Dealing with Change: Contract Changes and How to Handle Them

Transcript

Well, good afternoon,
good morning or good evening to you,
if you're in Australia and just really
want to hear about government contracts.
My name is Craig Smith.
I'm a partner here in the Government
Contracts practice at Wiley.
With me today are my colleagues,
Jennifer Retener and Ben Phillips,
and we're excited to bring you
the last boot camp for the year
(as you know, we go dark in December)
talking about change and contract
changes and what to do when you see them,
I think we all recognize.
That they happen and the goal is to go,
OK, what do we do when, when they do,
whether like the change or
not like the change,
you still have to deal with the change.
We, of course,
may have some folks who need CLE.
In particular, New York CLE.
You'll be getting information
through the firm.
There's a form to fill out a reminder
that there will be a code toward the end.
Pay attention,
it's on the screen.
We'll say it.
And we will use semaphores if
needed for anyone who's at sea.
And that way you can go ahead and
get your CLE taken care of.
With that administrative item out of the way,
we want to just give you a very
brief overview.
As we started putting this boot
camp together and just thinking
about experiences that we had had
working with clients in recent,
recent years and particularly this year,
one thing that stuck stood out is
changes seem like an easy thing.
Of course you know it's out
of the scope of the contract.
That's a change.
We got a mod,
those sorts of things and changes
sometimes I think feel like,
a very basic topic and yet inevitably
we get involved and companies have to
come to us at times because there's
an actual disagreement about the change.
But oftentimes there is one of those
well did-ya conversations and the
question, did you provide notice?
Did you do this?
Did you notify the subcontractors?,
whatever the case may be.
So I'm really hoping that even
for those of you who are very
experienced and are tuning in to
treat this as a bit of a almost
like going back to spring training.
Getting the changes that you'll take away,
something to go.
You know, my practice,
my playbook hasn't always included acts
or I've kind of fallen away from that.
And so, you know,
going into 2023,
that's something I really want to focus on.
Also part of the discussion we thought about,
it's really three basic buckets
and of or three-step process,
one being OK, what kind of change
do I even have?
And naming the change can be helpful
for figuring out what how you want to
protect your interests and then how
you want to ultimately pursue relief.
So that's the order that
we're going to go in today.
We're really interested in just
kind of laying out the groundwork.
We know that we've got visitors or
attendees from all across the federal space.
You get contracting officers and other
personnel who have varying degrees of
experience dealing with changes,
varying degrees of flexibility,
dealing with changes,
and varying degrees of kind of approaches.
And so we've tried to think about what can
be a very generally applicable playbook.
In an hour, we're not going to
get into everything, nor could we.
I mean, you could do a week long
course on dealing with changes.
So we're not going to talk
about every type of change.
One example is I think we mentioned
differing site conditions at one point,
but we don't really dive into
the nitty gritty of those kinds.
We don't dive into every conceivable
set of regulations or rules.
We stay pretty far-focused today.
We don't get into Postal Service
regulations nor do we get into
kind of non-farm non-procurement
type contracts like, for example,
OTS other transaction agreements
which can have a very choose your
own adventure type approach.
But keep in mind that the government
is going to still be grounded
probably in pretty far base.
So there are going to be times where
there's a little bit of, maybe this
doesn't apply to me directly because I
don't have the Far Changes Clause that
Craig and Jennifer and Ben are talking about.
But I see what the principle is here,
and here's how it's going to be relevant.
With that warm up,
Ben I know is chomping at the bit to
start talking about kind of identifying
and naming the types of changes,
so I'm going to hand the microphone
over to him.
Thanks, Craig. So the first step in this
process is identifying and understanding
the type of change you've received.
In this step, we've identified 3 main topics.
The first is whether the person who ordered
the change order has the authority to do so.
Because it changed alters
the underlying contract,
the person issuing the change must
have the authority to modify the
contract and bind the government.
So first we'll take a look at a few
different government personnel that
are involved in contract administration
and examine which of those people
have the authority to order change.
The second topic is the type of change.
Here there are four types of changes that
can be made to the government contract.
The unilateral change,
a bilateral change, a constructive
change and administrative changes.
For time purposes, we won't be
discussing administrative changes today.
And finally,
the third topic will discuss within
step one is the scope of the change.
When we get to those slides,
we'll see that all changes are supposed
to be within the scope of the contract.
And any change that's outside of the
scope of the contract is a first as
a cardinal change and those carry
their own unique considerations.
OK, so who has the
authority to order a change?
As you can see on this slide
between the contracting officer and
Administrative Contracting officer and
contracting officers representatives,
there are multiple people that can
be involved in the administration
of a contract with some variation of
contracting officer in their title.
However, not all those people with the
contracting officer in their title had
the authority to bind the government.
So it's important to know when you
receive a change order that the person
giving you the order has the authority to do so.
But as you can see on the slide,
the contracting officer has the
authority to order a change within
the scope of their authority.
The contracting offers authority
is defined in their certificate of
appointment and the most common limit
to a contract officers authorities
their warrant which identifies
the maximum dollar amount the
contracting officer can contract for.
Next, we have administrative contracting
officers who have the story to issue change,
or if they're delegated that authority
in accordance with far 42.202 C.
Third, you have contracting officers
representatives and contracting officers
technical representatives, and despite
having contracting officers in their title,
the contracting officer representatives
or technical representatives do not
have authority to change the concept.
Instead,
contracting officer representatives
and technical representatives can be
delegated certain contract administration,
certain contract administration
functions found in or 42.302.
