Cat 5 Hurricane Michael--increase in pricing

What clause in your contract authorizes more money for a hurricane?

This may seem like a harsh question, but it is entirely fair. 

You said FFP, but you didn't say if the contract was for supplies, services, or construction (or something else).  You also didn't say the dollar amount of the task order, or whether the task order is for commercial items.  All of this is important information for anyone here to be helpful to you. 

But really, the key question:  What clause in your contract authorizes more money for a hurricane?

[Edit:  Generally, based on the standard FAR clauses (but of course depending on the terms of your contract), a hurricane that goes far beyond normal expectations might permit the agency to allow additional time, but not additional money.  But we don’t know the terms of your contract.]

While awaiting your answers to ji's questions, I worked with contractors who were severely impacted by Katrina.  I can identify with your problems.  When Katrina came in, many contractor employees evacuated.  Because of the damage caused by the storm, they could not return for several weeks or even months.  When workers started to return, FEMA was issuing reconstruction contracts.  Anyone who was breathing could get hired on to a reconstruction company.  Because of labor shortages due to evacuations and inadequate housing, the wages these new hires could command were much higher than what they were receiving at their old employer, the earlier contractor.  Thus, companies were trying to compete with reconstruction contractors for labor.  Obviously, the old contractors had to pay more to get employees, even employees who evacuated and were now returning.  This same situation applied to many types of material as well.  Unfortunately, there is no standard FAR clause that addresses these types of situations for other than for cost reimbursement contracts.  In the case of Katrina, the contractors I know of had to eat the cost increases on other than cost reimbursement contracts although they did receive schedule increases.

kathilou, I am not sure what role you have and who your employer is. Do you work for a state or U.S. government agency? Are you the agency rep for the work and are you in contact with the contracting officer? Did the contracting office issue a solicitation and/or change notice to the prime contractor for the impact of Hurricane Michael? What rationale did government finance give for the denial? Was this a payment request by the prime contractor? Was it denied because there is no line item for that work at that price? Does the contract include FAR 52.249-8 Default, FAR 52.249-14 Excusable Delays?

kathilou said:

One of our finance people is arguing with our contracting officer over a request for additional funds on an FFP task order.  Hurricane Michael decimated our area and has caused an increase in labor and materials (in addition to labor shortages).  In order for our prime to continue performance, he has requested an increase to the contract price. He supplied quotes from a few subcontractors. The supervisory contracting officer deemed it fair and reasonable, but finance will not approve the funds. Has anyone run into this? This was not a "weather delay," or a condition that could have been foreseen.  This hurricane came in unexpectedly as a category 4+ and was reclassified as a 5. There is additional work as well due to damage.

The others have addressed the lack of cost impact contractual remedies for the work that was required to be performed, as of the date of  Hurricane Michael  

However, if there is additional work due to damage, this might be considered a change to the original scope of work and might even be considered outside the scope of the original contract, depending upon the extent or amount, type of work, etc. 

In that case, the additional work should be compensable and additional time should be provided to complete the extra work if it would require an extension to the schedule. 

Without full details and context, I can’t generalize on how the work and time should be compensated.

There is a few problems here.  

Why is the contracting officer eager to increase the contract price?  If the contract had the standard FAR clauses, then there is probably no basis for a price increase.  Maybe additional time, but not additional money, is the general principle in the standard FAR clauses for an unusually severe weather impact.  Nothing in the original posting suggests anything other than the standard FAR clauses, so I am relying on those standard principles.

Thankfully, the finance office is saying NO to the contracting officer’s apparently unjustified generosity with taxpayer dollars.  Maybe the finance office understands contract principles better than the contracting officer?

If the contractor wants more money, it needs to file a claim and make a case for its entitlement.

joel hoffman said:

The others have addressed the lack of cost impact contractual remedies for the work that was required to be performed, as of the date of  Hurricane Michael  

However, if there is additional work due to damage, this might be considered a change to the original scope of work and might even be considered outside the scope of the original contract, depending upon the extent or amount, type of work, etc. 

In that case, the additional work should be compensable and additional time should be provided to complete the extra work if it would require an extension to the schedule. 

Without full details and context, I can’t generalize on how the work and time should be compensated.

Joel, there is additional work, and we already have that covered, thanks.

kathilou said:

Joel, there is additional work, and we already have that covered, thanks.

👍

ji20874 said:

There is a few problems here.  

Why is the contracting officer eager to increase the contract price?  If the contract had the standard FAR clauses, then there is probably no basis for a price increase.  Maybe additional time, but not additional money, is the general principle in the standard FAR clauses for an unusually severe weather impact.  Nothing in the original posting suggests anything other than the standard FAR clauses, so I am relying on those standard principles.

