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A change order includes NTE language that states something similar to "The government's obligation for work under this change order will not exceed $X.XX amount. The contractor will notify the KO before exceeding the amount." The change order is for additional work requirements to fix defective work. The defects are thought to be the result of faulty specs.

After the change is issued, it is found that the specs were not faulty and the contractor was responsible for not meeting the specs. Now it appears the contractor is not entitled to payment for the work performed under the change order. Does it matter that the NTE amount was obligated in the contract and the contractor proceeded with the work under the assumption they would receive payment? If a portion of of the NTE amount was already paid, is government entitled to a credit?

Alexreb

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Guest Vern Edwards

Assuming that the facts are as you have reported them to us, the government has a claim for the amounts paid to the contractor for costs incurred through its fault. The government could modify the contract to cancel the change and deobligate the NTE funds remaining and then seek to recover the amounts paid to the contractor through offset against any amounts owed or to be owed to the contractor.

Of course, that assumes that the government can prove its claim.

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IMO your concern about NTE is NOT as critical as Government actions when it issued a change order based on a supposedly faulty/defective specification. Did anyone on your team make a determination whether it was a design or performance specification? Perhaps obvious, I would never advise Government to issue a change order (or bilateral modification) if Government was uncertain whether specifications were defective. What were the contents of your change order? Did it state government acknowledges incomplete specs or whatever and approves KTR REA to complete work? I would argue the change order itself is an admission from Government it acknowledges defective specs. You said, ?Now it appears the contractor is not entitled to payment for the work performed under the change order.? Anyhow, if you intend to proceed with your course of action I would be more certain than ?it appears.?

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A change order includes NTE language that states something similar to "The government's obligation for work under this change order will not exceed $X.XX amount. The contractor will notify the KO before exceeding the amount." The change order is for additional work requirements to fix defective work. The defects are thought to be the result of faulty specs.

After the change is issued, it is found that the specs were not faulty and the contractor was responsible for not meeting the specs. Now it appears the contractor is not entitled to payment for the work performed under the change order. Does it matter that the NTE amount was obligated in the contract and the contractor proceeded with the work under the assumption they would receive payment? If a portion of of the NTE amount was already paid, is government entitled to a credit?

Alexreb

You did not tell us what type of contract is involved. If it is a cost reimbursement or T&M contract, the contractor may be entitled to recover the cost of correcting the work even if the defects were caused by its poor workmanship.

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charles,

It was design spec. Defect wasn't patent so engineers had to analyze problem to determine source of problem and implement solution. C/O was issued immediately after solution was found in effort to avoid work suspensions/delays. IGE was obligated and used as NTE amount.

The source of problem was verified later. At the time, we were more concerned about getting the work done and avoiding delays than determing fault. Are you saying I should've waited until source of problem was verified before issuing C/O?

Since I am confident the government can prove it's claim, the sentence you quoted should've read "Now contractor is not entitled to payment for the work performed under the change order.? Contractor fault, contractor pays.

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You did not tell us what type of contract is involved. If it is a cost reimbursement or T&M contract, the contractor may be entitled to recover the cost of correcting the work even if the defects were caused by its poor workmanship.

fixed-price construction

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fixed-price construction

Alexreb, it depends upon the circumstances, of course. But we wouldn't normally direct a contractor to fix defective work by change order. Unless we knew that the specs were defective, our ACO and/or KO would probably direct the contractor to correct the deficiency, but ensure that sufficient funding was reserved in the event that the specs were defective.

I think I remember at least one instance where the KO directed the work (by letter) with a specific statement, recognizing that if the specs were found to be defective that an equitable adjustment would be made.

Sometimes, the KO has to take calculated risks. Contract clause 52.246-12 -- Inspection of Construction contains a similar but more specific provision for inspecting suspected deficient work that is covered up and that must be uncovered to inspect. Our policy has been that the KO can direct the action but must ensure that sufficient funds are reserved to cover the estimated cost of tear out and replacement of the work that is covering up the suspect work. And yes, I know that funding is not necessarily guaranteed, even if you "reserve the funds" in the system.

From 52.246-12 h) "If, before acceptance of the entire work, the Government decides to examine already completed work by removing it or tearing it out, the Contractor, on request, shall promptly furnish all necessary facilities, labor, and material. If the work is found to be defective or nonconforming in any material respect due to the fault of the Contractor or its subcontractors, the Contractor shall defray the expenses of the examination and of satisfactory reconstruction. However, if the work is found to meet contract requirements, the Contracting Officer shall make an equitable adjustment for the additional services involved in the examination and reconstruction, including, if completion of the work was thereby delayed, an extension of time."

That isn't the same as directing repair or replacement of work while the adequacy of the specifications are in question. But it is an example of where the KO must take a certain amount of risk without directing via a change order modification.

One must also consider if the cost of a delay, while waiting for a defective specification determination, might cost more than the possible equitable adjustment in the event that the specs were defective. Other considerations might be, what can we delete down the road to pay for the fix, if the specs are defective and if the funds to cover the action disappear. Those are all things that a KO should take into consideration but indecision is more dangerous and often more costly to the taxpayers.

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