E-Alert Signup

Constructive Change

In most all federal government contracts there is a Changes clause that permits the government to direct changes to certain specified requirements of the contract. A change issued pursuant to this clause is called a directed change. It is accomplished through a formal directive issued by the contracting officer. Nowhere in the Changes clause is there mention of a constructive change. However, constructive changes are recognized and a remedy is afforded for them as though they were directed changes.

When the government issues a contract that instructs a contractor exactly how a job is to be done or an item manufactured, there is an implied warranty that if the contractor does exactly what the contract calls for a successful result will occur. In many cases, contractors do exactly what they are directed to do and the result is not acceptable to the government. Under these circumstances any money spent trying to follow the faulty drawings, specifications or other directives of the contract is recoverable under the theory of "constructive change." In essence the constructive change concept means simply that the government originally directed the contractor to do what it did and now it must pay for that misdirection as though it was the result of a formal directed change under the Changes clause of the contract. A constructive change arises not as a result of government direction, but as a result of the circumstances the contractor encounters in performing the project.

Constructive changes are usually settled through an equitable adjustment to the contract price. If the parties cannot agree to the price for the constructive change, a dispute arises and the contracting officer, upon request by the contractor, will issue a formal decision from which the contractor can take an appeal. All constructive changes should be presented to the contracting officer prior to final payment under the contract. There are many cases that hold that final payment bars any claims for constructive changes. These cases usually cite authority that prevailed before the Contract Disputes Act. Since the Contract Disputes Act (1978) has broadened the contracting officer's authority so that he can now render decisions on any dispute arising under the contract, there is no need to consider a constructive change as a matter falling under the Changes clause. It was the Changes clause language that created the final payment bar. Now, one can argue that a constructive change is really a breach of contract claim and as such can be brought even after final payment.

It is well-established that when a contractor performs work beyond that required by the contract without a formal change order, and such work was informally ordered by the government or is caused by government fault, a constructive change has occurred, thereby entitling the contractor to an equitable adjustment. American Line Builders. Inc. v. United States, 26 C1. Ct. 1155, 1179 (1992). The appropriate formula for pricing such an equitable adjustment is the difference between what it would have reasonably cost to perform the work as originally required and what reasonably costs to perform the work as changed. American Asphalt, Inc., ASBCA No. 44160, 95-2 BCA 27,614 (1995); Celesco Indus. Inc., ASBCA No. 22251, 79-1 BCA 13,604 (1978); American Line Builders. Inc. v. United States, 26 C1. Ct. at 1155.

In addition, where the government prevents a contractor from proceeding in the most efficient manner, there is a constructive change to the contract which entitles the contractor to additional compensation. Yarno & Assoc., ASBCA No. 10257, 67-1 BCA 6,312 (1967); Mech-Con Corp., GSBCA No. 1373, 65-1 BCA 54,574 (1965).

(Also See Changes)