Peraton at the ASBCA: Fixed Fee, Level-of-Effort, and the Risk of Underutilization
The Armed Services Board’s decision in Appeal of Peraton, Inc., ASBCA No. 62853 (July 10, 2025) offers a clear reminder to service contractors performing under cost-plus-fixed-fee, level-of-effort (CPFF-LOE) task orders: a fixed fee stated as a lump sum at award is typically paid pro rata, per direct labor hour actually expended, unless the government changes the level of effort by contract modification. Peraton performed a Navy Seaport-e task order where actual hours fell well below estimates. It recalculated and billed its fixed fee at a higher hourly rate based on the reduced hours, asserting entitlement to roughly $2.08 million in additional fee when the agency declined to “true up.” The Board rejected the claim, reading the task order’s fee clause against the contract type and the Navy’s LOE clause to hold that the contracting officer retained discretion to modify hours and fee, and that absent such a modification the fixed fee was payable only as a function of hours actually ordered and performed.
Two strands of reasoning are particularly salient for service providers. First, the Board grounded its interpretation in the nature of CPFF contracts: the government bears allowable cost risk, but the contractor bears the risk that estimated hours do not materialize. Converting an estimated LOE into a guaranteed fee regardless of hours would, in the Board’s view, invert that allocation. The result tracks the FAR’s description of CPFF: the fee is fixed at inception but does not vary with actual cost and is fully recoverable only when the specified LOE is expended. (Acquisition.gov) Second, the Board treated the Navy’s LOE clause as the operative adjustment mechanism. Where the government needs more hours, the CO may add hours (and associated fee) by modification; where it needs fewer, the payment mechanism proportionally reduces the fee paid with the hours invoiced. Attempts to unilaterally “re-rate” the fee after the fact run against that framework.
Peraton also advanced a negligent-estimate theory, citing older authority recognizing exposure when the government’s pre-award estimates in certain contract forms are materially unreasonable. The Board declined to extend that doctrine to IDIQ or cost-reimbursement contexts like Peraton’s, distinguishing those cases from classic requirements-contract scenarios in which the government must provide realistic estimates. For service contractors, that holding underscores the importance of treating stated LOE in IDIQ solicitations as estimates rather than commitments and of pricing, staffing, and risk-sharing accordingly.
Three practical takeaways follow. First, interrogate estimates during Q&A: if emergent demand or uncertain ordering is explicit, seek clarifying language on minimum hours, adjustment triggers, or standby/retainer constructs before proposing. Second, align internal billing systems with the contract’s fee-payment mechanics—and never change fee calculations without a bilateral modification. Third, build a risk narrative into capture and program management that anticipates under-utilization, including cross-task-order deployment strategies, scalable labor categories, and incentive structures that do not depend on full LOE burn. These steps are mundane, but Peraton shows they are legally decisive.
For reference, the Board’s published decision is available on the ASBCA website. (asbca.mil)
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Consult counsel about how these principles apply to your contracts and facts.