Section 3 - Changes and Delays

7.12. Principal Changed Conditions Clauses.

7.12.1. Changes Clause. FAR 52.243-4 authorizes the Contracting Officer to make unilateral changes, in designated areas, within the general scope of the contract. The designated areas for construction contracts are: changes in the specifications; method or manner of performance of the work; in the Government-furnished facilities, equipment, materials, services, or site; or directing acceleration in the performance of the work.

7.12.1.1. Any change directed by the Contracting Officer other than those areas authorized by the clause are to be treated as a change order; provided, that the contractor gives the CO written notice in accordance with 52.243-4(b).

7.12.1.2. Contractor requests for equitable adjustment must be received prior to final payment of the contract.

7.12.2. Differing Site Conditions. FAR 52-236-2 authorizes the contractor to seek an equitable adjustment when conditions at the construction site differ from those indicated in the specifications and drawings. There are two general types of differing site conditions that may require a modification to the contract. Contractors may receive either time, money or both as compensation.

7.12.2.1. Type I. This condition exists when the conditions differ from what is shown in the contract. For instance, when a contractor encounters lead paint on a demolition contract that states the paint contains no lead.

7.12.2.2. Type II. This exists when conditions differ from what would normally be encountered in work of the same nature. For example, a contractor discovers an underground fuel storage tank, not shown on the drawings, while performing excavation for a new building.

7.12.3. Contracting Officers should carefully consider whether a contractor took steps to reasonably ascertain the nature and location of the work, and that the other factors listed in the Clauses FAR 52.236-3, Site Investigations and Conditions Affecting the Work and FAR 52.236-4, Physical Data could have discovered or foreseen the condition in question.

7.12.4. Suspension of Work. FAR 52.242.14 allows the Contracting Officer to suspend work for the convenience of the government. It allows the government reasonable time to make decisions, investigate progress, inspect quality, respond to questions, process submittals, revise designs, and perform other contract management activities. The clause allows the contractor to seek an equitable adjustment for increased costs directly attributable to the delay. A suspension of work notice must be in writing, and the contractor must establish that the suspension actually caused the particular increase in cost. Profit is the reward we provide the contractor for assuming performance risk under the contract. Profit is not paid for any suspension of work. Time extensions are not authorized under the Suspension of Work clause. Time extensions can be requested under the Default clause.

7.12.5. Variation in Estimated Quantity Clause. FAR 52.211-18 allows for either party to request an equitable adjustment if the quantity of a unit-priced item varies more than 15 percent above or below the estimated quantity. Any adjustment in price applies only to those quantities outside the 85-115%.

7.12.6. Construction Default Clause. FAR 52.249-10 provides the government the right to terminate when a contractor is in breach of contract. This breach may be actual or anticipatory. Recognizing that even a diligent contractor may encounter unanticipated delays beyond its control, this clause allocates the risk involved with certain delays and provides extensions of contract time to compensate the contractor when appropriate. The clause also allows for time extensions in the event of an excusable delay beyond the fault of the contractor. It provides examples of delays which may arise from causes beyond the control or without the fault of the contractor. To be excused from default under this clause, the contractor must:

7.12.6.1. provide written notice to the Contracting Officer of an excusable delay within 10 days of the beginning of such delay; and

7.12.6.2. establish the delay was, in fact, unforeseeable, beyond the contractors control, the contractor was not at fault or negligent.

7.13. Constructive Changes. A constructive change is a "change by implication" and occurs when the Contracting Officer or other authorized Government personnel, by their actions, changes the contract without specifically adhering to the requirements of the "Changes" clause. Constructive changes can be compensated with time, money or both, usually using the Changes clause as the authority. A constructive change has two elements. The first element is change, it occurs when performance exceeds the minimum contract requirements. The second element is order, and it occurs when the Contracting Officer or their representative, by word or deed, require the contractor to perform beyond the contract requirements. Constructive changes can be divided into four categories which represent the major uses of the constructive changes in administratively resolving claims against the Government.

7.13.1. Disagreements between the parties over the contract requirements. As a result of the Government's misinterpretation of contract provision a contractor is required to perform more or different work, or to higher standard than required by the contract. For example, the contractor asks the government for assistance in devising a method of performing the work, and the Government includes work beyond the contract requirements, or the Government rejects the method of performance selected or used by a contractor even though that method is permitted by the contract.

7.13.2. Defective Specifications. Specifications may be considered defective because of a simple error, inadequate detail, practical impossibility of performance, or a combination of these.

7.13.3. Acceleration. Acceleration is increasing the rate of work above that originally planned. Acceleration can be generated by both the Government and the contractor.

7.13.3.1. Directed Under the Changes Clause FAR 52.243-3. The contracting officer directs the acceleration using FAR 52.243-4, Changes or FAR 52.236-15, Schedules clause. If directing the contractor to "get back on schedule," the contracting officer must be diligent in removing the order when the contractor has caught up. It is recommended that the original acceleration letter contain words to the effect of "once caught up, desist the acceleration."

7.13.3.2. Voluntary. As the name implies, voluntary acceleration is a choice the contractor makes on their behalf; however, the contracting officer can request a voluntary acceleration. Essential points to acknowledge regarding voluntary acceleration are it is for the contractor's benefit, it is not government directed, and it is not compensable. The contracting officer or their representative should address acceleration with the contractor if there is evidence the contractor accelerated work. If the Government is aware of the acceleration and does nothing, essentially the government has agreed to allow the acceleration, and could potentially be held to have constructively accelerated the contractor.

