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Articles

Need to Know: Fundamentals of Requests for Equitable Adjustment

November 10, 2023

When you have not been paid for extra work your team performed, you need to submit a Request for Equitable Adjustment or REA. An REA is the contractor or subcontractor’s way of asserting that they are owed for some work they performed, outside the scope of the original contract.  

In this post, we explore  

  • the differences between REAs and claims 
  • when REAs are likely to come up and how they are used  
  • requirements for submitting an REA  
  • redressing errors in REA submissions 
  • what to do when an REA is unsuccessful 

REAs and Claims: Alike, but Not the Same 

You may be wondering how an REA differs from a change order. Per American Institute of Architects (AIA) and Federal Acquisition Regulation (FAR) contracts, a change order is supposed to be generated by the contract administrator (typically, the architect or construction manager), because of an RFI, Architect’s Special Instructions (ASI) or other discovery revealing the need for a substantive change in the contract scope. The REA goes the other direction, generated by the contractor in response to a change, which has not been addressed by a change order. You may see change order requests or proposed change orders in place of REA, but in this post, we will stick to the terminology from the FAR.  

REAs and claims share many properties, with one major difference: the additional requirements necessary when making a claim. Per the standard FAR changes clause (FAR 52.243-1) an REA may be submitted in response to any change directed by the contracting officer. The REA is not considered part of a dispute. If the REA is rejected, then it may be necessary to submit a claim per dispute clauses (FAR 33.2), which includes the necessity to certify claims over $100,000 (FAR 33.207). Certification per the FAR must include a signed statement from a person of authority over the claim reading:  

I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the contractor. 

In summary, an REA is typically a pre-dispute request with fewer requirements for certification than a claim. There are some cases, such as some Department of Defense contracts, which will also require certified REAs over $100,000. With both REAs and claims, one should bear in mind the False Claims Act. I do not presume my dear reader would submit a false REA or Claim, but those which are certified will bear more scrutiny under the False Claims Act. 

Fundamentally, REAs should always be the first option, submitted in a timely fashion, to secure additional funds for a change to the contract. Claims should only be considered after negotiations over the REA have been unsuccessful. 

What are the Catalysts for an REA?  

We typically see REAs in response to a situation where all parties acknowledge that a change needs to be made to the contract, but there are time, cost, or knowledge restrictions preventing the issuance of a change order before initiating the work. For example, an unforeseen condition preventing work from continuing may require the contract administrator to issue a Field Work Order (FWO) authorizing work to proceed immediately on a time-and-material basis. The FWO is issued to save time on the project, with the understanding that the contractor will track time-and-material costs and then be paid by the owner later. Once the unforeseen condition has been abated, the contractor will tally totals and submit an REA for the work performed. Once the REA is approved, the contract administrator will produce a change order for the time and cost associated with the unforeseen condition.  

REAs may also be submitted by the contractor in response to an ASI, Construction Change Directives (CCDs), or any other formal direction provided by the contract administrator or owner’s representative which has time or cost implications and which cannot wait for the full change order process to be administered.  

The REA is also a contractor’s best method for recovery in case of maladministration of the change order process by the contract administrator. 

How it Should Work 

If you find yourself in a position where you need to submit an REA, make sure to review the contract change provisions for submission requirements and follow the rules. Each contract may have different rules for submission. The requirements may also be different if you are submitting an REA without prior acknowledgement of the change from the contract administrator.  

Understanding that various scenarios may change some of the rules, let’s discuss the usual requirements. We typically see the following requirements: 

  • Notice – Contracts usually contain notice requirements indicating the method of communication and number of days after discovery of an issue by which the contract administrator must be notified. 
  • Scope – An REA must have a clearly defined scope. If the REA does not have a clearly defined scope, it may be better to provide notice and inform the Contract Administrator that the quantum will be provided later.  
  • Quantum – An REA ought to contain a section dedicated to quantifying the request in terms of cost and time. This quantification must be clear and concise. 
  • Cost – Backup for costs should be provided in the form of quotes, invoices, time and material tickets, union labor rate sheets, etc. 
  • Overhead and profit – Review contract terms for markup limitations. 
  • Days – If the REA includes contract days, the contract will specify the method for evaluating and substantiating the contract days. 
  • Is a time impact analysis required? 
  • Retroactive or proactive? 

The specifics of these rules are typically found in the changes section of the contract and the general requirements. 

Didn’t Follow the Rules? 

If you are reading this blog, you are likely aware that nothing goes perfectly on a construction project. Even the best project management team can fall behind on some paperwork if things really start to fall apart in the field. So, what should be done if some of the rules in the previous section were not followed? 

VERTEX has had success even if contractors did not strictly follow the letter of the law on timing or documentation. We recommend you compile and submit the REA, including reasonable legal and accounting costs, as soon as possible. Even if the project is complete, you may still submit your REA! There are often some excusable and legitimate reason for a tardy submission, including: 

  • safety concerns 
  • project delay outside contractor’s concern 
  • delayed submission benefitted the project 
  • delayed by the construction manager or architect  

Any of these explanations can help avoid immediate rejection by the authority having jurisdiction over your REA review. 

Sometimes, some of the documentation necessary to support a typical REA may be missing. This can be especially concerning if relevant cost data is not available; in this instance it is possible to use an estimate, calculated as follows: 

  • First, show that the work performed was outside the contract scope, 
  • Second, argue the work in place has materially benefitted the project, 
  • Third, produce a transparent estimate for the cost to perform the scope in question, and  
  • Finally, present this information together with the rest of the REA paperwork. 

Are We in Dispute? Only as a Last Resort 

Once the REA has been submitted, the authority having jurisdiction must come to a determination on the request(s). If the parties cannot arrive at a mutually agreeable conclusion, the next step is to discuss how to proceed. We all know about litigation, but there may be other, less costly options to pursue first. A good place to look for options is to review the disputes clause of the contract (or FAR 33.2) and follow the steps found there. In general, we want to resubmit the REA for final decision, attempt negotiation, and offer some compromises before we arrive at the claims process. We frequently find success in combining numerous REAs into one negotiable total based on the perceived legitimacy of the entire group of REAs, rather than the specific merits of each dollar in each REA. 

As a last resort, we come to claims. If we cannot agree on the final determination, and negotiation fails, we must submit a claim. The claim is basically the same REA, with some extra steps. We can simply resubmit our REA with a note calling the REA a claim, and provide the necessary certification paperwork per FAR 33.207

If you need help getting maximum value for your Requests for Equitable Adjustment, or if you are interested in hearing more about how VERTEX has succeeded in working around the usual contractual constraints, please contact us or contact me directly at abrouwer@vertexeng.com.  

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