Government contractors are frequently faced with the situation where they are owed additional time or are entitled to damages from the government on a contract. For example, the government might be responsible for delays to the project schedule. Or it might direct changes to the contract that make it more expensive to perform.
There are generally two methods for the contractor to pursue recovery – (1) filing a Claim under the Contract Disputes Act or (2) submitting a request for equitable adjustment (REA) to the contracting officer. There are pros and cons to both methods and Contractors should take the time to consider these options carefully before moving forward.
What is the Difference between a Claim and an REA?
Claims and REAs are very similar (but not identical) in both form and function. The basic concept is that the contractor is owed time or money (or both) on a contract and is providing the government with a written request for compensation. The well-drafted Claim or REA will include a basic summary of the contractor's performance and an easy-to-understand explanation of why it is entitled to the damages sought.
So what are the differences? The primary difference is the government's obligation to promptly respond. A Claim puts the government "on the clock" and establishes a fixed deadline for a formal response (typically 60 days from the date it is filed). On the other hand, there is no firm or fixed deadline for the government to respond to an REA. For this reason, many contractors favor filing Claims (rather than having an REA sit unanswered by the government for months, or even longer).
There are also a few key differences in what a Claim must include. Unlike an REA, the Claim must include an expression of damages in the amount of a "sum certain" – in other words, the exact amount of damages, in dollars, being claimed. A Claim of $100,000 or more must also include a formal Contractor Certification (the exact language is provided at FAR 33.207). The Certification is the contractor's assurance that the claim is current and accurate as of the date of submission.
Is a Claim or an REA Better for You?
As outlined above, a Claim offers the immediate advantage of requiring a response from the government by a specified date. For that reason alone, Claims are usually considered more advisable than REAs. The government will either grant or deny the Claim, or offer a partial settlement. If the contractor is unhappy with the decision, it has the option to file an appeal and argue its case before a board of contract appeals or the U.S. Court of Federal Claims.
However, while a Claim is certainly the most direct way to proceed, it is not always the best for the contractor. Your firm might have a good working relationship with the contracting officer. Or you might want to proceed cautiously in order to preserve your relationship with a particular client. In those cases, an REA offers the opportunity to reach a mutually-beneficial settlement without having to file a formal Claim. Bear in mind, a contractor can also convert an REA into a Certified Claim at any time (in the event that the government does not respond to the REA, or negotiations stall).
Is There Anything Else to Consider?
Before making a final decision, contractors should also think about the potential hidden money in Claims and REAs. For example, contractors can include "contract administration" costs as part of the damages sought in an REA. These costs can include the attorneys' fees and consultants' fees incurred in preparing and submitting the REA.
Attorney and consultant fees are not recoverable as part of a Claim. However, the Contract Disputes Act does provide for the recovery of interest on any amount that becomes due on a claim. Depending on how long the Claim takes to resolve and the amount at stake, the interest collected can be considerable and should not be overlooked.
The decision of whether to file a Claim or submit an REA should be made on case-by-case basis. One size does not fit all, and it is very likely that the right answer will change from contract to contract.
Making the right decision could save you time and money – and result in a better overall outcome for your company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.