Thankfully, the finance office is saying NO to the contracting officer’s apparently unjustified generosity with taxpayer dollars.  Maybe the finance office understands contract principles better than the contracting officer?

If the contractor wants more money, it needs to file a claim and make a case for its entitlement.

Good grief. We certainly are not eager to increase the contract price and we are not unjustifiably being "generous with taxpayer dollars." However, we all went through this catastrophic storm and work every day trying to recover--and that includes our local contractors and their subs.  Many of the labor force left since there is an extreme shortage of housing. Primes have had to go out and get new quotes from new subs (and have provided multiple quotes to substantiate).  Materials and labor have risen. For the contract in questions, the REA amount is $78,900.  The contract price is ~$650K. Yes, the contractor can submit a claim, but that will cost far more to the government in labor and time, while the clock keeps ticking on a project that is underway and needs to be completed.  Isn't it more prudent to address the REA for less money?  Is there anything in the FAR that precludes us from allowing this? I don't think so.

Quote

The thirteenth named storm, seventh hurricane, and second major hurricane of the 2018 Atlantic hurricane season, Michael originated from a broad low-pressure area that formed in the southwestern Caribbean Sea on October 1. The disturbance became a tropical depression on October 7, after nearly a week of slow development. By the next day, Michael had intensified into a hurricane near the western tip of Cuba, as it moved northward. The hurricane strengthened rapidly in the Gulf of Mexico, reaching major hurricane status on October 9. As it approached the Florida Panhandle, Michael reached Category 5 status with peak winds of 160 mph (260 km/h)[1] just before making landfall near Mexico Beach, Florida, on October 10, becoming the first to do so in the region as a Category 5 hurricane, and as the strongest storm of the season. As it moved inland, the storm weakened and began to take a northeastward trajectory toward Chesapeake Bay, weakening to a tropical storm over Georgia, and transitioning into an extratropical cyclone over southern Virginia late on October 11. Michael subsequently strengthened into a powerful extratropical cyclone and eventually impacted the Iberian Peninsula, before dissipating on October 16.

Wikipedia.

I'm adding the Wikipedia blurb about Hurricane Michael as background.

Neil Roberts said:

kathilou, I am not sure what role you have and who your employer is. Do you work for a state or U.S. government agency? Are you the agency rep for the work and are you in contact with the contracting officer? Did the contracting office issue a solicitation and/or change notice to the prime contractor for the impact of Hurricane Michael? What rationale did government finance give for the denial? Was this a payment request by the prime contractor? Was it denied because there is no line item for that work at that price? Does the contract include FAR 52.249-8 Default, FAR 52.249-14 Excusable Delays?

US Gov. 1102.

bob7947 said:

Wikipedia.

I'm adding the Wikipedia blurb about Hurricane Michael as background.

Thanks!  Yes, if you weren't here, you wouldn't know the damage and subsequent effects.  Fun fact--(not really) I also went through Katrina in Mississippi.

I was wondering what effect this Hurricane Michael National Interest Exemption has on anything.  I've added this FEMA item a little later than my post.  

I'm also wondering if FEMA's reconstruction efforts can be used to support a claim against the government for increased costs.

kathilou:

I don't want to intrude on your discussion.  If you feel I am, tell me and I will go away.

There should be some internal DoD, Air Force or USACE legal guidance on impacts due to Michael. I am retired so don’t have access to current policy guidance.  For an REA or claim, that is a question for the Agency legal and Finance resources. The contract generally allocates certain risks between the parties. 

I believe that there is a possible agency level remedy under FAR 50.1 Extraordinary Contractual Relief.

bob7947 said:

I was wondering what effect this Hurricane Michael National Interest Exemption has on anything.

I'm also wondering if FEMA's reconstruction efforts can be used to support a claim against the government for increased costs.

kathilou:

I don't want to intrude on your discussion.  If you feel I am, tell me and I will go away.

Definitely not intruding!  Thank you.

I added another blurb to my post showing costs associated with FEMA efforts.  It's in bold italics.

joel hoffman said:

There should be some internal DoD, Air Force or USACE legal guidance on impacts due to Michael. I am retired so don’t have access to current policy guidance.  For an REA or claim, that is a question for the Agency legal and Finance resources. The contract generally allocates certain risks between the parties. 

I believe that there is a possible agency level remedy under FAR 50.1 Extraordinary Contractual Relief.

Thanks again, Joel.  I'll head there now for more research.  It just seems wrong to not allow for a slight increase due to unanticipated escalation from a catastrophic event.  Most of the amount I mentioned in my reply to ji is for the additional concrete work, which is a change order.

kathilou, Glad that the major cost is part of a change. “Slight” share of.additional costs would seem to be reasonably part of contractually allocated risks, absent some Agency level authorization.

bob7947 said:

I added another blurb to my post showing costs associated with FEMA efforts.  It's in bold italics.