Finally,
you have program and technical personnel
that are involved in contract administration.
These people generally do not have the
authority to offer a change except in
very rare circumstances where it's found
they have implied actual authority
to modify the contract,
and for that to be found it has
to be an integral function of
that government employees' job.
An example of where the courts
have found that is in CEMS,
Inc. vs. United States.
There's a court of federal claims found
that a project manager had implied
actual authority to order change because
the project engineer acted as the on
site representative for the CEO who
admitted to rarely visiting a project site.
The project manager,
also project engineer,
excuse me,
also authored and negotiated the
contract modifications during the
performance of the contract and
finally, the CEO delegated the project
engineer with broad discretion
to supervise the concept.
So as you see,
those circumstances are very rare.
The average contract will not
have such a situation.
So the key take away here is that
only in very rare circumstances will
anybody other than a contracting
officer or an administrative contracting
officer with delegated authority
have the ability to order change.
You know, Ben, one thing that I thought
was worth sharing with folks is as we
were preparing these slides and thinking
about those of you who deal with your
administrative contracting officers,
we always think of them as sitting, you know,
kind of above our procurement, procuring
contracting officers and so the idea of,
you know, having to remind yourself, 'oh yeah',
my ACO does need to have the authority
delegated for my particular contract.
I'm not saying when you,
whenever you get a change that might,
that might fit under this umbrella,
you do that.
Let me see your,
let me see your authorization.
You're delegated authority here.
But we do have to keep in mind that that
the FAR does call for that authority.
So that may be something to just
bear in mind as you work through changes
and build that relationship with the
ACO, that they may seem like they're
omnipotent or all-encompassing at times,
but there are some,
there are some limits prescribed.
Thanks, Ben.
Right. So the first type of change order
we'll discuss is the unilateral change order.
As the name it suggests this type of
change orders issued by the government
without the contractors consent or the
contract of signature on the change order.
The FAR does not provide for a
contractor being able to issue
a unilateral change on its own.
The changes clauses that can be
found in various contracts specify
the designated areas in which e-mail
change within the scope of a contract
can be ordered by the government.
And unilateral changes are also permitted by
other clauses besides the changes clauses,
such as the Property clause and
the Stop Work clause.
And through unilateral saying,
the government has about three
things they can generally do and
those are increase or decrease
the scope of work on the contract,
the government can add a different
type of work to the contract as long
as that additional work is within
the original scope of the contract,
and third, the government can increase
or decrease the contract with level
of effort required to complete
the contract work.
Now, I'll pass it over to Jennifer to
discuss bilateral and constructive changes.
Thanks, Ben. So bilateral changes
might be the easiest changes to
deal with and also to recognize,
because they are a change that
occurs when both the contractor and
the contracting officer agreed to
modify the terms of the contract,
so both parties sign a bilateral change.
Bilateral changes can be used
in a variety of ways,
such as memorializing an equitable
adjustment that a contractor
will receive after the CEO has
issued a unilateral change order,
to finalizing letter contracts
are also known as UCAS.
Bilateral changes can also be used to
add new features to a product that
is being manufactured and returned
for a specified consideration,
or bilateral changes can be used
for any other modifications to the
contract that both parties agree to.
The next type of change we're going to
discuss is the constructive change.
And unlike the unilateral change order,
this type of change occurs when the
government orders work outside the scope,
but without issuing a formal
written change order.
The Federal Circuit has found that
for a contractor to demonstrate
a constructive change,
it must show two parts.
First, that the contractor performed
work beyond the contract requirements,
and second, that the additional
work was ordered expressly or
impliedly by the government.
The orders that are issued by the
government can either be oral or written,
but they are construed to have the
same effect as a written change order.
It's important to note that the
order requiring or compelling the
work must come from a representative
that has authority to do so.
Just has been talked about in
the previous slides,
the following does not count as an order,
so if the contracting officer
is just giving informal advice,
or if they are simply commenting about
performance or just giving you their
personal opinion about how the work is going,
those do not count as orders that will
entitle contractors to
claim constructive change.
You know, Jennifer,
before you give some of the examples,
because I think this is a
great place to point this out,
when we use that term order, you know,
impliedly it's emphasis on kind
of thinking broadly about that.
My mom was the master of the
implied order and so you may
have contracting officers where,
could be really is pretty implied
and it's a matter of kind of
cleaning up and communicating.
So you're both on the same page or
some of the examples you'll see here.
Order is more conceptual.
You don't get an order for
defective specifications for these,
but at the same time it fits
under the umbrella.
So thinking exclusively
about constructive changes,
and when we use the term order,
it's a little bit more conceptual
than it is literal.
So Jennifer, those examples look pretty
interesting.
Uh, yes, Craig, they are.
So these are just some of the
examples of constructive changes
that case law has identified,
but they can come in other ways.
So, the first type of constructive
change is a dispute over the
terms of performance during,
sorry, a dispute over contract
interpretation during performance.
So, this is where the contractor and
the contracting officer don't agree on
the interpretation of the contract.
The second is when the government
interferes with the contractors work or
otherwise fails to cooperate with the
contractor in order to get the work done.
Examples of this might include
the contracting officer improperly
rejecting the contractors work
or imposing higher test standards
than are required by the contract.
The third type of example is
defective specifications,
and this type of constructive
change is premised on the idea
that the government breaches the
implied warranty that satisfactory
contract performance will result
from the contractor adhering to
the specifications that were given
to them by the government.
