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General.Zhukov

FFP Equitable Adjustment Examples?

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I have a Request for Equitable Adjustment for a FFP Commercial Contract for IT Services, and its killing me.   Two related questions. 

1) How to price EA for FFP when I have no cost information except some really simple info (1 slide, containing $/month) sent to me by contractor? Our agency has no cost/price analysts or handy support staff, and minimal experience with Equitable Adjustments so far as I can tell.

2) Are there, out there on the interwebs, any good examples of actual or theoretical Equitable Adjustments for FFP?

Background: 

Direct 8(a) within a special IT program.  Objective of the contract was to support Business Case Analysis for replacement of an IT system, and then to prototype one or more of the selected alternatives.  Fixed price.  About $1MM over 1 Year.  There has been about 6 months of delay for at least 4 discreet reasons, not all of which is the GVT fault.   

1) Performance started late due to on-boarding and security clearance issues.  Probably not our fault? ~ 1 Month.

2)  GVT shutdown.  Our fault. 1 Month.

3) Requirements gathering 'more complicated' than anticipated.  Probably not our fault? 1 Month. 

4) The Analysis of Alternatives was kicked back by the GVT at least twice for very questionable reasons and not within a reasonable time-period.  Our fault.   3 Months.

 

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In addition to what ji asks, it (generally) is the responsibility of the party seeking an adjustment to justify the reasonable basis for the pricing of a bilateral adjustment. They must provide enough detail for the other party to be able to agree that the adjustment is fair and reasonable and is a result of the applicable compensable action. 

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14 hours ago, General.Zhukov said:

1) How to price EA for FFP when I have no cost information except some really simple info (1 slide, containing $/month) sent to me by contractor? Our agency has no cost/price analysts or handy support staff, and minimal experience with Equitable Adjustments so far as I can tell.

 

15 hours ago, General.Zhukov said:

2) Are there, out there on the interwebs, any good examples of actual or theoretical Equitable Adjustments for FFP?

Ask your search engine - "How to analyze a request for equitable adjustment".  I suspect you will find some hits that will help you head in the right direction.   Also ask the contractor for the info you need from the contractor.  Some agencies demand such information in some contracts, by example see GSAM clause 552.243-71.  The contractor  may or may not provide but ask anyway.  And if they won't provide see if SBA will help you leverage the info by going to the SBA District Office that the firm is under with regard to the 8(a) program and ask them to provide assistance (teach) the 8(a) firm on what the contractor should provide when requesting an equitable adjustment.  Heck cc the SBA with all correspondence you have with the contractor on the matter.  After all by intent the 8(a) contract is really with SBA and the firm is their sub.

14 hours ago, ji20874 said:

What clause(s) in your contract will serve as the basis for the equitable adjustment(s)?

If a commercial item procurement remember a change is by mutual written agreement and no clause is really needed.  Same goes if you determine that the governments actions amount to a constructive change.  

23 minutes ago, joel hoffman said:

In addition to what ji asks, it (generally) is the responsibility of the party seeking an adjustment to justify the reasonable basis for the pricing of a bilateral adjustment. They must provide enough detail for the other party to be able to agree that the adjustment is fair and reasonable and is a result of the applicable compensable action. 

Of course in the end you could deny a request for equitable adjustment in any and all cases but you run the risk of then dealing with it as a dispute.  Overall remember now that you have an area of controversy it is the Government's policy to try and resolve the matter by mutual agreement (FAR 33.204).  

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1 hour ago, C Culham said:

If a commercial item procurement remember a change is by mutual written agreement and no clause is really needed.  Same goes if you determine that the governments actions amount to a constructive change

Carl, can you explain this?  It seems you are saying that the parties need to agree on a constructive change before it can be implemented.

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2 hours ago, C Culham said:

Of course in the end you could deny a request for equitable adjustment in any and all cases but you run the risk of then dealing with it as a dispute.  Overall remember now that you have an area of controversy it is the Government's policy to try and resolve the matter by mutual agreement (FAR 33.204).  

It appears to me that, since mutual agreement is necessary for the contractor to gain satisfaction for an REA, short of a claim, the contractor will have to provide adequate information.  The government must be able to determine merit, determine what it thinks is fair and reasonable and negotiate. The firm shouldn’t expect that a “here it is, take it or leave it” attitude and approach will work, unless the government is totally clueless. 

And since the SBA is technically the prime contractor, the contracting officer should - must- work with SBA to get adequate information. The SBA should be a valuable resource here. 

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1 hour ago, Retreadfed said:

Carl, can you explain this?  It seems you are saying that the parties need to agree on a constructive change before it can be implemented.

