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10 min read

Contract Disputes in Government Contracting

contract disputes

In this captivating presentation, attorneys Joel Hamner and Stephanie Siler from Whitcomb PC share valuable insights into government contracts, focusing on contract changes and modifications. They offer effective strategies for resolving issues with contracting officers and empowering small businesses, particularly those owned by veterans. Whitcomb PC handles a wide range of issues, ensuring clients are well-prepared. Hamner emphasizes the importance of early identification of contract changes and provides guidance on the formal claim submission process and appealing a contracting officer's decision..

Hamner supports small businesses, especially those owned by veterans. Whitcomb PC deals with bid protests, compliance counseling, and contract changes. The presentation will focus on early detection and strategies for resolving contract changes. They categorize changes into directed, constructive, and cardinal types. They discuss unilateral and bilateral methods for directed changes. They emphasize the importance of documenting costs and understanding the changes clause. Subcontractors have the same rights as the prime contractor. Joel advises communicating with the contracting officer and referencing the changes clause.

He observes that if a contractor can provide evidence of a change, the contracting officer is obligated to make a fair adjustment to the contract price or delivery schedule. Joel emphasizes the importance of maintaining proper documentation to support the occurrence of a change and the resulting costs incurred. While the contracting officer cannot unilaterally issue an equitable adjustment, negotiations can take place. Joel stresses that the contracting officer must make an equitable adjustment if the contractor can demonstrate that a change has taken place and costs have been incurred. He also discusses the importance of presenting both a constructive change and a breach of contract claim during litigation. Joel further points out that subcontractors have the same rights and remedies as the prime contractor when the clause is incorporated into the subcontract.

Hamner and Tom delve into the rights and obligations of subcontractors in relation to government contracts. They highlight that subcontractors can seek claims

Hamner emphasizes the importance of documenting changes made to a contract to be entitled to additional costs. He strongly advises against incurring costs without prior approval. Additionally, Hamner emphasizes the significance of effective communication between the prime contractor and subcontractor. Lastly, he addresses the complexities of deductive changes or de-scoping of work and the challenge in determining whether they should be treated as changes under the changes clause or a partial termination for convenience. Hamner notes the absence of a clear rule in case law for this distinction.

Hamner emphasizes the importance of understanding entitlements and preparatory costs associated with each choice, such as employee hiring, equipment purchases, and workforce training. He differentiates between deductive changes and partial terminations for convenience, highlighting the need to determine if a change falls within the contract's scope. Negotiation should consider costs, particularly preparatory costs, to determine the appropriateness of a partial termination for convenience. Contractors should discuss changes with the contracting officer if they resemble a partial termination for convenience rather than a deductive change.

Hamner provides a clear definition of constructive changes as instances where the government requires performance beyond what is stated in the contract, without a formal change order. He identifies two main causes for constructive changes: specific direction from the government or defective specifications. Hamner emphasizes the importance of requesting compensation for the additional costs incurred due to these changes and highlights that courts evaluate contracts from the perspective of a reasonable contractor. He also discusses the various types of ambiguity that can arise in contract interpretation and emphasizes the duty of contractors to seek clarification for any obvious uncertainties.

However, it is important to note that the duty to seek clarification does not extend to hidden ambiguities. In these cases, the contractor cannot be expected to inquire about something they are unaware of.

During the discussion, the speakers present a specific case involving a contractor who was awarded a contract to repair a navy ship. The contract explicitly stated that all rules, including federal, local, state, and navy regulations, applied, including local shipyard rules.

While hauling the ship into the dry dock, some of the cables unexpectedly snapped. Faced with this challenge, the contracting officer wanted to cancel the contract, but the determined contractor decided to proceed with the work in order to save the ship.

A local shipyard rule allowed the dock officer to make this executive decision, but there was uncertainty regarding who would bear the cost. Eventually, the contractor was awarded the expenses incurred during the second attempt to pull the ship into the dry dock.

In this particular case, the duty to seek clarification was not applicable since the ambiguity was not evident in the contract. This highlights the importance of thoroughly reading and understanding all aspects of a contract before submitting a bid. If there are any uncertainties in the language, it is generally the responsibility of the contractor to seek clarification from the contracting officer.

The court often considers whether the ambiguity arose from the contract language itself or if it was prompted by external factors. The speakers further explore the implications of the "shipyard case," particularly regarding the authority of the dock operator in making certain decisions. While they briefly mention intellectual property and data rights, they do not delve into the topic extensively.

According to the Federal Acquisition Regulation (FAR), contracting officers must determine the extent of the government's data rights or requirements at the time of solicitation. However, disputes can arise due to the government's reliance on the presumption of unlimited rights during contract performance.

