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  • Question

    Is the customer or USG (when applicable relationship) required to provide funding for the directed change so as to not harm the supplier (contractor) during performance of the directed change.


    Answer

    Since you have FAR 52.243-1 in your contract, you are required to begin work while you negotiate with the Government the appropriate equitable adjustment to the contract.  The agreed-to amount of the equitable adjustment will be definitized with a supplemental agreement.  Per our conversation, you are working with a DOD Agency.  Therefore, they should be following DFARS 243.204-70-2 which says that “Unpriced change orders shall include a not-to-exceed price”.  The DOD does this in order to get appropriate funding for the contract and to ensure that we are in compliance with the Anti-Deficiency Act (ADA).  Your change order should include a Not- To- Exceed “NTE” amount.  Since you have a FFP contract, you are likely to have progress payments or performance based payments. The work you are doing, including the changed work required by the change order, would be paid for under those payment terms.  I think if you have a contract that already has contract financing, then there is no need to have two financing methods (and I don't think you would want to).  But, if there are no financing methods in place, then the prime might seek provisional payments described below. The prime can be paid for a delivery via provisional delivery payments...which should be flowed down to the sub.
     
    The change order contract action should include the clause, "Change Order Accounting."  This clause's use is prescribed as "may include for change orders over $100K” at FAR 43.205(f).  Including this clause is up to the CO, and it’s designed for "bigger" change orders that will not be definitized within a single payment period.  It would require the contractor to segregate the costs associated with the change order, until the action was definitized.  A Prime and Sub-contractor would want the "Change Order Accounting" clause included.
     
    I do not believe there are any prohibitions for paying progress payments on a change order, subject to the progress payment rates prescribed in FAR 52.232-16(k) and DFARS 252.232-7004), within the  maximum funding limitations for UCAs. 

    I have cut and paste some sections of the FAR and DFARS that address this subject.  You should read these sections in full (more than these excerpts) because they do list some exceptions that could apply in your situation. 

    DFARS 232.102-70 Provisional delivery payments
    (a) The contracting officer may establish provisional delivery payments to pay contractors for the costs of supplies and services delivered to and accepted by the Government under the following contract actions, if undefinitized:
    (1) Letter contracts contemplating a fixed-price contract.
    (2) Orders under basic ordering agreements.
    (3) Spares provisioning documents annexed to contracts.
    (4) Unpriced equitable adjustments on fixed-price contracts.
    (5) Orders under indefinite-delivery contracts.
    (b) Provisional delivery payments shall be—
    (1) Used sparingly;
    (2) Priced conservatively; and
    (3) Reduced by liquidating previous progress payments in accordance with the Progress Payments clause.
    (c) Provisional delivery payments shall not—
    (1) Include profit;
    (2) Exceed funds obligated for the undefinitized contract action; or
    (3) Influence the definitized contract price.
     
    FAR Language: 43.204 -- Administration.
    (a) Change order documentation. When change orders are not forward priced, they require two documents: the change order and a supplemental agreement reflecting the resulting equitable adjustment in contract terms. If an equitable adjustment in the contract price or delivery terms or both can be agreed upon in advance, only a supplemental agreement need be issued, but administrative changes and changes issued pursuant to a clause giving the Government a unilateral right to make a change (e.g., an option clause) initially require only one document.
    (b) Definitization.
    (1) Contracting officers shall negotiate equitable adjustments resulting from change orders in the shortest practicable time.
    (2) Administrative contracting officers negotiating equitable adjustments by delegation under 42.302(b)(1), shall obtain the contracting officer’s concurrence before adjusting the contract delivery schedule.
    (3) Contracting offices and contract administration offices, as appropriate, shall establish suspense systems adequate to ensure accurate identification and prompt definitization of unpriced change orders.
    DFAR Language applicable to all DOD organizations:
    243.204-70-2 Price Ceiling.
    Unpriced change orders shall include a not-to-exceed price.
    243.204-70-3 Definitization schedule.
    (a) Unpriced change orders shall contain definitization schedules that provide for definitization by the earlier of—
    (1) The date that is 180 days after issuance of the change order (this date may be extended but may not exceed the date that is 180 days after the contractor submits a qualifying proposal); or
    (2) The date on which the amount of funds obligated under the change order is equal to more than 50 percent of the not-to-exceed price.
    (b) Submission of a qualifying proposal in accordance with the definitization schedule is a material element of the contract. If the contractor does not submit a timely qualifying proposal, the contacting officer may suspend or reduce progress payments under FAR 32.503-6, or take other appropriate action.
    243.204-70-4 Limitations on obligations.
    (a) The Government shall not obligate more than 50 percent of the not-to-exceed price before definitization. However, if a contractor submits a qualifying proposal before 50 percent of the not-to-exceed price has been obligated by the Government, the limitation on obligations before definitization may be increased to no more than 75 percent (see 232.102-70 for coverage on provisional delivery payments).
    (b) Obligations should be consistent with the contractor’s requirements for the undefinitized period.
    The Changes Clause for FFP contracts that you have:
    Changes -- Fixed Price (Aug 1987)
    (a) The Contracting Officer may at any time, by written order, and without notice to the sureties, if any, make changes within the general scope of this contract in any one or more of the following:
    (1) Drawings, designs, or specifications when the supplies to be furnished are to be specially manufactured for the Government in accordance with the drawings, designs, or specifications.
    (2) Method of shipment or packing.
    (3) Place of delivery.
    (b) If any such change causes an increase or decrease in the cost of, or the time required for, performance of any part of the work under this contract, whether or not changed by the order, the Contracting Officer shall make an equitable adjustment in the contract price, the delivery schedule, or both, and shall modify the contract.
    (c) The Contractor must assert its right to an adjustment under this clause within 30 days from the date of receipt of the written order. However, if the Contracting Officer decides that the facts justify it, the Contracting Officer may receive and act upon a proposal submitted before final payment of the contract.
    (d) If the Contractor’s proposal includes the cost of property made obsolete or excess by the change, the Contracting Officer shall have the right to prescribe the manner of the disposition of the property.
    (e) Failure to agree to any adjustment shall be a dispute under the Disputes clause. However, nothing in this clause shall excuse the Contractor from proceeding with the contract as changed.
    (End of Clause) 
     
    FAR 43.205 (f) The contracting officer may insert a clause, substantially the same as the clause at 52.243-6, Change Order Accounting, in solicitations and contracts for supply and research and development contracts of significant technical complexity, if numerous changes are anticipated. The clause may be included in solicitations and contracts for construction if deemed appropriate by the contracting officer.
    52.243-6 -- Change Order Accounting.

    As prescribed in
    43.205(f), the contracting officer may insert a clause, substantially the same as follows:
    Change Order Accounting (Apr 1984)

    The Contracting Officer may require change order accounting whenever the estimated cost of a change or series of related changes exceeds $100,000. The Contractor, for each change or series of related changes, shall maintain separate accounts, by job order or other suitable accounting procedure, of all incurred segregable, direct costs (less allocable credits) of work, both changed and not changed, allocable to the change. The Contractor shall maintain such accounts until the parties agree to an equitable adjustment for the changes ordered by the Contracting Officer or the matter is conclusively disposed of in accordance with the Disputes clause.

    (End of Clause)
     
     

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