Scenario 7-2

Topics: Cost, Cost-plus contract, Costs Pages: 13 (4682 words) Published: April 13, 2013
This contract was for the delivery of Munitions & Armaments Deterrent (MAD) kits used for All-Terrain Personnel Transport Vehicles (ATPTV). A competitive (noncommercial) award was made to Armadillo Company as a Fixed-Price Incentive Fee contract. This contract was awarded with a base year target price of $42 million for the first 1,500 kits with 2 option years for 750 kits per year, which were separately priced. The kits were to be delivered in four lots of 375, with a 10% random sampling to field test the kits at a no more than 1% failure rate before acceptance. There were issues that began from the initial delivery that were tested and found to have a failure rate of 2%. The contractor has requested our intervention to assist in understanding the actual performance criteria towards testing the kits and communicated that there would be a delay in delivering the kits until this was resolved. This memo will identify, discuss, and explain the relevant issues and recommend viable options to resolve this issue. The initial 375 kits were delivered on time to the government representative who initiated the 10% random sampling field test. It is uncertain, at this time, if this representative processed this sample test in compliance with the awarded contract Quality Assurance Surveillance Plan (QASP) or performed an invalid test that was not part of the contract. A change to the sample testing criteria was not communicated through the contracting office or through the contractor. If the government actually required more stringent testing, that might be the potential impact of this change? Explain and assess.

If it is determined the government actually required a more stringent testing, the government must submit a change order and an equitable adjustment may occur from this contract modification. This equitable adjustment would be towards the target cost so as to not penalize the contractor’s profit.

What are the contractor’s obligations under the contract? Have they been met? Explain.

However, the contractor is required to comply with the contract deliverables and immediately comply with the requirements. To date, the contractor has not met his obligation under the contract, to deliver 375 kits that would pass the random sampling field test. The cost-plus-incentive-fee contract is a cost-reimbursement contract that provides for the initially negotiated fee to be adjusted later by a formula based on the relationship of total allowable costs to total target costs. This contract type is intended to provide an incentive for the contractor to manage the contract effectively; therefore the contractor is provided with payment for allowable costs and should proceed with meeting the deliverable schedule. What would be your next step?

My next step is to communicate to the contractor his obligation to comply with the stated contract. I will also attempt to schedule a meeting between the contractor and the technical engineers to ensure everyone understands the requirement, testing procedures, and overall contract requirements. Communication is the key to success. Is FAR 52.242-17, 52.242-15, or 52.243-1 helpful m resolving this situation? Explain. 52.242-17 -- Government Delay of Work. No, “However, no adjustment shall be made under this clause for any delay or interruption to the extent that performance would have been delayed or interrupted by any other cause, including the fault or negligence of the Contractor, or for which an adjustment is provided or excluded under any other term or condition of this contract. 52.242-15 -- Stop-Work Order. Possibly, “Within a period of 90 days after a stop-work is delivered to the Contractor, or within any extension of that period to which the parties shall have agreed, the Contracting Officer shall either -- (1) Cancel the stop-work order; or (2) Terminate the work covered by the order as provided in the Default, or the Termination for...
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