Thanks again.  It was a doozy.

joel hoffman said:

kathilou, Glad that the major cost is part of a change. “Slight” share of.additional costs would seem to be reasonably part of contractually allocated risks, absent some Agency level authorization.

We agree...thanks, Joel!

On ‎8‎/‎13‎/‎2019 at 7:31 AM, kathilou said:

One of our finance people is arguing with our contracting officer over a request for additional funds on an FFP task order.

Dumb question - Where is the program or resource organization in this argument?  I mean after all I know the finance folks have some interest but it would seem the program folks who have been provided a budget have some say as well, or should have in my view.   Its not the CO's or finances project it is the program offices so what do they want to happen?

I’m going to say something different here and that’s the agency should be reasonable.  Damage and impact of the storm is obvious.  Agencies have to be reasonable and fair.  This situation and debating by agency personnel is why some companies don’t want to do business with the government.

Resolution should not be a contracting officer, supervisory KO, or a finance person responsibility.  The contractor should make a case and the KO should escalate it to senior agency management.  Budget, finance, program and legal need involved.  If the agency decided to go ahead, a contract modification covering the impact is all it takes.  This isn’t just caused by a contractors negligence or not exercising due diligence.  It’s beyond their control or expectation.

formerfed,

Why not just follow the terms agreed to by the parties when they formed the contract?  Being reasonable and fair means implementing the agreement for which the parties bargained, as reflected in the T&Cs of the contract.

A construction contract using the standard FAR clauses apportions risk as part of the bargain.  For unusually severe weather beyond reasonable expectations, the contract provides for more time (but not more money).  That is fair.

What you are suggesting already exists for many agencies — it is called Public Law 85-804.  A distressed contractor may petition for relief under Pub.L. 85-804, but this is neither a REA nor a claim.

formerfed said:

I’m going to say something different here and that’s the agency should be reasonable.  Damage and impact of the storm is obvious.  Agencies have to be reasonable and fair.  This situation and debating by agency personnel is why some companies don’t want to do business with the government.

Resolution should not be a contracting officer, supervisory KO, or a finance person responsibility.  The contractor should make a case and the KO should escalate it to senior agency management.  Budget, finance, program and legal need involved.  If the agency decided to go ahead, a contract modification covering the impact is all it takes.  This isn’t just caused by a contractors negligence or not exercising due diligence.  It’s beyond their control or expectation.

Thank you for your input.  I sent the request upwards.

kathilou said:

Thank you for your input.  I sent the request upwards.

FAR subpart 50.1 might be helpful to you.

ji20874 said:

FAR subpart 50.1 might be helpful to you.

Thank you, although, IMHO, it would not apply in this situation.

That's great!  What is the basis for your request to increase the contract price?

kathilou said:

We agree...thanks, Joel!

kathilou, I should clarify that I was referring to the contractor’s slight share of the total increased costs being reasonably allocated to the contractor by the terms of the contract - not shifted to the government. Approval of a 50.1 relief action wouldn’t be realistically  likely for a slight share of impact costs...

I’ve worked with agencies dealing with FAR 50.1.  The timelines and effort to get through the hurdles are tremendous.  Generally things get bogged down so much, everyone gives up. 

As an intern in the government, I helped with processing a request under PL 85-804.  The contractor suffered so much financially forcing to perform, they were close to going out of business.  We processed the case and it got to DepSec DoD. Justification that the company was essential to national defense got referred to each branch.  It took six months to turn it down. The company declared bankruptcy. 

When you get to FAR 50.1, everything becomes visible and bureaucratic and no one wants to stick their neck out.

Other than Pub.L. 85-804, I am aware of no authority to increase the contract price for severe weather impact for a construction contract using the standard FAR clauses.

Contracting officers are not supposed to play Santa Claus with taxpayer dollars.

I think @ji20874 is the only one thinking like a contracting officer.

It’s rare that contracting officer decisions involve black/white issues.  Lots of gray areas with lots of discretion and judgement involved.

In the event that storm caused substantial increases in cost that was unforseeable, and the Government terminates the contract for cause, the  government contractor may be successful in a commercial impracticality defense to such termination. I would hope that government personnel are aware of this and take that possible disruption into account by weighing all the factors before making decisions such as denying disaster driven equitable adjustment claims that are adequately supported.

Don Mansfield said:

I think @ji20874 is the only one thinking like a contracting officer.

I beg your pardon...

joel hoffman said:

I beg your pardon...

joel,

No offense intended. I have no problem with what you wrote. I think ji is responding as a contracting officer should when being asked for a price increase on a FFP contract. The first question should be "what entitles the contractor to a price increase?" Under the standard FAR clauses, severe weather alone does not. End of story. If the contractor wants a price increase, they need to present a different argument. Cold hard logic.

