North Carolina Military Business Center

2012 FEDCON SUMMIT

Post Award Issues:

Change Orders

11 October 2012

Paulanne Page

Military Construction Specialist

Agenda

• Contract Change Order Clauses

• Types of Changes Orders

• Change Order Administration Needs

• Brief Info on Claims

• Questions

Change Order Clauses

FAR 52.243 -The “Changes Clause”

• Enables the government to make changes to the contract during performance:

• (a) The Contracting Officer may at any time, by written order, and without notice, make changes within the general scope of the contract in any one or more of the following:

• (1) Drawings, designs, or specifications

• (2) Method of shipment or packing

• (3) Place of delivery

Virtually every contract contains provisions that address what can be changed, how it can be changed, and the required process for the changes.

Change Order Clauses

FAR 52.243 - The “Changes Clauses”

• The Construction Contract Changes Clause at FAR 52.243-4 applies only to construction contracts and states that only costs incurred within 20 days from the time that the contractor gives notice are recoverable.

• The Notification of Changes Clause at FAR 52.243-7 requires that the contracting officer be notified of a constructive change promptly, usually within 30 days.

Change Order Administration

• Impact to Schedules

• Contract Administrative Deliverables – Reports (Progress, Quality, Testing)

– Forms

• Change Order Billing Deliverables – Schedule of Pricing/Values

– Invoices

– Certified Payroll (Davis Bacon and Service Act)

Changes to the Contract

Types of Contract Changes:

• Written Changes

- Client Request

• Constructive Changes

- Identified Statement of Work change in relationship to contract document requirements.

Written Change Orders

Determine If the Work Is Properly Ordered under the Contract or If the Work Is a Change.

• Determine whether the work is within the scope of the contract.

• “Within the scope” determined by:

– Nature of the work

– Cost of the work

– Degree of work disruption

• If not, then the work is a change, and you must put the Contracting Officer on notice that you consider it to be a change and intend to seek an equitable adjustment

Written Change Orders

Confirm the Order Is in WRITING

• Change orders from the Government must be in writing to be effective.

• If the Government does not put the order in writing, YOU should send a confirming letter.

Written Change Orders

Clarify Any Ambiguities & Confirm Any Missing Details.

• Contractors have a duty to inquire - contractors do not get the “benefit of the doubt”.

• Make sure any clarifications are put in writing - if Government does not put it in writing, send a confirming letter.

• Do not sign off on the change or submit a price until all issues are resolved - if you do, you’ve waived any arguments you might have.

• Additional reason for clarifying order – can’t correctly price work without full understanding of the requirements.

Written Change Orders

Entitled to Recover As a Result of the Change.

• The amount of the adjustment is almost always the cost impact to the contractor.

• Contractor has the burden of proving the cost impact.

- Estimates – must be supported by detailed, substantiating data; vague estimates without any factual support are not sufficient.

- Actual cost data (if work already performed).

• Allowable overhead and reasonable profit can also be recovered.

• Many construction contracts include contractual limitations on the overhead and profit that can be recovered on an equitable adjustment.

Written Change Orders

Consider Your Subcontractors

• If a change affects a subcontractor, you are expected to negotiate an equitable adjustment with your sub and include that amount in your proposal for an equitable adjustment to the Government.

Note: be sure your subcontract allows you to make a deduction in your subcontractor’s price if a Government change results in a reduction of the subcontractor’s work!

Written Change Orders

Submit a Request for Equitable Adjustment

• Right to adjustment must be asserted within 30 days of the contractor’s receipt of the change order – this does not necessarily require the submission of a fully-documented and finalized request during this time period.

• Although the 30-day notice requirement is often not strictly enforced, it is always better to submit timely notice, even if it is relatively vague and supplemented later.

• All claims must be submitted before final payment is made or they are waived.

Written Change Orders

Submit a Request for Equitable Adjustment

• Right to adjustment must be asserted within 30 days of the contractor’s receipt of the request for change – this does not necessarily require the submission of a fully-documented and finalized request during this time period.

• Although the 30-day notice requirement is often not strictly enforced, it is always better to submit timely notice, even if it is relatively vague and supplemented later.

• All claims must be submitted before final payment is made or they are waived.

Constructive Change Orders

Constructive Changes

• Definition: when the contract work is changed, but the procedures of the Changes clause have not been followed.

• Typically, you think it is a change, but the Government does not.

Constructive Change Orders

Constructive Changes (Examples)

• Disagreements between Government and contractor over interpretations of contract requirements.

• Acceleration.

• Defective specifications.

• Failure of Government to cooperate during performance

– Overzealous inspections

– Failure to provide assistance when requested

Constructive Change Orders

Constructive Changes

• Same authority issues as written change orders

- Only the CO can direct a contractor to do work and bind the Government to pay for it.

