reduction in profit if government mistake

Does anyone know if there is a reference in FAR that talks about a contractor cannot have a reduction in profit and contract amount if the government needs to mod the contract because of the govt's mistake and the end result of the mod is a reduction in profit and /or contract amount . I thought I remembered that the contractor cannot be worse off after the mod .

I think you need to be more clear in the circumstance involved. If the Federal Government issues a change to delete work or if it partially terminates the contract for convenience, there is no protection of the original amount of work or the amount of profit that the contractor would have earned had they performed the entire scope of work originally contracted for. Non--Commercial Item contracts usually contains the contract clauses Termination for Convience or a Changes Clause granting. The following discussion generally concerns non-commercial item contracts. I dont know what type of contract you are referring to.

The TFC clause is intended to provide an alternative to a government breach of contract. A breach would entitle the contractor to claim damages for lost business, lost profits, etc., in addition to increased costs. A TFC generally provides for recovery of expended costs plus profit on those costs, but not "lost profit".

A deductive change generally should be priced upon the concepts of an equitable adjustment, priced similar to an increase change. The equitable adjustment would include the difference in cost to the contractor plus an allowance for profit. The profit would be a credit if net costs are are credit. There have been exceptions to the profit credit where the contractor would have incurred a loss had the deleted work been accomplished.

If the original contract price would have resulted in a windfall, the change order credit only includes the cost savings plus profit on those savings, thus leaving "the contractor whole".

On the other hand, a partial TFC would provide compensation for actual costs incurred before the work was deleted, plus profit. There are exceptions where the contractor was in a loss position at the time of termination.

I've simplied the discussion, but bottom line is that the cocncept of "leaving the contractor whole" is different than a profit guarantee.

Does anyone know if there is a reference in FAR that talks about a contractor cannot have a reduction in profit and contract amount if the government needs to mod the contract because of the govt's mistake and the end result of the mod is a reduction in profit and /or contract amount . I thought I remembered that the contractor cannot be worse off after the mod .

Again, I dont know what type contract you are talikng about. If this is a Commercial Item contract, the contract generally includes "Contract Terms and Conditions -- Commercial Items", which might be supplemented by other terms and conditions or by negotiated termes and conditions. I've seen some contracts containing clauses for "Termination Fees" or "Restocking Fees" of 25% or 35% or something similar. The Commercial Items Terms and Conditions include Termination for Convenience and Changes provisions. The standard Changes language requires mutual agreement to change, so the Government couldnt unilaterally change the contract. The TFC provision is much simplified in comparison with the standard non-commercial item TFC clause, but the government can partially terminate work if it was wrongly added.

Another situation that I just thought about is variation in estimated quantity. Are you referring to an incorrect estimated quantity of unit-priced items? If so, that warrants separate discussion, depending upon the situation.

Please provide some more and clearer information to define the general situation. What clauses are in your contract that might apply to the situation? I dont think there are any standard terms and conditions guarantee contract amount or all anticipated profit, but its hard to generalize based upon the limited, cryptic scenario.

Does anyone know if there is a reference in FAR that talks about a contractor cannot have a reduction in profit and contract amount if the government needs to mod the contract because of the govt's mistake and the end result of the mod is a reduction in profit and /or contract amount . I thought I remembered that the contractor cannot be worse off after the mod .

If the government cuts work through a deductive change order under the terms of one of the changes clauses, and if the cut reduces the cost of performance, then the government is entitled to an equitable adjustment to reflect the reduced cost and an associated reduction in profit. This may mean that the contractor will earn less total profit than it would have earned if the contract had not been changed. It does not matter that the change is necessary because of a government mistake.

If the government cuts work through a partial termination for convenience, then the contractor is entitled to any costs incurred in partial performance of the terminated work and in preparation for further performance of it, and any cost incurred or to be incurred through impact on the work remaining, plus a profit on the work done. The contractor is not entitled to profit on the work that has not or will not be performed. If the contract is fixed-price, and if the contractor was going to suffer a loss on the terminated work, then the contractor must suffer the same loss in the termination settlement. It does not matter that the termination is necessary because of a government mistake.

In short, unless the government has breached the contract, the contractor is not entitled to anticipatory profits, i.e., the profits that it would have earned had the contract not been breached. Neither the changes clauses nor the termination clauses provide for anticipatory profits. Payment of anticipatory profits would amount to damages, which are not part of equitable adjustment or termination settlement.

You can find these rules in the various changes clauses and termination for convenience clauses.