(Editor’s Note. An equitable adjustment to a contract is the most frequently used method of adjusting the price of a contract for occurrences of changes, changed conditions or delays. Though the government occasionally uses this to obtain lower prices from contractors, the opposite is most common - contractors seeking ways of increasing the original price. In this and subsequent articles, we intend to address ways the contractor can maximize their recovery from an equitable adjustment. In this article we will make some general comments about measuring an equitable adjustment while in subsequent articles we will address specific costs, what to expect from audits of a request for a price adjustment and identify those events that qualify for a change in contract price. Our sources will vary – in this article we draw on our own experience as consultants in helping clients prepare requests for equitable adjustments and use one of our favorite texts written by Professor Lane Anderson, "Accounting for Government Contracts, Federal Acquisition Regulation".)

The basis rules are quite simple. An equitable adjustment (EA) is an increase or decrease in the contract price or time of performance. The FAR clause 52.243-1, Changes-Fixed Price (Aug 1987), found in most contracts entitles the contractor to an EA for the occurrence of a government-ordered change, a changed condition or some event specified in the contract. The basic rationale behind an EA is that it is intended to make the contractor whole when the government modifies a contract. In general, the price adjustment is the difference between the cost of the contractor’s adjusted performance and the cost of performance as originally contemplated by the contract plus profit. If the cost of the adjusted performance is greater the contractor is entitled to an upward equitable adjustment; if the cost is less, the government is entitled to a downward adjustment. The problems occur when the EA is actually calculated.

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