A contractors rely is permitted
to rely on these specifications,
and the test for whether a contractor
can recover is whether they're misled
by the erroneous specifications,
that were given to them by the government.
The fourth example of constructive
change is misrepresentation and
non-disclosure of superior knowledge.
So, this occurs when the government
has misrepresented information
regarding a specification and
then, the contractor relied on the
misrepresentation to its detriment.
Another type of example of constructive
change is acceleration of schedule,
and this occurs when the government
orders the work to proceed faster in
an attempt to complete performance
earlier than otherwise required
by the contract.
And then this next slide illustrates
some of the constructive change
examples that we just talked about.
We'll go over two of them today.
The first case, Miller Elevator Company,
is a case where the contractor had
a contract with the GSA to maintain
elevators in a federal building.
After the parties entered into the contract,
the government then ordered substantial
renovations to the building,
which damaged the elevators.
The government required the
contractor to fix the damage,
even though the repairs were for
other than ordinary wear and tear.
And the Court of Federal claims here
found that this was a change to the
scope of the contractors contract.
If you go down to the 4th bullet,
ACE Constructors,
this is also a case from the
Court of Federal claims.
This is a an example of differing site
condition as well as constructive
acceleration and [in] the ACE Constructors
case, the contractor had a contract to
construct an airfield for the army.
There was a difference [in] that condition where
the airfield was supposed to be constructed.
However, the government refused to grant
the contractor and extension of time
to complete the work and in this case,
the Court of Federal Claims found that
the government's refusal to grant
the extension plus its threat of
liquidated damages,
which caused a contractor to extend
overtime constituted an acceleration order.
And I'm going to pass it back to
Ben to discuss Cardinal changes.
Thank you, Jennifer.
A term that comes up a lot with
discussing changes [is] the word scope,
and that's because all changes to the
government contracts are supposed to
be within the scope of the contract.
There are two tests for
determining whether it changes
within the scope of the contract:
the nature of work tests, and
the level of effort test.
The nature of work test looked at
the change work and whether it's
essentially the same as the original
contract work, and the level of
effort test looked at the change, it's
how they change impacts the
contractors level effort and this
considers the cost of the contractor
of completing the change work or
whether the change work disrupts the
contractor's ability to complete the
work that was originally contracted for.
And if it changes outside the
scope of a contract,
that is referred to as a cardinal change,
and cardinal change has been found to be a
breach of contract by the Federal Circuit.
Note that if the contract performs
work that's outside of the scope and
would otherwise be a cardinal change,
a contractor can no longer argue
that the work was a cardinal change.
So, if you receive what appears to be a
change that's outside of the scope of work,
just be sure to raise that issue
immediately before proceeding with the work.
And here, we have a few examples
that illustrate the nature of
work and the level of effort
cardinals change, cardinal changes.
In Bullet 5, the huge growth space provides
a great example of a nature of work,
cardinal change. In that case,
the Department of Veteran Affairs
contracted with Huge Growth to
construct a riser as designed by another
contractor and architectural design firm.
But when the riser began having problems,
instead of going back to
the firm that designed it,
the VA placed the design responsibilities
on Huge Growth, who was originally
contracted just to construct
the riser at design.
The VA Board of Appeals found that
placing the design responsibility on
Huge Growth transformed the contract
from a construction contract
to a design build contract,
and that expanded the contract beyond
its original scope and thus changed.
That change comes through the cardinal
change and breach of contract.
As for a low effort change,
the Sadler case and Bullet 3
provides a great example of that.
In that case, Sadler was contracted to
build a levy that was originally 5500 yards,
and following a flood that inundated the work
site, the levy was increased to 7900 yards.
But the change order that increases
from 5000 to 7000 yards was
withdrawn and then reissued,
increasing it this time to 13,000 yards.
And based off of that,
that can increase,
the court found that the increase
was so substantial so that it
amounted to a cardinal exchange because
it increased the level of effort it
would take Sadler to construct a
levy that was a risk of [inaudible].
And with that, I'll pass it over
to Craig to introduce our. Yeah,
sorry, I jumped the gun on you, Ben,
and I'll take the microphone back.
One thing I do want to do before
we move on from cardinal changes,
though is to kind of some of you,
especially those who maybe haven't
gone through this kind of experience
before with a really big change.
You're hearing unilateral changes that,
you know out of scope,
but within the general scope,
then cardinal change way out.
You know how how does how does
this out of scope interact?
And I think we all have a tendency to
use the term out of scope.
At times, it can mean different
things to different people.
So to put these two together,
you might think about your scope
of work as having two concentric
fences around.  The first fence is
kind of what the actual scope that's
stated in your statement of work,
work statement, whatever the case may be,
and the unilateral changes when your
contract has one of those clauses and
is going to give some room for
the government to move that first
fence out a little bit.
They're going to make it less round.
So, some work that was outside the
first fence is going to come in.
But, there at some point you get to
the second fence and that's going
to be the cardinal change doctrine
and you can't expand beyond that.
So it's a bit like, OK,
the government can go outside
the first fence,
they just have to compensate me
for, compensate me forward or adjust
the schedule as the case may be.
But it's a breach of contract
is that one slide back showed to
go outside the outer fence.
And for those of you who like a little
bit more of a practical example,
you can think about,
I got asked to go pick up
a book that had come in the bookstore
today or tomorrow, no problem.
And then if I get a request and can
you stop and, you know, pick up,
pick up some coffee at the coffee
shop next door, no problem.
