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  • Question

    Once suspension is lifted, if material prices have escelated, Government will pay for the escelation price. If the material prices de-escelate, does the Government get a credit back.


    Answer

    Given the limited information provided by the submitter, the assumption has been made based on the indication that the work has been “suspended” that this is a construction contract with 52.241-11 Suspension of Work as the operative clause.  The clause allows the Contracting Officer (KO) to suspend the work for “the period of time that the Contracting Officer determines appropriate for the convenience of the Government.”

    The submitter indicated the suspension was for 14-months – this appears to be a lengthy suspension and so one must consider whether the KO’s suspension was “unreasonable.”  This becomes an important detail in determining the equitable adjustment to the contract under the clause, as the clause goes on to say: 


     “If the performance of all or any part of the work is, for an unreasonable period of time, suspended, delayed, or interrupted (1) by an act of the Contracting Officer in the administration of this contract, or(2) by the Contracting Officer’s failure to act within the time specified in this contract (or within a reasonable time if not specified), an adjustment shall be made for any increase in the cost of performance of this contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption, and the contract modified in writing accordingly.”

    Note, that if this clause is the operative clause for the equitable adjustment that this clause does not provide for any decrease in cost for example a decrease in the price of material. Without more details on the situation (rationale for the suspension) or the specific terms and conditions of the contract itself, it is difficult to conclude whether 14-months is “unreasonable.” This point is a critical one under this clause, as the clause allows only for adjustment for an “increase” in the cost for an “unreasonable” delay. 

    “However, no adjustment shall be made under this clause for any suspension, delay, or interruption to the extent that performance would have been so suspended, delayed, or interrupted by any other cause, including the fault or negligence of the Contractor, or for which an equitable adjustment is provided for or excluded under any other term or condition of this contract.”


    Any other reason for adjustment must be addressed under any other terms and conditions in the contract. Without insight into the other terms and conditions or clauses in the contract, it is not readily apparent if there is another basis for an equitable adjustment.


    Again, making an assumption that this is a firm-fixed price contract, the government cannot downward adjust the price, if the price of materials has decreased unless the contract specifically has a stated term or condition that authorizes such an adjustment, as specified in accordance with
    FAR 16.201:
     “Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances.”

    The FAR goes on to say under
    16.202-1:
    “A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.”
    This means that if the cost experience is positive for the contractor i.e. material prices decreasing that the contract is also not subject to adjustment – this is the nature of the risk and responsibility that the contractor assumes under this type of contract.

    My advice is to read the terms and conditions of your contract carefully to determine under what basis, the contract can be adjusted.  If I have assumed incorrectly, that this is a construction contract, then look in your contract for
    52.242-15 “Stop Work.” Note that 52.242-15 does not apply the “unreasonable delay” standard and so there is no need to determine if the delay is “unreasonable” before the contractor is entitled to an equitable adjustment.

    You might also find some good advice and case law under the Chapter 6 “Delays” in Cibinic, J., Nash, R., & Nagle, J. (2006).  Administration of Government Contracts.  CCH Incorporated. Given the length of the suspension, you are highly encouraged to seek the guidance of your legal counsel.



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