- Inspectors, Quality Assurance do not have authority to direct a contractor to do additional work.

Make sure your employees are aware of this, since they will be the ones getting directives from the Government on the job.

Constructive Change Orders

Constructive Changes

• Instruct employees to inform Project Manager of all work requests by Government.

• Bring all directives to the attention of the CO. In writing.

• Where a constructive change results from an oral order, ask the CO to put it in writing for you

Constructive Change Orders

Constructive Changes

• If the CO does notput it in writing, The contractor is required to confirm the order in writing to the CO.

– Describe the work that has been requested, who made request and when it was requested.

– State that you consider the work to be a constructive change to the contract .

– State that you will perform the work but that you reserve the right to seek an equitable adjustment to the contract.

Constructive Change Orders

Constructive Changes

• The 30-day notice requirement that applies to written

change orders applies to claims for constructive changes as well, so DO NOT WAIT to raise these issues.

• For construction contracts, only costs incurred no more

than 20 days prior to notice to the Government can be recovered (Excludes constructive changes based on defective specifications).

The Claims Process

Elements of a Formal Claim

A claim must contain: (1) a written demand (2) seeking as a matter of right (3) the payment of money in a sum certain

• “Sum certain” – “more than $50,000;” “about $50,000” are NOT claims for a sum certain

• The amount claimed can be supplemented or additional claims can be submitted later

The Claims Process

Elements of a Formal Claim

Must contain sufficient detail to allow the CO to give meaningful consideration.

Must provide adequate supporting documentation.

Must request a Contracting Officer decision.

“Let’s meet to discuss” is not a request for a CO decision and thus is not a claim.

The Claims Process

Elements of a Formal Claim

Must be submitted to the CO.

If claim is for over $100k, must be “certified”. • “I certify that the claim is made in good faith, that the supporting data are

accurate and complete to the best of my knowledge and belief, that the amount requested accurately reflects the contract adjustment for which the contractor believes the government is liable, and that I am duly authorized to certify the claim on behalf of the contractor”.

Must be submitted within 6 years of accrual of claim and before final payment under contract.

The Claims Process

The Contracting Officer’s Final Decision

• Claims under $100k: within 60 days of receipt of claim, CO must issue final decision.

• Claims over $100k: within 60 days of receipt of claim, CO must: (1) issue final decision or (2) notify the contractor when a decision will be issued.

• The time for issuing a decision must be a date certain.

• The time must be “reasonable” – depends on the complexity of the claim.

The Claims Process

The Contracting Officer’s Final Decision

• If the CO does not timely issue a final decision, the contractor can treat the failure to issue a decision as a “deemed denial” and appeal.

• If claim is less than $100k, you can treat lack of a final decision as a “deemed denial” after the 60 days are up.

• If claim is more than $100k, you must wait a “reasonable” time for the CO to issue the decision (unless the CO gives no date certain for a decision)

• The final decision must be in writing and must state the reasons for the decision.

The Claims Process

Litigating Claims

• After an adverse CO final decision, the decision can be appealed to:

• Agency Board of Contract Appeals – Armed Services Board of Contract Appeals or Civilian Board of

Contract Appeals.

– Must bring suit within 90 days of date of receipt of final decision.

– Written notice of appeal delivered to the Board and the CO.

• OR Court of Federal Claims (must pick one or the other) – Must bring suit within 1 year of date of receipt of final

decision.

The Claims Process

Litigating Claims

• Agency Board of Contract Appeals • Expedited procedures for claims less than $50k (decision within 120

days); accelerated procedures for claims less than $100k (decision within 180 days)

• Discovery and trial-type hearings

• Trial held at location convenient to the parties

• Court of Federal Claims • Much more formal procedures and thus generally more expensive

• Sometimes not as much deference given to the agencies

• There are differences in the decisions from the two forums – this could be the determining factor

The Claims Process

What About Subcontractors?

• Subcontractors are not in “privity” with the Government and therefore cannot pursue claims on their own

• Most subcontractor claims must be “sponsored” by the prime contractor

• The prime can bring a claim on the sub’s behalf; or

• The prime can permit the sub to bring a claim in the prime’s name

* Note it is a good idea to address how subcontractor claims will be handled in your subcontract agreement and (if you are the sub) obligate the prime to sponsor your claims

The Claims Process

What About Subcontractors?

• A prime can sponsor a sub’s claim only if: (1) the prime has reimbursed the sub for the sub’s damages, or (2) the prime remains liable for such damages in the future

• If a subcontract contains a strong limitation of liability clause such that the prime is not liable for the damages at issue, the sub’s claim cannot be brought

• BUT, a subcontract can provide that the prime’s liability to the sub is conditioned on the prime’s recovery from the Government

Questions

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Questions, Comments and Amusing Ponderences