But then if I get asked,
oh,
can you also drive across the city
to go pick up some flower pots?
That's not really within the
contemplation of I'm going to
the bookstore and there are a
couple stores nearby.
So, I think Ben and Jennifer both know
if the request was, 'could you drive
across town to go pick up some new neckties',
maybe then I'd probably already be in
the car right now and leave Ben and
Jennifer to talk about the rest of it.
Also, we had a question come in and
this is a good reminder that I should
let you know if you do have questions,
there is a Q&A box in the system.
Please feel free to send them along
and we'll address them either in the
flow or depending on where they come up,
we might talk about them at the end.
And so the question was how would it
change to increase the statement of work,
be unilateral since it requires kind
of a meeting of the minds and you can
think of it as to be enforceable.
You can think about it this way as.
The changes clause in your contract,
to a degree, pre-agrees that there
are certain kinds of changes the
government's going to be able to make
on their own volition at their choice.
And they can direct you to do it,
and you have to do it and then,
the agreement is you'll be get an
adjustment to price or schedule in response.
We're going to talk a little
bit about that more later on,
but that's a way to think about how
can you know, how can they make
me do something I even agreed to.
In a sense the changes clause means
that you've already agreed to it,
it's just kind of a new way
of thinking about it.
That way as folks have other questions,
please don't hesitate to to put them in
the box as well and we'll address them.
So moving on to protecting your interests,
you know, you get the change,
you know what the change is,
and so then what is it that we're
going to do?
And that's an important kind
of the next steps.
It can seem a little obvious at times,
but at the same time these things kind of,
you know,
they can fall by the wayside or
otherwise they just you don't
address them in the moment.
And that's really important because we have.
It's it's just so many times I
think changes or slow or excuse me,
changes can linger and that's a real problem.
So first step, who needs to know about it?
And so you've identified the change.
The first is,
is this going to affect my performance?
And so you need to think about are there
engineers, are there technical functions?
And they have a couple of roles here.
One is they might be able to tell
you that's not actually feasible.
That's a distinct possibility.
Another is they might go,
yeah, we can do that.
And here's, you know,
here's kind of the labor that we would need.
Let's go ahead and cost.
Get out and figure out what we
need to ask the government for.
They also need to maybe adjust schedules.
So, these are all important
considerations for what?
What you might be asking from your engineers,
subcontractors,
vendors,
many of the you,
many of you of course are subcontractors
or vendors and you need to know
there's been a change so you can
adjust your performance accordingly.
You also, if you're up kind
of prime or higher tier,
you need to know OK,
what what do we need to do
to make the change happen,
what's the cost going to be and either
your in-house or your outside counsel,
depending on how your structures
and it can be sequential too,
they need to be aware to
varying degrees or varying
times, depending on your internal
playbook for how you process changes.
I think it's important that lawyers
know what's going on especially,
you know, and there are times where
we've come in and seen where the
communication hasn't quite happened
illegal, and, but I don't want everyone
to think you've got to forward every
single piece of paper immediately.
Again, each,
there's so many organizations here
with so many different structures.
It's understanding where counsel
fits into your playbook so they can
get in and of course they're going
to have a different perspective
than your technical folks,
your business folks,
your subcontractors,
so getting full-sized commensurate
with the nature of the change.
And then we thought of four questions that
you'll want to be asking yourself when
once you've identified the change, OK, first,
what does the contract say about changes?
And we touched on that a moment
ago with the question that came.
Is the change order in writing,
and you know,
for obviously an implied change, sometimes.
Those don't always come in writing,
like the damage to the elevator for
the example we talked about earlier.
But getting the change memorialized
in writing is really important.
I'll just be at the next steps.
What the contract says about changes so
understanding what you might be giving
the example we had a moment ago says
about changes kind of pre-agreeing to
them is the change order in writing.
Damage to an elevator doesn't come in
writing but then documenting what to do
about it can be a way to memorialize
that is the change order price.
A lot of times they are and you need to
see is this pricing reasonable or not.
A lot of times they're not and
it's incumbent upon the contractor
to gather the support for the pricing
and propose it in the first instance.
And then of ,course, there's the
do I have to follow it?
We've hinted that there are
going to be plenty that you do,
but there are times where you don't
and it's important to understand,
especially if you're more of a
commercial company and the idea of
the unilateral change is a little
newer, then that's something we're
understanding when you do have to
follow for those of you who are
more experienced in the government
space and or have kind of that
shoulder-to-shoulder, sitting
side-by-side relationship understanding
when you don't have to follow what
seems like some type of change is
also an important consideration.
So, let's talk a little bit here,
if we could,
about what does the contract
say about changes?
There is usually at least one
standard change as clause.
Those of you who follow carefully
what's the Christian doctrine for
reading and changes or contract
clauses by operation of law,
I think you can probably anticipate
that if for some reason you were to
ever receive a prime contract from
the government that didn't have a
unilateral change clause, that
you would one would be read in,
but that's not a reason to kind of
let that, kind of let that pass.
If you ever do get a contract,
I think making sure you understand
up front what kind of changes
the government can order and not
kicking that down for another day
is an important consideration.
So, it's as we've mentioned a few times,
many clauses permit the government
to make unilateral changes.
The they're usually FAR 52.243 dash.
We've got one up there as an example.
And there, there's again, those of you who
have been around, know that there are
three kind of basic force for supplies.
Three pretty basic things that the clause
allows the government to change unilaterally.
