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The ASBCA considered whether the contractor was entitled to its full fixed fee, given that the actual work performed was less than what was initially estimated by the Navy. The contractor argued that the contract’s terms supported its claim for the full fee, while the Navy countered that it only owed fees proportional to the hours actually worked. The Board sided with the Navy.
Peraton, Inc. v. Armed Services Board of Contract Appeals, ASBCA No. 62853
- Background – The Navy issued a task order to a contractor for technical support services under a cost-plus-fixed-fee contract. The contractor submitted a claim for additional payment, alleging that it was entitled to its full fixed fee despite performing fewer hours than estimated by the Navy. The Navy denied the claim, prompting an appeal to the Armed Services Board of Contract Appeals.
- Estimating Actual Performance – The contractor argued that the Navy’s estimates formed the basis of its expected profit and that it should be paid accordingly. However, the Board ruled that the estimates were not guarantees but merely projections of potential work, thus reinforcing the Navy’s obligation to pay only for actual work completed.
- Implications of Cost-Plus Contracts – The Board emphasized that in cost-plus contracts, the risk is primarily borne by the government, providing contractors with cost reimbursement plus a fixed fee. The contractor’s claim to full profit based on unexecuted hours contradicts this arrangement, which safeguards the government from unexpected costs. A lump sum fixed fee is a maximum, not a guarantee.
- Obligation of Revision – The contractor also argued the negligent-estimate breach theory applied here because the Navy’s grossly overstated estimates denied the contractor expected profit. It claimed this entitled it to a renegotiation of the fees it received, based on what it would have earned if the estimates were accurate. The Board found the negligent-estimate breach theory is not applicable to cost reimbursement contracts, especially when the contractor is not in a loss position. It has only been applied to requirements contracts and was intended to address unrecovered costs in fixed-price contracts.
The contractor is represented by Kevin P. Mullen and Caitlin A. Crujido of Morrison & Foerster LLP. The government is represented by Allison M. McDade and Devin A. Wolak of the Navy. GAO attorneys participated in the decision.
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