Government Ordered to Return Provisional Incentive Fee
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Wednesday, July 18, 2018

Government Ordered to Return Provisional Incentive Fee

By Government Contracts Editorial Staff

The Court of Federal Claims granted a contractor partial summary judgment on a claim for declaratory relief because, when considered together, the contract’s provisions unambiguously provided for provisional incentive fees to remain in the contractor’s custody until construction was completed. In a dispute arising from a cost reimbursement contract to construct, operate, and deactivate a mixed oxide fuel fabrication facility, the contractor contended the government prematurely clawed back $21.6 million of cost/schedule incentive fee payments. Under option 1 of the contract, which was for construction of the facility, the contractor was eligible to earn quarterly incentive fees for progress within specified cost and schedule parameters. After the first year, half of each quarter’s fees vested if the contractor’s performance remained on course, while the other half remained provisional. After 12 quarters, the government determined the contractor did not meet the fee parameters and suspended fee payments. In addition to denying the contractor’s certified $53 million claim for suspended fee, the contracting officer demanded return of all provisional incentive fee payments. The contractor filed suit after repaying the incentive fee with interest.

Baseless Retaliation

The court explained the contract explicitly used provisional fees to adjust cost sharing between the parties when construction was finished. Taken together, the relevant contract provisions unambiguously provided that any unvested incentive fee became subject to potential payback only at contract completion. The parties disputed whether the estimated project cost and schedule required adjustment under the changes clause, FAR 52.243-2, but regardless of which party was responsible for increased costs and schedule delays, none of the contract provisions permitted the government to claw back provisional incentive fees before completion of the facility. The court also found it troubling that the CO used the denial of the contractor’s claim for refund to gain leverage over the contractor “through baseless retaliation.” The court ordered the government to return the $21.6 million to the contractor until the project was completed. (CB&I AREVA MOX Services, LLC v. U.S., FedCl, 62CCFP81,410)

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