Requests for Equitable Adjustments & Claims
Today’s contractors must be acutely aware of every Government action or inaction that entitles them to additional money. By using the proper entitlement procedures, contractors will receive the additional dollars due them, if they respond in a timely matter. One of the most common mistakes that contractors make is that they think submitting a Request for Equitable Adjustment (REA) or claim will “upset” the agency, this is simply not the case, the most successful government contractors submit and REA’s and Claims on a regular bases, once submitted both the contractor and the agency enter into negotiations to settle that matter.
REA’s and Claims is a right all contractors have when entering a Government Contract via the Changes Clause. The government has the right to make changes on a contract and thus contractors have the right to submit REA’s and claims for these changes.
Another common mistake that we see many contractors make is that they sit or wait to submit REA’s and Claims to the end of the contract, the earlier problems REA’s and Claims are dealt the better.
Actual Example: ABC Inc., (not real name) enters a Government Contract for $ 7,000,000.00 runs into difference of an opinion with contracting officer that escalates and three months later the contract is terminated for default:
1. Contract terminated for default $1,000,000.00 (profit)
2. Appeal costs $100,000.00
3. Cost of completing litigation $350,000.00
4. Potential liability for Reprocurement Costs $1,000,000.00
5. Loss of future potential Government Business $ ? ? ? ?
Should have called Malyszek & Malyszek earlier… Total $ 2,450,000
The COO of ABC Inc., who had been doing government contracts for 25, years stated – “If we called Malyszek & Malyszek from the start all this could have so easily been avoided, It seems so simple now, I wish we would have known this earlier.”
Malyszek & Malyszek handles all types of Government Contract matters, from problems before contract award through contract close outs, and any claims that need to be submitted up to six years after the last contract action.
A Request for Equitable Adjustment (REA) can be made any time during performance of a Government contract or at the close of contract performance. There are different reasons for submitting an REA as a change occurs, or after an accumulation of changes at the culmination of the contract. An REA is not considered a dispute with the Government, but instead, an amiable means to balance changes to the contract performance, schedule and cost for both the Government and the Contractor.
It is essential that contractors keep a record of all changes to their contracts, of all management hours spent on problem solving and of all additional labor and materials utilized in their contracts. Requests for equitable adjustment, if handled properly, will not severe good relationships with the government. A contractor is in business to make a profit, and need not finance their government contract. All personnel performing under a government contract should utilize the above claims indicators. It is essential that the entire company is performing only to the terms of the original contract.
Your contract might be on the verge of problems that can be more easily remedied in the early stages of the problems. However, awareness of the potential problem areas is essential in keeping your contract profitable, avoiding litigation, and keeping a good business relationship with the Government.
Claims Indicators include:
- Delivery, Schedule, Delay,
- Cost Overruns, Waivers, Deviations,
- Inability to comply with specifications, Improper Rejection,
- Constructive Change Order Categorizations, Acceleration,
- Defective Specifications, Conflicts, Commercial Unavailability,
- Large Number of Change Orders, Government Duty to Cooperate,
- Government Interpretations, Acceptance Criteria, Impossibility,
- Costing Claims, Traceability of costs, Impact Costs Allocable Costs,
- New period of performance, Loss of efficiency, Unabsorbed Overhead,
- Indirect labor, Delay, Ripple Effect Delays, Suspension of work,
- Stop Work Changes, Value Engineering Change Proposals,
- Differing Site Conditions, Prior Course of Dealing, Warranties,
- Quality Assurance, Defective Pricing, DCAA Audits
Only when a dispute occurs between the Government agency and the Contractor, does a Claim come into play. A Claim is a certified document from the Contractor that makes a demand against the Government for a certain sum of monetary remuneration. The Government must respond to this claim, even if it is a denial of the claim. The Contractor is then given the choice of appealing this decision in whole or in part to the proper Board of Contract Appeals, or the proper federal district court, or Court of Federal Claims.
Often times, a DCAA audit will be called for based on the REA or Claim. The audit can be a challenging prospect to a contractor based on time involvement. Audit reports can be challenged and negated. Negotiations / Alternate Dispute Resolution / Mediation
The best remedy for any disagreement is a good working relationship with the contracting agency and the Contracting Officer. A simple problem or a developing problem could be best worked out by immediately communicating with the Contracting Officer.
However, at times, there are personality conflicts, the Contracting Officer is not fully aware of the daily operations of contract performance, or there is a total misunderstanding among contractor and government personnel. At this point, it is important to determine the avenues of informal or formal negotiations with appropriate Government representatives. When it seems that avoiding an all-encompassing dispute is not possible, then as an alternative to litigation, Alternate Dispute Resolution (ADR) can be a positive influence on resolving a dispute. However, at times only litigation before the Boards or the Federal Courts will resolve an issue.
Most Government Contractors aren’t aware that…
- 65% of Government Contractors fail to collect an average of $275,000 owed to them by the Federal Government.
- Most Government agencies expect costs to increase 25-30%.
- The Government orders these changes verbally as constructive change orders.
- Nearly 90% of Government issued specifications and statements of work are defective.
- All these are normal administrative procedures and non-litigious.
- There are ways to speed up the Governments slow payments
- Consulting fees and administrative costs associated with a claim must be paid by
- the Government and legal fees may be recouped through EAJA.