H - clause vs FAR/DFAR

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H003 - The parties understand and agree that there are no costs included in the price of this SBC contract, and no requirement for the performance of, packing, crating, handling, removal or restoration, storage, shipment, destruction, scrap, sale, demilitarization, close-out or other disposition of any Government-owned or furnished tooling, equipment, material or other government property, or any residual material, inventory, data or documentation used in the performance of this contract...

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In the event that there is, for any reason, no follow-on contract (e.g. SBC extension or PBL), then the Contractor is to be directed by the Contracting Officer in the performance of these tasks and reimbursed in accordance with FAR 52.243-2, Changes – Cost reimbursement.

I agree with thee contractor.  The cost of closeout documentation isn't included in the contract price and will be separately funded. It appears that this clause specifically states that  the closeout procedures will be directed and paid for separately.

Was the contract terminated for convenience or is there no follow-on contract?

the contract was not terminated, and there been follow-on contracts (with similar H- clause) . ACO/PCO impetration that the H clause is for production shutdown. production is this ongoing.

The problem with the ACO/PCO interpretation is that the first sentence of the H clause doesn't limit its applicability:

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The parties understand and agree that there are no costs included in the price of this SBC contract, and no requirement for the performance of, packing, crating, handling, removal or restoration, storage, shipment, destruction, scrap, sale, demilitarization, close-out or other disposition of any Government-owned or furnished tooling, equipment, material or other government property, or any residual material, inventory, data or documentation used in the performance of this contract.

"No requirement" means no requirement. The second and third sentences discuss how the contractor is to be compensated in two specific situations where the Government will require performance of the listed tasks. It's silent on requiring performance of the tasks in other situations. I think it's unreasonable to interpret the clause to mean the contractor won't be compensated for performing closeout tasks unless the contract is terminated or there's no follow-on. 

The contractor is right about the order of precedence.

so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

Gabriel Ho said:

so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

Need source of funds looks like:   "XXXX needs additional funding to perform the work required to execute these tasks."

Joel, lol. it was not that. contractor said that he does not want additional funds, he "asking for the source of funds".

Gab, I do not think the Order of Precedence clause is relevant to this discussion.  That clause tells the parties how to resolve conflicts between terms in the contract.  The H clause is not in conflict with any of the standard FAR clauses you have cited. 

As for the meaning of source of funds, we can all speculate as to what the contractor meant (my guess is that the contractor was asking for a fund cite to be added to the contract providing funding for the activities requested by the contracting officer) however, the best thing to do is simply ask the contractor.

Retreadfed,

Paragraph (f)(1)(x) of the applicable version FAR 52.245-1 states:

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Property closeout. The Contractor shall promptly perform and report to the Property Administrator contract property closeout, to include reporting, investigating and securing closure of all loss, damage, destruction, or theft cases; physically inventorying all property upon termination or completion of this contract; and disposing of items at the time they are determined to be excess to contractual needs.

Pursuant to the H clause, the contractor doesn't have to do that. How is that not a conflict?

Gabriel Ho said:

so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

I think it does. The Government instructed the contractor not to include the costs for property closeout in its price. Now that the Government wants the contractor to perform property closeout, the contractor wants to be compensated for these costs. I wouldn't submit a final voucher until that matter was settled, either.

Agree with Don. GFR are unaccounted.

52.245-1

(3) Submission requirements. 

(i) The Contractor shall submit inventory disposal schedules to the Plant Clearance Officer no later than-

(A) 30 days following the Contractor's determination that a property item is no longer required for performance of this contract;

(B) 60 days, or such longer period as may be approved by the Plant Clearance Officer, following completion of contract deliveries or performance; or

(C) 120 days, or such longer period as may be approved by the Termination Contracting Officer, following contract termination in whole or in part.

+++++++++++++++++

the contractor is noncompliance to term and conditions.

See e.g., SUFI Network Services, Inc. v. U.S. --- Fed. Cl. ---, 2012 WL 5448957, Nov. 8, 2012:

"The “Performance Period” clause, found at section H.29 of the contract, states as follows... ."

System Planning Corp. v. U.S., --- Fed. Cl. ---, 2012 WL 2856070, July 12, 2012:

"[T]he DFARS does not describe what rights the Government has with respect to the source code that could be obtained through exercise of the option clause at Section H.9 of the contract... ."

