Post-Termination Costs Were Allowable

A contractor providing healthcare administration services was entitled to summary relief in its appeal for post-termination costs because, according to the Civilian Board of Contract Appeals, there were no genuine issues of material fact as to the contractor’s entitlement to recovery pursuant to FAR 31.205-42. The parties moved for summary relief on the contractor’s claim for costs related to the government’s audits of a subcontractor’s termination costs. The contractor challenged the contracting officer’s determination that the costs were unallowable, arguing its subcontractor could not discontinue all costs on termination of its subcontract because the subcontractor had an unavoidable contractual obligation to support the government’s audit of its termination settlement proposal and indirect cost rates.

Reasonable Efforts

The termination cost principle, FAR 31.205-42, expressly allows costs that cannot be discontinued immediately after the effective date of the termination, despite all reasonable efforts by the contractor, but disallows costs continuing after the effective date of the termination due to the contractor’s negligent or willful failure to discontinue the costs. The contractor alleged its subcontractor undertook reasonable efforts to discontinue costs by terminating the majority of its employees, vacating its former offices, and moving its records to off-site storage. Also, there was no evidence to support the CO’s implication that costs incurred after termination were the result of the subcontractor’s negligent or willful failure to discontinue them. In addition, the government’s argument that the magnitude of the costs claimed by subcontractor was out of proportion to those incurred by the subcontractor in responding to the audits raised questions as to quantum but did not defeat entitlement to the costs. ( Group Health, Inc. v. Dept. of Health and Human Services, CBCA, ¶94,293)