--- title: Subcontract Disputes on Cost Type Government Contracts description: Subcontract terms need to be specific so that disputes over the interpretation of agreements, and potential breaches, do not arise later. image: https://info.redstonegci.com/hubfs/images/Blog_Images_with_title/Redstone-Subcontract%20Disputes%20on%20Cost%20Type%20Government%20Contracts.png --- [ PAY INVOICE](https://redstonegci.com/invoice-payment/) [Call Us Today 256-704-9800](tel:2567049800) [info@redstonegci.com](Mailto:info@redstonegci.com) [![Redstone_Logo](https://info.redstonegci.com/hubfs/redstone%20logo%20version%201%20-%20rgb-1.png)](https://www.redstonegci.com/) # Subcontract Disputes on Cost Type Government Contracts [Posted by Redstone Team on Tue, Jun 27, 2017 @ 10:06 AM](https://info.redstonegci.com/blog/author/redstone-team) - [Tweet](https://twitter.com/share) ![Redstone-Subcontract Disputes on Cost Type Government Contracts.png](https://info.redstonegci.com/hs-fs/hubfs/images/Blog_Images_with_title/Redstone-Subcontract%20Disputes%20on%20Cost%20Type%20Government%20Contracts.png?width=1000&name=Redstone-Subcontract%20Disputes%20on%20Cost%20Type%20Government%20Contracts.png) Although many of us think of contract disputes as those involving a prime contractor and a U.S. Government agency, subcontracts can also trigger differences of [subcontract interpretation between the prime and subcontractor](https://info.redstonegci.com/blog/pressure-on-prime-contractors-continues-to-increase-relative-to-subcontracts). In Civil Action No. 1:16-cv-215, the United States District Court for the Eastern District of Virginia decided a diversity breach of contract case between government contractors (the contractor and subcontractor names are a matter of public record, thus disclosure). Fluor (the subcontractor) contended that they did not agree to a 2.3% cap to their G&A on a proposal effort with the United States Air Force. Their proposal, as a [subcontract to their prime contractor](https://info.redstonegci.com/blog/asbca-repudiates-dcaa-legal-theory-for-prime-contractor-management-of-subcontracts), PAE, was ultimately selected for the award, at which time, a subcontract agreement was executed and the two parties began their respective performance on the contract. The specific language of that subcontract agreement is the heart of this case (differentiated from a dispute over the regulatory language contained in a subcontract flow-down). This dispute arose for work in Option Period 1, for which Fluor submitted an invoice including 5.5% G&A (versus the proposal’s G&A rate of 2.3%). This dispute was temporarily resolved when Fluor accepted for Option Period 1 “the 2.3% G&A billing rate with the understanding that before the beginning of each contract period, the 2.3% G&A would be reviewed by both parties and revised as deemed appropriate.” Over the course of the contract, the issue with the capped G&A rate continued to fester, until ultimately claims were brought by Fluor. The language that you agree to in your subcontract is crucial; the fact that the parties might agree to revise that language is almost meaningless. In this scenario, Fluor decided to accept PAE’s capped G&A rate for proposal purposes with the expectation that Fluor would ultimately receive a FFP subcontract to perform their scope of the work.   PAE provided no guarantees nor promises that this would be done. In execution of their subcontract, the drafted language did not speak to their arrangement being FFP; to the contrary, it cited that Fluor would meet the terms of its proposal to PAE. The Court found the subcontract between Fluor and PAE to be ambiguous as to the reference “proposal”. When a contract has language ambiguities, the Court may consider parol evidence to establish the parties’ intent with respect to the G&A rate that was recoverable. “More specifically, the Court may consider parol evidence concerning (1) which specific proposal Fluor submitted to [PAE] to meet the requirements of Final Proposal Revision (FPR), (2) whether this proposal allowed Fluor to recover its actual G&A rate or limited Fluor to a 2.3% G&A rate, and (3) whether the parties intended to limit Fluor's recovery of G&A under the Subcontract to that in [Fluor's] proposal submitted for FPR (Final Price Revision)." Under Virginia law, the plaintiff has the