On 8/13/2019 at 9:31 AM, kathilou said:

One of our finance people is arguing with our contracting officer over a request for additional funds on an FFP task order.  Hurricane Michael decimated our area and has caused an increase in labor and materials (in addition to labor shortages).  In order for our prime to continue performance, he has requested an increase to the contract price. He supplied quotes from a few subcontractors. The supervisory contracting officer deemed it fair and reasonable, but finance will not approve the funds. Has anyone run into this? This was not a "weather delay," or a condition that could have been foreseen.  This hurricane came in unexpectedly as a category 4+ and was reclassified as a 5. There is additional work as well due to damage.

kathilou said:

Thank you for your input.  I sent the request upwards.

Based upon the limited information here, It appears to me that :

1: The contractor says that it won’t complete performance of a task order  without a price increase due to impacts caused by Hurricane Michael. 

2. The “supervisory contracting officer”(?)** agrees and says it is “fair and reasonable”.

3. kathilou might agree with the “sco”(?)

4. kathilou’s “sco”(?) office tried to process a modification but the Finance and Accounting office won’t certify funds availability (speculating based upon DoD mod procedures)  

5.  Kathilou sent the request “upward”, presumably for KO determination.

6. The majority of the request involves additional work (change work - not differing site conditions, etc.) , which should be ok.

7. There is no relief for the impact or delay costs under the terms of the contract. 

8. Additional time may be warranted pursuant to the Defaults Clause for delays due to unusually severe weather. 

9. Extraordinary Relief pursuant to PL 85-804 and E.O. 10789 (see FAR 50.1 ) is unlikely under the outlined circumstances. That’s why it is referred to as “Extraordinary Relief”. 

10. Both the “sco”(?) and the KO should check with legal and advise the contractor that abandoning the job would put it in default (breach of contract). 

** is the “sco” an administrative contracting officer in kathilou’s office or is she referring to the PCO (or maybe another KO assigned to administer the contract or task order under the contract)?  I forgot to ask who she refers to as the “sco”.

Joel, I agree with your no. 9 conclusion.  But I would add a couple of items to your listing of apparent facts.

8 1/4.  The contractor elected not to purchase insurance or otherwise cover the risk it agreed to bear when the contract was formed in the contract clause at FAR 52.236-7, Permits and Responsibilities, and now seeks to shift the liability for that risk back to the Government.  There has been no discussion of the contractor's seeking relief from other sources, such as SBA loans or other disaster relief.

8 1/2.  Government employees in the local office seem eager to accept this liability, which is essentially a modification without consideration, without following the procedures for such an action as codified in Pub.L. 85-804 and regulated in FAR subpart 50.1.

8 3/4.  No contract clause or other legal basis has been cited for the proposed increase in contract price, contrary to the constitutional stipulation that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."  No one in favor of making the contractor whole has cited any authority for their proposed generosity with appropriated funds.

Hurricane Michael occurred ten months ago in October 2018.  I wonder when the task order was issued, when in the period of performance the Hurricane struck, how much work remains to be accomplished, when the price impact became an issue, etc. just curious...

joel hoffman said:

kathilou, I should clarify that I was referring to the contractor’s slight share of the total increased costs being reasonably allocated to the contractor by the terms of the contract - not shifted to the government. Approval of a 50.1 relief action wouldn’t be realistically  likely for a slight share of impact costs...

I understood what you were saying. thanks

Oh, one other thing -- why hasn't the contractor contacted its surety for assistance?  There is a performance bond, right?  If the contractor does default, the performance bond will come into play, but the surety can look after its interests before a default occurs.

ji20874 said:

Joel, I agree with your no. 9 conclusion.  But I would add a couple of items to your listing of apparent facts.

8 1/4.  The contractor elected not to purchase insurance or otherwise cover the risk it agreed to bear when the contract was formed in the contract clause at FAR 52.236-7, Permits and Responsibilities, and now seeks to shift the liability for that risk back to the Government.  There has been no discussion of the contractor's seeking relief from other sources, such as SBA loans or other disaster relief.

8 1/2.  Government employees in the local office seem eager to accept this liability, which is essentially a modification without consideration, without following the procedures for such an action as codified in Pub.L. 85-804 and regulated in FAR subpart 50.1.

8 3/4.  No contract clause or other legal basis has been cited for the proposed increase in contract price, contrary to the constitutional stipulation that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."  No one in favor of making the contractor whole has cited any authority for their proposed generosity with appropriated funds.

Agreed.  

Please note that Builders Risk insurance only covers damage to work, stolen or damaged materials, etc. I think also that hurricane coverage is excluded unless there is a rider for that.  i don’t think that it covers cost escalation impacts due to labor shortages and material price increases. 

