Thursday, August 20, 2015

Fixed Price means "Fixed Price" - Contractor Assumes Risks

The U.S. Court of Federal Claims published a decision earlier this week involving a equitable adjustment claim for increased costs under a fixed price contract.

The entire decision can be found here.

The contract called for Agility Defense and Government Services (Agility) to dispose of surplus property received from the military services as troops were departing from Iraq, Afghanistan, and Kuwait. Agility sought   $6.9 million in labor costs it incurred to process property in excess of anticipated quantities.

Under the contract, Agility was responsible for disposing all property received at designated locations regardless of quantity. There was a lot of risk in this contract because if quantities were significantly higher than expected, as they turned out to be, the chances of exceeding the firm-fixed-price were great. Mitigating this risk somewhat, was the contract provision that Agility could keep the proceeds of the sale of scrap material. Thus, if contract quantities were higher than expected, theoretically the contractor's revenue from the sale of scrap would also be higher.

Bottom line, the Court found that the Government's estimated quantities provided to prospective offerors were based on accurate historical data. Even though these estimates proved to be low in comparison to the actual quantities encountered during contract performance, the Government was not negligent in furnishing the historical data. "To be sure, Agility assumed a higher than normal risk in agreeing to a contract of this type, but that was a choice it voluntarily made. In a firm-fixed-price contract like this one, the contractor assumes the risk of controlling its costs of performance, unless it can show that the Government's estimates of quantities were negligent in some respect. The evidence does not support Agility's attempt to shift the risk to the Government and therefore Agility's claimes are denied"

Agility based its claim on three theories. First, the Government did not disclose its "superior knowledge" about scrap estimates and troop movements. Second, the historical data provided to the offerors was negligent. And third, the Government estimates were not reasonable accurate. The court denied each of these theories and denied Agility's claim for an equitable adjustment.

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