Is the unilateral exercise of an option,technically speaking, a contract modification?

By joel hoffman on Thursday, May 23, 2002 - 01:49 pm:

Yes, the work is added to the contract and the contract amount is revised, via a modification, using the SF30. If the option contains any terms, not already in the base contract, the mod incorporates those, too (however, they are usually already in the contract and become operative on issuance of the mod). happy sails! joel

By Eric Ottinger on Thursday, May 23, 2002 - 02:06 pm:

Anon,

See FAR 43.103 Types of contract modifications.

"Contract modifications are of the following types:

(a) Bilateral.

...

(b) Unilateral. A unilateral modification is a contract modification that is signed only by the contracting officer. Unilateral modifications are used, for example, to--

(1) Make administrative changes;

(2) Issue change orders;

(3) Make changes authorized by clauses other than a changes clause (e.g., Property clause, OPTIONS clause, or Suspension of Work clause); and

(4) Issue termination notices."

Eric

By Anonymous on Thursday, May 23, 2002 - 02:58 pm:

Thanks.....part two of my inquiry relates to the SF30 and the a,b,c,d, blocks for mod type. Other than B,it is my belief that if the 30 does not require contrractor signature its listed in block d and if it does it lists in block c. Is that about right?

By joel hoffman on Thursday, May 23, 2002 - 05:20 pm:

Blocks 13 "a", "b" and "d" generally don't require the Contractor's concurrence. There are instances where a block d, bilateral mod is issued, but the FAR doesn't anticpate such a case in paragraph 43.301. One case I can think of is a notice-to-proceed for a Contractor proposed value engineering change under the VECP clause, that contains an agreed minimum instant contract savings. We occasionally issue NTP's for VE's with minimum savings guarantees, using block d.

We sometimes ask the Contractor to sign a change order, if it contains an agreement on a not-to-exceed price. That isn't a "supplemental agreement". So a block "a" change order could require a Contractor signature.

Now, having said all that, the Government automated contracting software might not allow certain combinations. I don't know how SPS handles it. The tail often wags the dog in the bureaucracy. happy sails! Joel

By Kennedy How on Tuesday, May 28, 2002 - 12:38 pm:

Joel,

I may find out next week when we're scheduled to meet on the ANSI X12 860 Contract Modification standard, and how it affects the various contract-writing systems.....



Kennedy

By joel hoffman on Tuesday, May 28, 2002 - 01:41 pm:

Thanks, Kennedy. Please keep us posted. happy sails! joel

By Linda Koone on Tuesday, May 28, 2002 - 01:45 pm:

Joel:

I have a couple of comments about some statements in your last post.

You write:

"We sometimes ask the Contractor to sign a change order, if it contains an agreement on a not-to-exceed price. That isn't a "supplemental agreement". So a block "a" change order could require a Contractor signature."

If you have reached an agreement on a not-to- exceed price for a contract change, then I would argue that you do indeed have a 'supplemental agreement' and that Block "c" rather than "a" should be checked.

Maybe I'm just a purist, but I believe that Block "a" should be reserved strictly for unilateral change orders.

I also believe that Block "d" can be used for either a unilateral or bilateral (supplemental agreement) modification. It states right on the SF30 that for Block "d", you need to specify type of mod and authority. If it wasn't contemplated that Block "d" could be used for a bilateral mod, then there would be no reason to specify mod type (of which, as Eric explained, there are two types, unilateral and bilateral).

By joel hoffman on Tuesday, May 28, 2002 - 03:52 pm:

Linda, I agree with you concerning "supplemental agreements", don't know why a modification for a "change order" cannot be bilateral, and agree that block 13d could be used for a bilateral modification.
You are correct that one should cite (or is "may cite" more correct?) block 13c and the appropriate clause when a change order is issued with an agreement on a not-to-exceed price.

I was looking for the technical definition of a supplemental agreement, the other day, before responding to Anonymous. I couldn't remember whether we used block 13c or 13a when we issued a change order which included any type of bilateral agreement. I couldn't find a definition of "supplemental agreement", but FAR 43.204 (a) hinted that it included an equitable adjustment. I overlooked the language in 43.103 (a): "A bilateral modification (supplemental agreement) is ..." I also should have seen the definition of supplemental agreement in SubPart 2.1 "...a contract modification that is accomplished by the mutual action of the parties." This definition has been moved from 43.101.
As to whether a change order modification is always unilateral, I don't know. The example above is still a "change order", even though it contains an agreement between the parties. Does it matter whether 13a or 13c is cited, since the FAR isn't very specific? I suppose it could make a difference. Is a change order, containing an agreement on some aspect of the change, such as time, not-to-exceed price, etc., effective if the Contractor refuses to sign, even thought the KO might have signed it first? Under block 13c, it would be more apparent that it isn't until both parties sign it. Under block 13a, it might be considered effective upon issuance and the Contractor might have to provide notice if it no longer ageed to the previously settled term.

