(Editor’s Note.  The following provides some good illustrations of what constitutes a constructive change and the need to obtain proper authorization to do work.)

The Navy command that received most of ISN’s services identified several changes to the contract and asked ISN to submit an engineering change proposal (ECP). A Navy contract specialist advised ISN the command would review the ECP and that a modification would be issued to formally accept it.  After the command’s review, the Navy allocated $739,000 to the contract for the ECP. The CO signed the funds allocating document but the Navy later reallocated the funds to another project.  Despite the Navy’s technical approval of the ECP the CO never issued a contract modification approving the ECP. Later the contract was terminated where the termination contract officer offered $891,000 to settle all claims which ISN agreed to.  When the TCO asked for funding for the settlement the CO refused stating ISN’s claim for the ECP lacked merit because the CO never approved it. In its appeal, ISN asserted the Navy constructively changed the contract by approving the work under the ECP. The court noted a constructive change occurs if an informal order or some faulty government action causes the contractor to perform work.  Several “core principles” must apply where the government must require the contractor to perform the extra work, a contractor’s unilateral decision to perform work does not entitle it to an equitable adjustment and an informal order or other conduct causing extra work must originate from someone with authority to bind the government.  In ruling against ISN the Court concluded ISN did not perform extra work by an informal order or conduct by someone with authority to bind the government but instead decided on its own to perform this work in anticipation of the ECP being approved despite the contractual risks of performing without that approval (Info. Sus. & Networks, Corp. v US, 81 Fed Cl. 740).

{TAG_FORM_TITLE}