Dynamics Corp. of America v. U.S., 17 Ct. Cl. 60, May 18, 1989:

"Paragraph g.(1) of the EPA clause, contract section H-6, provides... ."

Fluor Intercontinental, Inc. v. Department of State, CBCA 490, 2012 WL 1144972, Mar. 28, 2012:

"Section H, identified as "Special Contract Requirements," contained the following clauses concerning temporary facilities and services... ."

the intention of the H-Clause by the PCO is for program shutdown. I am trying to get  legal interpretation. Why cant the contractor do the work and ask for REA.

was precedence set with these cases where, H clause was denied?

Gabriel Ho said:

Why cant the contractor do the work and ask for REA.

They probably would do that. Did you ask them?

yes we told him. they said no!

one incident where a BOA has NO H clause, but the contractor assumption that H clause is implied. the contractor is asking PCO for $750K of "source of funding" not "funding" to provide FV on only 20 DOs. we have rejected their CAP (corrective action plan) already.

Will they enter into a supplemental agreement to perform the property closeout tasks?

Gabriel Ho said:

so H clause takes precedence over the FAR/DFAR? but does it negated the contractor responsibility to the "term and conditions" in providing FV per FAR 52.216-7(d) (5) and property FAR 52.245-1.

what does  "need source of funds" mean to you? (direct/indirect)

The contractor may be asking for evidence that funding will be available to be reimbursed for the efforts, if directed pursuant to the H-Clause..

Don- but that will require additional funding. PCO is firm that no additional funds will be provided. contractor has agreed that the H-clause is a production shutdown, but will not put on paper. this disagreement has been kick down the road for over 3-4 yrs. the contractor has provided a guestimate that it will cost $10B for closing out these contracts.. high visibility program. contractor compliance officer know that they are in non-compliances but willing to allow their contracting dept to stand their ground.

source funding to me mean allowablity for contractor to double charge. direct/indirect.  thoughts??

closeout process should and most time are indirect charge. but in this situation the contractor want direct charge. (my opinion) (source of funding)

If you're at a stalemate with the contractor, then issue a final decision pursuant to FAR 33.211 setting forth the Government's interpretation of the contract and directing the contractor to perform the property closeout tasks. Does the contract include FAR 52.233-1, Alternate I? If so, paragraph (i) states:

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The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under or relating to the contract, and comply with any decision of the Contracting Officer.

Based on what you've written, I think the Government's position is unreasonable.

Now we get information that Gabriel should have provided in the first post.   Kicked down the road for 4 years and $10B involved?  Plus I read about a BOA (what has that to do with the contract).  Sounds like the legal departments need to hash this out. Or do as Don suggested and issue a final decision before the legal teams fight it out. $10B would make me do everything in my power to push Section H at the Governement.

This sounds a lot like the KBR situation. (Which one? I hear you asking. Granted, there have been quite a few.)

On LOGCAP III, the Army wanted to have KBR propose its LOGCAP III demobilization and contract close-out efforts on a firm, fixed-price basis—as opposed to every other task order on that contract, which were proposed and awarded on a cost-reimbursement basis. According to a report at the time, KBR felt forced to file its own lawsuit (as plaintiff instead of defendant) “seeking to keep to the existing cost-reimbursable terms” of its contract, and arguing that “closeout tasks can’t be estimated, citing costs stemming from litigation with subcontractors and tort cases filed against KBR by military and civilian personnel as well as future unresolved audits.” Apparently KBR filed a bid protest at the Court of Federal Claims, which Google tells me was dismissed in August, 2014.  

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... the U.S. has disputed KBR’s assertion that the closeout phase of the contract represents a new and separate procurement, saying that KBR’s beef should be settled as a claim under the Contract Disputes Act.

Judge Victor Wolski agreed with the U.S., dismissing the suit on Wednesday for failure to raise the kinds of competitive concerns that bid protests are designed to address. Since KBR is the only source for the closeout work sought by the government, and because the work is based on its existing contract, the dispute over costs should be handled through the contract claims process, Judge Wolski said.

....

KBR had also argued that the closeout work was “related to” but “not under” the LOGCAP III contract, alleging that additional tasks were performed under separate, implied-in-fact contracts after LOGCAP III expired.

But because the Contract Disputes Act governs claims "arising under or relating to the contract,” merely “relating to” the LOGCAP III contract is enough trigger CDA jurisdiction, Wednesday’s opinion said.

