Unrelated Change Orders

[Old-Dog]

According to FAR 15.403-4 the requirement for certified cost or pricing data does not apply when unrelated and separately priced changes for which certified cost or pricing data would not otherwise be required are included for administrative convenience in the same modification.

I am having difficulty in determining whether or not several change orders included in a modification are related or not. Does anyone know how I can determine if the change orders are related?

[joel hoffman]

According to FAR 15.403-4 the requirement for certified cost or pricing data does not apply when unrelated and separately priced changes for which certified cost or pricing data would not otherwise be required are included for administrative convenience in the same modification.

I am having difficulty in determining whether or not several change orders included in a modification are related or not. Does anyone know how I can determine if the change orders are related?

George, I think that it is based upon judgment but there may be something in agency guidance or a Decision somewhere. Here are some guidelines I have used over the years in the field as an ACO or as a negotiator and in my District and Division level contract admin oversite roles.

1) Are the changes separately priced, including their impacts on the unchanged work and time or schedule?

2) Do any of the changes impact the others such that they must be settled together or will they be (or were they) settled together in one agreement?

3) The scopes of work should generally be distinct and not intertwined.

4) Can they "stand alone" in scope and effect on the contract?

5) Generally, by including them in one mod "for administrative convenience", means to me that we settle them separately but just include them in one mod to save issuing separate mods. We may or may not negotiate them in the same meeting but still would settle them separately.

6) We keep the changes separate to the extent practical in the single modification file. We have distinct change numbers assigned to each.

7) We usually have separate RFP's and/or change order mods that initiate the changes, separate funding documents, and separate government estimates (if applicable) .

8) We segregate the pre-negotiation objectives by change (even if in the same document).

9) The changes may be negotiated in separate meetings or may be negotiated one at a time in the same meeting. There could be one consolidated price negotiation memorandum (if settled in the same meeting) or separate ones. At any rate the PNM would cover negotiation and settlement of each action separately. The adjusted quantities and prices will generally be combined in the mod in the single CLIN schedule in one or more CLIN's as applicable for administrative convenience.

10) If the scopes and descriptions of the changes had not been previously added earlier by change order mod, then they should be separately described in the SF30.

11) Bottom line rule of thumb is that each change keeps its own identity throughout the process and can be independently traced as to scope and adjustment or equitable adjustment to time and price, including impacts.

12 ) If they are lumped together in the settlement or if impacts must be lumped together to reach agreement on bottom line price and/or time, then they aren't independent, thus are interdependent, in my opinion.

Does that help?

[Guest Vern Edwards]

According to FAR 15.403-4 the requirement for certified cost or pricing data does not apply when unrelated and separately priced changes for which certified cost or pricing data would not otherwise be required are included for administrative convenience in the same modification.

I am having difficulty in determining whether or not several change orders included in a modification are related or not. Does anyone know how I can determine if the change orders are related?

At first, I thought this was a dumb question, but then I thought about it some more. I?m glad I did.

Here is the rule, from FAR 15.403-4(a)(1)(iii):

Unless an exception applies, certified cost or pricing data are required before accomplishing any of the following actions expected to exceed the current threshold or, in the case of existing contracts, the threshold specified in the contract? (iii) The modification of any sealed bid or negotiated contract (whether or not certified cost or pricing data were initially required) or any subcontract covered by paragraph (a)(1)(ii) of this subsection? This requirement does not apply when unrelated and separately priced changes for which certified cost or pricing data would not otherwise be required are included for administrative convenience in the same modification.

The exception applies to ?unrelated and separately priced? changes. Note the two requirements: the changes must be both (1) unrelated and (2) separately priced. The separate pricing part is no problem, but what constitutes being ?unrelated?? The FAR provides no guidance, but you might find something in an IG report or in other internal audit reports or in an old GAO report relating to defective pricing.

