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    Government Contracting Database

    Deductive Change

    When an item of work is deleted, the issue arises as to whether this deletion should be treated as a partial termination for the convenience of the Government or as a deductive change. If it is treated as a termination, the contract price adjustment is calculated in accordance with the “Termination for Convenience” clause in the contract. If it is treated as a deductive change, the price adjustment is under the “Changes” clause. 

    As a general proposition, minor changes in the specifications or in the scope of work [which cause a decrease in the cost of or time required for performance of any part of the contract work] are usually treated as deductive changes rather than termination actions. Partial terminations are more appropriate for a reduction of the number of units or supplies to be delivered, elimination of identifiable items of work, reduction in the quantity of work required under the contract, or similar reductions in contract tasks. In Re Appeal of Jimenez, Inc., VABCA No. 6351, 02-2 B.C.A. (CCH) ¶ 32019 (Sept. 24, 2002); Celesco Industries, Inc., ASBCA No. 22251, 79-1 BCA 13,604 (1978). However, the Boards of Contract Appeals have also held that 

    [t]he question of whether work should be deleted under the Changes or the Termination clause is best left to the circumstances of each case and where the parties proceeded by means of a deductive change we will not alter that treatment absent a compelling reason. 

    Appeal of Goetz Demolition Co., ASBCA No. 39129, 90-3 B.C.A. ¶ 23241 

    In the situation where the deletion is treated as a “change,” the contract price is subject to a downward equitable adjustment.  

    Generally, the rule governing deductive changes is the same as that which governs additive changes: to keep the contractor whole when the government modifies a contract. Bruce Constr. Corp. v. United States, 324 F.2d 516 (Ct. Cl. 1963). Thus, the pricing for the deductive change should be based on the contractor’s current estimate or “would have” cost for performing the deleted work as of the time of the deductive change. Stated differently, the equitable adjustment to which the government is entitled is the difference between the reasonable cost of contract performance without the deletion and the reasonable cost of contract performance with the deletion. Celesco Industries, 79-1 BCA at 66,683. 

    Appeals of — Fox Constr. Inc., ASBCA No. 55265, 08-1 B.C.A. ¶ 33810 

    In another decision, Santa Fe Engineers, ASBCA No. 31762, 91-1 BCA 23,571, the Armed Services Board had the following to say concerning the pricing of deductive change orders: 

    In measuring deductive change adjustments, we are guided by the principle that the equitable adjustment should not increase a contractor’s loss, nor decrease it at the Government’s expense. Nager Electric Company v. United States, 442 F.2d 936, (Ct. Cl. 1971); American Electric. Inc., ASBCA No. 15152, 73-1 BCA 9787. We have held that the same principles used in pricing additive changes apply to deductive changes. G.M. Co. Mfg., Inc., ASBCA No. 2883, 57-2 BCA 1505. In appropriate situations, the Government has been allowed a deductive credit for overhead and profit on a change order which deleted contract requirements. See, Keco Industries, Inc., ASBCA No. 15131, 72-1 BCA 9262; Algernon Blair, Inc., ASBCA No. 10738, 65-2 BCA 5127; Andrews & Parrish Co., ASBCA No. 30689, 88-3 BCA 20,976. 

    It has also been held that in interpreting a contract, the preferred interpretation is one which views the contract as a whole, leaves no portion of the contract meaningless and construes its provisions in a manner in which they do not conflict. Thus the language of a particular contractual provision is to be read in the context of the entire agreement. Mata v. United States, 114 Fed. Cl. 736, 745 (2014); Appeal of Metric Constructors, Inc., ASBCA No. 49343, 97-2 B.C.A. ¶ 29076 (citing Hensel Phelps Construction Co. ASBCA No. 44259, 96-1 BCA 28,227). Contract language is to be interpreted in accordance with its ordinary and commonly accepted meaning without twisted or strained analysis. Appeal of Metric Constructors, Inc., ASBCA No. 49343 (citing Hol-Gar Mfg. Co. v. United States 169 Ct. C1. 384, 390, 351 F.2d 972, 976 (1965)). An interpretation by the parties of contract terms prior to a dispute is entitled to great, if not controlling weight. Id. (citing Ver-Val Enterprises, Inc, ASBCA No. 43766, 95-1 BCA 27,334). The Government has the burden of proving its deductive change order, i.e., that the work for which it took a contract price adjustment was required by the contract. Id. (citing Brace Andersen Company, Inc. ASBCA No. 29412, 89-2 BCA 21,872 at 13,337-38; Nager Electric Co. v. United States, 194 Ct. Cl. 835, 442 F.2d 936 (1971)). 

    Updated: June 21, 2018 

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