Construction contracts
FAR 49.305-2 ensures equitable fee adjustments for construction contracts by requiring a comprehensive, weighted assessment of all contractor efforts—not just physical construction—when determining percentage of completion after termination.
Overview
FAR 49.305-2 outlines the method for determining the percentage of completion for construction contracts, particularly under cost-reimbursement or professional services arrangements, when calculating equitable adjustments after contract termination. The regulation emphasizes that the percentage of completion should reflect the contractor’s total effort, not just the physical construction work. It lists several factors—such as mobilization, financial management, subcontracting, shop drawings, supervision, administration, and demobilization—that should be considered and weighted according to their importance and difficulty. The sum of the weighted values should be easily divisible (e.g., by 100) to facilitate percentage calculations. The overall percentage of completion is then used to determine the portion of the contract fee applicable to the terminated work, ensuring fair compensation for the contractor’s efforts up to the point of termination.
Key Rules
- Total Effort Consideration
- The percentage of completion must account for all aspects of the contractor’s work, not just construction activities.
- Weighted Factors
- Each relevant factor (e.g., mobilization, subcontracting, administration) must be assigned a weighted value based on its significance and complexity.
- Calculation Method
- The percentage of completion for each factor is determined by contract-specific facts, and the overall completion percentage is calculated by applying these to the weighted values.
- Equitable Adjustment
- The final percentage is used to adjust the contract fee or the fee for the terminated portion, ensuring fair compensation.
Responsibilities
- Contracting Officers: Must ensure all relevant factors are identified, appropriately weighted, and that the calculation method is applied consistently for equitable adjustments.
- Contractors: Must provide accurate data on progress for each factor and support the calculation of completion percentages.
- Agencies: Oversee the process to ensure compliance and fairness in fee adjustments.
Practical Implications
- This section ensures that contractors are fairly compensated for all work performed, not just visible construction, in the event of contract termination.
- It requires careful documentation and justification of progress across multiple project aspects.
- Common pitfalls include underestimating non-construction efforts or misapplying weights, which can lead to disputes over fee adjustments.