7.13.3.3. Failure of the Government to Cooperate During Performance. The contracting officer and their representatives have an obligation to cooperate with the contractor to achieve the goals of the contract. The question of cooperation in this type of change is whether the government's cooperation was essential to successful performance. Examples of this include when the contractor notifies the government that the site contains debris that was supposed to be removed, and the Government does nothing. Another example is where the government representative has knowledge that work was defective but does not inform the contractor and thereby knowingly permits the performance of a substantial amount of defective work. Another example is where government furnished property is not delivered in a timely manner, and the contracting officer insists the contractor comply with the original schedule.

7.13.3.4. Expediting. The contract completion date of the contract is advanced. Expediting is acceleration, but when a construction project involves the Military Construction Appropriation Act contracting personnel must pay special attention to DFARS 236-270. The contracting officer may approve an expedited completion date if no additional costs are involved.

7.13.4. Mitigating Constructive Changes. There are many steps a Contracting Officer can take to mitigate constructive changes:

7.13.4.1. become familiar with the contractor's contract administration process.

7.13.4.2. Send a letter explaining the duties, authority, and limitations of authority identifying the key players by name and title. Make sure the letter delineates procedures for the contractor to follow if they feel there is a constructive change.

7.13.4.3. After receipt of the progress schedule, hold the pre-construction conference and progress meetings. Keep detailed minutes signed by both parties. Get information from the contractor as to how the work will be done - specific methods, specific equipment, and areas needing special assistance.

7.13.4.4. Include a concluding statement in all correspondence reminding the contractor of the obligation to provide written notice to the contracting officer if a constructive change occurs.

7.13.4.5. Review daily reports, and keep detailed written records.

7.13.4.6. Include a release statement on all modifications.

7.13.5. The Contracting Officer should obtain legal counsel, and request technical advice when notified of a constructive change.

7.14. Types of Delays. There are different types of delays with different compensations and entitlements. A well documented construction schedule is critical to this process in determining whether the contractor is behind schedule or ahead of schedule. Schedule analysis is crucial in determining what caused the delay, what impact the delay had on performance, and the computation of any liquidated damages. There are four types of delays:

7.14.1. Contractor Caused Delays. Delays incurred are because the contractor or subcontractor is at fault/or negligible. The contractor is liable for any additional cost or any resulting increase in performance time. Various recourses are available to the Government if the delays can be attributed to the contractor or their subcontractors. If the contactor does not diligently correct the delays the contractor is at risk for being terminated. If the contractor fails to complete the construction by the contract completion date, the Government can collect liquidated damages.

7.14.2. Government Caused Delays. These delays are the result of the Government acting in its contractual capacity, linking the action directly back to the contracting officer. Examples include a delay in issuing the Notice to Proceed, a delay in making the construction site available, interference with contractor's work, failure to provide timely submittal approval, a delay in the inspection of work, or a delay in processing a modification.

7.14.3. Excusable Delays. These are delays beyond the contractor's control, as outlined in FAR 52.233-1, Default. The contractor bears the financial responsibility of an excusable delay. The contractor is entitled to a time extension if they can show there was a delay to the overall contract.

7.14.4. Concurrent Delays. This delay exists when any combination of the other three delay types occur at the same time. Compensation for a concurrent delay varies, but is generally covered under FAR 52.242-14, Suspension of Work or FAR 52.233-1, Default clause.

7.15. Schedule Analysis. Analyzing various schedules can assist the contracting officer in establishing delays and determining compensation. The types of schedules used in the analysis are:

7.15.1. As-Planned. The as-planned schedule is the period of the contractor's originally approved schedule.

7.15.2. Could Have Been. The could-have-been schedule is calculated as the "as planned" schedule plus any impact caused by the contractor (contractor-caused delay)

7.15.3. Properly Extended. The properly extended schedule is the original contract duration plus any government, excusable, and concurrent delays.

7.15.4. As Built. The as-built schedule represents the actual construction of the project from start to finish, and is calculated as the "as planned" schedule plus contractor, government, excusable, and concurrent delays.

7.15.5. Adjusted. The adjusted schedule is calculated as the "as planned" schedule plus contractor, concurrent, and excusable delays.

7.16. Delay Analysis. The schedules above provide the basis in determining the proper time extension, the number of days of extended overhead and the number of days of liquidated damages applied from the delay. The following equations will assist the contracting officer in determining compensation.

7.16.1. Number of Days Time Extension = (Properly Extended) - (Original Contract Duration).

7.16.2. Number of Days Extended Overhead = (As Built) - (Adjusted)

7.16.3. Number of Days Liquidated Damages = (As Built) - (Properly Extended) or (Could Have Been) - (Original Contract Duration).

7.17. Methods for Computing Overhead. Four methods are commonly used to calculate overhead. However, on occasion they do not compensate the contractor adequately for home office expenses, particularly when there is a suspension of work or government caused delay. In addition to the methods below, the Eichleay Method may be used to calculate the contractor's unabsorbed overhead.

7.17.1. Normal Method (Percent Method). This method computes overhead as a percentage of direct costs. This method uses the approach that if the overhead rate for the original contract can be determined, then that rate can be applied to contract modifications.

7.17.2. Alternate Method. This method computes overhead as a percentage of direct costs, as in the Normal Method. However, this method uses standard percentages rather than performing an analysis of the contractor's indirect costs.

7.17.3. Daily Rate Method (Per-Day Method). This method computes the overhead applicable to a single day of operations. This method is typically used when the modification requires a lengthy time extension.

7.17.4. Fixed & Variable Cost Method. This method computes the variable field overhead cost and the fixed field overhead costs. It is used by contracting personnel with significant experience in dealing with construction contract overhead. It is used in cases where there is both a cost increase and a time extension. This method eliminates the duplication of overhead reimbursement that can occur when applying other methods.