Government Contracts Government Not Permitted to Unilaterally Change Contract Terms
Thursday, February 21, 2019

Government Not Permitted to Unilaterally Change Contract Terms

By Government Contracts Editorial Staff

The Armed Services Board of Contract Appeals summarily sustained an appeal seeking allowable costs, plus a reasonable profit, because the government had no right to unilaterally change the terms of the contract’s award option plan. The contractor performed base operation services at four Navy installations. The contract included an award-option plan, which provided the contractor was eligible for an award-option for an associated performance period if it earned an end-of-performance rating of “very good” or “exceptional.” The contractor never achieved those ratings, and during the fourth option year, the government issued a unilateral modification permitting the award-option determining official to issue a unilateral modification awarding an award-option period of up to 12 months for the government’s “convenience” when the contractor obtained a “satisfactory” rating. The government then issued a unilateral modification to exercise the award option. The contractor alleged the government could not unilaterally change the contract’s award-option plan and unilaterally exercise an award option.

Criteria Not Satisfied. In challenging the contractor’s summary judgment motion, the government argued it issued the first modification “in accordance with the discretion afforded by [the a]ward [o]ption [p]lan,” and that FAR 43.103 authorized a unilateral modification. However, the government’s reliance on FAR 43.103 was misplaced. The provision simply defines bilateral and unilateral modifications, and while FAR 43.103(b)(3) states that a unilateral modification can provide authority to make changes independent of the Changes clause, the government failed to identify an option clause in the contract that provided it with authority to issue the unilateral modification. The government had no authority to issue the unilateral modification changing the award-option exercise criteria to a “satisfactory” rating. While a clause entitled Option to Extend the Term of the Contract–Services permitted the government to extend the term of the contract for a term of 1 to 12 months, the contract’s Period of Performance clause provided the government must do so in tandem with the award-option plan, which required an “exceptional” rating. In addition, the ODO did not have unlimited discretion. The award-option plan permitted the ODO to increase the contractor’s rating based on specified criteria, including any “any other information the ODO determines is applicable to the [c]ontractor’s performance assessment.” However, the government’s reason for the modification—“for the convenience of the [a]gency”—had nothing to do with the contractor’s performance. (Fluor Federal Solutions, LLC, ASBCA, ¶95,671).

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