Equitable adjustment (request for equitable adjustment – REA in government contracting parlance) – is a “term of art” used to describe a reasonable and fair contract price and time adjustment to the contract of a government contractor.

In government contracting, a formal request for equitable adjustment is distinguishable from a formal contract claim. A contract claim is directed to the government contracting officer. The contracting officer is not required to negotiate with the contractor. In due course, usually months later, she may issue the contractor her formal decision. Amazingly, the contracting officer is not required to issue any decision.

In the event of a negative decision (or no decision), the contractor is then faced with making a legal appeal in but one of only two venues; the appropriate Federal Board of Contract Appeals, or the U.S. Court of Federal Claims.

In this event, you will not be permitted to include in the claim the fees of your construction claims expert for any of his work connected with the litigation.

On the other hand, if the contractor styles its claim for money damages as a REA, and ultimately actually pursues negotiated settlement of the dispute in good faith with the government, the consulting fee of your construction claims expert is a permissible cost, as it is considered to be a legitimate cost of contract administration, and thus to the benefit of the government as well as the contractor.

Failing to reach a satisfactory outcome, the contractor may yet still begin the litigation process by submitting the issue as a formal contract claim to the contracting officer. Packaged correctly, little or no change is required to the REA for such submission.

When you’re performing a government construction contract, or any construction contract, and a change in the scope of work being performed is either ordered by the construction owner, or occurs as a result of issues or events not your responsibility nor under your control, a REA may be initiated by either you as the contractor or by the construction owner.

It must be noted that state governments and private owners are by no means as familiar with claim issues styled as REAs as the Government. However, in my engagements as a claims expert for contractors who are under contract with these owners, I have still found it beneficial to style the initial claim submission as a REA. In settlement negotiations, as a tactic, the contractor may want to make mention of Federal construction legal precedent, as state construction law precedent many times is based upon Federal precedent.

Here are two primary circumstances when a REA is appropriate:

Increase in the Scope of Work

If an unexpected condition arises during contract performance that enlarges the contract work scope or increases the cost of completing the project on time, it would be prudent for you as the contractor to request an equitable adjustment. Under such a circumstance, the owner would (hopefully) agree to increase the amount it will pay for completion of the project.

Decrease in the Scope of Work

If the government, or a private construction owner, decides that it wants less work completed than the original contract calls for, it may issue a credit change order, i.e., in essence propose a downward equitable adjustment to the contract price, which if signed by the contractor, would allow it to pay you less for your construction work than the contract stipulates. From a contractor’s perspective, this could turn out to be an adverse consequence of an equitable adjustment. If the owner’s credit change order is unreasonably high, the contractor can issue its own REA to the owner to adjust that figure to a more reasonable one.

Scope Changes But Government Acts Unfairly

But what happens when you clearly deserve an equitable adjustment and the government is unwilling to provide one? That’s when it may be time to begin preparing a construction claim, a sometimes daunting task given all the pitfalls for the unwary.

If you’re in any of these or other tricky contracting situations, contact me at 205-349-3516 for a no-cost conference and opinion.

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