Time and Material Contract and Changes Clause

[Whynot]

How does the Changes Clause operate under a T&M contract? Does the contractor have to work beyond the funding? Is the equitable adjustment based upon cost or at the T&M rates?

[Guest carl r culham]

Assuming 52.243-3 is in the contract it allows both equitable adjustment to the "ceiling price" and the "hourly rate". While your question is vague it would seem that working beyond the funding would be allowed based on a change requested by the CO as it would be assumed that such a requested change would be funded and the ceiling price therefore adjusted equitably. As for basis of adjustment while the adjustment might be based on costs that change as a result of the requested change the actual change is to be made to the "houry rate" or in the context of your question the time and material rates if stated together or separately.

[Navy_Contracting_4]

How does the Changes Clause operate under a T&M contract? Does the contractor have to work beyond the funding? Is the equitable adjustment based upon cost or at the T&M rates?

"How does the Changes Clause operate under a T&M contract?"

Read the clause at FAR 52.243-3. It pretty much answers your first and last questions.

"Does the contractor have to work beyond the funding?"

FAR 52.232-7 -- Payments Under Time-and-Materials and Labor-Hour Contracts addresses the contractor's obligation to work beyond the ceiling price. See particularly paragraph (e), which says the "Government will not be obligated to pay the Contractor any amount in excess of the ceiling price in the Schedule, and the Contractor shall not be obligated to continue performance if to do so would exceed the ceiling price . . ."

If the "funding" is less than the ceiling price, then it's likely your contract has a "Limitation of Funds" clause, and it probably has a similar limitation on the contractor's obligation to continue performance if to do so would exceed the amount of funding.

[formerfed]

Paragraph ( of FAR 52.243-3 states:

"( If any change causes an increase or decrease in any hourly rate, the ceiling price, or the time required for performance of any part of the work under this contract, whether or not changed by the order, or otherwise affects any other terms and conditions of this contract, the Contracting Officer will make an equitable adjustment in any one or more of the following and will modify the contract accordingly:

(1) Ceiling price.

(2) Hourly rates.

(3) Delivery schedule.

(4) Other affected terms.

? The Contractor shall assert its right to an adjustment under this clause within 30 days from the date of receipt of the written order."

The contractor must perform consistent with the change. If the change causes an increase in the ceiling price, the contractor notifies the CO within 30 days. The CO makes an equitable adjustment and modifies the contract. The question is what happens if the contract is at the point where the ceiling price will be exceeded before the contract is modified.

So in answer to the question ""Does the contractor have to work beyond the funding?", I agree with Carl and say yes. It's the same thing as a change order to any type contract - the contractor performs as directed and submits a request for ewquitable adjustment.

[Navy_Contracting_4]

Paragraph ( of FAR 52.243-3 states:

"( If any change causes an increase or decrease in any hourly rate, the ceiling price, or the time required for performance of any part of the work under this contract, whether or not changed by the order, or otherwise affects any other terms and conditions of this contract, the Contracting Officer will make an equitable adjustment in any one or more of the following and will modify the contract accordingly:

(1) Ceiling price.

(2) Hourly rates.

(3) Delivery schedule.

(4) Other affected terms.

? The Contractor shall assert its right to an adjustment under this clause within 30 days from the date of receipt of the written order."

The contractor must perform consistent with the change. If the change causes an increase in the ceiling price, the contractor notifies the CO within 30 days. The CO makes an equitable adjustment and modifies the contract. The question is what happens if the contract is at the point where the ceiling price will be exceeded before the contract is modified.

So in answer to the question ""Does the contractor have to work beyond the funding?", I agree with Carl and say yes. It's the same thing as a change order to any type contract - the contractor performs as directed and submits a request for ewquitable adjustment.

I disagree. What you're saying conflicts with paragraph (e) of FAR 52.232-7, which says:

"(e) Ceiling price. The Government will not be obligated to pay the Contractor any amount in excess of the ceiling price in the Schedule, and the Contractor shall not be obligated to continue performance if to do so would exceed the ceiling price set forth in the Schedule, unless and until the Contracting Officer notifies the Contractor in writing that the ceiling price has been increased and specifies in the notice a revised ceiling that shall constitute the ceiling price for performance under this contract."

The contractor must perform consistent with the change, yes, but only to the extent the ceiling price is not exceeded. The contractor must perform consistent with all the terms of the contract, one of which limits the Government's obligation to pay and the contractor's obigation to perform.

[Guest Vern Edwards]

I agree with Navy. Keep in mind, too, that the contractor must notify the CO when payments will exceed the ceiling price. Nothing prevents a CO from including a provisional increase in the ceiling price in the change order.

[formerfed]

I couldn't find anything exactly on this subject but I came up with something close. Ralph Nash writes in his Government Contract Changes book about the Changes clause and Limitation of Cost clause. He states the former clause obligates the contractor to proceed with any change ordered by the CO while the latter states the Government is not obligated to reimburse the contractor in excess of the cost.

According to his book, he states the ASBCA ruled the Changes clause overides the Limitation of Cost clause. The rule applies to changes ordered by the CO (Ryan Aeronautical Co, ASBCA 6244, 61-1 BCA) as well as constructive changes (BBN, Inc, ASBCA 14655, 71-1). It also applies to the Limitation of Obligation clause used in incrementally funded contracts.

[Guest Vern Edwards]

formerfed:

I don't know what edition of Government Contract Changes you rely upon. A reading of the third (current) edition, Ch. 8, Section 8:14, gives a more nuanced picture of confllicting decisions, but clear advice. Here is how Prof. Nash and Mr. Feldman conclude that discussion:

In view of the conflicting decisions, a contractor should stop work rather than perform changed work that causes its total costs to exceed the cost estimate prior to the receipt of a contract modification increasing the estimated cost. The Limitation of Cost/Limitation of Funds and Changes clauses will generally be interpreted to flatly preclude compensation for equitable adjustments that have not been finalized before an overrun occurs unless the Contracting Officer subsequently funds the overrun. In such circumstances, the contractor should not exceed the contract cost estimate without prior approval of the Contracting Officer (approval of a Government technical representative is generally not sufficient unless that person qualifies as an authorized representative to approve such an increase).[FN15] If performance of a change does result in a cost overrun, the contractor should immediately give notice of the overrun and submit its request for an equitable adjustment under the Changes clause.

[formerfed]

Vern,

I used the First Edition.

[Guest carl r culham]

So an amended answer is - Yes the ceiling price could be exceeded as long as the CO in issuing the written order as required by 52.2543-3 states that the ceiling price is adjusted by the change order.

[Whynot]

For how much and when? Or do you mean issue a blank check? It sounds like the equitable adjustment for the change order will be based upon actual hours needed to perform the change - nothing to negotiate.

[Guest Vern Edwards]

For how much and when? Or do you mean issue a blank check? It sounds like the equitable adjustment for the change order will be based upon actual hours needed to perform the change - nothing to negotiate.

Before issuing a change order, the CO should obtain a written not-to-exceed cost estimate from the contractor and make sure that funds are available, see FAR 43.105, just as she would for any change order under any type of contract. Any increase in the ceiling price stated in the change order would ordinarily be provisional, but would require the contractor to report in accordance with FAR 52.232-7(d).

As for "nothing to negotiate," that couldn't be more wrong. Depending on its content, a within-scope change order might require a change to hourly rates and/or delivery schedule, as well as a change to ceiling price. It might require the addition of new labor categories.