The Do’s and Don’ts of Government Construction Contracts
Or David Letterman’s Top Ten Traps for the Unwary
Joseph C. Kovars, Esq.
Ober|Kaler
100 Light Street
Baltimore, MD 21202
jckovars@ober.com | 410.347.7343
Barbara G. Werther, Esq.
Ober|Kaler
1401 H Street, N.W.
Washington, DC 2005
bwerther@ober.com | 202.326.5015
www.ober.com
Top Ten Traps
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Authority to bind the Government
Funding of contract—Anti-Deficiency Act
Recognizing constructive changes
Notice requirements
Bilateral modification releases
Documentation: letter in/letter out
Updating schedules
Cure notices/show cause
Claim certification
False claims
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Federal Acquisition Regulation (FAR)
 Provides uniform policies and procedures for
acquisitions by Federal Gov’t agencies
 Parts 1-51 are policies and instructions
 Part 52 is standard form clauses
 Part 53 is forms
 FAR clauses apply to the extent they are
incorporated into the contract, either full text or by
reference.
 The Christian Doctrine
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Procurement Methods for Construction
 Sealed bidding – FAR Part 14
 Only used where price is sole basis for award
 Contracting by Negotiation – FAR Part 15
 Used when factors other than price are
considered
 Used for “Best Value” procurements
 “Negotiation” is a term of art – its not a real
negotiation!
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Sealed Bidding
 Invitation for Bid (IFB) is used
 Bids are publicly opened
 Award goes to lowest price, responsive bid by a
responsible bidder
 “Responsive” bid means complies in every respect
with the requirements of the IFB (FAR 14.404-2)
 “Responsible” bidder refers to financial resources,
integrity, organization and skills, ability to meet
schedule, and past performance (FAR Part 9.1)
 Firm, fixed-price contract results.
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Contracting By Negotiation
 Request for Proposals is used (RFP)
 Tradeoff between price and other factors (Best
Value)
 Evaluation factors and significant sub-factors must
be clearly stated (Section M of RFP)
 Must state whether all other factors are more
important, less important or equally important as
price
 Separate technical and price proposals submitted
(separate volumes)
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Contracting By Negotiation - 2
 Technical evaluation by technical team
 Price evaluation by price team
 Technical & price kept separate until final selection
decision
 Oral presentations can be used
 Can typically award on basis of initial proposals
without “discussions”
 Or can hold “discussions”, followed by BAFO
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Contracting By Negotiation - 3
 If discussions are held with one offeror, must hold
discussions with all within competitive range
 Discussions must indicate deficiencies, significant
weaknesses and adverse past performance
information
 Exceptions may be taken, but are risky
 Additional features and enhancements may be
offered
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Contracting By Negotiation - 3
 Debriefing of unsuccessful offerors available on
request
 When to protest?
 What’s the likelihood of winning a protest?
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Funding – Anti-Deficiency Act
Procurements are funded through appropriations.
The appropriation is listed on the contract form;
should be checked.
Anti-Deficiency Act prohibits: Making or authorizing
an expenditure or creating or authorizing an
obligation in excess of the amount available in the
appropriation or fund unless authorized by law.
(31 U.S.C. s. 1341(a)(1)(B))
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Funding – Anti-Deficiency Act
Anti-Deficiency Act -- Government’s
representatives cannot make any payment or a
commitment to make payment for work unless there
are sufficient funds “in the bank” (in the
appropriation) to cover the cost in full.
What does this mean in terms of the multiyear
construction project?
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Funding – Anti-Deficiency Act
Limitation of Funds clause (FAR 52.232-22) - Monitor
costs and notify at 75%. Right to stop work.
Availability of Funds clause (FAR 52.232-19) – “Funds
are not presently available for performance beyond
______. . .” Implied right to stop work.
What happens when the Government runs out of
money and there is no new appropriation?
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Changes
FAR 52.243-4 CHANGES (JUNE 2007)
(a) The Contracting Officer may, at any time, without notice
to the sureties, if any, by written order designated or
indicated to be a change order, make changes in the
work within the general scope of the contract,
including changes -(1) In the specifications (including drawings and designs);
(2) In the method or manner of performance of the work;
(3) In the Government-furnished property or services; or
(4) Directing acceleration in the performance of the work.
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Changes
(b) Any other written or oral order (which, as used in this
paragraph (b), includes direction, instruction,
interpretation, or determination) from the Contracting
Officer that causes a change shall be treated as a
change order under this clause; provided, that the
Contractor gives the Contracting Officer written
notice stating (1) the date, circumstances, and source of
the order and (2) that the Contractor regards the order as
a change order.
(c) Except as provided in this clause, no order, statement, or
conduct of the Contracting Officer shall be treated as a
change under this clause or entitle the Contractor to an
equitable adjustment.
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Changes
(d) If any change under this clause causes an increase or
decrease in the Contractor's cost of, or the time
required for, the performance of any part of the work
under this contract, whether or not changed by any
such order, the Contracting Officer shall make an
equitable adjustment and modify the contract in writing.
However, except for an adjustment based on defective
specifications, no adjustment for any change under
paragraph (b) of this clause shall be made for any
costs incurred more than 20 days before the
Contractor gives written notice as required. In the
case of defective specifications for which the
Government is responsible, the equitable adjustment
shall include any increased cost reasonably incurred by
the Contractor in attempting to comply with the defective 15
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specifications.
Changes
(e) The Contractor must assert its right to an adjustment
under this clause within 30 days after (1) receipt of a
written change order under paragraph (a) of this clause
or (2) the furnishing of a written notice under paragraph
(b) of this clause, by submitting to the Contracting Officer
a written statement describing the general nature and
amount of proposal, unless this period is extended by the
Government. The statement of proposal for adjustment
may be included in the notice under paragraph (b)
above.
(f) No proposal by the Contractor for an equitable
adjustment shall be allowed if asserted after final
payment under this contract.
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Changes
 The contractor is required to perform the changed work as
directed and make claim under the Disputes Clause if not
paid. (Constructive change or dispute over unilateral
amount granted). FAR 52.233-1(i)
 Permissible scope of changes

