CGS partnered with a leading manufacturer of fiber-optic cable assemblies used in the aerospace industry in resolving various contract disputes and other audit related issues with its prime contractor. Our client was hired by the prime contractor to deliver vital fiber-optic cable components under a firm fixed-price, sole-source procurement. Due to the expedited timeline to meet the Government’s needs, our client began work under a letter contract and prior to reaching an agreement on price. As events unfolded, our client actually completed and shipped all of the assemblies on the contract – still without an agreement on price. The contract negotiation leverage was now with the prime.
Given the timing of the final price negotiations, all of the economic risk had shifted to our client as the prime insisted on the disclosure of the actual costs incurred. Consequently, the prime contractor sought to take advantage of the client’s cost savings in delivering its product timelier by claiming that the lower cost incurred by the client should have supported a lower overall price for the prime (despite certain cost increases that occurred). The prime tried to unfairly benefit from the cost-savings and risk distribution of the original letter contract.
CGS successfully assisted the client in establishing price reasonableness while responding to a multitude of inquiries from the prime contractor’s audit personnel. This resulted in an increase in the overall contract value of roughly 8% for our client coupled with a significant decrease in overall cost to the Government as a result of the client’s expedited efforts – a win-win for all concerned.
A thorough understanding of the contractual obligations that flow-down from primes to subcontractors as well as understanding how different contractual structures influence such obligations are critical for success in the federal marketplace. In addition, reaching an agreement on price early in the contract is critical. As time and deliveries progress, the negotiation leverage shifts to the prime.
Please contact us for more information on how we can assist your company in its negotiations and audits with prime contractors.