Constructive Change Government Contracts & Equitable Adjustments & FAR Change Orders

Understanding the Basics of FAR Equitable Adjustments and Dealing with Change Orders Can Save Substantial Amounts in Unnecessary Litigation

The changes clause under government contracts allows you to submit a Request for Equitable Adjustment (REA)  when there are scope changes, delays and other unforeseeable circumstances.

• Adjustments to the original scope of work can be either upwards or downwards;
• Proof of claims falls on the contractor

The Court of Claims has redefined equitable adjustment as the goal of keeping the contractor whole when the government modifies the contract or when a contractor performs work beyond that required under the contract.

When Are You Entitled to Equitable Adjustment?

As a government contractor, you are entitled to equitable adjustment whenever a FAR change order decreases or increases the contact’s time or cost.

When the Contracting Officer unilaterally directs a new scope of work, under those circumstances, contractors are entitled to receive an equitable adjustment in the contract price for any increase in its costs required to perform.

Although government contracts generally favor bilateral changes, the Agency can still unilaterally change the contract scope. As this occurs, the scope of the change is articulated, you will then account for the cost of changes, and then enter discussions with the government.

• The measure of the equitable adjustment is the difference between the reasonable cost of performing without the change and the reasonable cost of performing with the change.

As a practical matter, you should always certify your request for equitable adjustment as though they were traditional CDA claims. At the time of submission, an REA has not yet ripened into a CDA claim.

Legal Level of Proof for Request for Equitable Adjustment Appeal

When the CO denies your Request for Equitable Adjustment, you can appeal the decision to either the respective board of contract appeals or U.S, Court of Federal Claims.  For example, if there are constructive changes, you must prove:

• That the work performed was beyond the requirements of the contract; and
• Was performed because of an order from the government ( must be the CO); or
• Through the fault of the government.

What is a FAR constructive change in government contracting?

A “constructive change” occurs when the contracting agency or inaction, without a formal change, causes the contractor to change its scope work but performing additional work. Courts usually agree that when a contractor performs work beyond that required by the contract without a formal FAR change order, and the additional or changed work was unofficially ordered by the government or is tied back to the government’s action, a FAR constructive change has occurred. The change entitles the contractor to an equitable . See American Line Builders. Inc.v. United States, 26 Cl. Ct. 1155, 1179 (1992).

FAR Request for Equitable Adjustment (REA) VS. Contract Disputes Act Claim

As a government contractor, you must understand the issues and confusion that can arise when you submit a request for equitable adjustment to the contracting officer. When do you submit an equitable adjustment instead of a claim? What is the difference? The Contract Disputes Act of 1978 (CDA), 41 U.S.C. 7101 – 7109, does not define a contract claim. However, FAR 2.101,  does define a claim as:

“Claim” means a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. However, a written demand or written assertion by the contractor seeking the payment of money exceeding $100,000 is not a claim under the Contract Disputes Act of 1978 until certified as required by the Act. A voucher, invoice, or other routine request for payment that is not in dispute when submitted is not a claim. The submission may be converted to a claim, by written notice to the contracting officer as provided in 33.206(a), if it is disputed either as to liability or amount or is not acted upon in a reasonable time.

 An REA is not a “claim” under the Contract Disputes Act due to the specific requirements of FAR 2.101. Can you submit a claim instead of an REA? There is. no rule that forbids you from doing so. However, although both approaches tend to seek the same relief, failure to follow the requirements of the contract disputes law for submitting a claim can be a costly legal mistake. See information about how to defend against SDVOSB certification status challenges.

A proper claim under the CDA creates subject matter jurisdiction for the various boards of contract appeals or U.S. Court of Federal Claims.  By submitting a CDA claim, you also are entitled to interest from the date of submission.

By contrast, federal contractors may prefer to submit a request for equitable adjustment because it creates room for more party negotiation. By contrast, the CDA claim requires a contracting officer’s final decision within 60 days.

Tips for Preparing an Effective Equitable Adjustment Request

The FAR or procurement regulations do not set forth a particular format for submitting a request for equitable adjustment. However, best practices indicate that the following can potentially increase your chances.

• Point out the specific clauses relevant to your REA and discuss what the parties were supposed to do compared to what happened. Explain in detail and show a causal connection to why the cost of performance increased.  a discussion related to government specs and drawings is important.
• Consider explaining why the contract requirements could not have anticipated the very reason for your REA ( the parties did not contemplate the occurrence of facts at contract formation)
• If the government caused any delays or increased your contract costs, explain in detail what happened (the who’s, whens and wheres)
• A detailed description of what the government did to delay the contract work or increase the contract costs.
• Explain how the changes impacted the critical path and completion of the project.
• By having a request for an equitable adjustment attorney on board, you can also cite to the legal authority that explains why the government should pay the REA or allow for the requested time extension.
• Submit supporting documents, maps, project specs, correspondence, expert opinions, and critical documents to support your REA.

Bilateral Change Orders

Another point of concern that can create unnecessary litigation occurs when the government and the contractor enter into a  bilateral change order to a contract. This is most often seen with change orders in construction.

This type of change order occurs when the parties agree that additional work would take place for more money. The problem can arise when the estimates for the additional work are more than what the contractor contemplated. When you sign a FAR change order without protest or reservation, you may be barred from submitting a request for equitable adjustment.  This issue becomes more popular when there is a fixed- price change. See also information about SCA Fringe Benefits.

The legal bar is due to accord and satisfaction from later claiming an additional adjustment. See Scott Taber, Complainant, EEOC DOC 0120083624, 2012 WL 1637256, at *1 (May 3, 2012); Appeal of Ttf, L.L.C., ASBCA No. 58452, 15-1 B.C.A. (CCH) ¶ 35848 (Dec. 22, 2014);  Zinger Construction Co. v. United States, No. 434-79C (Ct. Cl. Sept. 19, 1980) (court speaking order) (28 CCF 80,721); and B. D. Click Co. v. United States, 614 F.2d 748, 756 (Ct. Cl. 1980).

What are FAR Change Orders and When are They Initiated?

Change orders can be initiated by either the contractor of the government. Then, the parties or their attorneys discuss the matters and exchange pertinent information. Once discussions with the government procurement officials have taken place, the result is generally equitable adjustments in the cost.

 If you are a construction contractor or other government contract service provider needing help with your Request for Equitable Adjustment, how to submit an REA and FAR constructive change orders, Contact us for additional information or call1-866-601-5518 for a Free Initial Consultation.