(Editor’s Note.  The following illustrates the need to strictly adhere to notification requirements on cost type contracts, even if  estimated costs are uncertain.)

The Limitation of Cost (LOC) clause in ITC’s cost type contract required the contractor to notify the contracting officer when it anticipated that within the next 60 days its costs, including subcontractor costs, should exceed 75 percent of the contract’s estimated price.  Rather than submitting notice on time, ITC waited until about six weeks after completing its delivery order to notify the Navy it was seeking $1.1 million over and above the ceiling of its contract.  ITC asserted it was unable to provide timely notice of expected cost overruns because it had to first review a subcontractor’s request for equitable adjustment to ensure its claimed costs were allowable and payable.  In rejecting its claim, the Board stated the LOC clause “does not limit a contractor’s notice obligation to those costs proven to be allowable to a certitude” but rather the notice is required when the contractor “has reason to believe” it expects cost increases.  The Board ruled the delay in notifying the Navy hurt the Navy because it was unable to assess the current status of the contract from a cost and technical point of view and ITC was unable to show the claimed additional costs were not reasonably foreseeable (International Technology Corp., ASBCA No. 54136).

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