Constructive Changes
A constructive change is sometimes called a "change by implication" and
occurs when the Government, by its actions, changes the contract without
specifically adhering to the requirements of the "Changes" clause. A constructive
change order has been defined as an oral or written act or omission by the
Contracting Officer or other authorized Government official which is of such a
nature that it has the same effect as a formal written change order under the
Changes clause.
In Government contract law, the concept of constructive changes
is well established. FAR 43.104 and the Notification of Changes clause (52.243-7)
both recognize this concept.
Board decisions have recognized that an informal requirement for
performance of additional work, for example, is substantially equivalent to a
formal requirement and must be governed by similar principles. The significance
of recognizing constructive changes as a responsibility of the Government
representative, and its effect on the contractor, should be recognized and
understood by both parties so that they may be able to identify conduct and actions which may
be interpreted as constructive change orders.
A revision to the Changes clause for construction contracts in 1968 included
a provision expressly designed to address constructive changes, and was the first
standard clause to do so. The present FAR provision states that written or oral
orders including directions, instructions, interpretations, or determinations by the
Contracting Officer which cause a change within the general scope of the contract
will be treated as changes under the Changes clause. As a prerequisite to the
consideration of a claim based on a constructive change, however, the contractor
must notify the Contracting Officer that he considers such an order to be one
directing a change in the work to be performed.
Some changes to the specifications are inadvertent. Erroneous
interpretations of contract requirements by the Contracting Officer (or his
representative) may lead to actions which constitute constructive changes. For
example, the Government's insistence that the contractor comply with the
misinterpretation has the effect of changing the specification. Such an
interpretation of the contract language by the Contracting Officer may be construed
as a change if it calls for something more than the contract requires. Similarly, the
insistence by an inspector that the contractor perform to a higher standard of
quality than that provided by the contract specifications has been held to be a
change. The inspector was considered to have been authorized to act as a
representative of the Contracting Officer.
Such a constructive change, which increases the burden on the contractor, is
compensable. In contrast, where the specification is misinterpreted by the
contractor, there is no entitlement to compensation for additional costs incurred in
performing any extra work required to meet the standard established by the
contract. One notable exception occurs where the contractor's interpretation is
reasonable under the circumstances, especially where the contractor's mistake was
apparent to the Government at the time of contract formation.
Another type of change in the specifications occurs where the Government
substitutes materials or procedures for those required by the terms of the contract.
Such changes are generally authorized by the Changes clause, and are
compensable if they cause the contractor to incur additional cost. Similarly, where
the contractor proposes a deviation in either materials or procedures, approval by
an authorized Government representative is a change under the Changes clause.
Defective specifications may lead to a determination of constructive change.
There is an implied warranty that if the Government's specifications are followed,
the item produced will meet the contract requirements. Specifications may be
considered defective because of simple error, inadequate detail, practical
impossibility of performance, or a combination of these. A constructive change
may be found if the defect causes the contractor to incur additional cost. Since
only the Contracting Officer or his authorized representative has authority to issue
change orders, the Government may be able to avoid many constructive changes if
these individuals are alert to the implications of their actions. The prudent
contractor will confirm directions he receives from other Government
representatives. The Contracting Officer, on the other hand, should see that all
Government personnel having contact with the contractor recognize the limitations
on their authority, and thus avoid committing the Government inappropriately.
Furthermore, the Contracting Officer should recognize that the courts may hold
that silence on his part constitutes acquiescence to the change if he had knowledge
of the directions or interpretations given to the contractor.