With regard to your second point, I did say that block 13d could be used for a bilateral mod. I also said that it didn't appear that the FAR, in paragraph 43.301, contemplated the bilateral use of block 13d. Having re-read 43.301, it still appears that way see paragraph 43.301(a)(1)(i) through (vi), especially (iii).

However, if any bilateral modification is a "supplemental agreement", wouldn't block 13c be cited, instead of block 13d?

Which brings us back to Anonymous' question? If a bilateral mod is a "supplemental agreements", is block 13c used for any bilateral mod (="supplemental agreement") and is one of the other blocks used for any unilateral mod? happy sails! joel

By Vern Edwards on Tuesday, May 28, 2002 - 05:41 pm:

Joel and Linda:

A change order is always a unilateral mod. A supplemental agreement is always a bilateral mod.

See FAR § 2.101:

"Change order means a written order, signed by the contracting officer, directing the contractor to make a change that the Changes clause authorizes the contracting officer to order without the contractor's consent."

"Supplemental agreement means a contract modification that is accomplished by the mutual action of the parties."

When looking for definitions, keep in mind that the FAR Council moved most of the definitions that had appeared in the various parts to Part 2.

By joel hoffman on Wednesday, May 29, 2002 - 06:40 am:

so the questions are this, concerning an SF 30, block 13:

1. If all supplemental agreements are bilateral mods, are all bilateral mods supplemental agreements? (my question)

2. If yes, then is it correct to say that block 13c used for all bilateral mods? In other words, are blocks 13a, b and d only used for unilateral mods? (Anons second question in this thread)

3. Is it correct to say that a change order issued, which includes an agreed not-to-exceed price or other mutually agreed terms, is a bilateral mod, therefore is a supplemental agreement? (my question)

4. Is it correct to say that an authorization to proceed with an undefinitized value engineering change is a supplemental agreement, if it contains an agreement concerning a minimum instant contract savings, minimum credit to the Government, or other agreed terms? (my question)
Thanks and happy sails! joel

By Mike Wolff on Wednesday, May 29, 2002 - 08:53 am:

Before giving my opinions to Joel's questions, I have a question of my own. If, in response to incorporating a new Service Contract Act wage determination, a contractor submits a request for a price adjustment which we agree to, may I do the supplemental agreement by signing block 16B and attaching as part of the mod the contractor's proposal, and then not need to have them sign block 15B?

My answers to Joel's ?s:
1) Yes, all bilateral mods are supp. agreements.
2) Yes, all bilateral mods should use block 13c
3) Yes, a mutally agreed to change order is not actually a change order, but is a supplemental agreement.
4) Yes, it is a supp. agreement

Re: the use of "change order," I've found that many, if not all, of our architects and engineers call any modification to the contract a "change order," whether it is unilateral or not. I think this is just the lingo in the construction industry. To differentiate, I refer to generic "change orders" as small "c" change orders, and true change orders under the Changes clause as capital "C" change orders.

By Anon on Wednesday, May 29, 2002 - 08:55 am:

A change order may be issued unilaterally or as a supplemental agreement. To wit, FAR 43.204...


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.

By Vern Edwards on Wednesday, May 29, 2002 - 09:17 am:

Anon:

A "change order" is always unilateral; that's why it's called an "order". Changes can be made either by change order or supplemental agreement, but a supplemental agreement is not a change order. If a contractor consents to the change in advance, by supplemental agreement, then the contracting officer has not ordered the contractor to change anything; rather, the parties have agreed to the change. Why, then, refer to the supplemental agreement as an "order"?

The changes clause does not authorize changes per se. Parties to a contract can always change it by mutual assent. The changes clause authorizes the contracting officer to make certain kinds of changes unilaterally, "by written order."

Even without the definition in FAR § 2.101, it would make no sense to call a supplemental agreement an order. I acknowledge, however, that it is common practice to refer to supplemental agreements as "change orders." Even Cibinic and Nash have used the phrase "bilateral change orders."

By Linda Koone on Wednesday, May 29, 2002 - 09:51 am:

Joel:

My apologies for mis-stating your original opinion on whether Block "d" is used for unilateral or bilateral mods.

