Avoid Costly Pitfalls with Your Request for Equitable Adjustment (REA) Under FAR 52.243 in Government Contracts

FAR request for Equitable Adjustment Definition and meaning in Government Contracts

Meaning and Definition of Equitable Adjustment – What is it?

What is a FAR request for equitable adjustment in federal procurement? In government contracting, the contracting officer complies with the “equitable definition” and meaning by adjusting the contract requirements or price in accordance with the changes clause. The goal is to make the contractor whole and to compensate it for profit allowances if any. See Government Contracts & Mandatory FAR Flow Down Clauses to Subcontractors   The FAR does not define a Request for Equitable Adjustment (REA) Acquisition Regulation but only references it. REAs include a contractor’s request for additional compensation or additional time based on relevant contract clauses.  An example of an REA occurs under the Changes clause of the contract or FAR clause for the Differing Site Conditions.  

In government contracts, the FAR definition of equitable adjustment refers to an adjustment that pays you for work that is directed by the agency. When companies choose this route for compensation, there may be a statutory confusion between the requirements for a Contract Disputes Act (CDA) claim and the process for the agency to follow in an REA claim.  If you do not properly process each, then litigation can be costly without even getting to the merits of the requested adjustment. Specifically, parties spend tens of thousands of dollars litigating the differences between an REA and a CDA claim. It also applies to work that ultimately increases the cost of the original contract.  The Contracting Officer (CO) should be the only person authorizing the work – no one else.

When you develop a request for equitable adjustment (REA), you are preparing a proposal to the contracting officer (CO) asking for an increase to the overall contract price. The request normally develops from a change in contract requirements. In some situations, the contracting officer may reduce the contract price downwards.

The key is to negotiate a solution with the contracting officer when you. Find an unexpected problem in the contract. Proposing a reasonable price is always a critical aspect of the REA. It is not an opportunity to place the government in a tough situation. Doing so can impact any future relationships.

What happens when you cannot agree?

Oftentimes, the government will believe that the work is covered by the contract. If there is a disagreement, your first option is to prepare and submit a FAR request for equitable adjustment (REA).

At the end of the day if the government does not agree with the contractor and denies the equitable adjustment, then the contractor must submit a certified claim under the Contract Disputes Act. Having an experienced government contracts attorney that understands the REA process could benefit your company.

Key points of your REA

The successful REA will lay out and explain your position as to why the change is not within the four corners of the contract and why the new requirement was not contemplated. May contractors miss this part. A common approach is to point to the specific part of the statement of work and explain why the new change could not have been reasonably anticipated.

When submitting your REA under FAR 52.243-1you should include as much information and explanation as possible. Explain your rationale for the adjustment so that the contracting officer can reasonably understand the basis for the submission. 

You cannot submit untimely requests for equitable adjustment. Federal contractor should bring the issue to the contracting officer’s attention, in writing, within 30 days of the change giving rise to the REA. 

What happens if your contract does not have a changes clause?

If a federal contract does not have a changes clause included, judges will more than likely may read the changes clause into the contract, pursuant to the Christian Doctrine. even if there is no such clause, contractors should still exercise their rights to an adjustment by informing the contracting officer (preferably in writing) within 30 days. 

Request for Equitable Adjustment vs Claim

Although many contractors mix the terms, the reality is that a request for equitable adjustment is not a claim until such time the contracting officer disagrees (referred to as an impasse) and the contractor then converts the REA into a claim by making sure that it meets all of the requirements of a Contract Disputes Act claim.

  • Be aware of COR directing you to perform additional work
  • Courts are not sympathetic to contractors who cannot show a clear direction to perform from the contracting officer.

The FAR Adjustment definition in government contracts can also mean a reduction in the overall contract price. Oftentimes, end-users and contracting officer representatives instruct you to do additional work or change the terms and conditions of the Performance Work Statement (PWS). When this occurs you should always seek the permission of the Contracting Officer before proceeding.

What Fees Can You Recoup With an REA? Contractors want to know whether attorney fees or expert costs can be recovered in a request for equitable adjustment. It depends. If allowable, the amounts must be reasonable and  calculated based on reliable principles and methods. When there are complex issues, expert costs could be recoverable.

FAR change order format & allowances for profit: Under the meaning of request for equitable adjustment FAR change order clause allows for payments for profit. If it does not, it should not be considered “equitable adjustment.”

There should be an agreement between you and the government. You always want to try to establish your changed cost upfront because it can put you in a vicarious position at the end where you then have to negotiate with the contracting officer. Find out more about CPARS Ratings, Fapiis Past Performance and Contractor Integrity Data – What Every Federal Government Contractor Needs to Know.

Get buy-in from the contracting officer: By using a “bilateral modification”, both you and the contracting officer should agree to the price upfront. 

  • The format should describe why the new work is different from the original contract.
  • FAR 52.243-1 the format should also address why the additional work could not have been contemplated.
  • Show a causal connection between the scope of work change and the damages you seek.
  • Provide as much support as you can.

Is Your REA Under FAR 52.243 Formatted as a Claim Under the Contract Disputes Act (CDA)?

This is a question that many government contractors and even attorneys struggle with. The first line of analysis starts with whether there is a dispute. There is an argument to be made that by simply asking the agency to adjust the contract up or down, then the definition of a claim under the Contract Disputes Act is not met. See FAR Cure Notice Response & Show Cause Letter Tips.

However, the question remains whether the contractor can submit an REA with the elements of the Contract Disputes Act still included.  The case of Tri-County Contractors, Inc., ASBCA No. 58167 (Nov. 2012) addresses similar issues where the ASBCA found that a request for equitable adjustment addressed to Contracting Officer and seeking “written response,” accompanied by CDA certification, constituted CDA claim). Submitting a request for equitable adjustment does not automatically constitute a claim under the Contract Disputes Act until such time as the parties reach an impasse (firm disagreement). This is a factual basis that a request for equitable adjustment lawyer should be able to help you with.  The REA itself by operation of law convert to a claim under the CDA, as the Federal Circuit held in Hejran Hejrat Co. Ltd v. United States Army Corps of Engineers, 930 F.3d 1354, 1357 (Fed. Cir. 2019).

Formatting your REA

 Given the Tri-County Contractors, Inc decisions, you may want to consider a habit of submitting your equitable adjustment formatted as the same as a traditional CDA claim. This can be done by enclosing the certification language required under FAR 52.243.

Avoid these costly mistakes made by government contractors

  • Failure to ask for a specific amount (sum certain). You should ensure that you are asking for a specific sum of money and state the factual basis for the equitable adjustment.
  • Articulate the categories of damages you seek and provide supporting documentation.
  • Include any legal theories of law that you think should apply. For example, if you believe that the government is breaching the contract, then so state and explain why.
  • Lastly, you want to ask for a contracting officer’s final decision.

Need help? If your company needs help with the legal definition of request for equitable adjustment FAR 52.24-13 in government contracts, Contact a government contracts and REA attorney for a FREE INITIAL Consultation at 1-866-601-5518.

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