One being the drawing designs or the
specs when supplies being furnished are
to be specially manufactured for the
government in accordance with the drawings,
designs or specs.
Also, method of shipment or
packing and place of delivery.
So those of you who face changes,
I'm sure you do it from time to time,
get shipment or packing changes or place
to delivery changes and maybe they do,
you can think of scenarios where
those have a material
effect on your cost and time of performance.
And you can think of times when it
really it's all going to UPS or FedEx and
doesn't make a difference. Drawing designs
and specs are probably the big one.
The services equivalent for
fixed price has pretty similar,
but it includes changes to the
description service be performed.
Time of performance, place of performance.
You sign up to guard the courthouse
and you're supposed to guard it
from 8:00 AM to 8:00 PM and then it
changes from 8:00 PM to 8:00 AM.
You know, that's that's time of performance.
If they asked you to guard three other
courthouses that weren't contemplated
in different cities across the country,
you could see how you're starting to
then move into a cardinal change eventually.
There are also what we call change
adjacent clauses that include, you know,
what can be thought of as changes.
Whether it's a stop work order,
OK I was performing,
I had an agreement to perform,
now I can't perform or again the
differing site conditions which gives up
a process or what do you do if you do have,
you know,
you can imagine you're doing
a construction contract,
you start digging and there are,
I don't know,
dinosaur bones underneath and that
wasn't part reasonably within the
contemplation of the pre contract
site survey.
So, we're really focused on the more kind
of standard Part 243 changes clauses.
But, just a reminder,
there may be other provisions that
still either contemplate what can be
thought of as a change and provide the
government the authority to do that
or that give you what can be thought
of as the playbook for what's going
to happen if there is one of these kind,
like a differing site condition.
And then, a reminder, and this is
something that can be easy to
forget at times, that some changes
can only be done bilaterally and
in fact, for part 12 contracts,
so commercial product,
commercial services, prime contracts,
the clause there is changes are only
with written agreement of the parties,
so bilateral only. That can at times
for commercial product or commercial
service contract gum things up a
little bit because changes that are
unobjectionable need to be done bilaterally
versus through unilateral changes.
At times, that can be really important
because the government is functioning
more like a buyer in the commercial
marketplace versus in its unique and
special posture as the government
is buyer where it can make those
sorts of unilateral changes.
So at that I'm going to, and that
we've talked about kind of what
does the contract say about changes.
I believe Ben's going to move
on to what our next question is.
Thanks Greg. The next question is,
is the change order in writing?
An important step to protect your
interest is having the change order
in writing and on the proper form
according to the changes clauses
found in FAR Part 42 and FAR 43.301,
all changes are required to be issued
in writing usual standard form 30.
The importance of having your change
order in writing on standard Form 30
is reflected in multiple decisions
where the courts have found that
the lack of a written change order
to be a factor in denying a
contractor's request for compensation.
Two examples of such decisions are provided
here on the slide and Connor Brooks
Construction,
the court found that the mere assertion
of a purported oral argument that
contractor would be compensated for
additional work was not enough,
and that there was a written
change order was needed.
And in Alaska
Merrick
Associations, the Court of Federal
Claims found that the failure of
the contractor to obtain a written
change order was failed to their
claim for compensation.
So, if you receive a change order
orally or in any written form
other than standard form 30,
you should immediately notify the CEO
and request the change to memorialize on
standard form as required by the floor.
And although it changed where
it's supposed to be in writing,
there are certain situations where
change may be communicated orally,
and one of those situations is where a
reasonable price has not been agreed to.
And this leads us to our next
question, [which] is the change order price.
In a perfect world, your change
order will be on standard form 30
and price and if it is that case,
be sure to review the pricing of the change,
work for consistency with their
pricing of the contract and also
review the pricing to make sure
it's fair the fairness of a change.
Order pricing can be an issue when
the contractor requires performance
under the contract to be decreased, so
anywhere that decodes the contract.
For example,
when a unilateral change this
issue that reduces contract work,
a contractor and submits a proposal
for a downward adjustment,
but they have little incentive to do so.
However, if the contract doesn't submit
a proposal for downward adjustment,
there are things the contract the
officer can do to reduce the contract
price and those two things are
they can reduce the contract price
through a unilateral modification
or the government can reduce
the contract price to the final
decision under disputes clause.
And if you find yourself in
a situation where you're--
Just jump in. It may be that that order
gets reversed where you get the, the,
the price downward price adjustment
in the mod and then it's up to the
contractor to almost come back with a
proposal for what it should be and we'll
talk about that a little bit later on.
Thanks Craig. And if you find
yourself in a situation where
your change order is unpriced,
know that the FAR requires the
contracting officer to negotiate an
equitable adjustment as soon as possible.
And considering this contractor should
begin gathering information to propose
a price adjustment as soon as they
received an unpriced change order.
And for context that contains
far 52.243-7.
The contractor is required to promptly
inform the contracting officer or
administrative contracting officer of
government conduct that the
contractor believes constitutes a change,
and there's not even a change
order signed by the contractor.
And this is the time required to
notify of government contract
that the contractor believes the
constant change is not that's truly
defined and it's often negotiated
by parties and then memorialized
in the version of FAR 52.243-
7 that is included in the contract.
And third, the question is do I
have to follow the change order?
Whether you have to follow
the change order right,
whether a contract that will follow
the change orders required depends
on the type of change order.
