Federal Government Contracts: Authority to Order Changes

Overview

         Many construction contractors hope to get a piece of the new federal economic stimulus pie. Under the stimulus, it is likely that some contractors will be working for the federal government for the first time, hence the need for this warning to new federal government contractors, and a reminder to the old hands, regarding “Authority to Order Changes” on government projects.

         As a general matter, the federal government is bound only by the actions of those possessed with authority to bind the government.  Why is this important and what does it mean to the construction contractor?  It means that the contractor assumes the risk of possible non-payment if it performs changes based on the authorization of a government representative who does not have the express authority to order changes.  And payment is, of course, of critical importance.  The onus is on the contractor to confirm that it is dealing with a government representative who has the actual authority to modify the contract.

         With billions of dollars in construction related spending in the economic stimulus bill, it is likely that the government’s designated contracting officers will be less involved in the day-to-day administration of construction contracts, leaving much of this work to the contracting officer’s representatives or other technical representatives.  This can cause problems for the unwary contractor.  Remember, no matter what the contracting officer’s representative does or says, the representative cannot modify a contract where a contract clause or controlling regulation explicitly reserves that authority to the contracting officer.

         A contractor can dutifully perform changes that are ordered in writing by the contracting officer’s representative and wind up not getting paid.  Historically, federal courts and boards of contract appeals have often avoided this harsh result by using alternate legal theories to find that the representative did have authority to make changes.  Two recent decisions discussed below indicate that these alternate theories are losing favor, and courts and boards are more strictly enforcing the authority doctrine in federal government contracting.

Authority to Demand Full-Time Safety Officer

         In States Roofing Corporation, ASBCA No. 55500 (December 9, 2008), the Armed Services Board of Contract Appeals (ASBCA) ruled that a resident officer in charge of construction (ROICC) could not modify a contract to require a full-time safety officer because only the contracting officer (CO) had such authority under the contract.

         In the States Roofing dispute, Navy officials identified safety concerns on the roofing repair contract after the contractor started work.  The contractor discussed these concerns with the Navy and provided a full-time safety officer at the request of the Navy’s ROICC.  The roofing subcontractor sought $53,253 for the safety officer that it employed as directed by the ROICC.  There was no evidence that the contactor notified the CO of this directive.  The contractor asked for an equitable adjustment, the CO denied the request, and the contractor sought relief from the ASBCA.

         On appeal, the Navy argued that even if the ROICC directed the contractor to provide a full-time safety officer, the ROICC did not act on behalf of the CO, and the ROICC did not have the authority to modify or change the contract.  In other words, even if the government’s representative ordered the contractor to employ a full-time safety officer, a position not required under the construction contract, the government does not have to pay for this because the person ordering the change did not have proper authority.

         The roofing repair contract included the FAR Changes clause and the NAVFAC Contracting Officer Authority and Government Representative clauses, which stated that the contract would be administered by an authorized representative of the CO, but that only the CO could modify or change the contract and bind the government.  The ROICC was delegated contract administration responsibilities, but did not have the authority to modify the contract.  The contractor’s claim was denied because the directive to add the full-time safety officer was outside the ROICC’s delegated authority, and the contractor apparently never brought the directive to the attention of the CO for approval.  The ASBCA noted that it was required to follow the strict interpretation of the authority principles set forth by the Federal Circuit in Winter v. Cath-Dr/Balti Joint Venture, 497 F.3d 1339 (Fed. Cir. 2007).

Only Contracting Officer Had Authority to Order Change

         Recently, the United States Court of Federal Claims addressed whether a contractor was entitled to an equitable adjustment for an alleged constructive change that was never adopted by a formal change order.  Information Systems & Networks, Corp. v. United States, 81 Fed. Cl. 740 (2008).  After contract performance had begun, the government identified changes it felt needed to be made to the contract, and asked Information Systems to submit a change proposal.  Information Systems did as instructed.  Later, the contracting officer’s technical representative wrote to Information Systems stating “we have technically approved” the change proposal.  The contracting officer, however, never signed a formal change order.

         Information Systems subsequently sought more that $890,000 for the additional work it performed under the change proposal.  The government denied payment, arguing that the change was never approved by the contracting officer.  Information Systems sued for payment alleging that it had performed a constructive change and was entitled to an equitable adjustment.

         The court noted that a constructive change occurs when a contractor performs extra work without a formal change order, either because of an informal order or because of the government’s fault.  The court further noted that the government must fairly compensate a contractor when the government requires a constructive change in a contract.  The court pointed out, however, that Information Systems’ contract contained several special clauses indicating that all changes had to be approved in writing by the contracting officer.  The court denied the contractor’s claim, ruling that the only government official with the contractual authority to order the extra work, the contracting officer, neither ordered nor instructed Information Systems to perform any additional work.

         The court’s strict enforcement of the contract’s detailed provisions and denial of the contractor’s claim for extra work—a change proposal that had apparently been authorized in writing by the contracting officer’s technical representative—should be seen as a warning.  A warning to: (1) carefully read the contract and understand its requirements; (2) follow the contract requirements to the letter; and (3) always determine who has the authority to make changes.

Comment

         Who has authority on federal government construction projects to make changes?  The federal courts and boards are strictly applying principles that are designed to protect the public purse in general even if the specific result seems and is harsh.

         Given the reality, a prudent contractor should always follow the following steps:

• At the pre-construction conference, obtain a copy of any delegation of contracting officer authority to a “contracting officer’s representative.”  Remember that each agency has unique procedures related to the delegation of charge order authority.  Do not rely upon commonly used titles as accurately describing actual authority.
• Keep in mind the agency regulations controlling the delegation of authority to order a change may be misinterpreted by government personnel.  Under the strict rules described above, the contractor may bear the economic risk of this misinterpretation by the agency’s employees.
• Establish a procedure to routinely notify the contracting officer whenever a change is ordered or directed by any government representative other than the contracting officer.  Keep the notice factual, not confrontational.
• If the contacting officer’s representative or other government representative questions the need for a notice letter to the contracting officer, simply indicate that the Federal Acquisition Regulation (FAR) is complex and the purpose of the letter is to ensure that all of the requirements in the FAR related to the change order process are reasonably satisfied.

         Contractors “must turn square corners when they deal with the Government.” Rock Island, Arkansas & Louisiana R.R. Co. v. United States, 254 U.S. 141, 143 (1920).  And it is not always a two-way street.