To the extent that the contractor may be able to recover anything applicable under its BR policy,  the government sympathizers should recognize that and remind the contractor. In my experience, many govt contract administrators did not know anything about BR because it ain’t specifically in the contract or in the FAR cookbook.

P.S., ji, I corrected my paragraph numbering - sorry. You might want to edit your numbering for consistency.

I’m not a cold-hearted person.  Maybe one day we can have a discussion on ways contracting officers can be helpful to contractors in difficult situations — there are many.  But a Santa Claus contract modification to increase the contract price because of an unusually severe weather event isn’t one of those ways.

ji20874 said:

Oh, one other thing -- why hasn't the contractor contacted its surety for assistance?  There is a performance bond, right?  If the contractor does default, the performance bond will come into play, but the surety can look after its interests before a default occurs.

Probably because nobody has informed the contractor that abandoning completion of the task order would put it in risk of default or breach ( check with legal).  I would copy the surety In any government correspondence  concerning failure to perform  or threat of abandonment.  The surety would likely contact the contractor and remind it that the surety will  one after it to collect any expenses if the contractor defaults.

good point, ji!

joel hoffman said:

Hurricane Michael occurred ten months ago in October 2018.  I wonder when the task order was issued, when in the period of performance the Hurricane struck, how much work remains to be accomplished, when the price impact became an issue, etc. just curious...

October 10 to be exact.  I realize that to some, ten months seems like a long time.  Not that some on this feed actually care, but recovery from the storm damage will take years, possibly decades.  There are people whose homes are completely destroyed or uninhabitable (hundreds if not thousands). Businesses closed. Many moved away to find work. Insurance payments are a nightmare, just as they were with Hurricane Katrina. Reliable, ethical, honest, and reasonable contractors are hard to come by. Affordable housing is impossible to find for those who chose to remain. I used to live in the Northeast and never knew what the aftermath of a major hurricane was like until Katrina. Now that I've experienced both hurricanes, I can tell you, this one was horrific. Yes, the death toll was low--but that doesn't mean the damage wasn't as, or even more, extensive.  

Now, to answer your question, the design-build task order was issued in June 2018.  The contractor has been delayed on a number of occasions due to untimely responses to RFIs and design review, the hurricane and closure of the base, remobilization, an environmental design change that ended up not actually being needed, but held up the design process again until that was remedied, etc.  The additional work is to work not yet completed, and the cost of the materials and labor has risen considerably. The prime is asking no additional markup.

kathilou, I understand and do care. That’s why I suggested checking for DoD or other guidance on any relief that might be afforded the contractor.  Others have suggested the possibility of considering commercial impracticability.  But, if the DoD or Service hasn’t considered such as a possibility for implementation,,  the contractor may have to develop that argument as applicable here, I think.

ji20874 said:

Joel, I agree with your no. 9 conclusion.  But I would add a couple of items to your listing of apparent facts.

8 1/4.  The contractor elected not to purchase insurance or otherwise cover the risk it agreed to bear when the contract was formed in the contract clause at FAR 52.236-7, Permits and Responsibilities, and now seeks to shift the liability for that risk back to the Government.  There has been no discussion of the contractor's seeking relief from other sources, such as SBA loans or other disaster relief.

8 1/2.  Government employees in the local office seem eager to accept this liability, which is essentially a modification without consideration, without following the procedures for such an action as codified in Pub.L. 85-804 and regulated in FAR subpart 50.1.

8 3/4.  No contract clause or other legal basis has been cited for the proposed increase in contract price, contrary to the constitutional stipulation that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law."  No one in favor of making the contractor whole has cited any authority for their proposed generosity with appropriated funds.

These are working capital funds.  The contractor has not refused to continue; we are still in the design stage, and construction has not yet begun.  No, the government is not Santa Claus, but we shouldn't be the devil either.  I appreciate everyone's input and opinions.  I am well versed in alternate disaster relief programs, as I came from FEMA.

We had a different contractor try to recover sixty days of per diem and lodging because they "had to keep paying rent or else they would have lost the housing due to the shortage after the storm."  I want him to tell me which lottery numbers are going to hit next.

kathilou,

Actually, we do care. 

• "The contractor has been delayed on a number of occasions due to untimely responses to RFIs and design review, the hurricane and closure of the base, remobilization, an environmental design change that ended up not actually being needed, but held up the design process again until that was remedied, etc."

Every one of these (except the unusually severe weather event) provides you with an opportunity to generous and helpful, if the contractor provided the appropriate notices contemplated by the appropriate contract clauses that would provide for equitable adjustment.  But a Santa Claus contract modification to increase the contract price because of the unusually severe weather impact cannot be justified.