No what I am saying is that the parties can change anything in a commercial contract they want by mutual written agreement.  Specific to the OP, there is a controversy or at least a perceived one as the contractor has requested a equitable adjustment so I say sit down with them and work it out if it a commercial item contract, no need to find a clause that says yes you can or no you can't.   And before anyone jumps I am not saying give away the farm either but from the bread crumbs of facts provided it looks like the government did not do right so something is due (time, money or both)  the contractor.  

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1 hour ago, joel hoffman said:

It appears to me that, since mutual agreement is necessary for the contractor to gain satisfaction for an REA, short of a claim, the contractor will have to provide adequate information.  The government must be able to determine merit, determine what it thinks is fair and reasonable and negotiate. The firm shouldn’t expect that a “here it is, take it or leave it” attitude and approach will work, unless the government is totally clueless. 

And since the SBA is technically the prime contractor, the contracting officer should - must- work with SBA to get adequate information. The SBA should be a valuable resource here. 

Joel, normally I would agree with you. But in the commercial marketplace, shouldn't standard industry practices prevail? For example, if my auto mechanic tells me I need to replace my brakes and that it's an extra $800 over the initial estimate, my verbal okay is typically acceptable.

Thus, to me, the questions are (1) what changed and (2) how does the marketplace typically deal with those changes.

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5 hours ago, C Culham said:

If s commercial item procurement remember a change is by mutual written agreement and no clause is really needed.  Same goes if you determine that the governments actions amount to a constructive change.

The original posting is about equitable adjustments, so it makes sense to ask about the clause(s) in the contract that provide entitlement to an equitable adjustment.

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7 hours ago, ji20874 said:

The original posting is about equitable adjustments, so it makes sense to ask about the clause(s) in the contract that provide entitlement to an equitable adjustment.

Discussed many times the FAR does not define equitable adjustment but uses the term extensively.   An equitable adjustment is a doctrine  to settle a matter in controversy/dispute in Federal contracting not just matters related to specific clauses. 

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On 11/7/2019 at 10:08 PM, C Culham said:

Discussed many times the FAR does not define equitable adjustment but uses the term extensively.   An equitable adjustment is a doctrine to settle a matter in controversy/dispute in Federal contracting not just matters related to specific clauses. 

Yes, the FAR uses the term “equitable adjustment” extensively.  As I recall, every single time the term is used in the context of a specific clause or circumstance.  If the FAR does use the term generally, outside the context of a specific clause or circumstance, please point me to that usage.

A change made by mutual agreement of the parties under para. (c) of the clause at FAR 52.212-4 is not an equitable adjustment.  It is simply a change made by mutual agreement of the parties under para. (c) of the clause at FAR 52.212-4.  

If there is a contract clause that creates an entitlement to an equitable adjustment, the contracting officer should follow that clause in considering the equitable adjustment.  That’s why I asked the original poster about the clause(s) that are in play.  He or she should not even attempt to negotiate or grant an equitable adjustment unless he or she knows what clauses are in play, and then follows those clauses.

If the original poster wants to give the contractor more money to settle a matter outside of any contract clause which creates an entitlement to an equitable adjustment and which, if left alone, might result in a claim under the contract’s Disputes clause, he or she may do so without calling the additional money an equitable adjustment. 

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16 hours ago, ji20874 said:

The original posting is about equitable adjustments, so it makes sense to ask about the clause(s) in the contract that provide entitlement to an equitable adjustment.

Yes, I agree. In reading a definition of the term “equitable adjustment” in (1994, second edition of) The Government Contracts Reference Book (Nash, Schooner and O’Brien),  it indicates that it is “[a] fair price adjustment under a contract clause for changed work, including an adjustment in profit, a change in the delivery schedule, if appropriate, and  a change in any other terms of the contract...Equitable adjustments are distinguished from DAMAGES, which are given in the absence of a clause calling for an equitable adjustment.”

”The basic formula for an equitable adjustment is is an estimate of the difference between (1) what it would have reasonably cost to perform the work as originally performed and (2) what it will reasonably cost to perform the work as changed”. 

Damages are defined as “ [p]ecuniary compensation or indemnity, which may be recovered in a judicial or quasi judicial forum [examples cited are the U.S. Court of Federal Claims and Boards of Contract Appeals] by one who suffers loss, detriment or injury through BREACH OF CONTRACT by the act, omission or negligence of another. Compensatory damages compensate the injured party for  the injury sustained and for nothing more.”  It also discusses Consequential damages and says that “[p]unitive (or exemplary) damages are generally not included in contract damages.”

I probably need to get some more up to date references. My second edition predates the mid 90’s Acquistion Streamlining and shift to emphasis on commercial contracting methods.   😁

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A few quotes from the 2019 Contract Attorneys Deskbook found here

 

https://tjaglcspublic.army.mil/publications?p_p_id=110_INSTANCE_Jnxja3uDhXvh&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&p_p_col_id=column-1&p_p_col_pos=2&p_p_col_count=4&_110_INSTANCE_Jnxja3uDhXvh_struts_action=%2Fdocument_library_display%2Fview_file_entry&_110_INSTANCE_Jnxja3uDhXvh_fileEntryId=584951

 

Equitable Adjustment – A contract modification, usually to contract

price, that enables a contractor to receive compensation for additional

costs of performance including a reasonable profit, caused by an in-scope

contract change.

