Claims and REA; What Is The Difference?
The Contract Disputes Act of 1978 (CDA) defines many important terms but it is quiet ironic that there is no definition for its most important term ‘claim’. That is why the courts take guidance from the Federal Acquisition Regulation (FAR).
DEFINITION (of Claim)
As referenced in the Federal Register, FAR 2.101 “Final Rule”:
Claim means a written demand or written assertion by one of the contracting parties seeking as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract.
At first glance, the contents of the definition of claim are similar to a Request for Equitable Adjustment (REA). However, there are some fine distinctions between claims and REAs, which are quiet, significant in both form and function.]
The term “equitable adjustment” appears in the FAR in 111 places, and the term “request for equitable adjustment” appears in 11 instances, yet there is no official definition, in the FAR or anywhere else, of the terms “Request for Equitable Adjustment” or “REA.”
A Request for Equitable Adjustment (REA), on the other hand, allows a contractor to recover costs associated with any suspensions of work or terminations for convenience or other constructive changes by the owner of a project. Use of a REA is guided by a number of FAR clauses such as FAR 52.236-2, FAR 52.42-14, FAR 52.243-1, 52.249-2, and 52.212-13. (Differing Site Conditions, “Suspension of Work”, Changes – Fixed Price, Termination for Convenience, and Stop Work Order, respectively).
Government contracts are often prone to delays and changes with no fault of the contractor’s. In such situations, the contractor can rightfully ask for more time or claim damages from the government on the contract, as it makes it more expensive to execute. In such situations the contractor an either;
- File a claim under Contract Disputes Act, or
- Put forward a request for equitable adjustment (REA) to the contracting officer.
Now like any choice between two things in this mortal world, there are merits and demerits of the above two courses of action, and the contractor must weigh both of them carefully and then make a decision according to the requirement of his situation.
Like mentioned before, claim and REA are very similar in form and function as the purpose of both is compensation for time and/or money owed to the contractor on a contract. Both are in written form outlining the contractor’s performance track and why he needs to be reimbursed.
DISCUSSING THE DIFFERENCES
It is important for a contractor to know the differences in order to understand which may be used in any given situation. Some of the differences between a REA and a Claim include:
- REAs are usually in writing, but this is not a requirement, whereas claims under the CDA are more formal.
- REAs are generally based on a standard FAR clause in the contract and if there is nonconcurrence about the REA calculation, the negotiation is solely between the Contracting Officer and the contractor, and this whole process doesn’t necessarily has to be adversarial. There is no need for the involvement of the judicial branch in REAs at all and in an ideal world, they will be resolved in a quick and amicable way. Claims under the CDA have multiple channels of judicial appeal, and unless negotiated and settled, often turn into intense and tiring, expensive and time consuming legal battles.
- An REA does not require a Government Contracting Officer’s final decision but a Claim does require a Government Contractor’s final decision as a jurisdictional requirement.
- A contractor can file an REA as soon as a change is made to a contract and it must be done within a year of a modification. Whereas a claim must be filed within 30 to 90 days, depending on the circumstance. It is important to note that a claim based on defective specifications is not time barred.
- Under a claim, a contractor cannot recover legal and advisory fees, overhead costs and profits, and contract administration costs but these are recoverable under a REA. Whereas interest is recoverable under a claim but not under an REA.
- A claim must be certified if the claim amount exceeds $100,000 however; an REA must be certified if it is submitted to the Department of Defense, regardless of the submitted dollar amount.
So these are some of the major differences between REA and Claim. Now some Government attorneys advise the contracting officer to ignore or deny most REAs so that the contractor is forced to convert his REA into a CDA claim in order to receive compensation; and by doing so the contractor will not be entitled to recover the preparation costs. These attorneys think that in this way the government will save time and money. But this approach is not liked by many esteemed professors of law as they think such tactics are not congenial and cooperative methods of dealing with the contractors.
So it is better for the contracting officer to engage the contractor, work their way towards an amicable settlement and not unnecessary litigation. When reached for comment on this topic, Professor Nash added, “I tell Contracting Officers and contractors that their job is to put the lawyers out of business by avoiding litigation. Stonewalling REAs creates unnecessary litigation and increases costs in the long run.”
Recklessly stonewalling the REA allows otherwise easily-fixed situations to transform into strenuous legal battles that can last for years, wasting valuable time and resources of both parties.
The complications and unsolved problems surrounding these two concepts bring into focus the harsh truth of government contracts i.e. both the contracting officer and the contractor must understand the distinctions between REA and Claim in order to spare themselves from unnecessary difficulties, misunderstandings and expensive delays.