Preventing Constructive Changes
and Unauthorized Commitments
Michelle Currier, Professor, Defense Acquisition
University
Friday, December 10, 2010
3:30pm
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A Change?
Suddenly, a heated
exchange took place
between the king and the
moat contractor
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Terminology
• Constructive Change: Oral or written
act or failure to act by Government
official (in position of authority)
construed by contractor as having
same effect as a written change order
(existing contract)
• Unauthorized Commitment: An
agreement that is not binding solely
because the government
representative who made it lacked the
authority to enter into that agreement
on behalf of the government (whether
a contract exists or not)
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Constructive Change
• Oral or written act, or failure to act, by
Government official construed by contractor as
having same effect as a written change order.
That is a contract change without formal written
authority. The Government official had “implied”
authority to make a change.
• It occurs when there is a
– Change in performance beyond the minimum
contract requirements, and
– Word or deed by Government representative
which requires contractor effort that is not a
necessary part of the contract
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Causes of Constructive
Changes
•
•
•
•
•
•
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Inadequate or defective requirements documents
Improperly interpreted specifications
Overly strict inspection
Failure to recognize Government caused delays
Improper technical direction
Acceleration of contract performance to finish
sooner than what is stated in the contract schedule
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Unauthorized
Commitment
•
An agreement that is not binding solely because
the Government representative who made it
lacked the authority to enter into that agreement
on behalf of the government (both existing or no
contract).
•
Individual making the agreement is perceived to
have “apparent” authority.
FAR 1.602-3
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Causes of Unauthorized
Commitments
• Direction by individual with “apparent” authority
– to begin work without contractual vehicle and/or
funding in place.
– To make changes outside the scope of the
contract
– To “correct” inadequate or defective
requirements that cause effort outside scope of
contract
– To improperly interpret specifications
– To fail to act on Government caused delays
– To provide improper technical direction
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Summarize Types of Authority
EXPRESS AUTHORITY
(Written)
APPARENT AUTHORITY
DOES NOT EXIST IN
THE GOVERNMENT
Warrant is issued to CO and ACO
and
COR has the authority to
authorize the payment
of invoices.
IMPLIED AUTHORITY
(Unwritten)
COR has the authority
to return an improper
invoice.
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Contract Modifications
Only Contracting Officers acting within the scope
of their authority (i.e. Warrant) are empowered to
execute contract changes through modifications.
Other Government personnel shall not (FAR
43.102):
• Execute contract modifications
• Act in such a manner as to cause the
contractor to believe that they have
authority to bind the Government
• Direct or encourage the contractor to
perform work that should be the subject of
a contract modification
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Change Order
FAR 43.2
• Written order signed by Contracting Officer
directing contractor to make a change
without prior agreement
• Authorized by the “Changes Clause” under
non-commercial efforts
• Limitations to Changes
• Contractor must continue performance, as
changed
• Creates “undefinitized” Government liability
& Contractor may be entitled to equitable
adjustment
• Definitization schedule must be established
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Changes Clause
Limitations to things that can be changed
with no prior approval under Changes
Clause. Must be executed by the
Contracting Officer.
• Services
• Supplies
– Changes to drawings,
– Description of services
design or specification
to be performed
– Method of shipping or
– Time of performance
packing
(hours of day or days
of week)
– Place of delivery
– Place of performance
of services
52.243-7
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CARDINAL CHANGE
• Change beyond scope of contemplated work
• Contractor can decline the change if they believe it
is outside the scope of the contract
• May require a sole source justification & approval
to go forward with the change
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Who Has Authority to Make
Changes?
• Contracting Officer (CO) – a person with the
authority to enter into, administer, and/or terminate
contracts and make related determinations and
findings. CO’s receive from their appointing
authority clear instructions in writing regarding the
limits of their authority i.e. a “warrant”.
• Administrative Contracting Officer (ACO) – an
authorized representative of the contracting officer
acting within the limits of their authority, as
delegated by the CO. An ACO is a contracting
officer who is administering a contract in
accordance with FAR 42.302 and CO delegation
direction. Also holds a warrant. Typically resides
at DCMA or contractor location.
FAR 1.6, 2.101, 42.302
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Who Does Not Have Authority to
Make Contract Changes?
• Contracting Officer’s Representative (COR) – has
specific authority from the CO which is provided in
a written delegation letter. Responsible for
specific administrative functions. COR’s key role
is to observe, document and communicate
contractor performance to the CO. Does not have
any “warrant” authority.
• Anyone who does not hold a warrant.
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Contractor
Responsibilities
Notification of Contract Changes (52.243-7)
•
Requires a contractor to notify the Government in
writing as soon a possible when that contractor
considers that the Government has effected or may
effect a change in the contract that has not been
identified as such in writing and signed by the
contracting officer.
** In plain language – the contractor has a responsibility
to notify the contracting officer when Government
conduct appears to drive a change to the contract
(in and out of scope).
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Avoiding Constructive Changes &
Unauthorized Commitments
• Careful preparation of the initial contract
documents by removing ambiguities and
inconsistencies
• Clearly know what the contract requires – what
does the contract say, not what it ought to say
• Keep good records – documentation can eliminate
misunderstanding
• Always act in good faith and follow the correct
procedures
• Communicate with your Contracting Officer –
when in doubt – ask the question!
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Recognizing a Constructive
Change
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•
Most constructive changes are within the scope
of the contract, therefore execution of a
contract modification setting forth the change is
required to recognize the change and work
performed.
•
If the constructive change caused a financial
impact, the contracting officer must negotiate
an equitable price adjustment to the contract
price.
