Transcript Session III - 100 Worst Mistakes

RTI International
100 Worst Mistakes in Government Contracting
Changes Sections 36, 38, 43, 53-54, 61-64, 69, 74, 96-97
May 2012
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Objective
• Provide a broad overview of the various “Changes” rights for
both contractors and the Government;
• Examine various sections within the book that cover topics
around the “Changes” concept
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Listing of Possible FAR Clauses
Changes Clauses:
• 52.243-1, Changes - Fixed Price (Aug 1987)
• 52.243-2, Changes - Cost-Reimbursement (Aug 1987)
• 52.243-3, Changes - Time and Materials or Labor Hours (Sep 2000)
• 52.243-4, Changes (Jun 2007)
• 52.243-5, Changes and Changed Conditions (Apr 1984)
• 52.243-6, Change Order Accounting (Apr 1984)
• 52.243-7, Notification of Changes (Apr 1984)
For FAR Part 12 Contracts:
• 52.212-4 (Contract Terms and Conditions for Commercial Items)
REMEMBER TO CHECK YOUR
CONTRACT FOR THE APPLICABLE CLAUSE
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Overview of “Changes” Clause
• One of the most significant standard clauses in Federal
Contracting
• Provides the Government to the unilateral right to direct
changes within the “general scope of work”
• Allows Contractors the ability to recover costs as a result of the
changes
• It is important to understand the limitations of the “Changes”
clause
• Within “general scope of work”; and
• Limited to the elements in the specific “Changes” clause
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Types of Changes
Two types:
• Directed Changes – ordered by the Contracting Officer (CO)
 Duty to Perform
 Claim for Equitable Relief
• Constructive Changes – “Just Happen” (via improper technical
direction, defective or changing specifications)
 Notice Requirement
“Cardinal” Change:
• Change that is outside of the general scope of work;
• Not covered by the “Changes” clause
• Contractors are not obligated to perform – however assertion is
risky
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FAR 52.243-2, Changes – CR
(a) The Contracting Officer may at any time, by written order, and without notice to
the sureties, if any, make changes within the general scope of this contract in
any one or more of the following:
(1) Drawings, designs, or specifications when the supplies to be furnished are
to be specially manufactured for the Government in accordance with the
drawings, designs, or specifications.
(2) Method of shipment or packing.
(3) Place of delivery.
(b) If any such change causes an increase or decrease in the estimated cost of, or
the time required for, performance of any part of the work under this contract,
whether or not changed by the order, or otherwise affects any other terms and
conditions of this contract, the Contracting Officer shall make an equitable
adjustment in the—
(1) Estimated cost, delivery or completion schedule, or both;
(2) Amount of any fixed fee; and
(3) Other affected terms and shall modify the contract accordingly.
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FAR 52.243-2, Changes – CR
(c) The Contractor must assert its right to an adjustment under this clause
within 30 days from the date of receipt of the written order. However, if the
Contracting Officer decides that the facts justify it, the Contracting Officer may
receive and act upon a proposal submitted before final payment of the contract.
(d) Failure to agree to any adjustment shall be a dispute under the Disputes clause.
However, nothing in this clause shall excuse the Contractor from proceeding
with the contract as changed.
(e) Notwithstanding the terms and conditions of paragraphs (a) and (b) of this
clause, the estimated cost of this contract and, if this contract is incrementally
funded, the funds allotted for the performance of this contract, shall not be increased
or considered to be increased except by specific written modification of the contract
indicating the new contract estimated cost and, if this contract is incrementally
funded, the new amount allotted to the contract. Until this modification is made, the
Contractor shall not be obligated to continue performance or incur costs beyond the
point established in the Limitation of Cost or Limitation of Funds clause of this
contract.
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FAR 52.243-7 Notification of Changes
• Primary purpose of clause is for the Contractor to notify the
Government for conduct considered to constitute a change
• Notification must include:
• Date, nature, and circumstances of the conduct;
• Name of each Government individual involved/aware;
• Documentation/communication involved;
• If an accelerated schedule, the basis which it arose;
• Elements of performance which may require an equitable
adjustment
• Estimate of time for which Government must respond
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Constructive Changes
• There is no FAR provision that defines “constructive” changes
• Courts have recognized the following categories:
1.
2.
3.
4.
5.
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Disputes over contract interpretation;
Government interference or failure to cooperate;
Defective specifications;
Nondisclosure of superior knowledge;
Acceleration of performance
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Sections 36, 38 and 43
Overview:
• Sec. 36 Accepting direction from unauthorized individual
• Sec. 38 Following oral promises instead of what was in contract
• Sec. 43 Volunteering to do extra work
Key Points:
• Only the Contracting Officer is authorized to direct changes;
• Do not accept any changes or promises unless in writing (and by the
Contracting Officer);
• “Volunteering” generally means that you won’t get reimbursed for
those extra costs.
