One of the unique aspects of doing business with the government is contracts contain certain clauses that you may not see in commercial agreements. There are two types of contract changes: unilateral and bilateral. Unilateral is when a contract modification is signed only by the contracting officer whereas a bilateral modification is signed by the contractor and the contracting officer. The government’s needs can and inevitably do change and so there is a clause that allows the contracting officer to unilaterally order changes in the specifications and other contract terms. The contractor is obligated to perform as long as the changes are within the scope of the contract.
In today’s contracting environment, we see many contract changes and these can cause significant delays, which can impact you financially. As a government contractor, you need to be able to recognize when conditions are changing, understand the regulations surrounding these changes and know your rights and responsibilities.
Contract changes can lead to delays. There are excusable and non-excusable delays. Excusable delays are unforeseeable and beyond the control of the contractor, whereas non-excusable delays are foreseeable or within the contractors control.
Excusable delays can be either compensable or non-compensable. A non-compensable delay is usually an act of God such as fire of floods, and allows the contractor a time extension, but no additional monetary compensation. A compensable delay is unforeseeable and beyond the contractor’s control and the contractor is entitled to not only a time extension but also additional compensation. This is typically caused by the government, but may be caused by a direct change, suspension of work, or it may be caused by any of the constructive changes. For a contractor to request both a time extension and compensation, it must be shown that the government was the cause of that delay.
There are circumstances where the contractor does everything they were required to do under the contract, but the result is not acceptable to the government. This is a constructive change, but it is not mentioned in the change clause in the contract. It is important to recognize when these situations occur as there are remedies afforded to the contractor, as constructive changes are recognized as though they were directed changes. There are many causes for a constructive change such as differing interpretations of contract requirements, failure to cooperate and acceleration of contract performance. Constructive changes are usually settled through an equitable adjustment to the contract price. If the parties cannot come to an agreement for the price of the constructive change, then a dispute arises and once the contracting officer makes a formal decision, the contractor can then appeal. A constructive charge should always be presented to the contracting officer prior to final payment under the contract as there have been many cases that bar the constructive charge after final payment.
It is interesting to note that while the term request for equitable adjustment (REA) appears in the Federal Acquisition Regulation (FAR), the FAR does not define the term. A REA is simply a request for an equitable adjustment to one or more of the contract terms. The dictionary defines “equitable” using terms such as fair to all concerned and courts have relied upon such concepts as “fair and reasonable” to define equitable. An REA is grounded on contract clauses that provide for such relief, such as the “Changes” clauses, FAR 52.243-1 through – 5; the “Differing Site Conditions” clause, FAR 52.236-2; and the “Government Property” clause, FAR 52.245-1. Contractors that submit REAs valued at more than the simplified acquisition threshold must certify them as required by DFARS 243.204-71 and 252.243-7002. The certification reads as follows:
“I certify that the request is made in good faith, and that the supporting data are accurate and complete to the best of my knowledge and belief.”
When requesting an equitable adjustment, maintaining adequate documentation and details is the key to success. There are two basic elements, entitlement and quantum. The entitlement portion establishes the factual and contractual basis supporting the contractor’s right to recover from the government. The quantum portion requires that the contractor state a sum certain under the Contract Disputes Act and the Disputes clause. This means you have to prove that you are owed for something and then prove the costs.
In this time of uncertainty, contractors are challenged with doing more with less and are sharpening their pencils to stay competitive. Circumstances arise that change contract conditions and can lead to delays, claims and equitable adjustments. The key to success is staying knowledgeable, knowing your rights and responsibilities and asking for what is rightfully yours. A request for equitable adjustment allows you as a contractor to be paid for the actual work you do, allowing you to be competitive in today’s contracting environment.