 

Request for Equitable Adjustment (REA) – A contractor request (not a

demand – see “claim” below) that the contracting officer adjust the

contract price to provide an equitable (i.e. “fair and reasonable”) increase

in contract price based on a change to contract requirements. REAs are

handled under the contract’s Changes Clause.

Background. Constructive changes exist whenever the government, through

action or inaction, and whether intentionally or unintentionally, imposes a change

to the terms and conditions of contract performance - but fails to do so formally

(in writing or otherwise). Administration of Gov’t Contracts, Cibinic, Nash &

Nagle (2006, p. 427).

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The issues which the government might be responsible for might likely be considered changes.

My earlier advice still stands concerning getting with SBA , obtaining enough information to determine what actions or events the government is responsible for and what are or aren’t excusable and/or compensable delays,  evaluate the claimed costs or damages, then negotiate a settlement. 

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deleted duplicate post

Edited by joel hoffman
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Thanks for the advice.  I am finding the Contract Lawyers Handbook and  Contract Pricing Reference Guides to be very helpful resources.  

Asking the SBA to step in is also quality advice.  They want to give me what I need in terms of information, but its been tough going, and it would be great if an outside adviser could give them some help on this.

Regarding the clause and authority to do an REA....

This is a commercial contract, so it has 52.212-4 and the paragraph about changes by mutual consent.  So, that is that in terms of clauses.

In terms of "Should the contractor be compensated for event X?" - that is what I struggle with, especially when its fixed price and there isn't any cost data.

This is particularly true when it comes to this contract. 

Contractor does research, submits an AoA to PM.  PM takes it up the chain, and thereby implicitly accepting it, and the higher-ups reject the AoA.   Contractor revises AoA, re-submits, kicked-back again.  Third time is approved.  At the same time, internal Government issues lead to delays where the contractor needs guidance from the GVT that is not forthcoming so they sit on their hands for a while.

I have mixed intuitions about whether the contractor did either the right or the legal thing by doing the re-work rather than refusing to work further once the initial deliverable was accepted. 

In any event, thanks again for the advice.

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How does the PM “thereby implicitly accept[ ]” the AoA by receiving it and “tak[ing] it up the chain”? What constitutes acceptance of an AoA in the contract? Is there no contractual provision for government technical review for acceptability or conformance to contract requirements?  There should be some contractual means for determining acceptability, ESPECIALLY if  the required deliverables, activities or efforts are based upon performance specifications. Performance specs generally include or refer to some criteria for verification of acceptability.

You said that someone “approved” the AoA. What is the difference between “accepting” and “approving” an AoA?  Are you referring to the amount of time allowed in the contract for government review and “approval” upon receipt of the AoA?? 

There might not be any “cost data” for a commercial contract but the contract prices for specific activities are supposed be based upon standard Commercial pricing, I would expect. Correct? 

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By the way, H2H, if my mechanic told me that a brake job would cost $800 more than he estimated, I would have him explain how much more labor hours are involved, the shop rate and what material s and how much more the materials were . Unless you own a Maserati, Corvette or the  like , a brake job should not cost $800 to begin with, let alone $800 more than an estimate. That’s like going to Budget Brakes for a front end alignment, where they explain to you how the whole front end needs replacement for $2000 - which was a croc. Told two other customers similar stories while I was waiting for the “inspection”.   

Took my Yukon to a reputable one man shop (52 years experience) and I only needed new tie rod ends, which I did myself for $60 in materials. Then took it back to him for an alignment.  Cost was $79.95. 

He retired and I had it realigned again last month at another reputable shop. I asked how the front end components looked and the technician said A-OK. Cost - $79.95   😁

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General,

The contractor has the burden of asserting a right to a change in the contract terms.  Please read the Disputes clause of your contract.  It sounds like your contractor has not convinced you of its entitlement to a change.  Thus, you should reject its request.

But there is no harm.  If the contractor really thinks it has an entitlement, it can make its case in an updated request or in a claim.  But you should not be talking amount (quantum) until after the contractor persuades you of its entitlement to a change.  Don’t give the contractor more money unless it proves entitlement.  You’re a general, not Santa Claus, and it is not Christmas.  

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36 minutes ago, ji20874 said:

General,

The contractor has the burden of asserting a right to a change in the contract terms.  Please read the Disputes clause of your contract.  It sounds like your contractor has not convinced you of its entitlement to a change.  Thus, you should reject its request.