It isn't a matter of caring.  It is a matter of professionalism and correct principles.

joel hoffman said:

kathilou, I understand and do care. That’s why I suggested checking for DoD or other guidance on any relief that might be afforded the contractor.  Others have suggested the possibility of considering commercial impracticability.  But, if the DoD or Service hasn’t considered such as a possibility for implementation,,  the contractor may have to develop that argument as applicable here, I think.

Thank you! That's why I sent the decision up the chain.  It's up to them.

ji20874 said:

kathilou,

Actually, we do care. 

• "The contractor has been delayed on a number of occasions due to untimely responses to RFIs and design review, the hurricane and closure of the base, remobilization, an environmental design change that ended up not actually being needed, but held up the design process again until that was remedied, etc."

Every one of these (except the unusually severe weather event) provides you with an opportunity to generous and helpful, if the contractor provided the appropriate notices contemplated by the appropriate contract clauses that would provide for equitable adjustment.  But a Santa Claus contract modification to increase the contract price because of the unusually severe weather impact cannot be justified.

It isn't a matter of caring.  It is a matter of professionalism and correct principles.

Thanks for your edit and comments. The contractor was timely with requests.

I fear to step into this discussion but this, to me, highlights an interesting difference between government and commercial contracting. During the great recession of 2008 - 2011 (which, if you recall, was global), Airbus was forced to renegotiate the fixed-price deals it had with some of its suppliers. The suppliers were struggling financially. Either Airbus stepped-in or it would lose its supply chain. So it did. The old contracts were torn up and new, more favorable, contracts were negotiated.

I'm not advocating a similar approach here; I'm just noting that, in the commercial marketplace, contract terms can be renegotiated when the need arises. The next time somebody says the government should operate more like the commercial marketplace, perhaps somebody should point out what that might mean.

On 8/14/2019 at 8:32 AM, kathilou said:

For the contract in questions, the REA amount is $78,900.  The contract price is ~$650K. Yes, the contractor can submit a claim, but that will cost far more to the government in labor and time, while the clock keeps ticking on a project that is underway and needs to be completed.  Isn't it more prudent to address the REA for less money?  Is there anything in the FAR that precludes us from allowing this? I don't think so.

On 8/14/2019 at 9:33 AM, kathilou said:

Most of the amount I mentioned in my reply to ji is for the additional concrete work, which is a change order.

Let me add more.  The REA is 12% of the contract value and most is covered by a change order?  So what’s left is very small compared to the overall effort.

Why not get something from the contractor as consideration for the agreement?  Some upgrades, quicker delivery, nicer features, etc.

To answer your question, no there’s nothing in the FAR that precludes allowing that.   I remember several court and BCA decisions saying operation of existing contract clauses in similar situations only allow for time but no money, but new provisions to the contracts reflecting agreement of the parties can. 

The issue with pursuing FAR 50.1/PL 85-804 remedies is the administrative time and expense will blow everything away.  I’ve been involved with several and it’s staggering.  Check with your legal counsel and senior management.  I think you can make a very convincing case to just settle this yourselves between the contractor and CO.  Get the contractor to give you something in value and it’s done.

here_2_help said:

I fear to step into this discussion but this, to me, highlights an interesting difference between government and commercial contracting. During the great recession of 2008 - 2011 (which, if you recall, was global), Airbus was forced to renegotiate the fixed-price deals it had with some of its suppliers. The suppliers were struggling financially. Either Airbus stepped-in or it would lose its supply chain. So it did. The old contracts were torn up and new, more favorable, contracts were negotiated.

I'm not advocating a similar approach here; I'm just noting that, in the commercial marketplace, contract terms can be renegotiated when the need arises. The next time somebody says the government should operate more like the commercial marketplace, perhaps somebody should point out what that might mean.

Terms can be renegotiated under Government contracts, too. Remember when DoD gave a generous price increase and advance payments to the Anthrax vaccine contractor that was failing?

Don Mansfield said:

Terms can be renegotiated under Government contracts, too. Remember when DoD gave a generous price increase and advance payments to the Anthrax vaccine contractor that was failing?

Actually, no. I didn't realize that happened.

So Uncle Sam can be Uncle Santa Claus!

Don Mansfield said:

Terms can be renegotiated under Government contracts, too. Remember when DoD gave a generous price increase and advance payments to the Anthrax vaccine contractor that was failing?

Wasn't that a Pub.L. 85-804 situation?  In 1998, the Secretary of the Army granted the anthrax vaccine contractor indemnity (immunity from litigation) under Pub.L. 85-804.  I don't know remember all the details, such as price increase and advance payments, but those also would have been allowed under Pub.L. 85-804.