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Preventing Unauthorized
Commitments
Ensure all personnel involved with contract
– know that the Contracting Officer, or a
designated ACO, is the sole authority for
making changes to the contract.
– know you do not have contractual or
purchasing authority (if not a CO/ACO)
**If an action is not ratified, the individual
responsible for an unauthorized commitment
may be held personally accountable for
restitution to the vendor
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STATEMENT of LIMITITATION of
AUTHORITY
STATEMENT of LIMITATION of AUTHORITY
You are hereby notified that I DO NOT have the authority
to direct you in any way to alter your contractual obligation.
Further, if the Government, as a result of the information
obtained from today’s discussion DOES desire to alter your
requirements, changes will be issued in writing and signed by
the contracting officer. You should take no action on any
change unless and until you receive such a contract
modification.
STATEMENT of LIMIT
You are hereby notified that I
DO NOT have the authority to
direct you in any way to alter
your contractual obligation.
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Staying “In Scope” of the
Contract
When analyzing the “scope” of a proposed or
potential change consider whether:
– Function of the item or service has changed
– Basic contract purpose has changed
– Dollar value of the change is proportionate to
the price of the original contract
– Competitive factors are still the same
– Specifications or SOW changes are extensive
– Reasonably contemplated by the parties
– Cumulative effect of all changes on the contract
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How to Determine What is in
“Scope”
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What is to be done under the contract?
What are the deliverables?
Who is going to do it?
When is it going to be done?
How will it be done?
How will you know when it is done?
How much will it cost?
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Changes to Contract
Requirements
• Will changes to the requirements result in:
– Increase in Scope or Additive Change:
increased effort that results in an increase in
the price of the contract
– Decrease in Scope or Deductive Change:
effort that has not been completed is deleted,
resulting in a decrease in contract price
– Substitutions: work, technology or brands are
deleted and added resulting in a debit and
credit to the contract price
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Case Law on Scope
Air-A-Plane Corp. v. U.S., 408 F.2d 1030 (1969)
“The basic standard… is whether the modified
job was essentially the same work as the parties
bargained for when the contract was
awarded. Plaintiff has no right to complain if the
project it ultimately constructed was essentially the
same as the one it contracted to
construct. Conversely, there is a cardinal change
if the ordered deviations altered the nature of the
thing to be constructed. Each case must be
analyzed on its own facts and in light of its own
circumstances, giving just consideration to the
magnitude and quality of the changes ordered and
their cumulative effect upon the project as a
whole.”
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What Happens Next?
RATIFICATION
OR
RECOGNITION
OF IMPROPER
ACTION
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Ratification of an Unauthorized
Commitment
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•
The FAR defines ratification as the act of approving an
unauthorized commitment by an official who has the
authority to do so. (FAR 1.602-3)
– The Head of the Contracting Activity (HCA) is
required to ratify an unauthorized commitment.
This authority can be delegated no lower than the
Chief of the Contracting Office (CCO).
•
NAVAIR Instruction 4200.52 (16 Sep 04) delegates the
ratification authority from the HCA (AIR-00) to:
– Headquarters: Assistant Commander for Contracts
(AIR-2.0) who is the CCO for NAVAIR
Headquarters.
– NAWC: CCO for the business units subject to
specific dollar limitations contained within the
Instruction
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Requirements For
Ratification
Ratification may only occur when (FAR 1.602-3):
•
The supplies/services have been provided to and
accepted by the Government, or the Government
has otherwise received a benefit from
performance of the action
•
The ratifying official has authority to enter into a
contractual commitment
•
The resulting contract would otherwise have been
proper if made by an appropriate contracting
officer
•
The contracting officer determines the price to be
fair and reasonable
•
Funds are available and were available at the
time the unauthorized commitment was made
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Determination & Finding
KO completes D&F stating:
– Commitment was not made to evade normal
statutes/regulations
– Result of urgent requirement or mistake of fact by
government personnel
– Contractor “reasonably” relied on apparent authority
– Contractor has no other remedy to obtain relief
– Contract would otherwise be proper i.e. funds
available, legitimate requirement, etc.
– Price was fair & reasonable
– KO recommendation to ratifying official
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SUMMARY
Two kinds of changes to avoid!
•
•
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Constructive Change: Oral or written act or failure to act
by Government official (in position of authority)
construed by contractor as having same effect as a
written change order (existing contract)
Unauthorized Commitment: An agreement that is not
binding solely because the government representative
who made it lacked the authority to enter into that
agreement on behalf of the government (both existing
or no contract)
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SUMMARY
• Know your contract!
• Know the limits of your
authority!
• Document meetings and
critical conversations!
• When in doubt – ask your
Contracting Officer!
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SUMMARY
Case Studies &
Examples
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Additional Examples
Trade Studies
• E-mail request to continue work on trade
studies even though the contract period of
performance had expired, but pending final
approval by management
Analysis: Constructive Change = performing
work without proper authority
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Additional Examples
Control Panel
• Requirement is for control panel with 36 switches
• Contractor proposed legacy panel with 36 hardwired
switches – awarded contract
• In execution, Government wants 36 pushbutton
switches with two levels
• Difference in types of switches
Analysis: Constructive Change = changing negotiated
requirements during contract implementation
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Additional Examples
Aircraft fuel tanks
• Requirement is for fuel tanks that hold “X”
quantity of fuel
• Contractor proposed heritage design of welded
tanks with seams
• Inspector believes they will leak and is requiring
tanks with smooth welds
• Smooth vs. welded seams
Analysis: Constructive Change = negotiated
requirements should prevail; unless the contractor is
not meeting contractual requirements
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