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  • Question

    What does the FAR say about negotiating profit for contract modification that deletes a portion of the original work?


    Answer

    The FAR does not address this issue, but there is some case law on the matter.  The guiding principle followed by the courts is that "the contract price adjustment should not be used to reduce or increase profit or loss or convert a loss to a profit or vice versa." Olympiareinigung. GmbH, ASBCA No. 53643.  In another case Banta Company (GPOBCA No. 3-91 (1993)), the board stated that the correct deduction for profit is the projected profit the contractor would have earned had the contract not changed, NOT the originally projected profit.  If the contractor were in a loss position, NO profit should be deleted since none would have been earned had the contract run to completion.  Hope this helps.  Let me know if you have any questions.

     

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