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Equitable Adjustment vs Increase in Funding
By Anonymous on Wednesday, January 10, 2001 - 05:23 pm:

Can some one tell me the distinction in the term “equitable adjustment” and “increase the contract’s funding”.

The issue is - I have a T&M contract with 100k funds awarded with a 12 months period of performance. We are now 10 months into the contract and have invoiced 60% of funds. With 2 months remaining, the Govt requests that the contractor send a request to “extend the contract at no cost to the Govt” for an additional 7 months.

Action taken:
After talking with PM, was informed that the remaining funds only covers through May, 3 months extending from the current POP date. Would it be a good assumption to send letter to Govt stating:

(a) Request for a modification extending the POP 7 additional months at no cost and reserve the right to request an equitable adjustment to continue service.


(b) Request for a modification extending the POP to May at no additional cost. Then later request for additional funds and extend the POP.

By joel hoffman on Thursday, January 11, 2001 - 01:29 am:

Anon, How does the Government arrange for your services? Are you performing a continuous service at a fixed level of effort each month? The type of T&M efforts I'm familiar with are usually structured for the Government and contractor to negotiate individual orders with a ceiling amount, generally to complete some task which may vary in level of definition.

I would need to know more about what you do - I can't provide a coherent answer. If you receive individual orders, they should include a funding limitation. The funds limitation protects you from having to perform unfunded work and it protects the Government, if you perform unfunded work, then ask for payment. If you receive individual orders, it would appear that the Government simply wants to continue the present arrangement, and they want to lock in the existing unit prices for an additional 7 months.

Then, your option (a) would not be necessary, because the Government shouldn't ask you to perform a service without funding. When the money runs out, they quit assigning work or they must award additional funds for further services.

I can't address your option (b) without knowing more about the nature of the T&M tasks and the ordering procedures. Happy Sails! Joel Hoffman

By John Ford on Thursday, January 11, 2001 - 12:19 pm:

Anon, I see several problems with this from the government's perspective. First, is the potential anti-deficiency issue. The government is asking for seven months of service but only has funds to cover three months. I hope the government is not expecting you to work four months for free. If so, there is the problem of illegally accepting voluntary services. On the other hand, if the government is making a promise to pay you for the other four months, but does not have the funds, this is a clear violation of the Anti-Deficiency Act.
Another problem is the color of money. It may well be (but we don't know from what you have described) that the extended services will be to satisfy a need that cannot be funded with the money currently on your contract. This again would be a potential violation of the ADA and the purpose statute.
A third issue is competition. The extended services seem to be a new procurement, not completion of a task you are already obligated to perform. If this is the case, it seems the government would have to obtain some form of competition, even under the SAT.
Finally, from the contractor's viewpoint, under the T&M Payments clause, you are permitted to stop work once you have expended the money on your contract. As Joel indicated, if the government asks you to perform seven months of work at the cost of three, you can simply walk away after the third month. The increased funding you would be seeking under the Payments clause is merely a funding increase to complete current contract obligations. It would not be an equitable adjustment because of changed conditions.

By Kennedy How on Thursday, January 11, 2001 - 12:47 pm:

I'm going to go out on a limb here and grasp another opportunity to be wrong, but I think we've sort of done this in the past (in a sense). In our case, it depends on the scope of work in effect. If we had money left over on the contract, we'd issue another task order to spend the rest. That period of performance might well extend past the contract expiration date. There are times, though, where we've run out of money, and the contractor has told us that, and we've acknowledged that they've had to stop work (this affected one of my big projects).

It seems to me that you can extend the period of performance to spend the remaining money, as long as the extra effort is within the existing scope of work. This way, it wouldn't be a new procurement, but an extension of an existing task. If you know the funding runs out at a certain date, then I don't think a contractor is under obligation to perform further.


By Charlie Dan on Thursday, January 11, 2001 - 12:53 pm:

Your message indicates that you talked "with PM." Was this the Govt Project or Program Manager, or your own? If you haven't asked the Contracting Officer why they want a 7-month extension on what appears to be 3 months of funding, you should. There may be good reasons. Perhaps the Govt expects to use your company's services at a lower rate than it has to date?

I disagree with jumping to the conclusion that this situation may represent an Antideficiency Act violation - there just isn't enough information to justify that line of thought. Frequently, the Govt has money authorized and budgeted, but isn't prepared to obligate it to the contract just yet -- for a variety of reasons. Sometimes it is months into a fiscal year before an individual contracting activity receives its full FY funding allocation, so it must "limp along" and incrementally, rather than fully fund its contracts.

Which brings me to a question for those who like to discuss whether T&M contracts are cost-reimbursement or firm fixed-price contracts. FAR 32.7 provides the Limitation of Funds clause for use when a cost-reimbursement contract is incrementally funded. Can a contracting officer incrementally fund a T&M contract?

By joel hoffman on Thursday, January 11, 2001 - 01:00 pm:

I guess what I didn't say last night was that an arrangement to perform a continuing known task for a definite period is more generally structured as a variation of "level of effort".

"Time and Materials" arrangements are generally used to complete specific tasks with identified end products or objectives at specified estimated not to exceed costs and not to exceed timeframes. That's why I'm confused how you would be asked to perform any tasks beyond the funding available, under a T&M arrangement.

At least that is my understanding of LOE's and T&M
contract types. I have some experience with variations of each.
Happy Sails! Joel

By Eric Ottinger on Thursday, January 11, 2001 - 01:04 pm:


“At no additional cost to the Government” is a clumsy way of saying that the agency wants to extend the contract period of performance without otherwise changing the contract.

FAR 16.601 “Time-and-materials contracts” requires a not-to-exceed ceiling for every T&M contract. If there is a ceiling (and the ceiling lines up with the funding, as it should) you shouldn’t have any problems as long as you stay within the ceiling.

If there is no ceiling, you should insist on a ceiling, to keep both parties out of trouble.

“(c) Limitations. A time-and-materials contract may be used (1) only after the contracting officer executes a determination and findings that no other contract type is suitable; and (2) only if the contract includes a ceiling price that the contractor exceeds at its own risk. The contracting officer shall document the contract file to justify the reasons for and amount of any subsequent change in the ceiling price.”

Getting back to your original question—

Equitable adjustment implies a change to the scope of the contract. Normally, this is something the contractor would request after the scope has been changed in some fashion.

Funding is the total under accounting and appropriation data. Even if there is no ceiling or “Limitation of Funds,” you should be careful not to spend more than the funding, because the Anti-Deficiency rules may make it difficult or impossible for the agency to reimburse you.

I don't think there is anything out of the ordinary in the agency's request to extend the period of performance when a substantial portion of the hours haven't been used. Nor do I think it surprising that the PCO want to extend the date as far as he can within reason.