Tuesday, March 6, 2012


Spriggs Consulting Services recently settled a client's termination for convenience clause claim for 100 cents on the dollar.  The settlement included 100 % recovery of the firm's fees, as well.  The case illustrates how a combination of solid legal and accounting work can produce excellent results. 

One of the lessons learned is the importance of FAR 49.113 which says the cost principles in FAR Part 31 are "subject to the general principles in 49.201."  FAR 49.201 says a settlement of a T for C claim "should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit.  Fair compensation is a matter of judgment and cannot be measured exactly."  Business judgment, not strict accounting principles should be used, instructs the regulation.  This is scripture worth reading during any negotiation.

Another lesson learned is that careful analysis of contract provisions often carry the day.  The contract in issue contained a special clause which said that any termination for convenience could be adjusted to require the return of fixed price payments already made under the contract.  A careful reading of the entire contract, however, revealed that the termination clause said in the event of termination for convenience, the contractor could recover the contract price for work accepted and also costs incurred in the performance of work terminated, plus profit and accounting and legal fees. 

The Order of Precedence clause stated that any inconsistency between the "schedule" and the "general provisions" would be resolved by the general provisions taking precedence.  The definitions clause defined schedule to mean all contract terms except the general provisions.  The schedule language which limited recovery under the general provision termination for convenience clause clearly conflicted with the language in the termination clause.  Therefore, the schedule clause would have to be read out of the contract as inconsistent with the controlling termination clause.

The case is peculiar to its facts, as are all cases.  However, these two general lessons apply:  1) know the regulations and 2) read the contract carefully.

Last and certainly not least, the client's strong accounting assistance and attention to the cost presentation detail helped to carry the day.  Although strict accounting principles may not apply to the ultimate settlement, good accounting skills must be used in any professional presentation of a claim.

Spriggs Consulting Services was proud to be part of this excellent result for its client.  And, as music to the ears of any client, 100% of the SCS fees were approved as part of the settlement.  Don't forget, since the termination clause permits recovery of reasonable attorney fees, you should hire an attorney with reasonable fees to assist in the settlement.

bill@spriggslawgroup.com         http://www.spriggsconsultingservices.com/

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