Request For Equitable Adjustment (REA)

Posted on August 24, 2020 REAs, Claims, Appeals

A request for equitable adjustment (REA) is a contractor’s proposal to the contracting officer (CO) seeking an equitable increase to the contract price based on a change to the contract requirements. Typically, when the contractor discovers some unexpected problem that is not contemplated by the contract, the contractor and the CO will negotiate a solution, with the contractor receiving an increase in the contract price in exchange for performing this new work. An REA is the contractor’s first option when the parties cannot come to an agreement, because the Government believes that the additional work is already covered by the contract. In the REA, the contractor lays out in detail why the Government is wrong and why the additional work that the CO is demanding of the contractor is not already covered by the contract. If the CO agrees, the parties enter a new contract modification.

If the CO still disagrees, then the contractor’s next course of action is to submit a certified claim to the CO, which triggers the Contract Disputes Act (CDA) and potentially sets up litigation at one of the Contract Appeals Boards or at the U.S. Court of Federal Claims (COFC). Notably, if an REA meets the CDA’s definition of a “claim” and the CO responds with a final decision, the REA itself can trigger the CDA, as the Federal Circuit held in Hejran Hejrat Co. Ltd v. United States Army Corps of Engineers, 930 F.3d 1354, 1357 (Fed. Cir. 2019).

When a contractor submits a REA, he is asking the CO to unilaterally adjust the contract price pursuant to his authority under the contract’s “Changes” clause. The exact clause differs depending on the type of contract: 48 C.F.R. § 52.243-1 (Fixed Price), 52.243-2 (Cost Reimbursement), 52.243-3 (Time and Materials). If for whatever reason the contract does not have a changes clause, courts may nevertheless read the changes clause into the contract, pursuant to the Christian Doctrine. These Changes clauses also create obligations for the contractor. For example, if the contractor believes it is entitled to an equitable adjustment and the CO disagrees, the contractor has thirty (30) days to “assert its rights to an adjustment.” Courts and boards, however, do not strictly construe this requirement unless the untimely notice is prejudicial to the government. Watson, Rice & Co., HUD BCA No. 89-4468-C8, 90-1 BCA ¶ 22,499; SOSA Y Barbera Constrs., S.A., ENG BCA No. PCC-57, 89-2 BCA ¶ 21,754; E.W. Jerdon, Inc., ASBCA No. 32957, 88-2 BCA ¶ 20,729. Importantly, while the clause requires that the contractor timely assert his right to an adjustment, this does not mean that he must submit the REA in those 30 days. A contractor is free to submit an REA anytime before contract close out. Even after final closeout, a REA is valid if it was pending at the time or if the government had constructive knowledge of the REA. Mingus Constructors, Inc. v. United States, 812 F.2d 1387 (Fed. Cir. 1987). Contractors, though, must be careful not to wait too long. While there is no time limit for a REA, a certified claim must be submitted to the CO within six years of when the contractor knew or should have known about his grounds for adjustment. Otherwise, the certified claim is untimely and outside the jurisdiction of the Boards and COFC.

Typically, when a contractor submits a REA, he is seeking a constructive change to the contract. “Constructive changes exist whenever the government, through action or inaction, and whether intentionally or unintentionally, imposes a change to the terms and conditions of contract performance – but fails to do so formally (in writing or otherwise).” Administration of Gov’t Contracts, Cibinic, Nash & Nagle (2006, p. 427). In such cases, the contractor often argues the change entitles it to additional compensation or extension of performance period.

A contractor must generally prove three elements to demonstrate that a constructive change occurred: (1) A change occurred either as the result of government action or inaction, Kos Kam, Inc., ASBCA No. 34682, 92-1 BCA ¶ 24,546; (2) The contractor did not perform voluntarily. Jowett, Inc., ASBCA No. 47364, 94-3 BCA ¶ 27,110; and (3) The change resulted in an increase (or a decrease) in the cost or the time of performance. Advanced Mech. Servs., Inc., ASBCA No. 38832, 94-3 BCA ¶ 26,964.

Contractors must continue to perform all required work until disputes are resolved if those disputes arise “under the contract.” FAR 52.233-1(i). Contractors bear the initial risk of nonperformance pending the outcome. Therefore, contractors usually perform according to the requirements of a constructive change and file a claim for equitable adjustment or breach damages. Administration of Government Contracts, 431-5.

The most litigated constructive changes can be broken down into five general categories. First, the change may arise out of a dispute over contract interpretation. In this scenario, the government insists that the contract terms dictate a specific manner and scope of the work to be performed, while the contractor disagrees with the Government’s interpretation. See Ralph C. Nash, Jr. & Steven W. Feldman, Government Contract Changes 340 (3d ed. 2007). Second, the change may arise out of a defect in the contract’s specifications. The government’s liability varies based on the type of specification included in the contract.

Third, the change may arise out of the Government’s interference with performance and failure to cooperate with performance. Examples of such claims would be that the Government overzealously inspected the contractor’s work, Neal & Co., Inc. v. United States, 36 Fed. Cl. 600 (1996) (“nit-picking punch list” held to be overzealous inspection); was generally incompetent, Harvey C. Jones, Inc., IBCA No. 2070, 90-2 BCA ¶ 22,762.; or didn’t provide assistance necessary for efficient contractor performance Chris Berg, Inc. v. United States, 197 Ct. Cl. 503, 455 F.2d 1037 (1972) (implied requirement); or failed to provide access to the work site, Summit Contractors, Inc. v. United States, 23 Cl. Ct. 333 (1991) (absent specific warranty, site unavailability must be due to government’s fault).

Fourth, the change may arise out of the Government’s failure to disclose vital information, otherwise known as the “superior knowledge doctrine”. Under this doctrine, a contracting agency has an implied duty to disclose to a contractor “otherwise unavailable information” of a novel matter vital to the performance of the contract where (1) “a contractor undertook to perform without vital knowledge of a fact that affects performance costs or duration;” (2) “the government was aware the contractor had no knowledge of and had no reason to obtain such information;” (3) “any contract specification supplied misled the contractor or did not put it on notice to inquire;” and (4) “the government failed to provide the relevant information.” Fed. Grp., Inc. v. United States, 67 Fed. Cl. 87, 100 (2005) (citing Giesler v. United States, 232 F.3d 864, 866 (Fed. Cir. 2000).

Finally, the change may arise out of a constructive acceleration of contract performance. In this scenario, the contractor encounters an excusable delay, which entitled it to an extension of the contract schedule, but for whatever reason, the CO refuses to recognize a new contract schedule and demands that the contractor complete performance within the original contract period.