When All Else Fails, Go For a FAR Part 50 Bailout

There is a little known provision in the Federal Acquisition Regulations (FAR) that is used so infrequently that most Government acquisition personnel, while perhaps having heard of it, have never encountered it in their day-to-day tasks. It is found in FAR Part 50 and is entitled Extraordinary Contractual Actions. It is sometimes referred to as Extraordinary Contract Relief.

Government contractors encounter financial difficulties all the time. Its not unusual for contractors to lose money on a contract or file for bankruptcy. In most cases, life for the Government goes on. In the case of a bankrupted construction contractor, there is probably a performance bond allowing another company to step in and finish the contract. If it involves a supplier of commodities, the Government can find another supplier if the first one fails. But some contractors are too important to fail - they are essential to the national defense. When something happens to them, there is the possibility of a bailout.

We were first exposed to Extraordinary Relief when a company that guaranteed military housing ran into financial difficulties. The 20 year contract to provide military housing at a fixed rate started off good. The contract was profitable for a few years. However the estimates for repair and maintenance contemplated in the initial lease agreement were woefully inadequate for an aging housing complex and a "hot" economy. Eventually, the contractor was not even able to pay for basic utility costs. Tenant complaints (military officers) proliferated. The Government's attempts to enforce contract compliance didn't help. Eventually, the contractor filed a claim for extraordinary relief. Since there were no other alternatives to housing military officers, the Government considered it a national security issue and entertained and ultimately granted extraordinary relief to the contractor.

FAR Part 50 authorizes some agencies, to enter into, amend and modify contracts, without regard to other provisions of law related to making, performing, amending or modifying contracts, whenever the President considers that such action would facilitate the national defense.

When an actual or threatened loss under a defense contract, however caused, will impair the productive ability of a contractor whose continued performance on any defense contract or whose continued operation as a source of supply is found to be essential to the national defense, a contract may be amended without consideration but only to the extent necessary to avoid such impairment to the contractor's productive ability.

When a contractor suffers a loss (not merely a decrease in anticipated profits) under a defense contract because of Government action, the character of the action will generally determine whether any adjustment in the contract will be made, and its extent. When the Government directs its action primarily at the contractor and acts in its capacity as the other contracting party, the contract may be adjusted in the interest of fairness. Thus, when Government action, while not creating any liability on the Government's part, increases performance cost and results in a loss to the contractor, fairness may make some adjustment appropriate.

The provision may also be used to correct certain mistakes including

• a mistake or ambiguity consisting of the failure to express, or express clearly, in a written contract, the agreement as both parties understood it
• a contractor's mistake so obvious that is was or should have been apparent to the contracting officer
• a mutual mistake as to a material fact.

The likelihood of obtaining relief under FAR Part 50 is remote. But for contractors that are facing financial distress and can convince someone in the Government that there's is an underlying national security issue, it just might be the ticket to saving the company.