance.

Retreadfed, sorry I am afraid I cannot share much information as I am still learning/observing what government expects us to do. As of today, we are still working with KO and hopefully we can reach some common understanding and moving forward. Thanks again.

huwen, you have the "contract," but you are still trying to figure out what you are supposed to do under it?

Yes. of course he's still trying to figure it out, because the government contract formation process, as practiced by the typical CO, does not produce a true meeting of the minds. The goal is not to achieve a meeting of the minds, but to get on contract as quickly as possible, without a protest, if possible, and by saying as little as possible to the prospective contractor as one can.

Any CO awarding a contract that requires performance by personnel with top secret clearances should know that such requirements are problematical. Those requirements should be discussed openly, either with all prospective offerors or with the winner after selection, but before award. The CO should strive for agreement on whether and how all positions can be staffed on day one or whether the parties should acknowledge the difficulty and work out a plan to cope.

Only in the government do two parties sign complex contracts having barely spoken to one another before the deal is done. So it doesn't surprise me that huwen isn't sure what's expected of him. Some of that is his fault, but not all of it by any means. The CO has a vested interest in making sure that both the prospective contractor and the government understand what is to be done, and the only way to do that is through face-to-face talk.

Talk, dammit. It is a stupid practice to award service contracts that are complex enough to require a statement of work without first having a long sit-down conversation. It is a stupid practice in which COs routinely engage, because of outdated laws and regulations and because the CO corps is not professional enough to explain that to senior officials of the Executive branch and to the members of Congress, who are not professional buyers and who haven't got a clue as to what constitutes sound professional practice. Very few members of Congress have ever negotiated a government contract or conducted a FAR Part 15 source selection or managed a government contract. Very few administrators of the Office of Federal Procurement Policy have ever done so. Very few agency heads have ever done so.

If the CO in huwen's case did not know that huwen's company would have difficulty staffing a bunch of positions that require a top secret clearance on short notice, then that CO is a fool.

Vern, I cannot disagree with your overall assessment. However, I do not place all the blame on the CO. Huwen's company entered into a firm fixed price (bet the company) contract. Before doing so, it would be incumbent upon company management to understand what they are getting into and what risks they are facing. From what huwen has told us, it does not appear that the company did proper due diligence before submitting a quote for this effort and now it is paying the price for that failure. This is an all too frequent occurrence in my experience of contracting officers who do not know what they are doing awarding contracts to contractors who do not know what they are doing.

I agree that it's not all the CO's fault. However, it can be hard for an offeror to figure out what they're getting into when the CO won't talk to them and you have to prepare a proposal while waiting for the Q&A amendment. Businessmen have to take risks and trust to their ability to work out problems on an ad hoc basis as necessary. See Macaulay, "Non-Contractual Relations in Business: A Preliminary Study," 28 American Sociological Rev. 1-19 (1963). https://media.law.wisc.edu/s/c_8/wcwmt/non-contractual.pdf

One purchasing agency expressed a common business attitude when he said, "If something comes up, you get the other man on the telephone and deal with the problem."

Both huwen and the CO either knew or should have known that there would be a problem about security clearances, and they should have reached an accommodation about it before performance began and an invoice was submitted and rejected. What happened is what happens when a business tries to do business with a bureaucracy.

But the real fault lies with the government contract formation process under CICA and FAR Part 15, which makes a true meeting of the minds too difficult to achieve.

BC used to say that when a business seeks to do business with the government, the business needs to realize that the government doesn't do business. The government does government. The way to successfully do business with the government is to do government.

Kind of makes me wonder why 1102s need a business degree. Perhaps they should be required to have a degree in government.

H2H

My perception is that today's youth and many adults would rather communicate and even carry on conversations via text messaging than use the telephone or- horror of horrors- have a face to face conversation or a detailed negotiation. Bits and bytes. That is not to say that there was much more inclination for many government employees to conduct meaningful discussions, price negotiations or obtain clarifications when something wasn't clear, before sound bite communications became so prevalent.

I realized this morning that I haven't written any letters for many years - sad...

Joel:

This is off topic, but...

I have bought four old manual typewriters and use them to write letters. My handwriting is not as clear as it was when I was in practice, and the manual typewriter produces something that looks more personal than a computer-printer product. It's slow, but kind of fun. Interesting to hear the wap-wap of the type striking the paper, like in an old movie. I keep my letters short, though. I'm not as good with a manual typewriter as I once was. But a few mistakes add to the personal touch. I buy the ribbons on Amazon.

Vern