McDonnell Douglas Corp. v. United States
37 Fed. Cl. 295 | United States Court of Federal Claims | 1997
What This Case Means for Subcontractors
McDonnell Douglas and General Dynamics sued the Navy over an A-12 aircraft development contract terminated in 1991. The court ruled that an incrementally funded fixed-price contract's H-7 clause caps the contractor's cost recovery at only the funds the government had obligated by the termination date—not the total costs actually incurred. This means contractors cannot recover work performed beyond the amount of money the government had committed, even if the contract required that work.
Key Takeaways
- •Incrementally funded contracts limit your recovery to obligated funds at termination, not actual costs incurred—review your contract's funding clause before starting work.
- •If your contract uses an H-7 or similar incremental funding clause, track the government's cumulative obligations monthly and stop work if funding falls behind your schedule.
- •Termination for convenience does not override incremental funding limits—you cannot claim extra costs for work performed beyond obligated amounts, even if the government ordered it.
The Government's total obligation for payment shall not exceed the total amount obligated at the time of termination.
Frequently Asked Question
If the government terminates my contract early, can I recover all the costs I actually spent, or just what they had obligated?
You can only recover costs up to the amount the government had obligated at the time of termination, not your total actual costs. This applies even if the contract required you to perform work beyond that obligated amount. Always monitor the government's cumulative funding obligations and align your work schedule accordingly.
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