Government contracting officers frequently seek to make a unilateral unilateral modification, but insist that it be “no-cost,” i.e., there will be no equitable adjustment in the contract price as permitted by the changes clause (FAR 52.243-1). The Army even came up with a scheme to try to force a contractor to accept six unilateral modifications without being able to appeal these modifications to the Armed Service Board of Contract Appeals (“ASBCA”). However, the Board recently put the kibosh on the Army’s tactic, ruling that such no-cost modifications were a government claim that could be immediately appealed. DynPort Vaccine Co., LLC, ASBCA No. 60119, Sept. 30, 2015.
Many contracting officers who seek changes would like to have a contractor agree that they are “no-cost” so that no change in price is needed and they need not seek more contract funding from their Comptroller. But is there really such a thing as a no-cost change order? Usually, there will be additional, unanticipated costs incurred by the contractor, unless the modification is a deductive change. And even if there is no immediate cost to the change, contractors should consider the administrative cost of any change—revising contract paperwork, changing quality control plans, retraining employees, etc. If a contracting officer insists on a no-cost modification, a contractor should look closely at its costs to ensure that it is being treated fairly before it accepts the modification.
Now, the Army’s scheme. The contracting officer issued six unilateral contract modifications to DynPort requiring it to perform “no-cost corrective work” under the inspection clause of the contract, FAR 52.246-8. DynPort filed an appeal at the Board, asserting that these were “government claims” under the Contract Disputes Act. (Note: It is unclear why any modifications were necessary, since FAR 52.246-8(f) explicitly states that, under the clause, “the Government may require the Contractor to replace or correct work not meeting contract requirements.” If this was really corrective work, the contract already provided for corrective action. It is very possible that the six unilateral modifications required new work not included in the contract.)
The Army contracting officer, however, sent DynPort a letter stating that letter “confirms that no Contracting Officer’s Final Decisions have been issued on the above U.S. Government claims but such decisions are under consideration by the contracting officer.” The Army then asserted to the Board that it had no jurisdiction with respect to DynPort’s appeal of these six modifications because there was no final decision regarding the unilateral modifications. Readers of this blog understand that the ASBCA only has jurisdiction under the Contract Disputes Act, 41 U.S.C. § 7103(a)(3) if there is a contracting officer’s final decision (or a “deemed denial,” if no decision is made within 60 days).
The ASBCA completely rejected the Army’s scheme, noting that it was clear that the CO had issued final decisions upon the government claims set forth in his six unilateral [no-cost] modifications. The Board also slammed the Army, stating that it “cannot divest the Board of its statutory jurisdiction to entertain appeals from government claims by issuing a letter characterizing …unilateral contract modifications …at no cost…as something other than a ‘final decision.’”
Contracting officers: Beware of trying to manipulate the claims process. Follow the rules in the FAR and the Contract Disputes Act, and do not try to prevent contractors from appealing a no-cost, unilateral modification, which is a government claim.
Contractors: Examine any no-cost, government unilateral change order to see if there are costs involved that are worth preparing and filing a claim. You may immediately appeal them to the ASBCA or the Court of Federal Claims if the contracting officer refuses to allow any costs.