Column: Want to Get Paid for a Change? Avoid this Common Mistake

      For government contractors, change is part of the job. An agency’s needs often evolve during the course of contract performance. What began as a small project may grow with the addition of a program, requirement or personnel. Or, what was going to be an aluminum fence may be changed to steel once the customer weighs in. Similarly, it is not uncommon for a government employee, such as the contract specialist, to tell a contractor that it may perform in a manner that differs from the terms of the statement of work.

      Changes occur in every type of contract and in every industry. The common denominator is that changes almost always impact costs. And, if a contractor fails to obtain written direction from the contracting officer for the change, it will likely have an uphill battle when it comes to getting paid.

Constructive Change

      A change that results in the contractor performing additional work or deviating from the strict terms of the contract without a contract modification or change order is known as a constructive change.

      It is understandable that a contractor would agree to move forward without receiving a change order or negotiating a contract modification. The contractor wants to keep the customer happy, and it wants positive performance evaluations. However, performing additional work or changes without written direction from the contracting officer is risky. Without a change order, modification, or some other form of written direction from the contracting officer, it is extremely difficult for a contractor to prove that it is entitled to payment. As such, when the contractor tries to get paid, the agency may reject the purportedly non-conforming work. Or, the agency may reject an invoice for additional work, asserting it was unauthorized.

      For a contractor that acted in good faith, the natural question is, how can the government get my work for free? If the contract specialist, contracting officer’s representative, program manager, or other government employee told me to perform, what is the roadblock to payment?

      The short answer is authority. As indicated above, written direction from the contracting officer—be it in a modification, a change order, or even an email—is an essential element to recovering additional time and compensation associated with a constructive change. This requirement is rooted in basic principles of contract law.

Binding contracts

      Namely, to recover for a constructive change, there must be a binding contract between the contractor and the government. There are four requirements to create a binding contract: (1) mutuality of intent to contract; (2) lack of ambiguity in offer and acceptance; (3) consideration; and (4) a government representative having actual authority to bind the United States in contract.

      The fourth requirement is relevant here, as, in most cases, contracting officers are the only government employees who have the authority to bind the government to contract actions and modifications. If a contractor follows the direction of a contracting officer’s representative, contract specialist or other agency employee, and the contracting officer did not delegate the required authority to that employee, the contractor is at risk.

Burden of proof

      Having evidence of the contracting officer directing or requesting the additional work becomes critical when the agency disputes that the direction or request occurred. In such a situation, instead of he-said, she-said, it becomes a matter of contractor-said, contracting officer-said. And, because the burden to prove entitlement falls on the contractor, the lack of written evidence can torpedo the contractor’s claim for payment.

      What does this mean for a contractor? Before performing additional work or agreeing to perform in a manner that differs from the terms of the contract, a contractor should always obtain written direction from the contracting officer. Without taking this step, the contractor is at risk of being denied payment, or even having its work rejected.

Ratifications

      Of course, hindsight is 20/20. As noted above, performing additional work without written authorization from the contracting officer is a common mistake, and you may be wondering what options are available if you have already performed under such circumstances.

      While a contractor likely will face an uphill battle to be reimbursed for the costs it incurs, there are arguments that can be made to justify payment in either a request for equitable adjustment or a claim under the Contract Disputes Act.

      One of these arguments is ratification, either express ratification, implied ratification, or institutional ratification. The government may expressly ratify a previously unauthorized act if a government employee with the required authority approves the previously unauthorized act. Put another way, if the contracting officer agrees to a modification after the fact, the change is ratified.

      Implied ratification occurs when a government employee with the required authority had knowledge of the unauthorized act when it occurred and accepted the benefits stemming from it. For example, a contractor may be able to show that a contracting officer implicitly ratified the direction received from a contract specialist if the contracting officer was copied on emails discussing the direction and was aware that the work was performed. The key to this legal theory is showing that the contracting officer was aware of the material facts concerning the change and that the contracting officer accepted the work. A contracting officer’s failure to object is insufficient.

      Institutional ratification is similar to implied ratification, but the contractor need not show that the contracting officer accepted the benefit of the additional or changed work. Instead, institutional ratification requires showing that individuals empowered to bind the government, such as a senior agency official, provided the direction to the contractor. Because the individual must have the authority to bind the government, the government employee must be a senior official with significant authority.

      Implied authority is an additional argument available to a contractor that performed work without written authorization. A contractor may be able to recover compensation under a theory of implied authority if it can show that the agency employee who provided the direction was acting under the auspices of the contracting officer. For example, in one case, a project officer with the authority to certify payment vouchers, receive progress report letters, and perform inspections was found to have implied authority to order a change when expeditious action was required. To succeed with this argument, the contractor must show that the act in question was integral to the employee’s assigned duties.

      Simply said, performing without written direction from the contracting officer means you are performing at risk. Contractors should use their best efforts to obtain written direction from the contracting officer before proceeding. One of the most common issues we see when a client engages us to prepare a request for equitable adjustment or a claim is a lack of written direction from the contracting officer. You can avoid that problem if you obtain written direction at the outset. Nonetheless, if a contractor performs work at risk, there are arguments that can be made in a request for equitable adjustment or claim to show that the contractor is entitled to payment.

Michelle Litteken is an attorney with PilieroMazza and is a member of the Government Contracts Group. She may be reached at mlitteken@pilieromazza.com.

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Column: Want to Get Paid for a Change? Avoid this Common Mistake

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