As any contractor knows, there is no amount of preparation that can ensure a project goes exactly as planned. And unfortunately, when the unexpected happens, contractors may face increased costs, schedule delays, and other obstacles outside of their control. A request for equitable adjustment (or REA) affords contractors the opportunity to seek compensation or additional time for unforeseen conditions. This post will explore REAs and when to consider using such an approach.
What is a Request for Equitable Adjustment?
A request for equitable adjustment is commonly referred to as an REA. Despite the FAR providing no explicit definition for an REA, one appellate court has defined an REA as “a remedy payable only when unforeseen or unintended circumstances, such as government modification of the contract, differing site conditions, defective or late-delivered government property or issuance of a stop work order, cause an increase in contract performance costs.” Reflectone, Inc. v. Dalton, 60 F.3d 1572, 1577 (Fed. Cir. 1995). Thus, as the name suggests, the contractor is requesting the government provide an equitable adjustment to the contract price in accordance with the unexpected changes. This allows the contractor the ability to remain whole through reimbursement for the unanticipated increases in costs.
REAs often come into play in government contracts under the administration provisions of a contract. This provision varies based on what is incorporated into the contract, such as the “Changes” clause under FAR 52.243-4 (stating “[i]f any change under this clause causes an increase or decrease in the Contractor’s cost of, or the time required for, the performance . . . , the Contracting Officer shall make an equitable adjustment”), the “Changes and Changed Conditions” clause under FAR 52.243-5, or the “Differing Site Conditions” clause under FAR 52.236-2.
Is there a Difference Between an REA and a Claim?
It is not uncommon for REAs to get mixed up with a formal cost claim, as further discussed in our GovCon FAQs: What is the Difference Between an REA and a Claim?.
One key way to distinguish the two is to note that an REA is merely a request, whereas a claim is defined under FAR 52.233-1 as “. . . a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract.” FAR 52.233-1. When submitting a claim, the contracting officer is required to respond, whereas for an REA, there is no requirement for the contracting officer to respond.
An REA is a more informal process, with courts noting that, “[i]t was the intention of Congress to have disputes resolved at the lowest possible level.” Minesen Co. v. McHugh, 671 F.3d 1332, 1338 (Fed. Cir. 2012). Thus, an REA promotes negotiation with the government instead of litigation.
Benefits of an REA
As discussed in Why File: A Request for Equitable Adjustment, there are several benefits to submitting an REA instead of (or prior to) submitting a formal cost claim. A contracting officer may be more responsive to an REA due to the informality of an REA. Unlike with a claim, the contractor is simply requesting fair compensation. If the contractor wishes to maintain a good relationship with the contracting officer, requesting reimbursement through an REA will likely keep this relationship intact. Whereas, filing a formal cost claim may appear adversarial to the contracting officer.
Additionally, REAs offer the potential to recover attorneys fees. REAs are considered negotiations rather than litigation. Generally, costs in preparing requests for equitable adjustment are considered part of the negotiation process, thus viewed as contract administration costs. And under FAR 31.205-33, contract administration costs are allowable costs. This means that attorney and accounting fees incurred for preparing a request for equitable adjustment can be included in the request and in a later cost claim.
Knowing how to navigate the REA process gives contractors the opportunity to turn unexpected circumstances into recoverable costs in a more informal, less adversarial process than a formal cost claim.
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