Joel Hamner and Tom discuss two scenarios where contractors may be entitled to compensation due to constructive changes. The first scenario involves the government demanding data rights that exceed what the contractor initially intended to deliver. The second scenario relates to the government invoking FAR 52.227-16, which deals with the delivery of additional data. In both cases, the speakers advise contractors to approach negotiations with caution and good faith.

Understanding the government's rights to request additional data under FAR 52.227-16 is crucial for contractors, as they should be aware of their entitlement to compensation if such requests arise. The speakers also touch upon defective specifications, outlining four distinct types: design, performance, purchase, and composite specifications.

Constructive change theory is discussed in relation to defective specifications, which can occur when the government provides design specifications that prove impracticable or ineffective. The importance of cooperation between both parties is emphasized to avoid hindrance or delay in contract execution. Examples of government interference, such as excessive inspections or failure to cooperate, are highlighted.

Cooperation is also deemed vital in construction contracts, specifically addressing issues related to access to the work site and security passes. The speakers briefly mention general abuse of discretion claims that may fall under the failure to cooperate category.

The topic of superior knowledge is then introduced, referring to instances where the government fails to disclose vital information to the contractor. This type of constructive change often coincides with other changes, such as defective specifications or interference. Joel and Tom stress the importance of documenting changes and modifications in a contract, emphasizing that contractors must demonstrate their inability to perform without specific information.

The speakers note that in most cases, knowledge is confined to the agency issuing the contract, but there are rare instances where the court may consider external sources.

Joel emphasizes the importance of resolving contract changes early to avoid litigation. He advises subcontractors to compile a demand letter outlining the change, legal basis, and amount owed. Joel and Tom discuss the timeframe for raising constructive changes, the applicability of the changes clause, and the concept of constructive acceleration. They stress the need to identify ambiguities and conflicting language in contracts to avoid disputes. The three types of contract changes - constructive, directed, and cardinal - are introduced, with cardinal changes being significantly different from the original agreement. Understanding the distinction between a cardinal change and a constructive change is crucial.

Joel and Tom present a case study where a client had to develop an additional inspection process for a specific component in a widget. They argue that this constitutes a cardinal change, as the extra work goes beyond the scope of the original contract. The speakers emphasize that instead of making the contractor responsible for the inspection, the government could have issued a separate contract for it.

Addressing another question, Joel and Tom delve into the correlation between two contract changes. They assert that if the second change is a result of the first, the contractor is entitled to costs for both changes. While cost is not the sole determinant of whether a change is considered harder or not, it is a factor that the court takes into account. The court typically examines whether the services requested align with what was initially agreed upon in the contract. If the services deviate from the original agreement, the change is classified as a "constructive change." In some cases, the overall impact and cost are evaluated to determine if a change qualifies as a "cardinal change."

The speakers go on to discuss the distinction between "sever" and "non-sever" services. "Sever" services are recurring or measured in terms of hours or level of effort, while "non-sever" services require the contractor to complete and deliver a specific product. For instance, janitorial services fall under the category of "sever" services, while a final research report falls under "non-sever" services. According to government appropriations laws, contracts for "sever" services should not exceed 12 months in duration. It is crucial for contractors to adhere to this 12-month limit.

Joel and Tom also highlight the significance of monitoring changes to Indefinite Delivery/Indefinite Quantity (ID/IQ) delivery orders, as any changes outside the scope of the master contract may be subject to protest. They mention that they will delve into the notification requirements in the changes clause in more detail later on.

The speakers shift their attention to common issues that arise with different types of contracts. They advise manufacturers to be vigilant about changes to specifications, quantity, and inspection environments. In the case of construction contracts, government-caused delays and changes to specifications or drawings are often encountered. Service contractors should be watchful for additions or deletions of work, as well as government-caused delays.

Moving forward, Joel and Tom share effective strategies for resolving contract changes before they escalate to litigation. They address a question about the length of the court process, estimating it to be approximately two years. The decision to pursue litigation depends on the level of controversy involved, and they discuss the Equal Access to Justice Act, which allows small contractors to recover court costs and attorney fees. They emphasize the importance of utilizing the REA or CDA claim process before resorting to litigation. Joel expresses his satisfaction with avoiding lawsuits altogether rather than winning them, as the process can be arduous.

Furthermore, Joel and Tom stress the significance of resolving disputes before they escalate to litigation. They provide contractors with strategies to position themselves better and avoid litigation. Addressing concerns about potential retaliation from contracting officers, they assure that regulations are in place to protect against this. They argue that a valid claim may enhance a contractor's standing with procuring agencies, as it demonstrates expertise in government contracting. Following regulations and pursuing entitlements when appropriate is crucial.

The speakers emphasize limiting repeated interactions with the same contracting officer. Contractors should assert their rights and ask for the compensation they are entitled to. They suggest that good performance and responsiveness leave a more lasting impression than merely pursuing rights.

