Contractor's Missing Ceiling Price Notification Proves Costly
The CBCA held that the contractor was not entitled to payment for services above the ceiling price.
A contractor’s failure to give the government advance notice that the contractor would exceed the ceiling price in its time-and-materials contract proved costly--to the tune of nearly $150,000.
The Civilian Board of Contract Appeals held that a contractor was not entitled to payment for services rendered above the contract’s ceiling price because the contractor did not comply with the contract’s notification requirement. In this article, I examine this CBCA’s decision and offer some takeaways for federal government contractors.
The CDC Contract
The CBCA’s decision in Caduceus Healthcare, Inc., CBCA No. 8422 (2025) was issued last year, but the principles it discusses are equally timely today. The case involved a task order awarded to Caduceus by the Centers for Disease Control and Prevention.1 The contract was issued on a time-and-materials basis.
The contract listed the contract line item number for each service Caduceus was to provide, together with a ceiling price and description for that CLIN. The ceiling price for CLIN 2001 was $1,429,428.67.
The contract included the clause at FAR 52.232-7 (Payments under Time-and-Materials and Labor-Hour Contracts).2 Paragraph (d) of FAR 52.232-7 imposes the following requirements relevant to this case:
Total cost. It is estimated that the total cost to the Government for the performance of this contract shall not exceed the ceiling price set forth in the Schedule, and the Contractor agrees to use its best efforts to perform the work specified in the Schedule and all obligations under this contract within such ceiling price. If at any time the Contractor has reason to believe that the hourly rate payments and material costs that will accrue in performing this contract in the next succeeding 30 days, if added to all other payments and costs previously accrued, will exceed 85 percent of the ceiling price in the Schedule, the Contractor shall notify the Contracting Officer giving a revised estimate of the total price to the Government for performing this contract with supporting reasons and documentation. If at any time during performing this contract, the Contractor has reason to believe that the total price to the Government for performing this contract will be substantially greater or less than the then stated ceiling price, the Contractor shall so notify the Contracting Officer, giving a revised estimate of the total price for performing this contract, with supporting reasons and documentation.
That’s a pretty big wall of text, so let’s break it down to the essentials. In sum, FAR 52.237-2(d) imposes two notification requirements on the contractor:
A requirement to notify the Contracting Officer if “at any time” the contractor has reason to believe that the costs incurred in performing the contract in the next 35 days will exceed 85% of the ceiling price; and
A requirement to notify the Contracting Officer if the contractor has reason to believe that the total price of performance will be substantially greater or less than the ceiling price.
In either case, if the contractor makes a required notification, the contractor must provide certain supporting documentation together with the notification.
Paragraph (e) of FAR 52.237-2 explains what happens if the contractor exceeds the ceiling price:
Ceiling price. The Government will not be obligated to pay the Contractor any amount in excess of the ceiling price in the Schedule, and the Contractor shall not be obligated to continue performance if to do so would exceed the ceiling price set forth in the Schedule, unless and until the Contracting Officer notifies the Contractor in writing that the ceiling price has been increased and specifies in the notice a revised ceiling that shall constitute the ceiling price for performance under this contract. When and to the extent that the ceiling price set forth in the Schedule has been increased, any hours expended and material costs incurred by the Contractor in excess of the ceiling price before the increase shall be allowable to the same extent as if the hours expended and material costs had been incurred after the increase in the ceiling price.
In short, if the contractor reaches the ceiling price, it is not required to continue performance unless and until the Contracting Officer provides a written notification that the ceiling price has been increased. If the contractor chooses to continue performance without an increase in the ceiling price, the government is not required to pay any amounts in excess of the ceiling price.
Performance of the Contract, Invoice & Claim
During Caduceus’s performance of the contract, it had conversations with CDC representatives about “budget constraints” Caduceus was experiencing. However, Caduceus did not notify the Contracting Officer that its performance was expected to exceed the ceiling price and the Contracting Officer never provided a written notification of any increase in the ceiling price.
In August 2024, Caduceus submitted an invoice for work performed in July, totaling $146.583.14. In September, the CDC refused to pay the invoice because payment would have caused Caduceus to exceed the ceiling price for CLIN 2001.
Caduceus then filed a certified claim with the Contracting Officer seeking payment of the invoice. In its claim, Caduceus stated that it ““consistently raised concerns about budget constraints with multiple contracting representatives and CDC Points of Contact (POCs),” including in a meeting attended by the Contracting Officer. Caduceus said, “[w]hile we understand FAR 52.232-7 limits payment beyond the contract ceiling unless formally adjusted, we acted in good faith based on the presumption that funding adjustments would follow.”
