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  • Question

    1. Will it impact the fixed fee, i mean will it be reduced? if yes under what regulation or authority? 2. Do we need to re-negotiate the fixed fee? 3. There will be termination cost involved, are there any specific aspects and elements that we should especially be aware of? 4. Any advise you would like to provide for such cases.


    Answer

    Descoping is always preferable in my opinion to a T4C. Under a partial T4C, the company  is required to do an inventory- they get to charge for that as a direct cost. They have to negotiate settlements with subcontractors- they  get to charge for those costs. They get to submit a termination settlement proposal- and they have a year to do that. Smart contractors set up a settlement proposal office and put corporate management in that office-- as a direct charge instead of overhead. Unless it's a no cost T4C, you want to avoid it if at  all possible
     
    The example I always cite is the B-1 bomber contract ordered by President Carter to be terminated because it was too costly. The Air Force contract was 3 planes for $900 million. After all termination costs were settled, the Air Force payed $1.5 billion for no planes.
     
    Under a de-scoping, you will not have to pay for a settlement proposal or a settlement proposal office- so I would always try to de-scope. I wouid work with the contractor to negotiate the costs of the de-scoping before the bi-lateral contract modification is signed.
     
    The fee should also be reduced.  If the fee was based on complex work that will no longer be performed under the contract, the new fee should take that into consideration.


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