EDIT:  I found it -- Beyond the indemnity, the Army "provided a net $24.1 million in relief, including an $18.7 million interest free advance payment. The number of doses in the contract options was reduced from 7.9 million to 4.6 million. The price was increased from $4.36 to $10.64 per dose for Option Year I and from $2.26 to $10.64 per dose for Option Year II."  See Statement by Robert J. Lieberman, Assistant Inspector General for Auditing, Department of Defense, before the Senate Committee on Armed Services on Defense Anthrax Vaccine Contracting, July 12, 2000 at https://media.defense.gov/2017/Apr/18/2001734011/-1/-1/1/000712RL.PDF.

Yes, I was relying on the small amount of the contract and REA and the statement that most of the REA is covered by justifications other than labor and material impacts. I don’t think I’ve ever been involved with a D-B contract that small and one that has taken 10 months to design before any construction begins. Can’t be very extensive original scope for that combined price for both design and construction. 

Its also why a FAR 50.1 relief effort won’t likely pass muster. Costs more to process than the relief.

here_2_help said:

Actually, no. I didn't realize that happened.

So Uncle Sam can be Uncle Santa Claus!

Yes, but the contracting officer doesn't have Santa Claus authority--that resides in the agency head. 🎅

COs are just elves. 🧝‍♂️🧝‍♂️🧝‍♂️

Elves can still contribute towards a happy Christmas for a struggling contractor -- contracting officers don't want a default.  For example, in the situations like the original poster mentioned in a follow-up comment, when there are Government delays and change orders in the contract, the contractor can negotiate hard for equitable adjustments with the Government, and the contracting officer can give much of the benefit of any doubt in those negotiations to the contractor.  Additionally, the contracting officer can tend towards the generous end of the reasonable continuum with matters such as progress payments and/or liquidation rates, provisional billing rates, and so forth, if the contracting officer has some sense of assurance that the contractor intends to honor its contract commitment.  There are other ways the contracting officer can be patient and sometimes half close one eye.  But the contracting officer simply cannot increase the contract price because of an unusually severe weather event in a FFP contract using the standard FAR clauses.  It would be unfair to do so.

I wonder about the offeror who lost the contract because its price was just a little too high because it prudently included costs for risk (such as for a hurricane and hurricane aftermath in a hurricane area during hurricane season).  We have to be fair.  It would be unfair to make the winning contractor whole for its own decision not to obtain insurance, such as builder's risk insurance, especially considering the plain text and the litigation history of the standard construction clause at FAR 52.236-7.  But default is not the end of the matter -- there is always the surety and the performance bond to make sure the project gets completed.  It is fair to administer the contract's T&Cs as the parties bargained for.

Don Mansfield said:

Yes, but the contracting officer doesn't have Santa Claus authority--that resides in the agency head. 🎅

COs are just elves. 🧝‍♂️🧝‍♂️🧝‍♂️

True.  And the remedy doesn’t have to be agency head.  This seems like a decision made by other than a CO.  Situations like this require elevation to senior agency officials below agency heads since it doesn’t appear that significant.  A contractor suffering harm can lead to poor or delayed performance or even default.  Sure, the government is usually protected but faces delays and disruption and program harm.  The question is can the agency afford to just sit and let it run its course or is this something significant?  Let the decision get made with all affected parties.  Legal can provide advice.  And the solution must be justified, supported, and sound.

ji20874 said:

Elves can still contribute towards a happy Christmas for a struggling contractor -- contracting officers don't want a default.  For example, in the situations like the original poster mentioned in a follow-up comment, when there are Government delays and change orders in the contract, the contractor can negotiate hard for equitable adjustments with the Government, and the contracting officer can give much of the benefit of any doubt in those negotiations to the contractor.  Additionally, the contracting officer can tend towards the generous end of the reasonable continuum with matters such as progress payments and/or liquidation rates, provisional billing rates, and so forth, if the contracting officer has some sense of assurance that the contractor intends to honor its contract commitment.  There are other ways the contracting officer can be patient and sometimes half close one eye.  But the contracting officer simply cannot increase the contract price because of an unusually severe weather event in a FFP contract using the standard FAR clauses.  It would be unfair to do so.

I wonder about the offeror who lost the contract because its price was just a little too high because it prudently included costs for risk (such as for a hurricane and hurricane aftermath in a hurricane area during hurricane season).  We have to be fair.  It would be unfair to make the winning contractor whole for its own decision not to obtain insurance, such as builder's risk insurance, especially considering the plain text and the litigation history of the standard construction clause at FAR 52.236-7.  But default is not the end of the matter -- there is always the surety and the performance bond to make sure the project gets completed.  It is fair to administer the contract's T&Cs as the parties bargained for.

