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May 2012

100 Worst Mistakes in Government Contracting Changes Sections 36, 38, 43, 53-54, 61-64, 69, 74, 96-97. May 2012. Objective. Provide a broad overview of the various “Changes” rights for both contractors and the Government;

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May 2012

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  1. 100 Worst Mistakes in Government ContractingChanges Sections 36, 38, 43, 53-54, 61-64, 69, 74, 96-97 May 2012

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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.

  7. 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.

  8. 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

  9. Constructive Changes • There is no FAR provision that defines “constructive” changes • Courts have recognized the following categories: • Disputes over contract interpretation; • Government interference or failure to cooperate; • Defective specifications; • Nondisclosure of superior knowledge; • Acceleration of performance

  10. 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.

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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.

  18. 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: • Disputes over contract interpretation; • Government interference or failure to cooperate; • Defective specs; • Withholding information/knowledge; • Acceleration of performance 

  19. 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)

  20. 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

  21. 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.

  22. 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.

  23. 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.  

  24. Summary – Lessons Learned • Review the specificChanges 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

  25. Questions?

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