Thursday, April 17, 2014

Claims for Extraordinary Relief

There's a little known and seldom used provision in the United States Code that offers contractors relief when all other avenues of contractual remedies have been exhausted. It is often referred to as "Claims for Extraordinary Relief" and is buried in 50 U.S.C. Sections 1431 through 1435. This provision gives the President power to authorize Government departments and agencies to enter into, amend, or modify contracts, without regard to other laws related to making, performing, amending, or modifying contract, whenever such action would facilitate the national defense. Essentially, if there are no avenues available through the FAR (Federal Acquisition Regulations) to address a financial woe, there might be relief available through "Extraordinary Relief". First however, a company has to be determined to be essential to the national defense. This doesn't apply just to DoD contracts. DOE (Energy) has its share of Extraordinary Relief situations, often related to nonproliferation events and activities.

Here are some examples of situations where Extraordinary Relief has been granted.

  • When a loss under a contract impaired the contractor's ability to perform or act as a source of supply under a contract that is essential to the national defense, there may be an amendment without consideration.
  • Amendment or modification to correct or mitigate a mistake
  • Amendment to formalize informal commitments to a person who took action without a formal contract.

There is an upward limit on recovery - its $25 million unless Congress (the Committees on Armed Services of the Senate and House) have been notified in writing and given 60 days to consider it. Contracting Officers typically have a $50 thousand limit. Anything between that and $25 million must be approved by someone higher than an Assistant Secretary.

A Extraordinary Relief claim is like a financial bailout. A contractor must have exhausted all other avenues for raising working capital. To this end, the Government focuses on aspects of financial capability. For example, in reviewing a contractor's claim for extraordinary relief, the Government will request, review, and consder:

  1. The contractor's financial position based on the most current information available, and the potential effect on that position if contract performance continued to completion.
  2. Net working capital changes and changes in financial position since startint the contract.
  3. A comparative statement of costs experienced under the contract and other similar production.
  4. The estimated costs to complete the contract.
  5. The compensation paid to the contractor's key personnel.
  6. The extent of financial assistance already furnished by the Government.
  7. Segregation of the profit and loss statement between commercial and Government business.
  8. Any legal proceedings pending against the contractor.
  9. Any unusual factors which may impair the contractor's ability (financial or other) to perform the contract.
  10. Contract inventories and their value in case of default.

If your contract is to cut grass on a military base, you're probably not going to be determined to be essential to the national defense and you're not going to succeed in getting extraordinary relief. If you go bankrupt, the Government will just find another grass-cutter. However, if your contract is to provide housing for military in a war zone, you might have a shot.

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