Drawings and specifications

Method or manner of performance

GFM/GFP

Directed acceleration

Time of performance (nights, weekends)

Place of performance
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Changes
 Types of Changes
» Formal
» Constructive
 Formal/Express Changes
 Directed change or CCD – unilateral from
Government
 Bilateral – supplemental modification to
contract
 Accord and satisfaction
 Reservation of rights
Who may initiate? Either party
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Changes
 Constructive Changes:
 Conduct by C.O. or authorized representative
which has the effect of causing the Contractor to
perform work different from that set forth in the
contract,
 Even when not described or acknowledged as a
change.
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Changes
Elements of a Change
 Direction to do something different from existing
contract
 Within the general scope of the contract
 Issued by C.O. (or duly authorized representative)
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Changes
 What does “within the general scope” of the
contract mean?

No exact formula

99.99% of every change you will ever see.

Prohibition on issuing changes outside the general scope
because significantly different work should be put out for
bid.

Changes beyond general scope are “cardinal changes.”
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Changes

Cardinal change

1965, Wunderlich Constructing Co. v. U.S., Court of
Claims says changes beyond the general scope of
the contract are “cardinal changes”

The number of changes, in and of itself, is not
necessarily a cardinal change

More of the same kind of work (i.e., more asbestos
abatement) not a cardinal change

Direction to build an airstrip when the contract was for
the terminal probably is a cardinal change
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Changes - Authority
Who has authority to issue changes to the Contract?
(FAR 1.603-3(a))
 Only the C.O. (or authorized representative) has
authority to bind the Government and modify the
contract
 Who is the C.O. ?
 What is authority of COTR?, ROICC?, etc.
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Changes - Authority
 The Government is not legally bound by
unauthorized acts or acts of unauthorized agents
 Apparent Authority is NOT AVAILABLE AGAINST
THE GOVERNMENT.
 Contractor’s duty to assure authority behind
direction.
 Don’t be a “Volunteer.”
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Changes - Authority
 When is the Government bound by unauthorized
actions?
 Implied Authority/Course of Conduct
 Ratification
 Equitable Estoppel
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Changes - Authority
Who does not have authority?
 Inspectors
 Contract administrators
Getting confirmation:
If you are “directed” by a Government
representative, send a letter to the C.O. and ask
the C.O. if you are to comply with the directive,
i.e., have the C.O. ratify the “directive.”
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Constructive Changes
 What is a constructive change?
(Subsection (b) of the changes clause)
(1) A directive to the Contractor
(2) Requiring the Contractor to perform additional or
changed work
(3) Contractor relied on the Government direction
and incurred increased cost, added time
(4) Notice given
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Changes - Types of Constructive Changes
1. Interpretation of specifications and drawings
 Ambiguity in the specifications/drawings

