Equitable Adjustments. An equitable adjustment is the difference between the reasonable cost of the work required under the contract and the actual reasonable cost to the contractor of performing the changed work, plus a reasonable amount for overhead and profit. A contractor carries the burden of proving the amount by which a change increased its costs of performing on the contract (P&C Placement Svcs V SSA, CBCA No. 391) while the government bears the burden of a downward adjustment in contract price (Fur-Con Const., ASBCA No. 55197). Though the preferred method of proving damages is to provide proof of actual costs incurred the courts have acknowledged that other methods are accepted as long as the costs can be shown to be reasonable and it is impracticable to show the costs in any other way. There is no presumption of reasonableness just because the cost was incurred so the contractor has the burden to establish the reasonableness of the cost (Fur-Con).

Legal Costs. In deciding whether costs incurred under a sexual harassment suit were allowable, the board found that it was not necessary that the contractor prove that the employee had “very little likelihood of success” for the costs to be allowable stating this standard applies to false claims or fraud cases against the US.  Further, settlement costs of the suit were allowable since they were not unallowable fines or penalties under FAR 31.205-15 because payment was made to an individual to remedy an individual harm and was not a “penalty” (Tecome, ASBCA No. 53884). Interpreting a Dept of Energy contract and cost principle in the DEAR making defense of any civil or criminal fraud proceeding unallowable, the board held that legal fees incurred in the unsuccessful defense of a qui tam suit under the False Claims Act were unallowable (Boeing Co., v DOE, CBCA No. 337).

Contract Administration. For a long time boards and courts have distinguished between unallowable costs of prosecuting claims and allowable costs of contract administration where in a seminal case (Bill Strong) the basic guidance is that if the costs are incurred to permit a negotiated resolution of the problems that arose during contract performance they are presumably allowable costs of contract administration while if they are incurred to begin the process of litigation they are unallowable. The Board found that the parties were in a negotiating posture and the exchange of information was ongoing making the consultant’s costs allowable contract administration costs though the amount of the bills were reduced due to lack of specificity in the consultant’s invoices and apparent lack of oversight by the contractor (Fru-Con Construction).

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