Misinterpreting Government Contract Clauses Can Be Costly

If you are a government contractor, you probably have heard a government employee tell you to “just read the regulations.” Doing so yourself, however, can be a costly mistake because courts do not always demand strict compliance with the language in a contract. As a result, a literal reading of some government contract regulations in the Federal Acquisition Regulation (FAR) can cost you money.

A great example is the “give the government notice” language in the Changes clause (FAR 52.243-4). According to the specific but misleading wording of that clause, a contractor who thinks the government has changed contract work must give the contracting officer written notice of any suspected government changes within 30 days or forever forfeit the right to be paid for those changes.

However, that literal interpretation of the “Notice” provision is not the law. All government contractors need to know that courts do not require such strict compliance with the “Notice” provision to protect their ability to get paid.

For example, a contractor may be entitled to an equitable adjustment for a contract change even though the contractor:

1. Notifies a government employee other than the contracting officer of a suspected change; OR

2. Gives notice long after 30 days have passed; OR

3. Even if the “written notice” turns out to be “oral notice.”

None of these “requirements” is essential because courts interpreting the “Notice” language have changed the rules completely. Instead of requiring a contractor’s strict compliance with all the language in this clause to get paid, the court have turned the tables on the government and now ask the government to show how it has been harmed by a contractor’s failure to strictly comply with the rules. If the government cannot prove the contractor’s lack of notice hurt the government, the contractor can still get paid for the changes.

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A recent court decision shows how broadly courts construe the Changes clause notice provision. A construction contractor claimed that it was entitled to an equitable adjustment for design changes that the government imposed in the comments it made to the contractor’s design plans. But the first time the contractor raised the issue was in court pleadings three years after the government had made its design comments and long after the building was built. The contractor should have given the contracting officer notice of its disagreement immediately after receiving the government comments. Although the court concluded that this contractor’s notice was too late, its decision discusses precedents that established the defining issue in “notice” disputes. It is not whether 30 days have passed, nor whether the notice was oral, or even whether the contracting officer was the government employee who got notice. The question for the government in these situations is “what harm has the government suffered by a contractor’s failure to give 30 days written notice?” In this recent case, the harm was that timely notice would have given the parties a chance to resolve the issue years ago, making litigation unnecessary.

But in many situations, the lack of 30 days written notice to the contracting officer may not harm the government. For example, the contractor had complained orally to the government’s project manager immediately after being told to do extra work.

Of course, the best policy is to rigidly follow the rules in the clause. However, a government contractor needs to know that all FAR clauses should not be taken literally. Nor should a government contractor be deterred from filing a request for an equitable adjustment by a contracting officer’s rigid interpretation of a notice provision.

Knowing these nuances can make a big difference in getting paid. If you believe the government has made costly change to your contract without modifying it to add money, let the Government Contracts Team at Berenzweig Leonard help you make sure you know your rights to getting paid.

 

Terrence M. O'ConnorTerrence M. O’Connor is the Director of Government Contracts at Berenzweig Leonard LLP. He can be reached at TOConnor@BerenzweigLaw.com