Cost Recovery on FFP Contracts

Robert Nichols, Andrew Victor, and Haaleh Katouzian published an article earlier this year about a case out of the U.S. Court of Appeals for the Federal Circuit on recovering increased costs associated with a firm fixed price government contract. In sum, the Court affirmed a CBCA ruling that denied relief to the contractor on the basis that the contractor bore the risk.

The same scenario could happen in a subcontracting arrangement as well. Should a subcontractor incur increased performance costs it will likely want to make a claim to the prime contractor for an adjustment to the contract price. If the prime cannot recover those costs from the government, then the subcontract agreement language becomes important in terms of how that risk was allocated.

Primes and subs will want to carefully consider the language they use in their subcontract agreements to handle situations where additional project costs likely will or will not be paid by the government. This includes considerations, among others, of fault for the increase, the process to recover the costs, and whether the prime makes the ultimate decision on the matter or if it will be considered a dispute under the agreement.

FAROur government contracts posts are published by Attorney Kristi Morgan Aronica. She serves as litigation counsel to prime contractors and subcontractors in the government contracts market throughout Texas and nationally.