Changes Clauses and the Request for Equitable Adjustment

The changes clause does two things at once. It gives the contracting officer power to alter the work unilaterally, within the general scope of the contract, by written order. And it entitles the contractor to an equitable adjustment where the change increases or decreases the cost or the time of performance. The contractor must perform first and be paid afterward.

The scope of the power

The power is bounded by the general scope of the contract and by the categories the particular clause names. A fixed-price supply clause reaches drawings, designs and specifications where the supplies are specially manufactured for the government, the method of shipment or packing, and the place of delivery. A construction clause reaches changes in the work within the general scope. A cost-reimbursement clause and a research and development clause each have their own list.

Commercial acquisitions are different in kind. Under the commercial terms clause, changes are made only by written agreement of the parties. There is no unilateral power, which means a contractor performing a commercial contract is not obliged to accept a directed change at all, and an agency that insists on one is asking for a breach rather than exercising a right.

Thirty days, and what has to be said

Under the standard fixed-price clause, the contractor must assert its right to an adjustment within thirty days from the date of receipt of the written change order. The assertion is not the priced proposal; it is the statement that an adjustment will be sought. Contracting officers may receive and act on a proposal submitted before final payment, but the assertion should not be left to that later stage.

The construction clause and the several other variants each state their own period, and the periods differ, so the clause in the contract has to be read rather than remembered. Where a contractor believes it has been constructively changed rather than formally ordered, prompt written notice is even more important, because the government's first defense will be that it never knew extra work was being performed.

Changes nobody wrote down

A constructive change occurs where the contractor performs work beyond the contract requirements without a formal order, and the additional work is fairly attributable to the government. Two elements have to be shown: that the work was outside what the contract required, and that the government ordered it expressly or by implication.

The recurring categories are recognizable in the field. Defective specifications that cannot produce a conforming result. An agency interpretation of an ambiguous specification imposed on the contractor. Acceleration, where the government refuses an excusable extension and insists on the original date. Over-inspection, applying a standard stricter than the contract requires. Interference with performance or failure to cooperate. And nondisclosure of superior knowledge the government held and the contractor could not reasonably have obtained.

What an equitable adjustment measures

The adjustment is the difference between the reasonable cost of performing the work as originally required and the reasonable cost of performing it as changed, plus a reasonable profit on the added work. It is not a windfall and it is not a penalty. Where the change reduces the work, the adjustment runs downward and the government is entitled to a credit.

Because the measure is cost-based, the cost principles apply to what is presented, and unallowable costs included in a proposal create exposure independent of the merits. The tests are set out in the three cost tests. Above the applicable threshold, certified cost or pricing data may be required to price the modification, and the threshold moves with periodic inflation adjustments rather than staying fixed.

Impact costs are the hardest element. Loss of productivity, trade stacking, out-of-sequence work and extended overhead are real and are compensable, but they require a causal narrative supported by contemporaneous records rather than an industry productivity study applied after the fact.

When an adjustment request becomes something else

A request for equitable adjustment is a negotiating document. It becomes a claim when it is a written demand seeking, as a matter of right, the payment of a sum certain, and above the statutory threshold it must be certified. That conversion changes the deadlines, the interest entitlement and the forum, and the mechanics are in claims, certification and the disputes process.

Two related situations use the same cost vocabulary. Where the government suspends or delays the work, the delay clauses provide an adjustment without profit on the delay element. Where the contract is ended early, the cost recovery runs through the settlement proposal after an early ending. And where a schedule slip is the issue, whether the delay is excusable determines everything, which is examined in cure notices, excusable delay and reprocurement costs.