Government is Not Responsible for Contractor’s Cost Overrun
(Editor’s Note. The following demonstrates the important of tracking costs and notifying the government of any cost overruns before they occur.)
PHI’s cost plus fixed fee contract with an estimated cost of $37,730 to provide a prototype item included the Limitation of Cost clause that required PHI to notify the CO whenever it believed certain cost thresholds would be surpassed and once notification was made PHI was not obligated to continue performance until the CO notified PHI it was increasing the estimated cost. A DCAA auditor visited PHI and found PHI personnel were not keeping track of their contract ceiling price where PHI still invoiced the government for an additional $300,000 of claimed costs to complete the prototype. When the CO refused payment asserting any amounts over $37,750 were unallowable PHI filed an appeal seeking $1.3 million. The Board denied the claim stating PHI failed to adhere to the LOC clause that would have notified the CO the cost of performance would exceed the original estimated amount. The Board stated PHI had ample time to notify the CO because it knew its costs would exceed the estimated amount shortly after it received the contract and moreover, the DCAA auditor advised PHI before, during and after the audit of its LOC clause restrictions. In addition, the Board ruled the CO never notified PHI of any increase in the estimated cost but rather the government consistently and clearly told PHI that no additional funding would be made (PHI Applied Physical Sciences Inc., ASBCA No. 56581).
