|April 1, 2013|
Previously published on March 26, 2013
The question of whether to submit a Request for an Equitable Adjustment, commonly referred to as an “REA,” or a claim, is one that clients ask on a frequent basis. It is not always an easy question to answer and our advice depends upon the history of the dispute, and the nature of the relationship with the Contracting Officer and his, or her, representatives. At the outset, however, it is necessary to clear up the confusion between the terms “REA” and “Claim.”
A claim is defined in FAR § 2.101 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 the contract. However, a written demand or written assertion by the contractor seeking the payment of money exceeding $100,000 is not a claim under the Contract Disputes Act of 1978 until certified as required by the Act.” Although the term “equitable adjustment” appears in the FAR in 111 places, and the term “request for equitable adjustment” appears in 11 places, there is no official definition, in the FAR or anywhere else, of the terms “Request for Equitable Adjustment” or “REA.” Nevertheless, an REA is commonly understood to be a request for compensation (time, money, or both) that falls short of a claim in terms of its procedural requirements.
A “Claim” must be certified pursuant to FAR § 33.207(c) when the claim amount exceeds $100,000, and it must be submitted to the Contracting Officer in a manner that clearly provides the factual, technical, and legal basis for an equitable adjustment to the contract. Whether the claim exceeds $100,000 or not, the best practice is to identify the request as a claim under the Contract Disputes Act of 1978, 41 U.S.C. 601-613, together with a request for a Contracting Officer’s Decision. Those procedural steps will assure that the clock starts running on the 60 day time limit for the issuance of a decision (or longer under some circumstances), and it further assures that interest starts to run from the date the claim was submitted. An REA does not require a certification under the Contract Disputes Act, but REAs submitted to Department of Defense agencies require the certification found in DFARS 252.243-7002.
There are a number of clauses that allow an equitable adjustment to the contract if the government is responsible for additional costs, or time, and the most significant clauses are: Variation in Estimated Quantity, FAR 52.211-18, Differing Site Conditions, FAR 52.236-2, Suspension of Work, FAR 52.242-14, Changes - Fixed-Price, FAR 52.243-1, and Termination for Convenience, FAR 52.249-2. In general terms, an equitable adjustment means that the contractor is entitled to his actual costs, plus reasonable profit (except for suspensions), overhead, and bond. It is also important to note that the additional costs must be allowable, allocable, and reasonable.
With that brief background, there are some practical considerations about whether to file an REA or a claim. If the contractor has a good working relationship with the agency, and particularly with the government personnel assigned to the project at hand, an REA is usually the best way to begin. This is particularly true when the government has indicated flexibility on the issue and a willingness to reach an amicable resolution. On the other hand, if there is animosity, or a clear indication in prior discussions and correspondence, that the government does not believe that the contractor is entitled to an equitable adjustment, it is best to file a claim. Unlike an REA, a claim starts the clock ticking on the time when the Contacting Officer must issue a decision (there is no time limit on an REA), and interest begins to run. It should be noted, however, that in cases where there is doubt, there is no harm in starting out with an REA. If progress is not made within a reasonable time, an REA can easily be converted to a claim under the Contract Disputes Act.