Joel and Tom discuss the importance of effectively managing changes in government contracts. They mention that the government may deny a request for payment by claiming there is no authority for the change. It is essential to remember that only contracting officers are authorized to execute modifications. The speakers delve into the different types of authority that can be utilized to make contract modifications: actual, implied, and apparent authority. The government is liable for changes made under actual authority, which is vested in the contracting officer. Implied authority is typically associated with the contractor's technical representative, who possesses an understanding of the technical aspects of the contract. Apparent authority arises when a government representative asserts they have the authority to make a change, despite lacking the actual authority.

Understanding the authority of government representatives when it comes to contract changes is crucial. Changes made by someone without proper authority are not recognized by the court. If a contractor receives direction from someone other than the contracting officer, it is advisable to seek written confirmation from the contracting officer.

Thoroughly document contract changes, internally and externally, with detailed information on the cause, director, and timing. Assess the impact on contract performance, considering potential delays and resource needs. Communicate promptly with the contracting officer, notify changes, and use photographs to prevent disputes. Compile proper documentation, evaluate pricing practices, and accurately track labor hours and costs. Establish effective systems and processes, and consider separate accounting for change-related costs. Submit a request for a contract price adjustment to the contracting officer for equitable adjustment.

The Request for Equitable Adjustment (REA) is a customer-friendly approach to compensate contractors for additional expenses due to government-issued changes. It should be submitted before or during contract performance, with exceptions if ongoing discussions have taken place. Adequate documentation is crucial, and communication with the contracting officer is emphasized. Contractors should consider lump sum or incremental adjustments based on the specific changes. REAs and Contract Disputes Act (CDA) claims offer equal rights and should be based on the contracting officer and contract timeline. Contractors may be entitled to profit, overhead, and indirect costs. Promptly notifying changes within the specified timeframe is important, and the REA should include a concise narrative, supporting documentation, and a legal argument. The government is not obligated to respond within a timeframe, so continuous follow-up is necessary. If the REA is denied, filing a CDA claim is recommended. Documenting modifications and reviewing settlement language is essential.

The speakers strongly discourage signing a release that is vague or relinquishes any potential future claims. They provide a clear example of a release that is overly broad and heavily favors the government, advising against agreeing to such terms. Instead, they stress the importance of tailoring the release specifically to the changes being made in the modification. If the government refuses to agree to a narrow release, the speakers suggest negotiating to include specific exceptions.

During the discussion, an audience member inquires about whether consulting fees cover legal guidance or representation in a dispute. The speaker explains that under a Request for Equitable Adjustment (REA), certain special service costs may be eligible. They further distinguish between legal guidance costs and representation in a dispute, clarifying that filing a Contract Disputes Act (CDA) claim is not considered the same type of legal representation. Additionally, they mention that if the dispute escalates to court, it becomes an entirely different matter. The speaker also briefly touches on the Equal Access to Justice Act and how it may allow for the recovery of certain costs.

Another question arises regarding the requirement for state-specific admission to practice in order to work on government contracts. Joel Hamner addresses this issue, stating that most government contracting practices have a national scope, allowing them to provide legal counseling to entities in various locations. However, if a contractor needs representation in court, the lawyer must be admitted to that particular court. For federal courts, a lawyer can be licensed in one state and admitted to the Court of Federal Claims and the Court of Appeals for the Federal Circuit. Hamner acknowledges that the practice of law is subject to the rules of each state.

The speakers discuss the distinction between providing guidance or counseling and representation in court, underscoring the importance of understanding the rules and requirements of each state. They suggest that providing guidance in a consultative sense may be acceptable in other jurisdictions. Furthermore, they highlight the need to exercise caution when representing clients in other states. They mention that their team includes attorneys with multiple state licenses to assist with this. They also briefly touch on whether representation applies to judicial or administrative actions.

Expressing their appreciation for the presentation and its educational value, the speakers engage in a discussion about a federal project that has experienced delays due to COVID-19. They specifically mention the increase in material costs, particularly for copper wire. They contemplate whether to address the issue directly with the prime contractor or initiate a formal process to request a change. Joel Hamner advises them to carefully review the language in the subcontract, paying attention to the presence of a force majeure clause. He emphasizes the importance of understanding how the delay unfolded.

The speakers further discuss the significance of comprehending the terms of the subcontract to determine the appropriate course of action in response to the delay. They emphasize considering whether a force majeure clause exists in the subcontract. Additionally, they underline the need to understand the specific circumstances of the delay in order to assess the eligible costs.

As the discussion draws to a close, the speakers agree to share the slide deck from the presentation with the attendees. They exchange pleasantries and express gratitude to one another. They confirm that the slide deck will include contact information for both Joel and Stephanie. In addition, they mention the use of WhatsApp as a communication tool.