burden of proving, by a preponderance of the evidence, that they were entitled to recover more than what they have been paid. Ultimately, based upon the decision, Fluor’s arguments did not carry the weight necessary to fulfill this burden. PAE did not breach the subcontract because the subcontract language intended to cap the G&A rate as proposed in the FPR. The takeaway with this case is simple (or at least appears to be when taking a retrospective view): When working as a subcontractor, you need to be sure that the [language within that agreement is well drafted to remove any ambiguities](https://www.redstonegci.com/consulting/government-compliance/contracts-administration/). In this case, it seems that the contracting parties agreed to different terms, at least with respect to the billable/recoverable subcontractor G&A rate. Unfortunately for Fluor, the language of the subcontract coupled with the proposal allowed as parol evidence was not enough to prove Fluor’s assertions. There is at least one other lesson for anyone explicitly accepting unfavorable terms and conditions based upon a promise to revisit those at some future point:   Specificity takes precedence over non-specific promises. [![Learn More About Our Contracts & Subcontracts Administration & Support](https://no-cache.hubspot.com/cta/default/203971/interactive-168873885727.png) ](https://info.redstonegci.com/hs/cta/wi/redirect?encryptedPayload=AVxigLKd%2B13OjMQRgEMYB7WtDLrMNfW1Vsirkt0QfLa%2BQ6n69t3v4%2FKpo9fE2N0v%2BLdbmsu3AuJhdh%2FDIa%2FU%2Fjpk1AxP%2FB8f7GT4%2FNGPxHp2Enk5RfCvm2pkzGAMDqHGsEDq%2BOckDs73ybs1wP47xZGMarezfKZMKY0qD7w7SlZWNfe5SPad8ebB%2B6q0G5mUUO%2FVxwsCn3eITfyncebpYpqkY2pcMVo9zuq6mJSfMiLHpSBkciFCA%2BcYTgoxOxC4&webInteractiveContentId=168873885727&portalId=203971) ### Written by [Redstone Team](https://info.redstonegci.com/blog/author/redstone-team) ## About Redstone GCI Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals. Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs. One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle. Topics: [Small Business Compliance](https://info.redstonegci.com/blog/topic/small-business-compliance), [Contracts & Subcontracts Administration](https://info.redstonegci.com/blog/topic/contracts-subcontracts-administration) ### Search Posts This is a search field with an auto-suggest feature attached. - There are no suggestions because the search field is empty. ### Subscribe via E-mail ### Latest Posts ### Posts by category - [Accounting System Compliance (282)](https://info.redstonegci.com/blog/topic/accounting-system-compliance) - [Commercial Determination (34)](https://info.redstonegci.com/blog/topic/commercial-determination) - [Contractor Purchasing System Review (CPSR) (85)](https://info.redstonegci.com/blog/topic/contractor-purchasing-system-review-cpsr) - [Contracts & Subcontracts Administration (300)](https://info.redstonegci.com/blog/topic/contracts-subcontracts-administration) - [Cost Accounting Standards (CAS) (60)](https://info.redstonegci.com/blog/topic/cost-accounting-standards-cas) - [COVID-19 (23)](https://info.redstonegci.com/blog/topic/covid-19) - [Customer Success Story (2)](https://info.redstonegci.com/blog/topic/customer-success-story) - [Cybersecurity (28)](https://info.redstonegci.com/blog/topic/cybersecurity) - [DCAA Audit Support (249)](https://info.redstonegci.com/blog/topic/dcaa-audit-support) - [Defense Procurement & Acquisition Policy (DPAP) (7)](https://info.redstonegci.com/blog/topic/defense-procurement-acquisition-policy-dpap) - [Deltek Costpoint (54)](https://info.redstonegci.com/blog/topic/deltek-costpoint) - [DFARS Business Systems (179)](https://info.redstonegci.com/blog/topic/dfars-business-systems) - [DOD IG (10)](https://info.redstonegci.com/blog/topic/dod-ig) - [Employee & Contractor Compensation (22)](https://info.redstonegci.com/blog/topic/employee-contractor-compensation) - [Employers & Unions (8)](https://info.redstonegci.com/blog/topic/employers-unions) - [Estimating System Compliance (18)](https://info.redstonegci.com/blog/topic/estimating-system-compliance) - [Export & Import (19)](https://info.redstonegci.com/blog/topic/export-import) - [Federal Acquisition Regulation (FAR) (187)](https://info.redstonegci.com/blog/topic/federal-acquisition-regulation-far) - [Federal Construction Contracting (4)](https://info.redstonegci.com/blog/topic/federal-construction-contracting) - [Government Compliance Training (59)](https://info.redstonegci.com/blog/topic/government-compliance-training) - [Government Property Management (18)](https://info.redstonegci.com/blog/topic/government-property-management) - [Government Regulations (265)](https://info.redstonegci.com/blog/topic/government-regulations) - [Government Shutdown (9)](https://info.redstonegci.com/blog/topic/government-shutdown) - [Grants & Cooperative Agreements (2 CFR 200) (32)](https://info.redstonegci.com/blog/topic/grants-cooperative-agreements-2-cfr-200) - [Human Resources (118)](https://info.redstonegci.com/blog/topic/human-resources) - [Incurred Cost Proposal Submission (ICP/ICE) (83)](https://info.redstonegci.com/blog/topic/incurred-cost-proposal-submission-icp-ice) - [Litigation Consulting Support (17)](https://info.redstonegci.com/blog/topic/litigation-consulting-support) - [Manufacturing Operations Consulting (26)](https://info.redstonegci.com/blog/topic/manufacturing-operations-consulting) - [Material Management & Accounting System (MMAS) (23)](https://info.redstonegci.com/blog/topic/material-management-accounting-system-mmas) - [Non-US Government Contractor (3)](https://info.redstonegci.com/blog/topic/non-us-government-contractor) - [Office of Federal Contract Compliance Programs (31)](https://info.redstonegci.com/blog/topic/office-of-federal-contract-compliance-programs) - [Organizational Change Management Consulting (17)](https://info.redstonegci.com/blog/topic/organizational-change-management-consulting) - [Paycheck Protection Program (PPP) Loans (8)](https://info.redstonegci.com/blog/topic/paycheck-protection-program-ppp-loans) - [Program Management & Project Cost Control (2)](https://info.redstonegci.com/blog/topic/program-management-project-cost-control) - [Proposal Cost Volume Development & Pricing (79)](https://info.redstonegci.com/blog/topic/proposal-cost-volume-development-pricing) - [Quickbooks (21)](https://info.redstonegci.com/blog/topic/quickbooks) - [REAs, Claims & Terminations (10)](https://info.redstonegci.com/blog/topic/reas-claims-terminations) - [Redstone GCI (50)](https://info.redstonegci.com/blog/topic/redstone-gci) - [Sequestration (4)](https://info.redstonegci.com/blog/topic/sequestration) - [Service Contract Act (14)](https://info.redstonegci.com/blog/topic/service-contract-act) - [Small Business Compliance (121)](https://info.redstonegci.com/blog/topic/small-business-compliance) - [System Award Management (SAM) (9)](https://info.redstonegci.com/blog/topic/system-award-management-sam) - [UKG Ready HR Software Consulting (7)](https://info.redstonegci.com/blog/topic/ukg-ready-hr-software-consulting) - [Unanet (35)](https://info.redstonegci.com/blog/topic/unanet) - [Vlog (41)](https://info.redstonegci.com/blog/topic/vlog) ### Disclaimer ``` Data published on our website, such as our white papers, blogs and other government contracting commentary reflect our interpretations and opinions of current events and regulations, at the time such data is published, and the perspectives/opinions of other professionals in our industry may vary from our own.  Further, our commentary and perspectives do not reflect legal analyses, since we are not attorneys, but rather government contracts and accounting advisors.  We therefore make no representation that the use of our published information will insulate a company from government challenges, nor otherwise ensure a successful defense on any government procurement adverse action.  Readers agree that articles or blog commentary presented within our website shall not be replicated or re-published without requesting before publication in another medium, and our expressed written consent to do so. ``` **Redstone Government Consulting** 501 Madison Street SE, Suite 100 Huntsville, AL 35801 **Phone: ** [256.704.9800](tel:2567049800) **Email Us**[ info@redstonegci.com](mailto:info@redstonegci.com) **[PAY INVOICE](https://redstonegci.com/invoice-payment/)** [PCI DSS compliance documentation](https://redstonegci.com/wp-content/uploads/2016/10/pci_dss_self_assessment_certificate.pdf) © 2026 Redstone Government Consulting | All Rights Reserved | [Privacy Policy](https://redstonegci.com/privacy-policy/) | [Event Refund / Cancellation Policy](https://redstonegci.com/event-refund-cancellation-policy/)