Contract Claim - Commercial Item

I don't think anyone can answer your question without knowing what the contractor's theory of recovery is and what costs are being claimed.  Because this is a contract for commercial items, the cost principles from FAR Part 31 do not apply.

Are you planning to terminate the contract, or is there still a need for the services?

If the Government plans to complete the contract, it should issue a supplemental agreement to extend the contract, including consideration for the Government-caused delays. 

Otherwise, if the Government does not plan to complete the contract, it should terminate the contract for its convenience and the Contractor should follow the instructions in the termination notice.

The period of performance expired and there is no need for the services anymore. However, the contract was not terminated during the period of performance

cblack20 said:

The contractor has now come back and wants to submit a claim for the equipment purchased, staff hired, and overhead. Asking for guidance on where to begin when looking at the costs submitted to determine what is fairly due to the contractor and what is fair and reasonable to the Government.

Without knowing the particulars of the contract in question, I hesitate to offer any advice on how to handle the situation; however, since you asked "where to begin," a good place would be the FAR 52.212-4 clause, specifically paragraph (l) regarding Termination for the Government's convenience which states in part (emphasis added):

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Subject to the terms of this contract, the Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system, have resulted from the termination. The Contractor shall not be required to comply with the cost accounting standards or contract cost principles for this purpose. This paragraph does not give the Government any right to audit the Contractor’s records. The Contractor shall not be paid for any work performed or costs incurred which reasonably could have been avoided.

Sounds like the notice of termination was never issued until now (or maybe still has not been issued), so ask yourself: what work was performed by the Contractor prior to the notice of termination?

On the other hand, if the Contractor insists on submitting a claim you should follow FAR 52.233-1 per paragraph (d) regarding Disputes:

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This contract is subject to 41 U.S.C. chapter 71,Contract Disputes. Failure of the parties to this contract to reach agreement on any request for equitable adjustment, claim, appeal or action arising under or relating to this contract shall be a dispute to be resolved in accordance with the clause at FAR 52.233-1, Disputes, which is incorporated herein by reference. The Contractor shall proceed diligently with performance of this contract, pending final resolution of any dispute arising under the contract.

Ultimately, be reasonable about the situation and use your best business judgment - what costs did the Contractor incur in preparing or trying to fulfill the contract?

cblack20 said:

We awarded a commercial item Firm Fixed Price purchase order for a heart monitoring service. The contract price is $250,000. The contract was awarded and the contractor bought the equipment and hired staff to support the contract. Long story short- contract performance never commenced during the period of performance due to Government delay/issues. The period of performance expired and no termination was issued by the Government. This was awarded back in 2014.

The contractor has now come back and wants to submit a claim for the equipment purchased, staff hired, and overhead. Asking for guidance on where to begin when looking at the costs submitted to determine what is fairly due to the contractor and what is fair and reasonable to the Government.

I know this is an elementary question- but any feedback is greatly appreciated. Thank you

Assuming that government delays and government "issues" prevented performance of the contract, determine whether the contractor acted reasonably in preparing for performance to start.  

Determine if the types of costs were necessary and reasonable in amount.

Determine if the contractor minimized, reduced or otherwise avoided incurring further costs at any point where it may have become obvious that performance  was never going to commence. 

Regarding cost of  "equipment purchased", does this equipment have any residual or salvage value that should be credited back to the government? If you pay full cost, the government should own it and the contractor should turn it over to the government. If it still has value to the contractor, then you don't have to pay full cost and the contractor can keep it.  

We don't have any information concerning "overhead" so no comment. 

Just some initial thoughts. Facts might result in different path.  The party seeking the adjustment must  justify that the costs and types of costs are necessary, fair and reasonable. This might be considered a "constructive termination for convenience...

Based on what has been said thus far, no invoices have been paid to date?

This attorney put out two extensive publications (Parts I & II), if you have the time to read them. In my opinion, they are most comprehensive authorities on the subject:

http://www.seidmanlaw.com/publications/