Patent vs. latent
 The ambiguity is latent
 The contractor’s interpretation is reasonable
 The Government has a different interpretation
and tells the contractor to perform in accordance
with the Government’s interpretation
 The contractor incurs additional costs by
complying with Government’s interpretation
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Changes - Types of Constructive Changes
2. Inconsistencies between drawings and
specifications
 FAR 52.236-21:
 If only in specifications, or only in drawings,
treat as if mentioned in both places
 In case of difference, specifications govern over
drawings
 If the discrepancy is patent, duty to inquire pre-bid
 If the discrepancy is latent, give notice, segregate
costs
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Changes - Types of Constructive Changes
3. Defective Specification
 The Government warrants the adequacy of its
specifications
 Must be a design specification (implied warranty
on Government under Spearin)
 Specifications contain errors, omissions,
inconsistencies
 Contractor entitled to costs of attempting to
comply and for performing corrective work
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Changes - Types of Constructive Changes
3. Defective Specification
 The Government warrants the adequacy of its
specifications
 Must be a design specification (implied warranty
on Government under Spearin)
 Specifications contain errors, omissions,
inconsistencies
 Contractor entitled to costs of attempting to
comply and for performing corrective work
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Changes - Types of Constructive Changes
 Risk of Specification Problems
 Design Specifications – Government owns risk
 Performance Specifications – Contractor owns
risk
 Mixed Specifications – It depends (analyze in
detail)
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Changes – Types of Constructive Changes
 Risk of Specification Problems (cont’d)
 Design-Build Contracting
 Building Information Modeling (BIM)
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BIM
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Changes - Types of Constructive Changes
4. Inspection and Testing
 Government over-inspection
 Improper or incompetent rejection
 Government directs a change in testing method
or frequency
 More stringent testing procedure than that set
forth in contract
 Interference by Government in unreasonable
inspecting during performance
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Changes - Types of Constructive Changes
5. Changes In The Method And Manner Of
Performance
 Where C.O. insists on a change in the
contractor’s method and manner of performance
of the work
 Contractor can recover the difference in cost
between its method and Government’s
method
 Example – change in planned sequence
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Changes - Types of Constructive Changes
6. Constructive Acceleration
 When Government effectively requires the
contractor to finish earlier than planned
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Changes - Types of Constructive Changes
7. Duties of Cooperation, Not to Hinder
 NTP issued, but contractor not permitted to
construct road to worksite
 Work on railroad tracks can only be performed
with Owner’s flagmen and at night, but no
flagmen work at night
 C.O. withheld design fix from contractor and
charged contractor LDs for not finishing “on time”
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Changes - Types of Constructive Changes
8. Cumulative Impact
 Combined impact of a large number of changes
 Ripple effect
Note: Low rate of success in cases. Measurement
of damages is “amorphous.”
 Be careful when signing modifications
 Bell BCI v. United States (Fed. Cir. 2009)
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Changes
Notice Requirements
 Notice must be timely
 Notice must be in writing
 Notice must be sent to the C.O.
 Notice must set forth the nature of the claim
 Constructive changes– notice relates back 20
days, as to costs incurred
 No time limit for defective specifications
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Changes
 Exceptions to Strict Notice Requirements
(1) Where the Government knew about the basis of the claim
* Actual knowledge can be shown from Government records
*
*
*
Presence of Government personnel on jobsite
Acts of Government in working with contractor to address
issue
Meetings
(2) Where the Government considers the claim on the
merits without complaining about lack of notice
(3) Where the Government is not prejudiced by the lack of
notice
*
Government has burden of proving it was prejudiced
*
Prejudice occurs if Government cannot mitigate expense
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Changes
 Contractor Duty to Proceed
 The Contractor must perform the changed work
– C.O. can terminate contract for default if contractor does not
proceed
– Disputes Clause: Contractor can submit its claim

Equitable Adjustment
 Price:
– Bruce Construction v. U.S., 324 F.2d 516 (Ct. Cl. 1963) – “keep [a]
contractor whole when the Government modifies the contract.”
– “Actual, reasonable cost” ordinarily incurred because of the change
» Actual cost plus reasonable OH + P
– May include costs incurred for affected work areas not changed

