When is a Claim for a Price Adjustment Justified
We were surprised to see in our recent Grant Thorton survey summary that 83% of the respondents state the government asks them to perform work that is out of scope with the original contract and that 77% of these contractors to not request an equitable adjustment or pursue a claim for the additional costs that are expended. This is particularly startling in this budget cutting environment where every precious dollar contractors are entitled to should be pursued. Yes, there may be reasons not to pursue contract price adjustment such as fear of loosing new work if you are perceived as nitpicking but we find such fears often misplaced. Contracting personnel are used to dealing with contractors who go after funds they are entitled to (they often suggest it in the first place) where fears of them being angry are highly exaggerated. We believe contractors need to be more aware of when there is out of scope work ordered by their customer and more aggressive in requesting more funds for that work, especially in this environment of less contracts and subcontracts and pressure to lessen profit on work that is awarded. We have asked an attorney colleague of ours who specializes in claims for out of scope work, Tim Power of the Law Offices of Timothy Power, to revisit this issue to provide some simple guidelines on when equitable adjustments are valid and here is his response.
Though there are usually a long list of regulations and rules affecting a government contract it is not necessary to know them to spot a potential claim. A few questions can help clarify when you are eligible for a claim against the government.
- Is the performance of the contract different than I planned when I bid the job? If yes, and the difference in performance is increasing the time or cost of performance, then you have valid grounds for a claim against the government for the additional time or cost to perform the contract.
- What factors are causing the difference in performance? The key to identifying entitlement and presenting your claim is to identify the specific causes for any changes in the performance. You should thoroughly investigate the causes for a delay, additional costs or why performance is different than you intended when you bid.
- Was I missing crucial information that would have changed the way I bid the contract? During the bid phase, the government has an obligation to tell you about information it has that impacts the costs or methods of performance. This is especially true if the government knows you do not have the information or that it is unlikely you will learn about the information while you are preparing your bid. The information could be about the site (e.g. history of flooding) or about the process of performance (e.g. problems encountered by previous contractors providing the service or product).
- Did anything change from the time I bid, when I started performance or since? This might include changes on a site for service or construction type contracts or changes to government budgets or policies.
- Do I interpret a contract requirement differently than the government? Differences in interpreting contracts are endless – time of performance, product or service to be provided, method of production or construction, etc. There are numerous rules about interpreting contract terms all starting with a common sense approach to interpretation. If the government’s interpretation seems unreasonable or far-fetched, you should investigate further.
- Are the government’s inspections of my work reasonable and according to the standards required by the contract? The contract contains specifications and drawings for how the work will be performed. Other sections of the contract contain inspection standards that define how the government will inspect the work to determine acceptability. This latter section does not define the work required. Sometimes, however, inspectors will measure or consider work that is not required by the contract merely because there is an inspection standard listed.
- Has the government caused the difference in performance? The strength of your claim and how much you recover may depend upon the cause for the different performance. Generally, the government must be the cause of the difference. Therefore, a critical step in determining the existence of a claim is to establish the government has, in some way, caused the difference in performance.
