1. Can and if, how would the Government descope the current contract for the sidewalks and pavement striping? RFP, partial termination, negotiation?
2. Once funding is received from the A&E, can the Government add the sidewalks and pavement stripping back to the current contract or would in be a new requirement?
There are two issues in this question:
1. The first is A-E liability and if you do recover the money from them can you reutilize the money on your current contract?
2. If you remove a current requirement from the contract, can you later add it back to the contract?
An A-E liability case is often not resolved quickly. If the government wins its case against the A-E and the payment is made direct to your organization (the government), it does not go back to the project but goes to the US Treasury. Therefore if this is your case, you would not be able to use this payment to further fund your project. What I have seen done is to have the A-E directly pay the construction contractor for the re-work or A-E liability costs.
As far as descoping this particular work and adding it back later, it does not really matter the methodology that you choose to remove the scope of work. By descoping this effort and signing this bilateral modification, you are stating that you no longer require this portion of the work to be accomplished otherwise you would not remove it. Therefore it could no longer be contemplated by the parties to be included as part of this contract. To add it back, a sole source J&A under FAR 6.302 would have to be accomplished.
Make sure you are consulting with your legal counsel throughout this process.