Time
 If the change order implicates work on the critical path, additional
time may be required
The Request for Equitable adjustment (REA)
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Delays & Suspension
Types of delays
 Excusable, Compensable, Unexcused
 Special Cases:
–Sovereign vs. contractual acts;
–Subcontractors & suppliers;
–Bankruptcy & financial inability (unless
Government caused)
 Compensable Special Case:
–Differing Site Conditions
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Delays & Acceleration
 Concurrent delays – burden on claiming party to
untangle
 Net effect : excusable delay; no damages
recoverable by either party
 Requires two delays on critical path
 Highly fact intensive
 The “Hurry Up and Wait” problem
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Delays & Acceleration
 Notice requirements:
 10 days. Prejudice rule.
 Boards believe in contemporaneous records.
 Right to early completion – conceptually accepted,
but difficult to prove.
 Schedule must be realistic and relied upon
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Delays & Acceleration
 Proving Delay Claims
 Sophistication of Boards and Court of Claims for
delay claims
 CPM schedule is normal basis of proof
 Some cases even say hard to imagine proving
claim without CPM analysis
 Sophisticated in review/analysis of CPM
presentations



TIA/Windows
Impacted as planned,
Collapsed as built,
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Delays & Acceleration
 Important to use contemporaneous schedules and
updates.
 Have solid schedule as early as possible
 Update it accurately and honestly.
 Will have to live with project schedule for claims
purposes
 If Government restricts updates, create shadow
schedule
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Delays & Acceleration
 Acceleration
 Well recognized doctrine
 Actual and constructive
 Constructive – effect of requiring acceleration
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Terminations
 Terminations for Default – FAR 52.249-10
 Draconian – a “forfeiture” - disfavored
 High standard of proof
 Default termination is discretionary with C.O.
 Improper default termination is converted to a T
for C
 High stakes – a dispute is “winner take all”
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Terminations
 Terminations for Default (cont.)
 If default sticks, the government recovers its reprocurement costs from the defaulted contractor
 And, any other rights available to the
Government, such as LDs
 Burden of proof is on the Government to show,
by a preponderance of the evidence, that the
default termination was proper.
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Terminations
 Grounds for Default Termination
A. Failure to complete the work within the time for
the contract or any extension.
B. “Failure to make progress”
C. Repudiation by the contractor
D. Contractor’s failure to perform its obligations
under the contract
E. Failure to provide adequate assurances that
performance will proceed
F. Failure to continue performance during a dispute
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Terminations
 Cure Notice (or Show Cause) FAR 49.402-3(e)
 Required in supply contracts
 Not required in construction contracts
 But, Government often issues cure notice
 Take this very seriously
 Provide adequate assurances
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Claims and Disputes
Contract Disputes Act
 Basic statute governing claims
 Established claims process and forums for
disputes
 Initiation of claim – submitted to CO, request
Final Decision
 Definition of “claim”

written assertion,

matter of right,

payment of sum certain
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Claims and Disputes
 Must be Certified if over $100,000
 Final Decision is prerequisite to appeal/litigation

Final Decision must be provided in 60 days

Unless it isn’t – can specify a longer period (usually
60 more)