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Sections 36, 38 and 43
Ways to Address:
• Make sure you know who is authorized to make changes.
• When Client Project Officer (Technical) wants changes - suggest
them to approach Client CO – for a directed change
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Section 61
Section to Discuss:
Sec. 61 – Mutual duty to cooperate
Key Points:
• Understand that the Government has an obligation to cooperate;
• Failure for the Government to cooperate could be a breach of
contract.
Ways to Address:
• Communicate failure to cooperate as soon as possible
• Include potential impacts (time and cost of performance)
• Confirm impact with formal notice and budget impact – especially if
client requires acceleration
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Section 64
Section to Discuss:
Section 64 - Failing to recognize/claim impossibility of performance
Key Point:
• Although this is a rare occurrence, it is important to recognize;
• Failure to perform has to be subjective and would apply to any
contractor
• Difficult for a contractor to assert
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Section 64
Ways to Address:
• Impossibility of performance is a rare and often unsuccessful
defense
• Give notice at the earliest possible time after the event
• Indicate how the event/circumstances impact performance and that
it was not through the contractor’s fault, or a known or assumed risk
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Sections 53 and 96
Sections to Discuss:
Section 53 – Need to assert right to equitable adjustment
Section 96 – You failed to request an equitable adjustment when warranted
Key Points:
• Make sure you assert your right for an equitable adjustment AND within
30 days of receiving a written change order from the CO.
• Recognize that there is an exception - the CO can accept a request
prior to final payment if the facts justify it. However, this is at the CO’s
discretion.
• Recognize that events can occur beyond the “Changes” provision that
entitles a contractor to an equitable adjustment
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Section 54
Section to Discuss:
Section 54 – Need to perform despite burdensome change
Key Points:
• “Changes” clause obligates a contractor to perform even if they
disagree with the change;
• Only exception is when there is a material breach of contract by the
Government
Way to Address:
• Follow directed change (unless material breach) – but make sure to
request the equitable adjustment if applicable
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Section 97
Section to Discuss:
Section 97 – What happens if the Contracting Officer ignores an
equitable adjustment request?
Key Points:
• The FAR does not include a timeline that the CO has to respond by
• Only way to address non-response is through the Disputes process
Ways to Address:
• Remember the 30 day time frame to submit request;
• In the request, provide an expected time period for resolution.
• In the event of a high dollar request – consider including language
regarding pursuing Disputes provision for failure to respond.
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Section 62
Section to Discuss:
Section 62 – Need to submit notice of constructive changes
Key Points:
• A constructive change is not a formal direct change;
• Several categories where constructive changes occur:
•
•
•
•
•
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Disputes over contract interpretation;
Government interference or failure to cooperate;
Defective specs;
Withholding information/knowledge;
Acceleration of performance
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Section 62
Ways to address:
The contactor must give the Government notice pertaining to any
change:
• Date of the order or event.
• Source of the order.
• Circumstances of the order
• Confirm that the contractor considers this a change.
See FAR 52.243-7 (Notification of Changes)
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Section 63
Section to Discuss:
Section 63 – Need to submit notice for defective specs
Key Points:
• A claim may arise if a contractor performs work based on defective
specifications provided by the Government;
• If the contractor is aware but proceeded anyways, there is no ability
to recover
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Section 63
Ways to Address:
Defective specifications can be addressed as a constructive change
provided:
• Design specifications are provided by the Government
• Contractor complies with the design specifications
• Contractor was misled by the errors
• Contractor experiences increased costs caused by defective
specifications and/or correction of the defects.
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Section 74
Sections to Discuss:
Section 74 – Need to request equitable adjustment when proper
Government Furnished Property (GFP) not provided
Key Points:
The Government was required to provide cleaning materials that were
suitable to place a “uniform glossy finish” on floors in the commissary.
But the GFP provided by the Government could not meet this
performance requirement, so contactor had to replace the defective
GFP. The contractor was permitted to recover the cost of replacing the
defective GFP.
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Section 74
Solution:
A contractor is entitled to an equitable adjustment for a constructive
change if the contractor experienced increased costs related to the
Governments delivery of GFP that is not suitable for the GFP’s
intended use.
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Summary – Lessons Learned
• Review the specific Changes clause in your contract and make sure
you comply with the notice requirements
• Provide the notice, even if it is late according to the clause
requirements
• Document any unexpected or changed conditions and communicate
them to the Contracting Officer’s Technical Representative (COTR)
and the CO as soon as possible
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Questions?
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