That’s Not In the Contract, Do I Still Have To Do It?

Changes Clause, Request for Equitable Adjustment and Claims Overview

By Kay Kendall

Claims Clause!

In most federal government contracts, there is the Changes Clause that allows the government to direct changes to the contract.  In that situation, the contractor, in accordance with the Changes Clause, can submit a request for equitable adjustment, or REA, if the contractor determines that the change will increase the cost or duration of the performance of any part of the work under the contract.

Requests for Equitable Adjustments (REAs)

Sometimes contractors experience constructive changes instead of a directed change.  A constructive change is not the result of the government directing the contractor to do something, but could be a result of a circumstance the contractor encounters in performing the work.  Even though constructive changes are not addressed in the Changes Clause, they are remedied as though it were a change directed to the contract.

Furthermore, well-settled case law has established that when a contractor performs work beyond that required by the contract without a formal change order, and such work was informally ordered by the government or is caused by government fault, a constructive change has occurred, thereby entitling the contractor to an equitable adjustment (American Line builders, Inc. v. United States, 26 Cl. Ct. 1155, 1179. 1992).  As such, the contractor can submit a REA requesting to recover the additional costs and time to perform this work.

Where Should REAs Be Submitted?

REAs should be submitted to the person in the government that has the authority to make decisions to obligate the government to financial liability.  In most cases it is not the resident engineer or contracting officer technical representative (COTR).  Delegation of authority was discussed in the first article Delegation of Authority and Notifications.  Refer to that article for more discussion on the delegation of authority.

What Happens If My REA Is Denied?

In the event the REA is denied or cannot be settled at a lower level, the contractor can elevate the REA to a Certified Claim.  The FAR contains a Disputes Clause which provides the contractor another avenue to pursue recovery.  If the contract contains the Disputes Clause then it is subject to the Contract Disputes Act of 1978, as amended (41 U.S.C. 601-613).  If the contractor elects to submit a Certified Claim under the Contract Disputes Act of 1978, then the contractor must include certification language in that claim certifying that the claim is made in good faith; that the supporting data are accurate and complete to the best of the certifier’s knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the government is liable; and that the person certifying the claim is duly authorized to certify the claim on behalf of the contractor.

It is not a requirement to submit an REA and have it denied or be unresolved before submitting a certified claim.

However, there is an advantage to submitting the REA first.  The costs for preparing and submitting a REA and supporting documentation are generally allowable costs to include in the REA.  The costs for preparing and submitting a Certified Claim are not allowable costs to include in the REA.  When a claim is properly submitted and certified, interest begins to accrue on the claim from the date the contracting officer receives the claim, but the government interest rates are low.

The Certified Claim MUST be submitted to the contracting officer or to the person designated in the contract.   The Certified Claim, should be submitted in a manner such that the date it is received can be verified.  Certified mail with return receipt requested is a common way to send it formally.  A second copy can be forwarded by email, but a hard copy should be sent and tracked.

For contractor claims of $100,000 or less, the contracting officer must, if requested in writing by the contractor, render a decision within 60 days of the request.  For contractor Certified Claims over $100,000, the contracting officer must within 60 days decide the claim or notify the contractor of the date by which the decision will be made.

If the contracting officer fails to notify the contractor of the decision or provide the date in which the decision will be made, then the claim can be “deemed” denied.  At that point the contractor has the option to file a timely Notice of Appeal to the Armed Services Board of Contract Appeals (ASBCA) within 90 days of the denial, or to file a lawsuit in the United States Court of Federal Claims within one year of the denial (except as provided in the Contract Disputes Act of 1978, 41 USC 603 regarding Maritime Contracts).

Do I Have To Continue To Work If My Claim Is Denied?

Regardless of whether the REA or claim is denied, the contractor is required to proceed diligently with performance of the contract.

REAs and Certified Claims should reflect the accurate costs that the contractor believes it is entitled to recover.  The government has no tolerance for inflated or exaggerated claims.  In the next few articles we will discuss how to prepare and price the government construction REA and Claim.

Kay Kendall is currently president of Kendall-Dinielli Consulting, providing consulting services to government and commercial clients.  She has extensive experience in preparing requests for equitable adjustment proposals and claims for government construction contractors.  She has also consulted Contractors with DCAA audits and resolving audit disputes. You can visit Kendall-Dinielli Consulting at www.kendall-dinielli.com.

Vince – the blogger Reality Bite:  Do I still have to work if the federal customer directs me to complete work that is not in the original scope or where they have not provided a contract modification? The quick answer is absolutely. The customer does not want you to use a work stoppage as a means of holding them hostage.

However, I have seen instances where the work is clearly not within your scope, yet you are still required to proceed even if it puts your company at financial risk. In such a case you may want to seek assistance from other interested parties such as the Small Business Administration or your congressional representative.

Remember, regardless of how some may act, most people in the federal government still believe they are not in the business of putting small businesses out of business.

The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune).  Any and all rights reserved.