If you are a government contractor, odds are you have faced a situation where some aspect of the contract you were performing changed outside of your control, or you ran into something that neither you nor the government expected. As a result, your work requirements likely changed, and with that, your costs likely changed as well. When this happens, there are multiple paths to getting reimbursements for those new costs, and one of the most common ones is a request for equitable adjustment. Today, we’re going to explore when you should submit a request for equitable adjustment as opposed to the other routes.
What is a request for equitable adjustment?
Curiously, as much as it is referenced in the FAR, there is no set definition for “request for equitable adjustment” in the FAR. That said, the appellate court has taken a stab at it: “It is 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). Basically, a request for equitable adjustment is when you ask the government to reimburse you for some unexpected occurrence or issue that has increased your work costs. You are asking the government to make you whole for something that was outside your control. An adjustment made for equitable reasons, so to speak.
A request for equitable adjustment is not the same as a formal cost claim. This is a crucial distinction. There is a specific procedure, located in FAR 52.233-1, to submitting a formal cost claim that requires the contracting officer to respond and that starts the path towards filing an appeal with a board of contract appeals or the Court of Federal Claims (COFC). A request for equitable adjustment does not set those mechanisms (or their corresponding deadlines) into motion. When you submit a request for equitable adjustment, there is no requirement that the contracting officer will respond, nor does a denial of the request allow you to take the matter to the board of contract appeals or COFC. So, with that said, you may ask why even consider filing a request for equitable adjustment at all? There are often good reasons to go that route.
You have a cordial relationship with the agency.
Just because the contracting officer isn’t required to respond to a request for equitable adjustment does not mean a contracting officer won’t respond. For every example of a bad relationship between a contractor and the contracting agency, there are many examples of good relationships. In our experience, it is rare for a contracting officer to not respond to a request for equitable adjustment, even where the relationship isn’t that great. The more informal nature of a request for equitable adjustment, as opposed to a formal cost claim, can be an advantage for the contractor. It comes across as less adversarial (think of the difference between “Could you please” and “I demand”) and so can help preserve a good relationship (or even help mend a strained one) while still getting the whole cost issue sorted. Many contractors go for a request for equitable adjustment before resorting to a formal cost claim for this reason: Why make things any more difficult than they need to be if the contracting agency is on good terms with them?
You want to test the waters of your cost claim.
When you file a formal cost claim, as noted earlier, it sets into motion a formal process in which the contracting officer must make a decision on the claim. When the contracting officer makes a decision on the claim, that is the contracting officer’s final decision. If you do not like the decision, you then have 90 days to take the matter to a board of contract appeals or 1 year to take it to COFC. If you try taking it to a board of contract appeals after 90 days have passed or to COFC over a year later, you will be too late. These two clocks start ticking from the moment you receive the contracting officer’s final decision. You are, essentially, locked in.
On the other hand, if you make a request for equitable adjustment and the contracting officer denies your request for equitable adjustment, no clock starts on bringing the claim to the board of contract appeals or COFC. You can decide to start the formal claim process then by filing a formal cost claim, or you can even just make another request for equitable adjustment. (Keep in mind you should make your initial request for equitable adjustment or at least assert the right to increased payment within 30 days of whatever caused your costs to increase (FAR 52.243-4) and that you must file the request before the contract is closed out). As such, a request for equitable adjustment can let you test the waters of your cost claim and see if there are any major issues with it without starting the formal process.
Attorney fees are potentially recoverable with requests for equitable adjustment, unlike claims.
Requests for equitable adjustment are considered negotiations rather than litigation, and under FAR 31.205-33, contract administration costs are allowable costs. This was the finding in Tip Top Const., Inc. v. Donahoe, 695 F.3d 1276, 1281 (Fed. Cir. 2012). Generally, costs in preparing requests for equitable adjustment are considered part of the negotiation process, and so are considered contract administration costs. That 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. Costs to prepare a formal claim, however, are considered litigation costs. Such costs are not allowable under FAR 31.205-33. So, this can be a great incentive to pursue a request for equitable adjustment instead of a formal cost claim, as there is the potential to get the costs of preparing that request.
Summary
There are many reasons why one might go with a request for equitable adjustment as opposed to a formal cost claim, but the above three are three of the most common reasons we see contractors go that route. It really will depend on the contractor’s situation on which route might be best for them. A request for equitable adjustment may be a great route in some cases, but not in others. We always recommend consulting with a government contracts attorney to discuss the potential options if you are unsure.
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