Government Contract Change Orders

What happens when you bid a contract and win it, but get into the performance phase and find out that a critical item was severely underbid? This happens far more often than most people realize, and given the pandemic and global supply chain issues, it is becoming an even larger and more frequent issue for Federal Government Contractors.

Let's look at a real-world example of this: a software development and engineering firm proposed to install additions to a medical simulator to enhance reality.

In the contracts bidding process, all the labor, materials and equipment were bid per actual quotations and comparison bids. After the contract was awarded, one of the originally bid materials became hard to find and the price doubled (sound familiar?).

What can the contractor do? This material price change was significant enough to eat up the entire fee on the contract. Is the contractor “stuck” and now faced with losing money? In the commercial world, you may well be stuck with this deal. In the government contracting world, you may have some options you don’t realize.

The large prime contractors are familiar with this type of regular occurrence and they have entire departments on staff to deal with exactly this type of situation. The small to medium-sized contractor (and 23% of all government procurements go to small businesses), may not be lucky enough to have a staff member with experience in this area. Without experience and/or knowledge of how to process these requests for adjustments, the firm is in a conundrum.

Let’s focus here a little on the process and then other ways to solicit help on this.

FAR Part 43 - Contract Modifications

Section 43 of the Federal Acquisition Regulations (FAR) defines how to make changes to all types of contracts. This can be intimidating to the first-time reader, but there are a few general guidelines that are worth looking at:

• Only the Contracting Officer can make modifications to the contract
• Changes, even unilateral changes, must be priced properly before becoming effective
• The Contracting Officer is responsible for acting in the best interest of the Federal Government, aka the taxpayer
• There is a process to follow to request a change to a contract
• Changes may originate from either the government or the contractor

When a Change Order originates from the contractor, the contractor can make an informal request for change. Normally, the Government’s Standard Form 30 is used to formalize the change request. Other formats can be used to request a change as well, depending on the situation. The criteria in the body of a Change Order is straight-forward. Normally the contractor needs to:

1. Describe the problem
2. Provide details on the aspects of the problem and the impact to the contract
3. Provide background on the problem, how, when, what where and why the problem exists
4. Provide a solution
5. Provide the cost and/or schedule impact of the solution (it is important that this is done in a format that the government requires and understands)

Once a Change Order is approved, the Contracting Officer will execute a Contract Modification to have the Change Order integrated into the contract. The Contract Modification will include any additional funding necessary to execute the change and any Period of Performance Change necessary. This becomes the new binding contract, so it is imperative that you have accurately vetted the change, and the cost and schedule implications. You must also perform a Risk Analysis to ensure that you are aware of all the risks and have included them in your cost and schedule calculations.

It is vitally important that you use the Change Order tool to your advantage. When working a Change Order, you must remember that you are going “above and beyond” the original contract attempting to solve a problem, yet you are still within the general scope of the contract. So, in essence, you are doing them a favor by solving the government’s problem for them.

In your request, you should make sure that this proposed solution is profitable to your firm as well as to the Federal Government.

If you receive a Change Order unilaterally from the government, be sure that you discuss the equitable adjustment before you begin the work; it is much easier to negotiate before you start work. Once the work is started or completed, you have much less leverage.

Let’s go back to our example at the beginning of this blog. The contractor in this example researched the market at the time of performance to find suppliers that could supply the material within the proposed price (but could not find one). The quotes that were used in the proposal were no longer valid, some companies had changed business directions, or were no longer in service. To resolve the issue, the contractor solicited help from a contract administration/management consultant and initiated a Change Order for the materials price increase.

After verification of the Change Order by the Contracting Officer, the government team approved the price increase and added additional funds to the contract. Problem solved.

Contract changes are a valuable tool in the Federal Government procurement field. All firms, including small and medium-sized businesses (as well as large businesses), need to be aware of how to use this tool effectively. Most savvy government contractors use this tool regularly, and simply put; it is the way the game is played.

ReliAscent has over 170 years of contract management experience with government contracts and has the expertise to help a business navigate through the maze of regulations to make this happen. Contact our experts today, to learn more.