With the REA, You Won't Leave Money on the Table

By Samuel G. Davidson, Cherry, Bekaert & Holland, L.L.P. (CB&H)
Email: sdavidson@cbh.com

One significant difference between contracting with the government and contracting with commercial organizations is the government insistence on the right to make changes in work during contract performance. In return for this right, the government provides the contractor access to an equitable adjustment to the contract price and/or schedule whenever a change is made that will increase or decrease the cost of contract performance or impact contract deliveries or completion.

The equitable adjustment is a corrective measure utilized to keep a contractor “whole” when the government intentionally or unintentionally modifies a contract. Put another way, the equitable adjustment is the difference between the reasonable cost of contract performance without the change or changes, and the reasonable cost of contract performance with the change or changes. Since the purpose of an equitable adjustment is to fairly compensate a contractor for the government modification of a contract, fairness to both parties is the overriding goal in determining the adjustment's amount.

Utilizing the request for equitable adjustment (REA) process can provide several significant advantages to the contractor. These advantages include the following:

Improve Profits – The biggest advantage to utilizing the REA process is getting what is rightfully yours. We all want to be responsive suppliers, but we must be compensated for changes in the contract, which increase our cost of completion.
Not taking advantage of the REA process is like leaving money on the negotiation table. It is also important to remember that, since REAs quite frequently are prepared, submitted and negotiated after the change has occurred. Often the associated losses have already been recognized, and the amount recovered through the REA process can go directly to profit.

Increase Competitiveness – Utilizing the REA process can also be a subtle way to increase your competitiveness. Pricing what the proposal specifications call for and omitting those things that are not asked for may be the difference between winning and not winning the award. Let the changes process, on a non-competitive basis, correct for design deficiencies.

Avoid Perception of Mismanagement – Utilizing the REA process also avoids the perception of mismanagement when overrun situations occur. Documented and negotiated changes increase the contract value for the additional work performed or redefine contractual periods of performance, keeping the blame for cost overruns and untimely performance on the buyer, not on the contractor.

Sam is a Director with CB&H and a member of the Firm's Government Contractor Services Group.