If we are dealing with a
unilateral change order,
the changes in disputes clauses
generally require a contractor
to perform the change work and
there are certain exceptions for
cost reimbursement and
incrementally funded contracts
that can be found in FAR 43.21 B.
As for bilateral contracts,
the contractor only has performed
the change where if the contractor
agrees to the change.
And this means that when the contracting
officer or an administrative contracting
officer with delegated authority
proposed a bilateral modification,
the contract is not obligated to
accept the modification as proposed.
And with bilateral changes orders,
it's important that the
contractor reserves their rights,
the future release and adjustments.
Sometimes contractors will agree to
a modification in the moment that
implements the change work but then
expressly defer pricing or other
terms for further negotiation.
And in such a situation it's vital
to the contractor reserves their
rights because an executive bilateral
modification that contains no
reservation of rights has been found
to be in accordance satisfaction.
And as for constructive changes,
whether to follow the change may
turn on practical considerations,
such as whether the contractor can
complete the originally contracted
for work without first completing
the change work.
And that relates to the example
Jennifer discussed earlier with
the elevator maintenance,
where if the elevators aren't functioning,
you can't perform maintenance on them.
So you might have to perform that
constructive change work in order to do
the work you're originally contracted for.
And finally,
just be aware of the risks that come with
refusing to comply with a change order,
such as terminations.
And with that, I will pass it over
to Jennifer to discuss Step 3.
You know, one thing as we move
on to Jennifer, you know,
with termination for not refusing,
termination shouldn't be kind of a
punishment for not taking a change.
That's outside the scope of the contract.
But you can imagine the governments'
need has changed in some meaningful
way and it may be that you're
not in a position to continue at
the price they're willing to pay.
And a termination for convenience
might be something the government
considers at that point.
It may be that.
At times, that's all on the up and up.
Or it could be times you get someone who
for whatever, you know,
whatever the motivation might be,
it's a little bit more of you have
to do this kind of the Luca Brazzi,
take this modification or your contract's
over and it's important to just
remember what what two things:
what are my rights here in the situation?
And then also try to think about
what's motivating the the person
on the other side of the the e-mail
or the table or the phone,
as the case may be.
I am trying to get to a point where
there's a mutual understanding.
And then, yeah,
I think the practical considerations
of constructive change is,
is a really important thought.
There are going to be times where you know,
you can just decline or say we can't do that.
There are times where with
some of the examples,
it's just there's no way to continue
performing the contract without
accommodating the constructive change.
It's just a matter of making
sure the schedule price,
other terms that the case may be are
adjusted to reflect that practice.
So speaking of adjustments
to reflect the reality,
I'm going to get back out of
the way so that Jennifer can go.
Thanks, Craig.
So we've now reached the third step
in our three-step process today.
So we've gone through step one where
the contractor has identified the
change and step two where the contractor
analyzes the change and the contract in
order to adequately protect its interests.
Step three is discussing how to go about
requesting the relief for the change,
so pursuing relief.
So, after you've identified the
type of change that you have,
you can consider what kind of relief
you'd like to request from the government.
The most common type of relief
that might come to mind are
price and schedule adjustments.
However, it's important to remember that
the type of relief is almost boundless.
As Craig spoke earlier,
you could ask to change the
place of performance or where
your product is delivered.
You could also ask that the work be required
at different hours.
You could adjust the specifications
or other technical requirements to
accommodate other changes that the
contracting officer has ordered,
or you can negotiate to adjust
rights and intellectual property.
There are different avenues to
request relief and the option
that you pursue might depend
on the contractors relationship
with the contracting officer.
The first type of avenue are oral discussions,
and this is the most informal
type of way to request relief,
as it's simply asking for the
adjustment and then negotiating
its terms with the government.
The second avenue is submitting a written
proposal that requests the desired relief.
The third avenue is the request for
Equitable Adjustment or an REA.
An REA is more formal than a
proposal and that the contractor
must explain the contract clause.
Under which that they're
requesting the adjustment.
An area can be submitted at anytime
before a contract closeout,
so long as the government is not
prejudiced by the submission of the REA.
To maintain a good working
relationship with the government,
it might be advisable to submit
an REA before utilizing the fourth
avenue that we have listed here,
the certified claim.
So a claim can be submitted
in case an argument,
an agreement between the contractor
and the government can't be reached.
You can then convert your REA to a claim
and submit that to the contracting
officer and seek a written demand.
As a matter of right for a
payment of a sum certain.
As we discussed more in later slides,
each of the avenues listed here
has advantages and disadvantages.
For example, the timing for submitting
a claim differs from submitting an REA.
In addition,
claims over $100,000 have to be certified.
And claims have to be submitted
within six years of accrual.
So moving on to how to price the relief.
When thinking about the amount you
want to request for your relief,
it's important to recognize the
elements that are and are not permitted.
So the most common type of
permitted elements are your
direct labor and material costs.
You can also include in your release
indirect costs and profit.
These costs, however,
are recoverable and equitable adjustments,
but are excluded from certain other
types of adjustments such as SBA or
Service contract act price adjustments.
You can also request to recover the
cost to prepare the request early.
And depending on which avenue of the
contract the contractor has picked
in order to obtain the relief,
you can request these costs
if you are preparing an REA.
And some of these costs might
include attorneys fees,
experts costs and the time that the
contract has spent and preparing the REA.
The fees for services are allowable
are only allowable when supported by
evidence of the nature and scope of
the services that were furnished.
However, costs to repair their
quest for relief are not available
if you choose to submit a claim.
