INTRODUCTION
Many contractors have experienced a Government representative requesting a change to the work outlined in a construction contract. If the additional work requested is performed by a contractor without a fully executed modification or change order to the contract outlining the additional or changed work to be performed, the Government may not be required to pay the contractor for such work. This is also known as “volunteering.” This can be the result if the Government representative instructing the contractor to perform additional work does not have the authority to do so.
The situation described above is known as an “Unauthorized Commitment,” as described in FAR 1.602-3 which “…means an agreement that is not binding solely because the Government representative who made it lacked the authority to enter into that agreement on behalf of the Government.” While work performed under an Unauthorized Commitment can be construed as a Constructive Change, a Formal Ratification is often the only legally remedy available to a contractor. What does that mean?
WHAT DOES THIS MEAN?
A Constructive Change is a change made by the Government that does not necessarily comply with the “Changes” clause. (See FAR 43.104) Under that provision, a contractor must notify the Government of the change and the Government should then evaluate the change, plan for funding of the change, and issue a formal change order or modification to the contract. Alternatively, the Government can indicate its belief that no change has occurred and force the issue.
An Unauthorized Commitment occurs when a contractor is asked to perform tasks that are not within the scope of work or part of the contract. If a contractor (as directed) performs the work without receiving a fully executed change order, this work is considered to be at the contractor’s risk and payment is no longer guaranteed.
THE SOLUTION
A Formal Ratification, according to FAR provision 1.602-3, is “…the act of approving an Unauthorized Commitment by an official who has the authority to do so.” A Formal Ratification is frequently the only means by which an Unauthorized Commitment can be remedied. (Garrett, G. A. (2012), Unauthorized Commitments, Ratification, and Constructive Changes. Contract Management, April (2012), 30-39) Furthermore, a Formal Ratification requires that “the contractor submits a written request for payment within six months after furnishing, or arranging to furnish, supplies or services in reliance upon the commitment,” and “the approving authority finds that, at the time the commitment was made, it was impracticable to use normal contracting procedures.” (See FAR 50.102-3(d)(1-2))
However, to be enforceable, a Formal Ratification must be exercised by the head of the contracting activity involved, which is usually “an official at or above the level of an Assistant Secretary (or Deputy) of Defense or of the Army, Navy, or Air Force; and a contract board established by the Secretary concerned.
LESSONS LEARNED
The lessons to be learned from Unauthorized Commitments, Constructive Changes, and Formal Ratifications are that contractors need to know the difference between them, and how to avoid them. Contractors also need to be aware of possible remedies under those circumstances and how to recover all of their allowable costs in those situations.
A contractor should always be educated about which Government personnel, such as contracting officers, project leads, or technical representatives, are authorized to make changes to a contract, to issue change orders, or to change the work beyond the original scope in a given contract. Failure to do so can be disastrous.
CONCLUSION
Contractors must be aware that occasionally, direction given by a Government representative may not be authorized. A Government representative may be unable to commit the Government to pay for additional or changed work, additional materials, or work that is not in a contractor’s contract.
As stated above, if a contractor proceeds with the work without obtaining a change order or contract modification, it may not be able to recoup its costs associated with the additional or changed work without a Formal Ratification of the directed work.
In the event of questionable Government direction, retaining the assistance of a consultant should be seriously considered to protect a contractor’s interests properly and thoroughly. The experts at Excell Consulting International, Inc. stand ready to assist and evaluate your company’s position and provide valuable and cost-effective guidance for your business.
In the end, you will be glad you made the call; by the way, it’s FREE
EXCELL CONSULTING “HERE TODAY FOR YOUR TOMORROW”
Author’s note: The information contained in this article is for general informational purposes only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. – John G. Balch, CEO CPCM
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