• Costs

Equitable Adjustments. An equitable adjustment is the difference between the reasonable cost of the work required under the contract and the actual reasonable cost to the contractor of performing the changed work, plus a reasonable amount for overhead and profit. A contractor carries the burden of proving the amount by which a change increased its costs of performing on the contract (Hedlund Const. v US, CBCA No. 105) while the government bears the burden of a downward adjustment in contract price (Metric). Though the government argued the contractor was entitled to damages based on the government’s estimate, the Board ruled the damages were to be based on actual costs incurred (States Roofing, ASBCA No 54854).

Termination Settlement Costs. A termination for convenience is often characterized as converting a fixed price contract to a cost reimbursement contract that entitles the contractor to recover allowable costs incurred in the performance of the terminated work, a reasonable profit on work performed and certain additional costs associated with the termination. Once the termination for default is converted to one for convenience, the contractor becomes entitled to costs related to unpriced changes, constructive changes, suspension of work, differing site conditions, defective specs and even some work that might not have been complied with in all respects but if the government can show the contract was in a loss position, profit is not allowed (Abcon Assocs, PSBCA NO. 5291). Under a cost sharing arrangement the contractor is nonetheless entitled to the full amount of its costs under a termination for convenience but not for profit if the contract did not provide for it (Jacobs Engrg Group v US, 434 F.3d 1378).

Legal Costs. Legal fees incurred in the successful defense of qui tam claims under the False Claims Act are allowable where the contractor prevailed but are not recoverable where it was found liable (Boeing Co v DOE, CBCA No. 337). Legal costs associated with violations of the Clean Water Act brought about by a third party were deemed unallowable when they were incurred in an unsuccessful defense because they are considered to be “similar or related” to legal proceeding costs disallowed by FAR 31.205-47(b) (Southwest Marine v US, 535 F.3d 1012).

Contract Administration. For a long time boards and courts have distinguished between unallowable costs of prosecuting claims and allowable costs of contract administration where in a seminal case (Bill Strong) the basic guidance is that if the costs are incurred to permit a negotiated resolution of the problems that arose during contract performance they are presumably allowable costs of contract administration while if they are incurred to begin the process of litigation they are unallowable. The board found incurred costs for a claim preparation and consulting fees incurred before submission of the claim was for the purpose of furthering the negotiation process and hence allowable where the Board found the amount of entitlement to be that at the employee’s hourly rate rather than the amount quantified by the contractor (SUFI Network Svcs, ASBCA No 55306).

Limitation of Funds. Both the Limitation of Cost (FAR 52.232-20) and Limitation of Funds (FAR 52.23222) clauses are prescribed for cost reimbursable contracts where the LOC is used when the contract is fully funded and the LOF is used when incrementally funded. Both clauses require the contractor to give timely notice of impending cost overruns and relieve the government of liability over costs in excess of the ceiling amounts but there is a subtle difference of remedies for the contractor between the two clauses. Under the LOC clause, the government and contractor are entitled to negotiate an equitable distribution of all property produced or purchased under the contract when a contract is either terminated or “the estimated cost is increased” while under the LOF the contractor is entitled to the property only when the contract is terminated. Since the contracts (incrementally funded ones) were covered under the LOF, the contractor was not entitled to an equitable distribution since the contract was not terminated (System Integrated, ASBCA No. 54439).

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