Continuing on how to price the relief,
uh, we've touched on this, but most of
our conversation today has centered on
if the government has additional work.
The government can also descope the contract
by deleting certain tasks from the contract.
And when thinking about requesting
relief for descope work, you want to
keep in mind the would have cost rule.
And this rule simply states that you should,
the reduction to the contract price
should reflect the cost the government
reasonably would have incurred if
had performed the deleted work.
[inaudible] scope work [inaudible] requested release--
Go ahead, jump in and talk about the,
the would have cost rule.
I think that's it's a
little counterintuitive.
We're thinking about, OK,
I'm four years into a 5 year contract.
Let's say it was priced,
all the auctioneers were priced,
whether if we're talking supplies
or services or even construction.
And I've just had this descoping change.
I don't have to build a building,
I don't have to deliver these units,
whatever the case may be.
And when it's a descoping change,
this would have cost rule is
that what it would have cost the
contractor to perform the work at
the time of the descoping change.
So, there can sometimes just think about
the last couple years of inflation,
there can be a little bit of a disconnect
between what you priced up front,
and what comes later,
that's something that we want to flag.
So, it's on people's mind and
they're thinking through that and
it can come as a little bit of a surprise.
We've had some folks we've talked
about this with who it's like,
"Oh well that's that's a very,
it's a very different impact
if we're talking about kind of
the descoping price today".
When you're pricing the relief,
you want to be mindful of cost
and accounting obligations,
so you want to keep in mind
the cost accounting standards.
And the Far Part 31 cost principles,
whichever one is applicable,
might be applicable to your contract.
For FAR Part 31, you want to remember
the principles of allowability,
reasonableness, and applicability.
If the contract has far 52.243-6,
the contracting officer may require a
change order accounting when the estimated
cost of the change exceeds $100,000.
And finally, you want to ensure
that you have a good faith
basis for the claimed amount.
You want to make sure that the
release that your request is
actually what you believe you are
entitled to because of the change.
This is really important as Jennifer
kind of moves on to the next slide for
thinking about your False Claims Act risk.
You know, just the the old,
we're going to put a number out
there for for negotiation purposes.
You know that that does not work.
There needs to be a good faith basis.
It doesn't mean that the support for
every single proposed adjustment
needs to be exactly the same.
You can think about not only the
different types of performances,
the different pricing models,
whether you need to provide
certified disclosure of cost or
pricing data versus you don't.
So I don't want versus you know in another
example is are you subject to the far
cost principles and casts or is this.
You know entirely commercial,
but the you know so there just needs
to be that really good faith basis.
And if you're if you're not in a
position where you think you can
explain it to a government customer
that's a sign that it's time to go
back and figure out how to explain it.
Even if you feel you have a good faith basis,
if you don't have a way to do it,
that's just if someone doesn't
understand it that it can only
offer some measure of additional
risk that you could mitigate by
being able to make sure everyone.
Understands what the basis is.
So Jennifer,
I hopped in in between slides.
Thanks, Craig. So, the next slide discusses
how do you support the request.
And these slides are really going to
focus on some practical considerations
on how to best demonstrate that you are
entitled to the cost that you're seeking.
So, to the extent permitted,
you're going to want to hold on the
destruction of data and documents and
start preserving as many documents as
you can in order to prove that the
government has changed your work.
So, these documents might include
any and all communications with
the government that relate to the
change or the change order.
And these can be emails, call logs,
detailed meeting meeting minutes as well as
internal memos in the contractors company.
You also want to make sure that you,
your subcontractors,
and your external vendors are on
the same page about the change.
You want to make sure you're consistent,
consistent about the facts on the change.
This is not a place where you'd
want a fiery e-mail between the
subcontractor and the vendor.
That are not on the same page about
the change to later come back
and haunt you later.
And you're also going to want to
try to keep time spent on the
changed work separate from the work
in the original contract,
to the extent that it's not already in place.
You want to review your
time keeping practices.
You want to make sure that your employees,
as well as subcontractors and vendors
understand how to track their time
performing the new or the changed work,
and this could include implementing
new task codes for different services.
As well as more detailed entry
descriptions detailing the work
that was dedicated to the changed
part of the the changed portion.
You're also going to want to update
accounting systems in order to
show this delineation and change
to work from contract work.
Yeah, and I just can't help myself.
Apparently one thought about the
documents is where we see this come
up it disagreement or inconsistency.
It can be very benign circumstances like
the team is trying to figure out how to
model the change or what the cost might be.
Someone who is perhaps a little bit less
informed about the facts on the ground
or or some other important data point
makes a comment like this is ridiculous.
We don't have a basis for this.
We don't have what we need.
And those those kinds of
communications can be
difficult to put back into context later on.
And so making sure the team has good
discipline about what as they're sorting
through how to respond to the change,
disciplined about what they're
memorializing or the appropriate
caveats that need to be placed on
what is being written down or said
so that the team works in good faith
toward getting to a fair and reasonable
proposal or position as the case may be.
And they don't say something that,
we've all seen the e-mail or other
document that gets extracted
and without the full context can be
difficult to deal with and at a minimum
throw a wrench into some negotiation.
So Jennifer,
I'll let you get back to the
slide that I pulled back from.
Thanks, Craig.
So, moving on to how you can best
support the request for release.
In addition to wanting to separate
time spent on the changed work,
you're also going to want to record other
costs of the changed work separately
from the original contract work,
and this includes ordering materials
separately even if it's from the same vendor,
or notating invoices to specify
how much of the materials are
dedicated just to the new work.