This is a task order against an 8(a) sole source contract.  There are multiple, similar-in-scope projects on separate CLINs.  The contractor has not threatened to stop work. When you kindly edited my text, you crossed out "hurricane" but left in the base closure language.  The closure was a direct result of the hurricane, obviously--we had no power or water for weeks. I lean towards telling the whole truth. Since we were still in the design phase prior to the storm, the contractor had not yet purchased materials.  The storm damage resulted in a need for more materials for a couple of the line items.  Prices on everything, especially construction materials are very high. Competition is fierce outside of the fence. The prime had to solicit new quotes from subs, since many of them are no longer available.  BR doesn't cover this scenario from what I know. Those are the facts.  Again, I do appreciate everyone's thoughts and opinions and suggestions.

Sole source negotiated task order.  

there should be room for adjustment here.

1. Due to delays to performance there were cost increases...

yall should be able to fix this. 

Is this an installation IDIQ or a Mobile District IDIQ?

Years ago, I was the Chief of the USACE Mobile District office that negotiated all of the sole source construction contracts and source selections.  Based upon the specific circumstances here, I think we would have been able to resolve this, working with OC and the KO. There seem to be a lot of mitigating factors that contributed to delays, etc. 

It wasn’t competitive. That helps. Commercial impracticalbility should be investigated as a good justification.

For what is already on contract (such as labor and materials to design and build the building), you should not make any price increase -- the contractor guessed wrong, and didn't take any steps to lock in prices early, and agreed to bear those risks when the contract was formed.  That's fair.  But you can give a time extension.

But for the equitable adjustments resulting from change orders, Government stop-work orders, Government delays, and so forth, you can tend towards the generous side of the reasonable continuum.  For these, the contractor's proposed pricing will be based on today's labor and material realities.  That's fair.  There should be plenty of opportunity for your contractor to be successful.

I don’t want to be critical here, kathilou.  However it is often essential to know as much of the facts surrounding the situation as possible in order to provide better advice. Good luck with your  task order

All that’s been said is good.  My main reason for keep bringing up senior management and involvement by finance, program, legal, etc., is the finance office not providing funds.

joel hoffman said:

I don’t want to be critical here, kathilou.  However it is often essential to know as much of the facts surrounding the situation as possible in order to provide better advice. Good luck with your  task order

You are correct.  I did leave out some important information. So sorry, and I still appreciate everyone's input.

If the contractor is still in the 8(a) Program, it's a sole source 8(a) K, and you can award a new under FAR section 19.808-1, Sole source, could you consider issuing a new K, and place a TO under the K?

Since the K and TO is sole source under the 8(a) Program, you have more flexibility.

formerfed said:

All that’s been said is good.  My main reason for keep bringing up senior management and involvement by finance, program, legal, etc., is the finance office not providing funds.

I am still here a little as well.   However the information provided may be helpful in convincing finance that funding the effort is appropriate.

ji20874 said:

But for the equitable adjustments resulting from change orders, Government stop-work orders, Government delays, and so forth, you can tend towards the generous side of the reasonable continuum.

joel hoffman said:

1. Due to delays to performance there were cost increases...

Coupled with the reasoned approach is as Joel implies is when a contractor is able to show that the governments action or in your case failed action of approvals etc. put the contractor in the position of having to experience performance issues that were caused by the hurricane that would have not otherwise been experienced.   In other words they would have been further along in the work than what they really are.

C Culham said:

I am still here a little as well.   However the information provided may be helpful in convincing finance that funding the effort is appropriate.

Coupled with the reasoned approach is as Joel implies is when a contractor is able to show that the governments action or in your case failed action of approvals etc. put the contractor in the position of having to experience performance issues that were caused by the hurricane that would have not otherwise been experienced.   In other words they would have been further along in the work than what they really are.

I again apologize for not providing enough information up front; and, yes, they would have been much further along w/design and construction had it not been for our delays and the storm.

kathilou said:

they would have been much further along w/design and construction had it not been for our delays and the storm.

Do you have any idea as to what the possible impact of the storm may have been on work that was already done?  This was one of the big issues with the companies I engaged with after Katrina.  They had begun work and Katrina damaged or destroyed the work they had already done requiring them to start over.

Retreadfed said:

Do you have any idea as to what the possible impact of the storm may have been on work that was already done?  This was one of the big issues with the companies I engaged with after Katrina.  They had begun work and Katrina damaged or destroyed the work they had already done requiring them to start over.

For a construction contract, that is exactly the sort of risk that a contractor promises to bear when it bargains for a contract that includes the clause at FAR 52.236-7, Permits and Responsibilities.  See the last sentence of that clause.

One has to have certain riders on the Builders Risk policy to cover hurricane damages to materials and the unfinished work.  For installations in states bordering the Gulf of Mexico and Atlantic Seaboard, that is important .