B-137343, OCT. 21, 1968

B-137343, OCT. 21, 1968

TO MR. HOWARD P. WILE:

REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 13, 1968, RELATIVE TO OUR DECISION, B-137343, AUGUST 12, 1964, AND A DECISION OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS, ASBCA NO. 12513, DATED JULY 30, 1968.

YOU INDICATE THAT IN OUR DECISION IT WAS HELD THAT COST OVER-RUNS UNDER COST-REIMBURSABLE TYPE CONTRACTS ARE NOT NECESSARILY FORESEEABLE AND THAT THE GOVERNMENT'S RIGHTS UNDER THE COST LIMITATION CLAUSE OF SUCH CONTRACTS MIGHT PROPERLY BE WAIVED IF PERFORMANCE COSTS EXCEEDED THE COST LIMITATION BY AN AMOUNT NOT IN EXCESS OF THE DIFFERENCE BETWEEN THE CONTRACTOR'S ACTUAL OVERHEAD EXPENSES AND OVERHEAD COMPUTED ON THE BASIS OF PROVISIONAL INDIRECT COST RATES PERMITTED TO BE USED FOR BILLING PURPOSES IN OBTAINING CONTRACT PROGRESS PAYMENTS. YOU STATE YOU HAD RECENTLY BEEN INFORMED THAT ASBCA NO. 12513 HELD THAT A CONTRACTOR IS OBLIGATED TO GIVE NOTICE OF AN ANTICIPATED COST OVERRUN, EVEN THOUGH HE COULD NOT BE AWARE IN ADVANCE OF HIS ULTIMATE INDIRECT COST RATE, AND NOW SUGGEST THAT ASBCA NO. 12513 IS THEREFORE INCONSISTENT WITH OUR DECISION.

IN B-137343, AUGUST 12, 1964, WE DID NOT DECIDE WHETHER THE CLAIM IN QUESTION SHOULD BE ALLOWED. OUR DECISION INDICATED THAT WE HAD ALLOWED CLAIMS OF CONTRACTORS WHOSE PERFORMANCE COSTS EXCEEDED CONTRACT COST LIMITATIONS SOLELY BECAUSE OF THE CONTRACTORS' APPARENT INABILITY TO DETERMINE DURING CONTRACT PERFORMANCE WHETHER PROVISIONAL OVERHEAD RATES WERE SUFFICIENT TO COVER THEIR ACTUAL OVERHEAD COSTS. AS EXAMPLES OF THOSE CASES, WE CONSIDERED THAT WE WERE NOT REQUIRED TO OBJECT TO A PROPOSED MODIFICATION OF A SUBCONTRACT UNDER AN ARMY CONTRACT WITH THE JOHNS HOPKINS UNIVERSITY (B-127863, JUNE 6, 1956), OR TO FULL REIMBURSEMENT OF OVERHEAD COSTS UNDER A CONTRACT BETWEEN THE TULANE UNIVERSITY AND THE DEPARTMENT OF THE INTERIOR (B-143892, OCTOBER 31, 1960). WE FOUND THAT IT WAS NOT IMPROPER FOR THE DEPARTMENTS CONCERNED TO RATIFY THE ADDITIONAL EXPENDITURES INVOLVED AS ALLOWABLE CONTRACT COSTS, IN VIEW OF THE PARTICULAR CIRCUMSTANCES AND BECAUSE IT APPEARED THAT THE CONTRACTING OFFICER WOULD HAVE PERMITTED A CONTINUANCE OF THE WORK AND APPROVED INCREASES IN THE CEILING AMOUNTS OF THE CONTRACT AND SUBCONTRACT IF THE GOVERNMENT HAD BEEN FURNISHED TIMELY NOTICE THAT COST OVERRUNS WOULD BE EXPERIENCED.

THE QUESTION WHETHER THERE SHOULD BE A RATIFICATION OF A CONTRACTOR'S ADDITIONAL EXPENDITURES WHERE TIMELY NOTICE OF AN ANTICIPATED COST OVERRUN HAS NOT BEEN FURNISHED TO THE GOVERNMENT IS A MATTER PRIMARILY FOR CONSIDERATION AND DETERMINATION BY THE AGENCY WHOSE AVAILABLE APPROPRIATIONS OR FUNDS WOULD BE AFFECTED BY AN INCREASE IN THE CONTRACT CEILING AMOUNT. AS DISTINGUISHED FROM THE CASES IN WHICH WE HAVE EXPRESSED NO OBJECTION TO PROPOSED ADMINISTRATIVE ACTIONS, THE FACTS AS SET FORTH IN ASBCA NO. 12513 SHOW THAT THE CONTRACTING OFFICER DENIED THE APPELLANT'S LATE REQUEST FOR AN INCREASE IN THE CONTRACT CEILING AMOUNT AND, PRESUMABLY, THE CONTRACTING OFFICER DID NOT FIND A SUFFICIENT EQUITABLE BASIS TO JUSTIFY REPORTING THE MATTER TO OUR OFFICE WITH A RECOMMENDATION THAT WE APPROVE PAYMENT OF AN ADDITIONAL AMOUNT TO THE APPELLANT. THE CEILING AMOUNT OF THE APPELLANT'S CONTRACT HAD BEEN ADJUSTED EFFECTIVE AS OF NOVEMBER 27, 1963, AND THE ARMED SERVICES BOARD OF CONTRACT APPEALS DETERMINED THAT, DURING THE PERIOD NOVEMBER 1963 TO JANUARY 1965, WHEN THE CONTRACT WORK APPARENTLY WAS COMPLETED, THE APPELLANT KNEW OR SHOULD HAVE KNOWN WHAT ITS APPROXIMATE OVERHEAD RATE WAS AND HOW ITS COSTS INCURRED COMPARED WITH TOTAL ESTIMATED COSTS AS STATED IN THE AMENDED CONTRACT SCHEDULE.

IT IS APPARENT THAT THE BOARD'S DECISION IS NOT INCONSISTENT WITH B 127863, JUNE 6, 1956, OR B-143892, OCTOBER 31, 1960, OR WITH THE ACTIONS TAKEN BY OUR OFFICE IN OTHER CASES UNDER OUR DIRECT SETTLEMENT OF CLAIMS PROCEDURE, INVOLVING ADJUSTMENTS IN CONTRACT CEILING AMOUNTS UNDER CIRCUMSTANCES INDICATING THAT THE CONTRACTORS APPARENTLY WERE NOT ABLE TO DETERMINE DURING CONTRACT PERFORMANCE WHETHER PROVISIONAL OVERHEAD RATES WOULD BE SUFFICIENT TO COVER THEIR ACTUAL OVERHEAD COSTS AND THAT THE CONTRACTING OFFICERS WOULD HAVE INCREASED THE CEILING AMOUNTS AT THE PROPER TIMES IF SO REQUESTED.