May consider claim as deemed denied” if not timely
issued
 Interest from date of certification
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Claims and Disputes
Certification Requirement
 Classic trap for unwary
 Made by authorized person who can bind the
company
 “Claim made in good faith”
 “Supporting data are accurate and complete to
the best of my knowledge and belief”
 “Amount requested accurately reflects the
adjustment for which the contractor believes the
Government to be liable”
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Claims and Disputes
 Under penalty of perjury
 False Claims Act liability – criminal and civil,
company and personal
 Subcontractor issues – want subcontractor to
certify to you
 Even if the sub does so, need to do due
diligence independently,
 Can’t rely blindly on sub certification.
 Pass thru agreements-- need to remain liable to
sub for what sub is claiming.
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Claims and Disputes
 Appealing Contractor Performance Evaluation Todd
Construction v. U. S., 656 F.3d 1306 (Fed. Cir.
2011)
 Pre-Todd Rule: Unsatisfactory performance
evaluations not appealable.
 Post-Todd contractor may appeal UNSAT because
it is a claim “relating to the performance under the
contract.”
 To obtain judicial review, must comply with CDA
claim certification requirements.
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Recovering Costs from the Government
 Field overhead
 Can recover as percentage adder to direct costs,
or as extended, time-related cost.
 Not both, and only consistent with general
treatment.
 This generally means go with percentage
markup.
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Recovering Costs from the Government
Unabsorbed home office overhead – Eichleay Formula
 So many restrictions that generally not worth the
trouble any longer
 Among other things, requires essentially
complete standby situation, and showing
impracticable to take on replacement work
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False Claims
False Statements Act, 18 U.S.C. 1001
False Claims Act, 3729 (a)(1) and (a)(2)
 (a)(1) imposes contractor liability for knowingly
presenting, or causing to be presented, false claims
 (a)(2) imposes contractor liability knowingly using
false records or statements to obtain payment for
false claims.
Numerous Other Fraud/Falsification Statutes &
Penalties
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False Claims
MAIN ELEMENTS:
 A claim for payment submitted to the
Government
 Falsity (claim itself or records supporting)
 Knowing conduct
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False Claims
CLAIMS:
 Requests for progress payments
 Request for final payment
 Requests for Equitable Adjustments and Claims
 Statements Regarding the Quality of the Work
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False Claims
FALSITY:
 Does the Contractor’s Conduct Comport With Its
Contractual, Regulatory, and Statutory
Obligations
 Invoice misrepresenting quantity installed
 Invoice seeking payment for non-conforming work
 False certification of payment of Davis Bacon Act
wages
– Payment and/or proper classification of workers
 REA’s with factual misrepresentations.
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False Claims
Knowing Conduct:
 Did Contractor have:

actual knowledge of the falsity,
 deliberately ignore the truth or falsity of the
information, or
 act in reckless disregard of the truth or falsity of the
information
 Did the Government have prior knowledge of the
facts allegedly constituting a false claim?
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False Claims
OTHER EXAMPLES:
 False certifications of compliance with the
contract requirements
 Representations of timely payment to
subcontractors
 Billing amounts not intending to pay subs
 Seeking or obtaining payment for work the
Contractor knows does not conform to the
contract requirements
 Inflated quantities in an invoice
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False Claims
Daewoo v. United States
 Forfeiture of affirmative claim due to fraud
 $65 M claim became $50 M adverse judgment
 Affirmed on appeal
 Numerous mistakes -- Unclear consequences
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Ethics/Compliance
BASIC ELEMENTS:

Written code of business ethics and code of conduct

Internal audit of company policies, procedures and
controls

Mechanism for anonymous reporting of violations

Compliance/ethics education program for employees

Enforce disciplinary actions for violations

Cooperation with government investigations
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Ethics/Compliance
Mandatory Disclosure Rule (FAR 52.203-13)
• Contractor shall timely disclose in writing to OIG
and CO, when credible evidence that the
Contractor has:
•
Committed a violation of Federal criminal law (fraud,
bribery, gratuities, conflict of interest);
•
Committed a violation of the civil False Claims Act; or
•
Obtained a significant overpayment from the
Government.
• Duty continues for 3 years following final payment.
• Failure to make required disclosure is grounds for
debarment. FAR 3.1003
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Ethics and Conduct Requirements
FAR 52.203-13 requires Contractors (except
commercial item contracts and small businesses:
 Have a written code of ethics and conduct;
 Exercise due diligence to prevent and detect
criminal conduct
 Encourage ethical conduct and promote a
culture of ethical compliance
 Implement “ongoing business ethics awareness
and compliance program”
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Ethics/Compliance
Procurement Integrity Act and FAR 52.203-14 require
Contractors to “exercise due diligence” to ensure that
no employee gains an unfair competitive advantage
by possessing:
 Proprietary information obtained from a
government official without permission, or
 Source selection information that is not available
to all competitors.
 In the event of an OCI or PCI, Contractor must
disclose to the Government.
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Ethics/Compliance
Strategy to Mitigate OCI/PCI Risks:





Develop a comprehensive plan that includes detection,
mitigation and removal of conflicts of interest.
Screen employees and acquisition targets for OCI and
PCI risks and avoid acquiring/hiring them, if possible.
Assign a senior ranking individual as compliance officer
for the firm
Assess OCI and PCI risks periodically
Prepare OCI and PCI disclosures when necessary.
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Questions?
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