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Sometimes, a company is so anxious to receive a government contract that it ignores warning signs in the solicitation and accepts a firm-fixed-price contract when the contract type is not appropriate for the circumstances. Often the warning signs are subtle and consist of vague specifications, but in other cases, the warning signs are written, literally in capital letters. One such contract resulted in the ASBCA issuing a decision on March 30, 2016, on case number 58243. This case upheld a termination for default issued April 23, 2012, against Highland Al Hujaz Co., Ltd. This case illustrates both the warning signs the contractor should have heeded and the consequences.

In February 2009, the Corps issues a solicitation for a firm fixed price (FFP) contract for design and construction of an ANA Corps Support Battalion (CSB) to accommodate 700 soldiers initially and ultimately accommodate 1,640 soldiers. The installation was to be located adjacent to the ANA Garrison at Camp Hero in Kandahar, Afghanistan. It included soldiers’ barracks, the dining facility, and several priority life-support systems, which included electrical power system.

There were many warning signs in the procurement process which should have alerted Highland that a FFP contract would be a high risk for them in this particular procurement. The solicitation included the following statements which clearly put all risk of non-performance on the contractor:

  • “If the power system is not completed by September 01, 2009 the contractor will be required to supply temporary power to the compound.”
  • “Costs incurred in the performance of project execution that arise from the attacks of hostile entities, such as costs arising from damage to or destruction of contractor equipment and facilities, and damage to or destruction of project prior to Government acceptance, are the sole responsibility of the contractor. The Government makes no guarantee to provide the contractor with security, and bears no obligation to reimburse the contractor for costs arising from the attacks of hostile entities. When appropriate, the Contracting Officer may provide the contractor with an equitable adjustment with respect to time - but not cost.”
  • “It is recognized by the parties entering into this contract that performance ... will take place in Afghanistan. Afghanistan has been designated ... as an area in which Armed Forces … are … engaged in combat.... circumstances may cause the contemplated project to be [a]ffected during said performance. Examples… circumstances include … Outbreak of hostilities in or near the project site….”
  • “If the contractor believes he will not have the life support facilities completed by the Soldier move-in date, then he should include the temporary facilities cost into his bid proposal.”
  • “THE CONTRACTOR MUST BID UPON THIS PROJECT KNOWING ALL RISKS ASSOCIATED WITH CONSTRUCTION IN AFGHANISTAN. SUCH RISKS FAR EXCEED HOSTILITIES. NO SPECIAL CLAUSE IS TO BE ADDED; THE CONTRACTOR IS RESPONSIBLE FOR ALL ACTIONS, INCLUDING DELAYS FROM HOSTILITIES, ETC[.] AND SHOULD REFLECT THIS RISK IN HIS BID. THE PURPOSE OF THE DESIGN-BUILD CONTRACT IS TO REFLECT SUCH RISKS UPON THE CONTRACTOR AND NOT THE GOVT[.]” (Capitalization is from the original document.)

Negative impacts during contract performance included:

  • Severe flooding in November 2011
  • The Afghanistan government's expulsion of skilled Pakistani workers in the fall of 2011
  • Closure of the border between Afghanistan and Pakistan from November 2011 through July 2012, which resulted in a "freight embargo"
  • The hijacking of critical transformers along the Pakistani border in November 2011
  • Security issues

As for the consequences:

  • The court determined the termination for default was justified
  • Highland now has a termination for default on its record, which will seriously hinder any attempt to receive further government contracts
  • There are also cases pending where the government asserted government claims for excess re-procurement costs, overpayments during performance, and liquidated damages under this contract
  • The 420 day performance period spiraled into almost three years
  • ASBCA cases still ongoing over four years after the termination for default

In short, do not be over-eager to receive a FFP contract that shifts too much of the risk from the Government to your company. You might get it!   Lastly, if you believe that the Government will agree to a FFP to cover all of the contingencies, good luck with those negotiations.

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Written by Cheryl Anderson

Cheryl Anderson Cheryl Anderson is a Director with Redstone Government Consulting, Inc. She provides Government Contract Consulting services to our government contractors primarily related to equitable adjustment claims, terminations, and DCAA audit expectations. Prior to joining Redstone Government Consulting, Cheryl served in a number of capacities with DCAA for over thirty-five years. Upon her retirement, Cheryl was a regional audit manager with DCAA. Cheryl began her DCAA career in 1977 as an auditor-trainee with the Ingalls Resident Office in Pascagoula, Mississippi. After instructing at the Defense Contract Audit Institute for four years, she returned to the Eastern Region in 1990, holding various audit positions before ultimately becoming a Regional Audit Manager in August 2005. She had overall management responsibility for audits performed by approximately 200 employees. During Cheryl’s tenure with DCAA, she was involved in conducting or managing a variety of compliance audits, to include cost proposals incurred cost submissions, systems, Cost Accounting Standards, claims, defective pricing, financial capability and agreed-upon procedures. She directly supported the government litigation team on a contract dispute and has prepared and presented various lectures and seminars to DCAA staff. In addition, she has served as an instructor for the Government Audit Training Institute for over 20 years. She currently specializes in preparing clients for more complex DCAA audits, providing advice on FAR cost principles and contracts regulatory provisions, and assisting clients in anticipating and addressing audit. Education Cheryl has a BS Degree in Accounting from Auburn University at Montgomery and a Masters of Business Administration from Wichita State University. Cheryl also completed courses at OPM’s management and executive development centers and at the Federal Executive Institute and is a Georgia Certified Public Accountant.

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