We’ve all heard the expression “The customer is always right…” which may have a place in customer service but should not be blindly adopted in the performance of government contracts. In a recent example, a government contracting officer provided incorrect instructions to a contractor that were totally inconsistent with the basic contract terms. The RFP for this effort defined the contract as Firm Fixed Price. The proposal pricing template, source selection evaluation, and contract award were all Firm Fixed Price. The services contract was issued for three labor CLINs, each one for quantity 12 months at a fixed monthly price with the extended price calculated at 12 times the monthly price. A separate CLIN provided hourly labor rates for five labor categories which could be used for the purchase of additional services. The same format was provided for two Option Years, each CLIN with a one-year period of performance like the Base Year.

For the three CLINs initially awarded, those three positions should have been billed at the monthly rate for each month of performance. But the contracting officer instructed the contractor to bill for the hours actually worked at the hourly rates provided in the CLIN for additional services. While not specified in the contract, the contractor was required to submit time records for each employee working the contract to support the invoices for the hours billed. This billing methodology in essence converted a Firm Fixed Price contract to a Fixed Price Labor Hour contract without benefit of any contract mod.

The billing by the hour process continued for the first option year. As the second option year approached the government provided a mod exercising the second option year but not funding two of the three labor categories because there were unexpended funds on those CLINs that they wanted to use to fund work for six months of what would be the second option year. It was at this point that the contractor consulted Skyway.  A review of the contract and subsequent mods revealed a myriad of problems starting with the fact that billings and payments had been handled for nearly two years inconsistent with the contract type and ending with the attempt in the latest mod to have the contractor continue working on CLINs with an expired period of performance. At any point during the contract performance, payments could have been delayed or worse withheld if the payment office had looked closely at the contract. Can you imagine the chaos that would have ensued if the issues had been found in an audit after the contract had been completed and persons with historical knowledge had moved on?

The lesson learned is that the government is not always right, and contractors must make sure they understand the contract terms especially as it affects billings and payments. You can’t assume every government employee, even contracting officers, are accurately interpreting the contract.