B-171068, NOV. 19, 1970

B-171068: Nov 19, 1970

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A TARGET FEE OF 2-1/2% OF THE ESTIMATED COST WAS AGREED UPON. THE TARGET FEE DOES NOT HAVE TO BE ADJUSTED TO REFLECT THE DIFFERENCES BETWEEN THE TOTAL ESTIMATE OR TARGET COST AND THE TOTAL OF FUNDS ALLOCATED FOR THE PROJECT. THEREFORE THE ENTIRE AMOUNT OF FUNDS SHOULD BE REGARDED AS AVAILABLE UNTIL 85% OF THE TARGET FEE IS PAID. PAGE: REFERENCE IS MADE TO YOUR LETTER DATED OCTOBER 7. THE LETTER AND ITS ACCOMPANYING PAPERS WERE FORWARDED TO OUR OFFICE BY SECOND INDORSEMENT OF OCTOBER 13. THE CONTRACT IS OF THE COST-PLUS-INCENTIVE-FEE TYPE. A TARGET FEE EQUAL TO 2-1/2 PERCENT OF ESTIMATED OR TARGET COST WAS AGREED UPON AND THE PROVISIONS OF THE CONTRACT ARE SUCH AS TO PERMIT PARTIAL PAYMENTS TO COVER ALLOWABLE COSTS.

B-171068, NOV. 19, 1970

CONTRACTS - PAYMENTS - TARGET FEE PAYMENTS AUTHORIZING PAYMENT OF A TARGET FEE UNDER A COST-PLUS-INCENTIVE-FEE TYPE CONTRACT BETWEEN LTV AEROSPACE CORP., AND NAVAL AIR SYSTEMS COMMAND. UNDER A COST PLUS-INCENTIVE-FEE TYPE CONTRACT WHICH CONTAINS CLAUSES ON LIMITATION OF FUNDS, PAYMENT OF FEE, ETC., A TARGET FEE OF 2-1/2% OF THE ESTIMATED COST WAS AGREED UPON, THE TARGET FEE DOES NOT HAVE TO BE ADJUSTED TO REFLECT THE DIFFERENCES BETWEEN THE TOTAL ESTIMATE OR TARGET COST AND THE TOTAL OF FUNDS ALLOCATED FOR THE PROJECT. THEREFORE THE ENTIRE AMOUNT OF FUNDS SHOULD BE REGARDED AS AVAILABLE UNTIL 85% OF THE TARGET FEE IS PAID.

TO MR. PAGE:

REFERENCE IS MADE TO YOUR LETTER DATED OCTOBER 7, 1970, WITH ENCLOSURES, REQUESTING A DECISION AS TO THE PROPRIETY OF MAKING PAYMENT ON BUREAU VOUCHER NO. 25, IN THE AMOUNT OF $78, SUBMITTED AS A TEST CASE IN REGARD TO AMOUNTS WITHHELD FROM PARTIAL TARGET FEE PAYMENTS UNDER CONTRACT NO. N00019-68-C-0605, DATED JUNE 26, 1968, ENTERED INTO ON BEHALF OF THE UNITED STATES BY THE NAVAL AIR SYSTEMS COMMAND WITH THE MISSILES AND SPACE DIVISION, LTV AEROSPACE CORPORATION, DALLAS, TEXAS. THE LETTER AND ITS ACCOMPANYING PAPERS WERE FORWARDED TO OUR OFFICE BY SECOND INDORSEMENT OF OCTOBER 13, 1970, FROM THE NAVY ACCOUNTING AND FINANCE CENTER, WASHINGTON, D.C.

THE CONTRACT IS OF THE COST-PLUS-INCENTIVE-FEE TYPE. IT CONTAINS APPROVED CONTRACT CLAUSES ON THE SUBJECTS OF LIMITATION OF FUNDS, PAYMENT OF FEE, AND ALLOWABLE COST, INCENTIVE FEE, AND PAYMENT. A TARGET FEE EQUAL TO 2-1/2 PERCENT OF ESTIMATED OR TARGET COST WAS AGREED UPON AND THE PROVISIONS OF THE CONTRACT ARE SUCH AS TO PERMIT PARTIAL PAYMENTS TO COVER ALLOWABLE COSTS, PLUS PRORATED PORTIONS OF THE TARGET FEE.

FUNDS ALLOTTED FOR PERFORMING THE CONTRACT ARE AT THIS TIME CONSIDERABLY LESS THAN THE TOTAL ESTIMATED AMOUNT OF THE CONTRACT, AND THE QUESTION WAS RAISED, IN VIEW OF THE FUNDING LIMITATION, AS TO WHETHER THE ADMINISTRATIVE CONTRACTING OFFICER WAS WARRANTED IN APPROVING FULL PAYMENT OF PRORATED TARGET FEE AMOUNTS INCLUDED IN CLAIMS SUBMITTED BY THE CONTRACTOR FOR THE PURPOSE OF OBTAINING PARTIAL PAYMENTS UNDER THE CONTRACT. IN THAT CONNECTION, PARAGRAPH (C) OF THE ALLOWABLE COST, INCENTIVE FEE, AND PAYMENT CLAUSE OF THE CONTRACT PROVIDES THAT, AFTER PAYMENT OF 85 PERCENT OF THE APPLICABLE FEE, FURTHER PAYMENT ON ACCOUNT OF THE FEE SHALL BE WITHHELD UNTIL A RESERVE OF EITHER 15 PERCENT OF THE APPLICABLE FEE, OR $100,000, WHICHEVER IS LESS, SHALL HAVE BEEN SET ASIDE.

IT HAS BEEN SUGGESTED, IN EFFECT, THAT THE 15 PERCENT WITHHOLDING REQUIREMENT SHOULD APPLY TO THE AMOUNT OF THE TARGET FEE AS ADJUSTED FROM TIME TO TIME TO REFLECT DIFFERENCES BETWEEN THE TOTAL ESTIMATED OR TARGET COST OF THE PROJECT AND THE TOTAL OF FUNDS ALLOTTED FOR PERFORMANCE OF THE CONTRACT. THE CONTRACT DOES NOT SPECIFICALLY INDICATE THAT ANY SUCH ADJUSTMENT WOULD BE NECESSARY FOR THE PURPOSE OF MAKING PARTIAL PAYMENTS UNDER THE CONTRACT, AND THE ADMINISTRATIVE CONTRACTING OFFICER HAS EXPRESSED THE OPINION THAT TO WITHHOLD FEE PRIOR TO REACHING THE STATUS OF FEE PAYMENT SET FORTH IN THE CONTRACT WITHHOLDING PROVISIONS IS INCONSISTENT WITH THE PURPOSE OF INCREMENTAL FUNDING. THE ADMINISTRATIVE CONTRACTING OFFICER THUS CONCLUDED THAT THE ENTIRE AMOUNT OF INCREMENTAL FUNDS FURNISHED SHOULD BE REGARDED AS BEING AVAILABLE FOR PAYMENT UNDER THE CONTRACT UNTIL SUCH TIME AS 85 PERCENT OF THE TARGET FEE HAS BEEN PAID.

THE CONCLUSION REACHED BY THE ADMINISTRATIVE CONTRACTING OFFICER RELATIVE TO THE MATTER APPEARS REASONABLE. ACCORDINGLY, BUREAU VOUCHER NO. 25 IS RETURNED HEREWITH AND YOU ARE ADVISED THAT PAYMENT THEREON OF THE STATED AMOUNT OF $78 IS AUTHORIZED, IF OTHERWISE CORRECT.