And you're going to want to continue
this practice later on by, you know,
separating the supplies and storage.
You're going to want to maintain updated
inventories to show which inventories
are just for the changed work.
And you might also consider creating
new purchase codes that are dedicated
just to the changed portions.
You can also ask vendors to
separately charge services dedicated
to new work release spaces.
A good way to delineate the changed
work is by assigning specific
areas within the building to just
the new performance requirements.
Finally,
should consider what the bar
shows the customer will have to
analyze or explain internally.
Our last slide for how to
support the request for relieve,
you're going to want to try to mitigate
your costs as best as possible.
This might be most applicable in
the case where the contract is de
scoped and you're going to want
to try to mitigate your damages.
So whether that's repurposing or
reassigning sort resources to other projects,
or terminate terminating or
modifying contracts for services or
equipment that's no longer needed
in the case of a lease,
you might have to try to negotiate
terms to get out of the lease sooner.
Finally,
when you are asking for your relief,
you want to ensure the submission
to your to the government,
regardless of which Ave you choose,
shows your work.
You're going to want to detail
the change or what the government
did or failed to do that resulted
in the higher costs or delays.
We've discussed all the supporting
documentation that you might want
in order to support your change,
and what you submit to the
government should then walk through.
These documents and explain.
How the change the government implemented
resulted in these additional costs.
This is just another way of saying
that the document that you provide to
the government should be in a format
that is easy for the reader to follow.
And if possible,
you should provide native versions
of Excel spreadsheets so that the
government can easily look at
calculations to see how you got to
the costs that you're requesting.
And finally, when?
Doing your submission,
you want to keep in mind that the
person that is reading the submission
might not be as familiar with.
The work that's required by the contract,
and again,
you're going to want to try to
make it as easy As for them as
possible to follow the change and
the costs that you're requesting.
And I'll move it back to Craig,
yeah, now, now, for the moment, everyone's
been waiting for the Cle code Wiley
221117. Today's date. Again, that's Wiley
WILEYQ 211 17. We have one more
slide and a couple of questions
we'll be able to get in before we
have used up the hour for everyone.
I hope this has been great so far.
Really appreciate the questions
that have come in so far.
So looking ahead to litigation.
Whether it's an Rea or a claim,
I think the bullet actually applies here.
Both make sure it's timely and complete.
Arias a lot of equitable adjustments.
There are some time limits, for example,
the changes clause we've mentioned
a few times far 52243 dash one.
It's supposed a request is supposed
to go in within days or proposal.
But keep in mind some of those deadlines
are they're not jurisdictional unless
the government suffers prejudice.
That said.
Late requests or late proposals tend
not to receive the same sort of
consideration or can otherwise add
some friction to the relationship.
So getting at least giving notice, hey,
we are going to have a more detailed
submission at some point within 30 days.
If you can't pull together
the entire proposal,
or Rea as the case may be, is is valuable.
If you do submit a certified claim
or an uncertified claim and you get a
final decision, review it promptly.
Is there any room?
Negotiate just because they've said
no to a claim at 100 cents on the
dollar or 100 days on the request,
100% of the day's requested doesn't
necessarily mean that there's
no business resolution.
Anything with that might be where you know,
in retrospect we didn't explain
it that well and we might be able
to get the CEO to reconsider.
And then also, is this the final decision?
There are some types of unilateral
modifications that are considered
final decisions which can affect
APPEALABILITY and also time.
Timing to appeal.
And of course no one wants to go through
a change that leads to litigation,
appeal litigation,
whether before one of the boards
of contract appeals or the 4th
Court of Federal Claims.
But it does happen.
And so making sure you're on time for that.
So you know there's a lot of,
I think you you've probably got
the sense from this slide which we
just wanted to add as a capstone.
It in some ways it's very similar
to what Jennifer talked about with.
Putting the request or proposal together,
really thinking about the the customer
relationship and as difficult as
some of these conversations may be,
there may be ways to come up with an
full resolution or to try to at least
narrow the scope of here's what we agree on,
let's resolve that and here's
what we don't agree on.
A couple of other questions to touch
on and then we will get our fair well.
One is and I'll put up our contact
information while we are there,
while I'm talking,
one is just someone who asked to
clarify about our contractors
liable for reprocurement,
just confirming they're liable
for reprocurement costs.
The causes that do that are
termination for default,
not for a convenience termination.
And then we did ask get some questions
about our different types of changes.
Would they be?
Considered unilateral within the
scope of unilateral change, or might
they be considered a cardinal change?
And I think the important thing to think
about is that this is a great example of
looking to what is my changes clause?
What kind of changes does
my changes clause permit?
It could be that, for example,
a reasonable increase in level of
effort that's required might be
something that fits under there,
but doubling or tripling it might not be,
on the other hand,
changing the structure of the contract.
The question came in about from fixed
price to level of effort that might
be much more difficult to find a way
to fit that into the the changes.
That said,
one of the things I think you know
as a final thought is when you
do get something that is way out
of the scope or out of the scope,
just pausing to try to think about
what the other person's trying to
accomplish and are there ways to do it.
Thinking creatively and then following
the playbook from there you can
hopefully help keep some changes
from becoming RA or claims and
some claims are RA's from becoming.
So with that,
we wanted to wish everyone a very
Happy Thanksgiving and end to the year,
and we will look forward to rejoining
everyone with our next boot camp in January.
Thanks so much, and take care.