Regardless of the outcome, the dispute led DPAP to issue a Class Deviation (2013-O0017) regarding demob costs.

As the details are dribbled out to us, it becomes obvious that there is much more to the story that we don't know, including an apparent history of prior dealings and interpretations.  It's like asking your counsel for a legal opinion based upon generalities  

If this is such a large dollar value, the program ought to have access to appropriate advisors that can research and provide advice, instead of asking for lightly researched opinions and speculation in a forum, when proper answers require a thorough review and understanding of all relevant documents, content and history.

Finally, if you don't understand what the contractor is asking for ASK for an explanation, ORALLY, if necessary.

joel- most times, I find too much information muddy the outcome. 1) I am here to ask if H-clause take precedence over the FAR/DFAR clause, 2) does it negates the contractor's responsible to follow the FAR/DFAR clauses "terms and conditions" when it comes to do closeout?

PCO/ACO interpretation of this H-clause is closing down production(shutting down production) not (overall closeout process). legal are involve, but as lameman thrusting into the fire I want to know why is contractor and Govt digging in for the long haul.  as the Govt i see no benefit in paying twice (direct/indirect) for closeout documents.

your help is greatly appreciated.

Don, I do not read the H clause as saying the contractor does not have to do what is required by the Government Property clause or any other clause in the contract.  Instead, I read it as saying that the price of the contract does not include the activities listed in the H clause.  However, the clause goes on to state that in certain circumstances the government will add funding to the contract to cover the cost of these activities.  This interpretation harmonizes the H clause and GP clause so that no conflict is present.  Such harmonization is the preferred way of interpreting the contract.

Gabriel, why are you concerned with paying twice for close-out costs?  It seems like you are accusing the contractor of attempting to defraud the government.

We don't know how the contract(s) was formed or in what detail it (they)was (were)  priced  - was it negotiated? Line items? How could the government miss ten billion dollars worth of costs in evaluating proposed prices? 

If this is an issue on multiple contracts or orders, how long have the parties been aware of the other's interpretation?  Etc., etc.?

Retreadfed- not defraud but more like TINA. yes am concern of double charging. Our team also when down the disclosure statement route, what DS at time of award and was there changes. 

When a contractor provide you a list of physical completed contracts but will not give closing documents like property clearance, and FV.  Now that POP is over, contractor is seeking for line item or "source of funds" to close these contracts. (DOs, BOAs)

Joel- (ACAT I) program; multi D types, BOAs. and C types. negotiated, line items but no line items for closeout.

Gabriel Ho said:

Retreadfed- not defraud but more like TINA. yes am concern of double charging. Our team also when down the disclosure statement route, what DS at time of award and was there changes. 

When a contractor provide you a list of physical completed contracts but will not give closing documents like property clearance, and FV.  Now that POP is over, contractor is seeking for line item or "source of funds" to close these contracts. (DOs, BOAs)

Joel- (ACAT I) program; multi D types, BOAs. and C types. negotiated, line items but no line items for closeout.

Then the Program Office ought to know what this contractor did or didn't propose to include in their contract prices for closeout and the parties ought to know each other's interpretation of the H-Clause.  All that should have been resolved before now. 

Purely rhetorical questions - No need to bother to answer here.  Just to make my point that such complex issues need to be thoroughly researched and resolved other than in a Discussion Forum without the benefit of the entire contract and background information.  How on earth could a Program Office for an ACAT I program overlook millions?? or billions?? of dollars necessary for closeout when evaluating and negotiating the various contract vehicles?  Who the Heck estimated, evaluated, audited, prepared the negotiation objectives, negotiated these contracts, etc.????????????

Retreadfed said:

Don, I do not read the H clause as saying the contractor does not have to do what is required by the Government Property clause or any other clause in the contract.  Instead, I read it as saying that the price of the contract does not include the activities listed in the H clause.  However, the clause goes on to state that in certain circumstances the government will add funding to the contract to cover the cost of these activities.  This interpretation harmonizes the H clause and GP clause so that no conflict is present.  Such harmonization is the preferred way of interpreting the contract.

