The change from “the contractor will not be obligated to continue work” to “the contractor is not authorized to continue work” may present a trap for contractors. Previously, if a contractor incurred costs beyond the allotted amount, a contracting officer might retroactively fund the contractor even though the contractor was not obligated to perform and the government was not obligated to pay. The change in language from “not obligated to perform” to “not authorized to perform” may persuade some contracting officers that they have no authority to fund a contractor’s effort beyond the allotted amount retroactively. Contracting officers often focus on the concept of “authority,” or more to the point – lack of authority, as a way to deny contractor claims. For example, a contracting officer might deny a contractor constructive change claim based on the fact that the contractor made a change as the result of discussions with an engineer rather than obtaining the contracting officer’s approval. In the context of the DFARS clause, contracting officers may believe that they have no authority to fund contractor performance beyond the allotted amounts on a retroactive basis. Contractors must be vigilant in monitoring incurred costs against funded allotments under the new DFARS.Contractors with flexibly-priced contracts or contracts negotiated on the basis of cost analysis should be aware that the Office of Federal Procurement Policy (“OFPP”) has increased the executive compensation benchmark amount to $546,689. This benchmark is relevant to FAR 31.205-6(p).Department of Energy (“DOE”) Management and Operating (“M&O”) contractors should pay attention to several DOE regulatory changes. First, DOE evaluated its make-or-buy policy and determined that the make-or-buy program is not “delivering value” to DOE. DOE has decided to eliminate the requirement that M&O contractors prepare and maintain formal make-or-buy plans.Second, DOE has issued a notice of proposed rulemaking to require that contractors use the “cooperative audit strategy” in all M&O contracts. The cooperative audit strategy is a program that requires an M&O contractor to submit a detailed description of its internal audit plan and organization, and an Internal Audit Implementation Design to the contracting officer for approval. By January 31 of each year, the contractor must submit an annual audit report summarizing the audit activities undertaken during the previous year. By June 30 of each year, the contractor must submit its internal audit plan for the next fiscal year. The contracting officer may require revisions to these submissions. The proposed regulatory language also states: “If at any time during contract performance, the contracting officer determines that unallowable costs were claimed by the contractor to the extent of making the contractor’s management controls suspect, or the contractor’s management systems that validate the costs incurred and claimed suspect, the contracting officer may, in his or her sole discretion, require the contractor to cease using the special financial institution account …”Finally, DOE has issued DOE N 351.1, “Contractor Employee Pension and Medical Benefits Policy.” This policy severely restricts contractor pension and medical benefits policies essentially by moving contractors away from defined benefit plans to defined contribution plans. The policy states that DOE will not reimburse “incremental pension costs” or “incremental medical benefit costs” due to the addition of new employees or augmented benefits under a defined benefit pension plan or medical benefits plan.III. Litigation Four cases should be of particular interest to contractors doing business with the government. In United States v. Stein, the court granted discovery to the defendants in a criminal action on the issue of whether the use of the “Thompson Memorandum” by the Department of Justice (“DOJ”) interfered with the defendants’ constitutional right to counsel. The Thompson Memorandum is a policy set forth in a January 2, 2003, memorandum by then Deputy Attorney General Larry D. Thompson, that redefined what a corporation must do to “cooperate” with DOJ to avoid prosecution or to plea to a lesser charge. The Thompson Memorandum states in part: “[A] corporation’s promise of support to culpable employees and agents, either through the advancing of attorneys fees, through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government’s investigation pursuant to a joint defense agreement, may be considered by the prosecutor in weighing the extent and value of a corporation’s cooperation.” [Footnote omitted.] The issue in Stein relates to “whether the government, through the Thompson memorandum or otherwise, affected KPMG’s determination(s) with respect to the advancement of legal fees and other defense costs to present or former partners and employees with respect to the investigation and prosecution of this case …” In Lockheed Martin Corporation v. United States, the U.S. Court of Federal Claims rejected the government’s position that the Cost Accounting Standards (“CAS”) regulations prohibit a contractor from offsetting cost increases and decreases among cost-type and fixed price contracts. The court stated: “Defendant, however, asseverates that 48 C.F.R. § 9903.306(e) does not allow a contractor to offset or eliminate cost increases associated with the change in cost accounting practices in cost-reimbursement contracts with cost decreases triggered in fixed-priced contracts by the same accounting change … [D]efendant’s interpretation of the regulations is – in a word – wrong.” The ASBCA granted the contractor’s motion for reconsideration in Bath Iron Works, and determined that the contractor was entitled to interest under the Contract Disputes Act. That case involved the contractor’s recovery of costs to repair and replace damaged ship piping under fixed-price incentive contracts. In its first opinion, the ASBCA decided that the contractor was not entitled to interest but reversed this finding on reconsideration. Finally, in Environsolve, LLC v. U.S. Department of Justice Drug Enforcement Administration, the DOTCAB decided that the government may recover excess reprocurement costs as common law damages for breach of a time and materials contract, even though the contract contained FAR 52.249-6. That clause is the standard FAR termination clause for cost-type contracts which does not provide for excess reprocurement costs.