But there is no harm.  If the contractor really thinks it has an entitlement, it can make its case in an updated request or in a claim.  But you should not be talking amount (quantum) until after the contractor persuades you of its entitlement to a change.  Don’t give the contractor more money unless it proves entitlement.  You’re a general, not Santa Claus, and it is not Christmas.  

Agree but there is no need to “reject” the request yet .  Suggest you work to get the information you need to determine merit even if it means , after working with SBA if necessary, a discussion with the contractor for it to explain its request and then providing whatever info you need. 

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On ‎11‎/‎8‎/‎2019 at 9:06 AM, General.Zhukov said:

Asking the SBA to step in is also quality advice.  They want to give me what I need in terms of information, but its been tough going, and it would be great if an outside adviser could give them some help on this.

Sorry  been away but if you are still watching there are ways to get them an outside advisor at no cost to them!

Not sure but "in the day"  SBA's 7j program could be used to help them with individual assistance.   7j also funds classes for firms as well.   I would talk to your SBA person about its use.  (Ref. 13 CFR 124.702)

Procurement Technical Assistance Center - They can provide assistance to an individual firm on the matter of how to price a proposed REA.   You and SBA could strongly suggest that the firm make contact with the PTAC near them for the assistance.  (Ref.  https://www.aptac-us.org/ )

 

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On ‎11‎/‎8‎/‎2019 at 12:07 PM, joel hoffman said:

How does the PM “thereby implicitly accept[ ]” the AoA by receiving it and “tak[ing] it up the chain”? What constitutes acceptance of an AoA in the contract? Is there no contractual provision for government technical review for acceptability or conformance to contract requirements?  There should be some contractual means for determining acceptability, ESPECIALLY if  the required deliverables, activities or efforts are based upon performance specifications. Performance specs generally include or refer to some criteria for verification of acceptability.

You said that someone “approved” the AoA. What is the difference between “accepting” and “approving” an AoA?  Are you referring to the amount of time allowed in the contract for government review and “approval” upon receipt of the AoA?? 

There might not be any “cost data” for a commercial contract but the contract prices for specific activities are supposed be based upon standard Commercial pricing, I would expect. Correct? 

Joel,

This is a commercial item contract so I doubt there were many performance specifications. We might wonder what qualified the services to be considered a commercial item, but that was an a priori condition associated with the original question.

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On ‎11‎/‎8‎/‎2019 at 12:52 PM, joel hoffman said:

By the way, H2H, if my mechanic told me that a brake job would cost $800 more than he estimated, I would have him explain how much more labor hours are involved, the shop rate and what material s and how much more the materials were . Unless you own a Maserati, Corvette or the  like , a brake job should not cost $800 to begin with, let alone $800 more than an estimate. That’s like going to Budget Brakes for a front end alignment, where they explain to you how the whole front end needs replacement for $2000 - which was a croc. Told two other customers similar stories while I was waiting for the “inspection”.   

Took my Yukon to a reputable one man shop (52 years experience) and I only needed new tie rod ends, which I did myself for $60 in materials. Then took it back to him for an alignment.  Cost was $79.95. 

He retired and I had it realigned again last month at another reputable shop. I asked how the front end components looked and the technician said A-OK. Cost - $79.95   😁

Joel,

Perhaps you missed the point of my post, which was not about brake jobs or the type of car one drove. It was about commercial item contracting. In my experience it is often overlooked that the government is required to acquire commercial items IAW the terms of the marketplace. I extended that requirement to post-award administration requirements.

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On ‎11‎/‎8‎/‎2019 at 12:06 PM, General.Zhukov said:

Regarding the clause and authority to do an REA....

This is a commercial contract, so it has 52.212-4 and the paragraph about changes by mutual consent.  So, that is that in terms of clauses.

That citation gives zero authority for an equitable adjustment to the contract terms.  It allows you to change the terms, with mutual agreement -- but it does not allow for the Government to make a unilateral change which then creates an entitlement to an equitable adjustment.

I still think you should require the contractor to make its case for an adjustment in the contract's terms by pointing to a clause that provides for an equitable adjustment.  The contractor will likely be unable to do so.  Thus, there should be no talk of equitable adjustment.

Rather, I think you should be working under the Disputes clause of your contract.  You really should read it and require the contractor to follow it.  Really, it seems to me that you're trying to resolve an issue in controversy (that term is defined in FAR 33.201).  We cannot tell from your postings whether an injury occurred or whether there is any Government liability for said injury -- the mere facts you described do not prove any injury and do not establish any liability.  But if there was injury and there is liability, you deal with it under FAR Subpart 33.2, Disputes and Appeals (see 33.204, which Carl already pointed to), not by any REA doctrine.  Make the contractor prove the contractor's injury caused by the Government's action and make the contractor establish the Government's liability -- only then should you be talking how to compute the money amount of damages.

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