If you want case law guidance, don?t look to the GAO protest decisions, because we are talking about contract administration, over which GAO has no jurisdiction. That leaves us with the boards of contract appeals and the Court of Federal Claims and its predecessors. I could find only one decision in which the parties disputed the meaning of ?unrelated and separately priced?: Southwest Marine, Inc., DOTCAB No. 1577J, 95-2 CPD ? 27760, which dealt with a Coast Guard contract for ship renovation and involved changes with respect to the overhaul or replacement of salt water cooling valves. The period of performance was one year and the price was about $4 million. The contractor was required to notify the CO when it discovered that a valve needed to be overhauled or replaced. These notifications were called ?IDR?s. If the CO approved an IDR he issued a ?change request? or CR. During the course of the contract the contractor sent 562 IDRs to the CO. Here is how it worked according to the board:

Early in the contract, however, the parties adopted a procedure, insisted upon by [contractor's] contracts manager, Michael Kirst, that treated each approved change request merely as a request for [the contractor] to prepare and submit a price proposal for the work set forth in the CR. Southwest Marine, Inc., DOTBCA No. 1664, 95?1 BCA ? 27,547. Thus, when Mr. Kirst received a CR, rather than ordering [the contractor] to commence the work authorized therein, he sent the CR to [the contractor?s] office responsible for preparing an engineering estimate. Upon receipt of the engineering estimate, Mr. Kirst used such information to prepare [the contractor?s] price proposal covering the work or item addressed in the contracting officer's CR. The contracting officer either accepted [the contractor?s] price proposal as submitted, bilaterally negotiated a new price, or cancelled the CR. Only if the parties were able to bilaterally negotiate a price, or if the contracting officer issued a verbal directive ordering [the contractor] to proceed with the work pending subsequent negotiation of a price for the work, would Mr. Kirst direct [the contractor?s] production department to proceed with the work authorized by the CR. (Id.) After the work was completed, the parties executed a supplemental agreement (?SA?) adding the CRs to the contract.

The dispute was about 18 separately-priced and timed valve changes. In those days the TINA threshold was $100,000. Each of the individual changes was below the threshold, ranging from $1,265.00 to $37,719.00 for a total of $144,549.00. The contractor invoked the ?unrelated and separately priced? exception. There were 18 separate valves covered by different specifications and located in different parts of the ship. The board rejected the contractor's "unrelated" argument as follows:

Although the valves were in different parts of the vessel, and were required by different specification provisions, it certainly cannot be said that either the CRs ordering them or the supplemental agreements in which they were incorporated were unrelated. All of the CRs indisputably related to salt water valves found essential for the ship's overhaul and but for appellant's scheduling problems, and its method of submitting Inspection Deficiency Reports (IDRs), such CRs undoubtedly could and would have been incorporated in one contracting officer change request resulting in one SA or contract modification.

The board then found that the contractor had defectively priced the contract. The decision was not appealed. It a good case. You ought to read it.

Bottom line: Forget about rules of thumb. Use your head. Think things through. Come up with reasons for your conclusion. That's what makes this work fun, isn't it?

There are several ways in which two or more changes might be related: (1) affected specification or SOW provision, (2) affected function, (3) affected part, component, subsystem, or system, (4) physical location of the changed work, (4) timing of the changes, (5) causal condition or event, and (6) affected suppliers or subcontractor(s). There are undoubtedly more ways. One way to approach the issue is to ask whether you are really dealing with a single "pricing event." For example, even though changes may have been effected through the issuance of separate change orders and are to be separately definitized, the contractor may have obtained needed materials from the same vendor under a single purchase order or amended a purchase order for additional quantities needed for a subsequent change.

This is pretty much a CO judgment call, but one that is subject to dispute by the contractor if it does not want to submit cost or pricing data and to second-guessing by people who might administratively review the CO?s decisions -- attorney advisors, file reviewers, internal auditors and IGs, or the GAO.

You asked a good question, thanks. The good news is that there is no pat answer. (Would you have it any other way?)

[Old-Dog]

Thanks, I appreciate your assistance.