In Industrial Maintenance Services, CBCA 5618, the Civilian Board of Contract Appeals (CBCA) found a contractor was entitled to additional payment where the Agency paid certain direct costs associated with a change in the critical path of performance, but failed to include the costs of impacted, unchanged work in the modification.

Contractor Industrial Maintenance Services appealed the denial of its claim by the Department of Veterans Affairs (Agency) for direct costs and markups associated with changes and additions to its scope of work for renovation of a medical center.  The parties executed a bilateral modification, which increased the contract price and provided that the adjustment included “all costs direct and indirect, associated with the work and the time agreed to herein, including, but not limited to…the changes’ impact on unchanged work.”  Despite the language of the modification, the Agency’s representative stated the parties would address the “impact to the schedule” at a later date.  The Contractor similarly noted on the modification that it “reserved the right to be compensated for additional days if needed once the schedule is revised to incorporate this change.”

On appeal, the Agency focused on the language of the modification, arguing that the parties unambiguously agreed that the modification was full compensation for the impacts to change and unchanged work.  Conversely, the Contractor sought an additional $5,633.01, which it asserted were direct costs (plus mark-ups) resulting from the changes’ impact on the overall critical path of performance.  In other words, the Contractor sought compensation for the impact the change had on the unchanged work.  The CBCA found the parties’ correspondence and the Contractor’s reservation dispositive, concluding “the parties had not agreed to the time and cost impacts of the added work.”  The CBCA further explained that the “ultimate change to the critical path from the modification demonstrates that the modification impacted the unchanged work.”  The CBCA’s rationale was that the Agency had undervalued the modification because the scope of the change was more than just the costs for the changed work – it also impacted the schedule of completion for the unchanged work, and the Agency was responsible to compensate the Contractor for those costs.

Having found the Contractor was entitled to additional compensation, the CBCA went on to evaluate the recoverable overhead and mark-up costs in light of the supplemented changes clause.  Ultimately the CBCA found that the Agency did not utilize the correct dollar figure in calculating overhead and fees, and directed the Contractor to submit additional quantum information to the Contracting Officer for consideration.

Agencies and contractors commonly disagree over whether an executed modification was intended to be full and final compensation for a given change.  Agencies typically rely on the language of the modification, while contractors sometimes argue that the parties’ course of dealing and/or discussions regarding the change must be considered in determining the scope of the modification.  The CBCA’s rationale in Industrial indicates a willingness to go beyond the language of the executed modification in determining the parties’ intent.  Contractors should keep such a willingness in mind when negotiating and executing modifications.

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