Does the amount of liquidated damages collected from the U. S. Govt under a CPFF contract need to be credited back to the U. S. Govt due to the type of contract - CPFF. If so, is the applicable contract clause 52.216-7?
The liquidated damages that the subcontractor paid to the prime contractor is a form of compensation for an element of inadequate subcontractor performance. As the fixed-price subcontract value was not reduced, the prime contractor was, in theory, "made whole" by collection of the liquidated damages from the subcontractor. If the Government were to reduce its payment to the prime to account for the value of the liquidated damages collected by the prime, then the "made whole" element of the liquidated damages would essentially be negated. Please note that this is not an authoritative response. There may be federal regulatory requirements that negate this opinion.
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