It is common for government contractors to file claims on federal projects where there are government-directed changes to the contract that add time or scope.
But what if – instead of adding time and/or scope – the government de-scopes work from the contract by issuing a partial termination? A recent successful claim shows that the contractor can still recover its increased costs.
After negotiations with the government broke down, the contractor filed a certified claim seeking to recover its increased costs. The government denied the claim, but on appeal, the ASBCA agreed that the partial termination increased the contractor’s costs to complete the contract. Specifically, the Board looked to calculations of the contractor’s fixed costs – which stayed the same despite the partial termination – and estimated production hours at the remaining facilities.
Notably, in finding in favor of the contractor, the Board rejected the government’s argument that no contract adjustment was required just because the agency failed to meet its estimated requirements. The government’s argument is based on a common misconception that should not scare contractors away from pursuing claims for damages under Federal Acquisition Regulation (FAR) 52.249-2 (Termination for Convenience of the Government).
In sum, contractors need to be aware of all contract changes – both those that add scope and deductive changes that remove work from a contract. Both can result in increased costs that can be recovered from the government as part of a request for equitable adjustment or certified claim.