I agree that you should first try to harmonize the clauses, but I don't think you can in the case. Here's the wording of the clause:

Gabriel Ho said:

H003 - The parties understand and agree that there are no costs included in the price of this SBC contract, and no requirement for the performance of, packing, crating, handling, removal or restoration, storage, shipment, destruction, scrap, sale, demilitarization, close-out or other disposition of any Government-owned or furnished tooling, equipment, material or other government property, or any residual material, inventory, data or documentation used in the performance of this contract. In the event of a termination for convenience, the Contractor is to be directed in the performance of these tasks and reimbursed in accordance with FAR 52.249-6, Termination for the Convenience of the Government. In the event that there is, for any reason, no follow-on contract (e.g. SBC extension or PBL), then the Contractor is to be directed by the Contracting Officer in the performance of these tasks and reimbursed in accordance with FAR 52.243-2, Changes – Cost reimbursement.

Your interpretation renders meaningless the words in bold. From U.S. Attorneys Manual:

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An interpretation will be rejected if it leaves portions of the contract language useless, inexplicable, inoperative, meaningless, or superfluous. Ball State Univ. v. United States, 488 F.2d 1014 (Ct. Cl. 1973); Blake Constr. Co. Inc. v. United States, 987 F.2d 743, 746-47 (Fed. Cir. 1993).

Don, I guess we have a difference of opinion on this.  I do not think that my interpretation renders any language in either clause meaningless.  The GP clause says the contractor will do certain things when a contract is terminated or expires.  The H clause says there is no money in the contract for those activities, but when a termination occurs or the contract expires with no follow-on, the government will require the contractor to do the things listed in the clause, which generally means the contractor will comply with the GP clause, and add money to the contract to cover these activities.  In regard to a termination for convenience, this is consistent with the model termination letter found in FAR 49.601-2.  Thus, the direction contemplated by the H clause in regard to terminations would likely occur prior to or simultaneously with the termination.  If the government elects to allow the contract to expire, direction to comply could be issued prior to the or concurrently with the expiration.  We have to assume that government officials will do their jobs correctly.  Thus, I do not see a conflict.

Retreadfed,

What if the contract expires and there is a follow-on? Would the contractor be required to perform property closeout tasks?

The H clause doesn't say the Government will require performance of the listed tasks or cover reimbursement of costs in that circumstance.

Don Mansfield said:

... no requirement for the performance of close-out or other disposition of any ... government property ... used in the performance of this contract.

Not that my opinion should carry much weight, but it says what it says. The parties' intention is murky and certainly has been in dispute for 4 years. The contractor is correct (as Don noted) that Section H has precedence over Section I. Thus, any ambiguity would seem to be latent not patent. Contra proferentem. Pay the contractor for any direct costs plus burden it incurs for the change in performance obligations and think about how to better word the clause in future contracts.

Don, this gets down to the intention of the parties.  I can see if there is a follow-on contract and all the property under the old contract is transferred to the new contract, property close-out activities may not be required.  In that case, there is no problem.  On the other hand, if the follow-on contract does not require use of some or all of the property, then close-out activities may be required in which case I think the H clause would kick in. 

We have been discussing a conflict between the H clause and the current version of the GP clause which came into being in 2007.  However, we do not know what GP clause(s) are in the contract.  It very well may be that we are dealing with an old dog here and that the property was provided under a facilities contract.  I should have caveated my statements to reflect this reality.

Retreadfed said:

However, we do not know what GP clause(s) are in the contract.

Gabriel said it was 52.245-1 Government Property (Deviation) (June 2007) in his first post. That's what I quoted from.

Gabriel,

Is the Government property going to be transferred to the follow-on contract?

Don- yes transferred to the follow-on.  if the group see the H- clause as for property only, that not what the contractor impetrate.  To the contractor its "closeout"

The contractor will not provide any closeout documents, plus final vouchers (rates been settle), property clearance, etc...

Don, you are right about the clause.  My bad.

Gabriel Ho said:

Don- yes transferred to the follow-on.  if the group see the H- clause as for property only, that not what the contractor impetrate.  To the contractor its "closeout"

The contractor will not provide any closeout documents, plus final vouchers (rates been settle), property clearance, etc...

Gabriel,

If the property was transferred to the follow-on contract, why would it cost the contractor so much to perform property closeout on the predecessor contract?

The H- clause makes perfect sense where the parties or the government expected the same contractor to be awarded follow on contracts and orders.

