Government Contracts Contractor Not Entitled to More than Equitable Adjustment
Tuesday, May 28, 2019

Contractor Not Entitled to More than Equitable Adjustment

By Government Contracts Editorial Staff

An appeal seeking additional compensation for a constructive change was denied by the Armed Services Board of Contract Appeals because the contractor failed to meet its burden to prove the claimed costs were reasonable, allowable, and allocable to the claim. The dispute arose from a firm-fixed-price contract to replace a defense satellite communications system operations center with a new facility. During construction, the government required the contractor to remove metal clad cable that its subcontractor had installed in concealed spaces and replace the MCC with electrical metallic tubing. The government acknowledged there was a changed condition and unilaterally modified the contract to compensate the contractor for an amount the government regarded as reasonable. The contractor appealed, seeking to recover the difference between the amount it claimed and what the government paid as an equitable adjustment.

Causal Connection. To recover, the contractor had to establish a causal relationship between the claim and the constructive change. Here, despite the government’s direction to install EMT, the government was not responsible for costs arising from the contractor’s unilateral decision to install MCC. The contractor failed to prove that it was necessary for its subcontractor to begin installing MCC when it did, or that the government placed it in the position of having to do so. Also, because the contractor was responsible for unilaterally choosing to use MCC, which it had to demolish before substituting EMT at a later and more costly stage in the project, the contractor was also responsible for the increased difficulty of the task. The contractor could have avoided the additional costs by not installing MCC, complying with the government’s contemporaneous direction, and then filing a request for an equitable adjustment.

Quantum. In determining quantum, the board rejected the “total cost” method as unhelpful and also rejected the contractor’s favored approach, the “actual cost” method. The contractor’s alleged “actual expenses” were questionable and not reasonable or allocable to the constructive change. The board concluded that using the government’s two independent estimates, settlement offer, and equitable adjustment was the most reasonable approach for determining the costs for installing EMT. Accordingly, the contractor was not entitled to recover more than the equitable adjustment granted by the government. (Lebolo-Watts Constructors 01 JV, LLC, ASBCA, ¶95,735)

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