The Contracting Officer issued a final decision denying Caduceus’s claim. Caduceus then appealed that decision to the CBCA.
The CBCA’s Decision
The CBCA began its analysis by discussing the purpose of the notification requirement under FAR 52.232-7:
A contractor’s timely notice to the CO of potentially exceeding the ceiling price “provide[s] an option to the Government, i.e., it may decide to add more money to the contract if it appears that more will be needed or it can stop the work when the funds have been exhausted regardless of the status of the completion of the work.”
Citing previous decisions of the courts and Boards of Contract Appeals, the CBCA continued:
The Government is generally under no obligation to fund an overrun, although the contracting officer may always exercise his or her discretion to do so. At the same time, “a heavy burden of self-protection against cost overruns” is placed upon the contractor and cost limitation clauses may be invoked to bar recovery of overruns against a contractor that fails to protect itself either by providing the requisite notice of overrun or by stopping work when funds run out.
In this case, the CBCA determined, “Caduceus cannot recover the costs for the services provided in July 2024 because Caduceus failed to notify the CDC that it was at risk of exceeding the ceiling price for CLIN 2001.”
With respect to the communications between the CDC and Caduceus, “[t]o the extent that Caduceus made general references to working within budget constraints, such references did not provide the requisite notice to the CO that Caduceus may exceed the ceiling price.” Caduceus, the CBCA noted, “also failed to provide a revised estimate of the total price to the Government for performing this contract with supporting reasons and documentation,” as required by FAR 52.232-7.
Additionally, the CBCA said, “Caduceus continued to perform and incur costs in excess of the ceiling price for CLIN 2001 without express authorization from the CO.” The CBCA explained that “[a] contractor cannot create an obligation on the part of the Government to reimburse it for a cost overrun by voluntarily continuing performance and incurring costs after the cost limit has been reached.” The CBCA continued:
[A] contractor that performs work in excess of the applicable cost ceiling without obtaining express authorization from the contracting officer [to continue] does so at its own risk, unless it can demonstrate the applicability of an exception to the rule, or that the contracting officer has abused the discretion not to fund the overrun.
The CBCA found that Caduceus had not demonstrated the existence of any exception to this rule and that the CDC Contracting Officer had not committed an abuse of discretion by failing to fund the overrun. The CBCA then said:
Because Caduceus opted to continue performance despite its own awareness that it would exceed the ceiling price of CLIN 2001 and without notice to the CO of the possibility it would exceed the CLIN 2001 ceiling price or express authorization from the CO to fund the overrun, Caduceus accepted the risk and liability of the costs incurred.
The CBCA denied the appeal and held that the CDC had acted appropriately by refusing to pay the invoice for $146.583.14.
Takeaways for Government Contractors
The Caduceus Healthcare case offers several useful takeaways for federal government contractors:
When a government contract contains the clause at FAR 52.232-7, the contractor is required to provide the Contracting Officer with certain ceiling-price notifications.
Informal conversations with agency officials are not a substitute for formal notification, which must be accompanied by specific documentation.
The contractor may cease performing the work if the ceiling price is reached and the Contracting Officer has not provided a written notification of an increase in the ceiling price.
A contractor that performs work in excess of the applicable cost ceiling without obtaining express authorization from the contracting officer generally does so at its own risk.
As the CBCA wrote, in contracts incorporating FAR 52.232-7, “a heavy burden of self-protection against cost overruns” is placed on the contractor. As the Caduceus Healthcare case demonstrates, contractors working under contracts covered by this clause should understand their rights and obligations--and the risk they run by performing work in excess of the ceiling.
Won’t you be my neighbor? Or at least my LinkedIn connection? Connect with me or follow me on LinkedIn for plenty more government contracting news, insights, commentary, and jokes of dubious quality.
A word about AI: Every word in this article, and every word in all my government contracting articles, was written by me, a human being (lawyers are people too—allegedly!) without the use of AI. I am the author of every helpful insight, as well as every typo and bad joke. Additionally, I painstakingly create all the accompanying graphics in my art studio in an intense artistic process that often lasts days. I’m kidding. The graphics are, of course, AI-generated.
You probably should read these very exciting disclaimers: The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. The opinions expressed in this article, especially, but not limited to, any in which the author may extol his own good looks, intellect, charm and/or inherent modesty, are solely those of the author.
The CBCA decision sometimes refers to the task order as the “contract,” so I do the same in this article. For what it’s worth, FAR 2.101 includes orders in the definiton of “contract”.
The contract was governed by the “base” FAR, not the Revolutionary FAR Overhaul revision. However, FAR 52.232-7 was not revised as part of the RFO, so there is no reason to believe that the decision would have turned out differently had the RFO FAR been in effect.