Don’t Leave Money on the Table – Request an Equitable Adjustment

Through various clauses, the government establishes its right to make changes in the contract statement of work or period of performance. In exchange for this right, the contractor receives compensating rights to equitable adjustments in contract price and/or schedule. The contractor exercises this right through the preparation and submission of a “request for equitable adjustment” (REA).

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.  A contractor is entitled to an equitable adjustment when required by the government to perform work not called for in the contract and when performance generated additional expense. Design and Production, Inc. v. United States, 18 Cl. Ct. 168, 196 (1989) (holding that contractor was entitled to an equitable adjustment for performing extra work),citing, United States v. Turner Constr. Co., 819 F.2d 283, 286 (1987) (affirming entitlement to equitable adjustment).  A government contractor is entitled to an equitable adjustment to contract price upon showing the reasonableness of costs claimed and a causal connection between such costs and the event giving rise to the claim.  Delco Electronics Corp. v. United States, 17 Cl. Ct. 302, 320 (1989) (awarding equitable adjustment).  Thus, “the contractor should establish a logical connection between the costs and the event upon which the equitable adjustment claim is based.”  Id. at 320.

These principles are embodied in the “Changes” clause in the Federal Acquisition Regulations (“FAR”), which was expressly incorporated by reference into the ID/IQ Contract between FEI and the Government at Section I, p.69.  This FAR “Changes” provision states in relevant part as follows:

If any change under this clause causes an increase or decrease in the Contractor’s cost of, or the time required for, the performance of any part of the work under this contract, whether or not changed by any such order, the Contracting Officer shall make an equitable adjustment and modify the contract in writing . . .

FAR, § 52.243-4(d), Changes.

A party cannot change the contract at will by requiring or dropping out fundamentally identified contract requirements and/or standards and then not pay for added effort, if added effort was required as a result of the changes.  See Taylor & Partners, Inc, VABCA 4898, 97-1 BCA ¶ 28,970; Fanning, Phillips & Molnar, VABCA 3856, et al., 96-1 BCA ¶ 28,214; modified on reconsideration, 96-2 BCA ¶ 28,427.

“[A] design contract, like any contract [ ] has limits and includes provisions which define scope and set out requirements which are not expected to change.  To determine if a design change is compensable, “the timing of such a [design] change and the level of effort required of the designer [in order to] determine the extent, if any, to which the A/E may be entitled to an equitable adjustment.”  Taylor & Partners, Inc., VABCA 4898, 97-1 BCA ¶ 28,970, at 144,267 (quoting Fanning, Phillips & Molnar, VABCA 3856, 96-1 BCA CBCA 5410 13 ¶ 28,214, at 140,833-834, modified on reconsideration, VABCA 3856R, 96-2 BCA ¶ 28,427).  For example, in a similar case to the one at hand, the BCPeabody case, the court held:

Significant changes to the equipment BCPeabody expected to use on the project and inaccuracies in the VA’s as-built HVAC plans, both identified late in the design process, caused BCPeabody to rework the design in a significant way. The timing and extent of these design changes entitle BCPeabody to an equitable adjustment in the amount of $32,000 for additional A/E services. BCPeabody is also entitled to ten percent for overhead and profit for the first $20,000 awarded and seven-and-one-half percent for overhead and profit for the next $30,000 awarded, for a total of $2900 for overhead and profit. 48 CFR 852.236- 88(b)(5) (2008) (VAAR 852.236-88(b)(5)). The total amount awarded is $34,900.

BCPeabody Construction Serv. Inc. v. Dep’t of Veterans Affairs, CBCA 5410 (March 26, 2018)

Recognizing REA situations is the responsibility of all contractor personnel. Everyone involved in contract performance needs to be able to recognize deviations from the contractual statement of work, terms of the contract, and the period of contract performance. Only by knowing what is required by the contract can REA situations be identified, therefore communication, training, and awareness are critical.

Advantages of the REA Process Utilizing the REA process can provide several significant advantages to the contractor, including the following benefits.

Improvement of Profit– The biggest advantage to utilizing the REA is receiving what is rightfully yours. We all want to be responsive suppliers, but we must be compensated for changes in the contract that increase cost or change the period of performance. Contractors are not obligated to absorb these costs in their profits.

Increase in Competitiveness– Utilizing the REA can be a subtle way to increase your competitiveness. Pricing only what the proposal specifications request and not including those items not requested may mean the difference between winning and not winning the award. Let the changes process, on a noncompetitive basis, correct for request for proposal deficiencies.

Avoid the Perception of Program Mismanagement– Utilizing the REA can help avoid the perception of mismanagement when delays and overrun situations occur. Documented and negotiated changes in the contract price and/or schedule place the responsibilities for cost overruns and untimely performance on the buyer, not the contractor.

REA Requirements REA situations apply to all contract types— firm-fixed-price, cost reimbursement, time and materials, labor hour, and even General Services Administration multiple-award contracts. Any performance situation where requirements are not considered in the negotiation process and determination of the price could create the need for an REA. Bottom Line –To receive an equitable adjustment, a contractor must be able to establish the following:

+ The need for an adjustment (HARM),

+ The connection of these circumstances to the contract (ENTITLEMENT), and

+ The reasonableness of the amount of adjustment requested (QUANTUM).