Unilateral Modifications Do Not Limit Recovery

The Armed Services Board of Contract Appeals has decided that a contractor’s recovery for work performed under a unilateral change order is not limited by language in the modification establishing a maximum price for the work.

During performance of a contract requiring the installation of brand name heating systems in several buildings, the government suspended the work pending issuance of a modification changing the required heating system brand. Because the contractor’s cost proposal for the changed work exceeded the government estimate, the Contracting Officer requested additional information pursuant to the Modification Proposals – Price Breakdown clause in an effort to substantiate the proposal. The contractor did not provide the detailed pricing data requested and the parties were unable to reach agreement on the amount of the price adjustment required by the modification.

The Contracting Officer, therefore, issued the modification unilaterally, authorizing the contractor to proceed with the work and establishing a ceiling price which the contractor was not to exceed without prior approval. In performing the changed work, the contractor did not request and the government did not provide approval for exceeding the established price. The Contracting Officer, therefore, rejected the contractor’s claim under the Contract Disputes Act for an amount greater than that provided for in the modification.

On appeal to the Board, the contractor argued that it was not bound by the unilaterally established maximum price. The government opposed the contractor’s appeal on the grounds that while the contractor was aware of the price limitation, it failed to seek the Contracting Officer’s approval prior to incurring costs in excess of the limitation. The government argued that the contractor incurred such costs at its own risk as in cases involving cost-type contracts with a Limitation of Cost clause.

Noting that the contractor had not agreed to the terms of the modification, the Board distinguished this situation from a cost-reimbursement contract and rejected the government’s argument. Given that the Contracting Officer issued the modification unilaterally, the Board determined that the contractor was not bound by the price limitation in performing the required work. Decker & Co., GmbH, ASBCA No. 33285, 88-3 BCA ¶ 20,925 (1988).

Updated: August 8, 2018