LOC and LOF Clauses Apply at the Delivery Order Level

(Editor’s Note. The proliferation of ID/IQ contracts where awards of task and delivery orders predominate often leads to confusion as to what level of the contract do various contract clauses apply – the contract as a whole or individual task and delivery orders. The following addresses the issue for limitation of cost and funds clauses.)

Sharp held two indefinite-delivery, indefinite-quantity cost-plus-fixed fee contracts, one of which included both the Limitation of Cost (FAR 52.232-20) and the Limitation of Funds (FAR 52.232-22) clauses requiring notification of potential overruns while the other included only the LOF clause. The Navy issued dozens of delivery orders, some fully funded and some incrementally funded. The contractor experienced cost overruns as a result of unexpected increases in medical insurance and workers compensation costs and increased use of contract labor due to sporadic government work ordering so it orally notified the agency of an estimated $1 Million cost overrun. The Board ruled the notification was insufficient because it did not identify the amount of each DO overrun or provide an estimate of the amount of additional funds needed to continue performance. The Board also added that though the second contract did not contain the LOC clause, it nevertheless had a duty to notify the CO of overruns on the DOs (George G. Sharp, Inc. ASBCA 55385).

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