1. Does the Government have an obligation to pay the contractor for the suspended portion? Although the contractor shifted most of their workforce to other projects, they still requested for the Government to pay for management cost of the prime contractor (Project Manager, QC Manager, Safety, Superintendent, Scheduler...).
2. Does the Government have an obligation to pay for "extended overhead" for the time extension? The contractor is requesting a time extension for 893 days (MEC work and actual construction).
3. How do you compute "extended overhead" of allowable by FAR.
1. The FAR references quoted below in pertinent part are applicable to this response.
FAR 15.403-4 -- Requiring Certified Cost or Pricing Data
(a)(1) Unless an exception applies, certified cost or pricing data are required before accomplishing any of the following actions expected to exceed the current threshold or, in the case of existing contracts, the threshold specified in the contract:
(iii) The modification
of any sealed bid or negotiated contract (whether or not cost or pricing data were initially required) or any subcontract covered by paragraph (a)(1)(ii) of this subsection. Price adjustment amounts must consider both increases and decreases (e.g., a $200,000 modification resulting from a reduction of $500,000 and an increase of $300,000 is a pricing adjustment exceeding $750,000).
FAR 15.403-5 -- Instructions for Submission of Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data
(b)(1) Format for submission of certified cost or pricing data. When certification is required, the contracting officer may require submission of certified cost or pricing data in the format indicated in Table 15-2 of 15.408.
FAR 15.408 -- Solicitation Provisions and Contract Clauses
Table 15-2 -- Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data Are Required
II. -- Cost Elements
Depending on your system, you must provide breakdowns for the following basic cost elements, as applicable:
B. Direct Labor
. Provide a time-phased (e.g., monthly, quarterly, etc.) breakdown of labor hours, rates, and cost by appropriate category, and furnish bases for estimates.
C. Indirect Costs
. Indicate how you have computed and applied your indirect costs, including cost breakdowns. Show trends and budgetary data to provide a basis for evaluating the reasonableness of proposed rates. Indicate the rates used and provide an appropriate explanation.
F. Facilities Capital Cost of Money. When you elect to claim facilities capital cost of money as an allowable cost, you must submit Form CASB-CMF and show the calculation of the proposed amount (see FAR 31.205-10).
FAR 52.242-14 -- Suspension of Work
(b) 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: based on the facts stipulated in this inquiry, the remainder of this clause as quoted below does not appear to be applicable to this acquisition situation:
“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.”
2. The following references are also applicable to this response.
A. Defense Contract Audit Agency Manual, Chapter 12, Auditing Contract Termination, Delay/Disruption, and Other Price Adjustment Proposals or Claims (Sept 2016)
Section 12-803 – Auditing Unabsorbed Overhead
Section 12-804 – Eichleay Method to Measure Unabsorbed Overhead
B. The following document reference derived from DAU CON244, Constructing Contracting is also applicable to this response: “CON244 Excerpts- Methods for Computing Overhead.pdf” and can be downloaded at the following link:
[To be sent separately]
3. As set forth in contract clause FAR 52.242-14(b)
, the Government normally would be liable for an increase in the cost of performance of the contract (excluding profit) that was caused by the unreasonable suspension, delay, or interruption that in turn caused an increase in Extended or Unabsorbed overhead costs, which appears to be the case here unless an exception applies. However, pursuant to FAR 15.403-4(a)(1)(iii)
and FAR 15.403-5(b)(1)
, the contractor is required to submit certified cost or pricing data in accordance with FAR 15.408
, Table 15-2.II
to support its proposal for an increase to the cost of performance resulting from such delay.
4. As described in Ref. 2B (pdf file pages 3 & 4), “Extended Overhead” refers to the additional overhead necessary to be absorbed by a particular contract as a result of a time extension. “Unabsorbed Overhead” refers to the amount of indirect expense actually incurred that would have been allocated to the contract had the delay not occurred, and which was not recovered revenue from any other work. Note that such delay does not increase a contractor’s fixed indirect costs.
5. Ref. 2B describes the following methods for calculating overhead costs for construction contracts:
- Normal Method
- Alternate Method (not applicable in this case)
- Daily Rate Method
- Fixed & Variable Cost Method
- Eichleay Formula
6. In cases involving delay and disruption of construction contracts, contractors prefer to use the Eichleay Formula because this method generally results in the highest contract adjustment. However as described in Ref. 2A, Section 12-804, as a result of various court cases the contractor must first justify the following in order to be entitled to the Eichleay Formula to calculate any such construction contract cost adjustment:
(1) The delay/suspension was Government caused.
(2) The Government required the contractor to standby
during the delay/suspension period.
(3) It was impractical
for the contractor to take on other work.
(4) The delay/suspension caused the contractor to be unable to complete the contract within the original contract performance period, as extended by any modifications.
7. However as also described in Ref. 2A, Section 12-804, even if the contractor has established a prima facie case for recovery of Eichleay damages by asserting these prerequisites, the Government can still rebut the contractor’s prima facie case by showing that:
(1) It was not impractical for the contractor to obtain a replacement contract(s) during the delay/suspension period (could be the case here given the facts stipulated),
(2) The contractor’s inability to take on other work was not caused by the Government delay/suspension (i.e., no standby order), or
(3) The contractor was able to reduce fixed overhead expenses during the period of delay/suspension.
8. Finally, the use of the Eichleay Formula to adjust construction contract costs to recover “Unabsorbed Overhead” has been the subject of a long line of court cases examining various circumstances specific to each case. Therefore, the contracting officer should first consult agency legal counsel to determine whether the Eichleay Formula should be applied to this particular acquisition situation.