Wednesday, May 15, 2019

The "Order Limitation Clause"

FAR (Federal Acquisition Regulation) 52.216-19, Order Limitations, is found in solicitations and contracts when a definite-quantity contract, a requirements contract, or an indefinite-quantity contract is contemplated. The clause provides for minimum orders, maximum orders and procedures when the Government exceeds its maximum order limitation.

Concerning minimum orders, if the Government places an order less than the minimum order, the contractor is not obligated to furnish those supplies or services under the contract.

For maximum order, the contractor is not obligated to honor (i) any order for a single item in excess of (dollar figure or quantity), (ii) any order for a combination of items in excess of (dollar figure or quantity) or (iii) a series of orders from the same ordering office within a specified number of days that together call for quantities exceeding the limitation specified above.

Notwithstanding the maximum order limitation, contractors must honor any order exceeding the maximum order limitations  unless that order (or orders) is returned to the ordering office within a set number of days (usually three days) after issuance with written notice stating its intent not to ship the item called for and the reasons. At that point, the Government may acquire the supplies or services from another source.

In a recent Board case (Armed Services Board of Contract Appeals), WIT Associates files a claim with the Navy for additional costs related to orders that exceeded the maximum quantity specified in the Order Limitation clause, presumably because WIT incurred additional costs to honor the Navy's order.

The Board threw out the appeal, noting that WIT could have (and should have) denied the order within three days according to the contract terms - especially if honoring the order would cause it to incur costs it would not have otherwise incurred. There are a lot of reasons why a company might incur extra costs. Suppose the Government wanted some extra lawn-cutting services performed but to provide those extra services, required the contractor to incur overtime costs that were not factored into its contract price. Or suppose the Government's orders were for supplies that the contractor did not have in inventory and to meet the delivery date, the contractor was required to pay expedited fees to its vendor.

Remember, you don't have to honor orders in excess of the maximum quantities specified in the contract. You can and its often to your benefit but if the order(s) put you in a situation where you wold lose money, it might be better to return the order.

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