Why tie up funding or have the contractor include the price of efforts that  arent necessary if it is anticipated that the contractor will continue the services under follow on contracts and orders?  

My point earlier is that the government ought to know whether or not the contractor included the cost for closeout in those contract vehicles, considering that this is a major acquisition program and how the contracts and orders should have been negotiated. The OP says that it involves huge costs.

Having worked on an ACAT I Defense Acquisition Program, we knew what our Systems Contractor was including or not including in its proposal and what was negotiated. 

If the parties have been aware of the difference in interpretation of the H-Clause, it should have been resolved or reworded by this point.

thats our point, why is it costing the Govt so much! We got a quote from the contractor; ($750K) to provide FV for 20 delivery order ONLY!

On 5/17/2017 at 9:00 AM, Gabriel Ho said:

Need your understanding of what take precedence, FAR/DFAR VS local clause.

If that is still the question, then the answer is simple: If there is a conflict between the Section H clause and FAR/DFARS, then FAR/DFARS take precedence unless the CO obtained approval to deviate from FAR or DFARS in accordance with FAR Subpart 1.4.

thank you Vern!

Vern, are there court cases or samples to backup?

Does the contract include the clause at FAR 52.215-8, Order of Precedence-Uniform Contract Format?

If YES, that clause suggests that a Sec. H special contract requirement will take precedence over a Sec. I contract clause.

Gabriel Ho said:

Vern, are there court cases or samples to backup?

Yes.

On 5/22/2017 at 10:57 AM, ji20874 said:

Does the contract include the clause at FAR 52.215-8, Order of Precedence-Uniform Contract Format?

If YES, that clause suggests that a Sec. H special contract requirement will take precedence over a Sec. I contract clause.

Only if there is no conflict with law or regulation in the form of an unauthorized deviation. An unauthorized deviation is beyond the authority of a contracting officer and is not enforceable against the government.

See McDonald Douglas Corp. v. U.S., 670 F.2d 156 (U.S. Court of Claims, 1982):

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McDonnell's first position (which was accepted by the trial judge) is that the parties agreed wholly to exclude the Tucker invention from the Subject Invention clause. For us, the overriding factor resolving this contractual question is that, under the regulations in effect when the contract was made on August 31, 1964 (unlike the regulations they replaced), the contracting officer had no authority to give, by himself, contractual exemptions from the patent rights clause. Compare 32 C.F.R. § 9.107-2(a) (1961) with 32 C.F.R. § 9.107 (1965). (The July 21, 1964 amendments eliminated the possibility of such an exclusion for a particular invention from the patent rights clause.) Any attempt to do so would constitute a deviation from the regulations. 32 C.F.R. § 1.109-1 (1964) (definition of deviation). Deviations were allowed only if authorized in accordance with departmental procedures and if written notice of the deviation was furnished to the Assistant Secretary of Defense and the Assistant Secretary of the Army. 32 C.F.R. § 1.109-2 (1964). Plaintiff has produced nothing to indicate that such authorization was granted or that proper notice was furnished, and we can take it that they were not given. In this case, therefore, any deviation from the prescribed wording was a violation of the regulation and beyond the authority of the contracting officer. Actions taken by that officer beyond his authority are, of course, not binding on the Government. E.g., Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947).

That is Contracting 101. See Rockies Exp. Pipeline LLC v Salazar,  730 F.3d 1330 (Fed. Cir. 2013):

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We agree with the government that it may cancel as illegal a contract that violates procurement statutes or regulations, see Schoenbrod v. United States, 410 F.2d 400, 403–04 (Ct.Cl.1969)....

See also AHTNA Environmental, Inc. V. Dept. of Transportation, CBCA 5456, 17-1 BCA ¶ 36600:

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We note, though, that a contract provision which conflicts with, rather than permissibly supplements, a mandatory FAR clause is typically unenforceable unless the contracting officer obtained authorization from the agency head for a deviation under FAR 1.403 or 1.404. See Johnson Management Group CFC, Inc. v. Martinez, 308 F.3d 1245, 1256 n.2 (Fed. Cir. 2002) (“A contracting officer is not authorized to deviate from the requirements of procurement regulations when the necessary authorization to do so has not been given.”); Southwest Marine, Inc., ASBCA 34058, et al., 91-1 BCA ¶ 23,323, at 116,985 (1990) (clause inconsistent with Changes clause in FAR was held unenforceable).