As for the questions you posed, my answers are:

1) Yes. All supplemental agreements are bilateral mods, by definition.

2) No. As I pointed out before, block "d" requires you to indicate what type of mod is being issued, which in my opinion, means that you can use block "d" for either unilateral or bilateral mods. Why would you use block "d" over block "c"? My only explanation is that block "c" limits you to cite a specific authority. While you can always cite a general authority such as FAR 43.103(a)(3), sometimes you may want to get more specific in explaining the need for the supplemental agreement.

3) Yes.

4) Yes, if I correctly understand your scenario includes an agreement on behalf of the contractor.


Mike: The DFARS [213.302-3(2)(ii)] permits you to issue unilateral mods based on a written or oral agreement from the contractor only if it's under a purchase order before any work has started. I've been taught that a contractor's letter cannot be used/incorporated in a unilateral mod because it is not an offer and in particular, does not generally include an offer acceptance period.

Anon: I don't read FAR 43.204 the same way you do. I think it's saying that if you negotiate the change in advance, then it is incorporated via supplemental agreement, not a unilateral change order.

By joel hoffman on Wednesday, May 29, 2002 - 10:19 am:

Linda, in your last post, you said that block 13d could be used for a bilateral mod and asked "Why would you use block 'd' over block 'c'" for a bilateral mod?

Now that I am aware that all bilateral mods are supplemental agreements, by definition, I wouldn't. Plus, with that definition in hand, FAR 43.301 indicates to me that block 13d is for unilateral mods under "other" provisions of the contract.

Therefore, I'd say that block 13c for a "supplemental agreement" is the block to be used for all bilateral mods.

I didn't fully understand your discussion concerning limitations of language in block 13c, unless it is a software problem. Is it because block 13d says to specify "type of mod"? If the type is "bilateral", it is a supplemental agreement, right? (Hence, 13c is used.)

In my opinion, there is some authority or provision for a mod, which can be described in either block 13c (bilateral) or 13d (unilateral).

If the mod is out of scope, we usually cite the applicable exception to competition in FAR 6.302 that was used, using block 13c. I've never written a mod under the Public Law (so and so???) relief mechanism, but assume it would be cited, if applicable, under block 13c.

So, I conclude that Block 13 d is for citing a unilateral mod, which isn't a change order. Again, all bilateral mods ("supplemental agreements", by definition)use 13c.

happy sails! joel

By Mike Wolff on Wednesday, May 29, 2002 - 10:50 am:

Linda,

Thanks for the comments - I'm not with DOD, but I think the same theory applies to civilian agencies too.

Mike

By Vern Edwards on Wednesday, May 29, 2002 - 01:14 pm:

Linda, Mike and Joel:

When I worked for the Air Force, we included a clause through which the contractor agreed to a procedure in which we would issue a draft change order, the contractor would propose a not-to-exceed amount for the equitable adjustment (price and time), and then we would issue a change order (unilateral) incorporating the agreement. The not-to-exceed agreement was contractually binding because it was made pursuant to the terms of the contract. The modern version of that clause appears in the Air Force Material Command FAR Supplement at 5353.243-9002. The text of the clause is as follows:

NOT-TO-EXCEED/NOT-LESS-THAN AGREEMENTS (AFMC) (APR 2001)

(a) Prior to the issuance of a change order under this firm-fixed-price contract, the Contractor shall promptly furnish, upon request of the Contracting Officer, written agreement as to the maximum (in the case of an increase) adjustments* to the contract price and/or in the delivery schedule (or time of performance), caused by the change.

* Or in the case of a reduction, a not-less-than amount for the price.

(b) The Contracting Officer shall also solicit such agreement on limitations to the adjustments or to any other contract requirements which may be subject to equitable adjustment by reason of the change. Any such written agreement shall then be cited in the change order and, upon its issuance, shall be a binding part of the contract. In no event shall the definitive equitable adjustment exceed the delivery schedule (or time of performance) adjustments so established. All costs associated with the change order shall be segregated from other contract costs until the change order has been definitized. Except with respect thereto, nothing contained herein shall affect the rights of the parties to an equitable adjustment by reason of the change, pursuant to the "Changes" clause.

(End of clause)

This procedure has been in use for more than 30 years.

By joel hoffman on Wednesday, May 29, 2002 - 01:39 pm:

Thanks, Vern. That's a good and worthy clause. However, in today's litigous construction industry, Contractor's are increasingly reserving the right to claim for "unforseen impacts", impacts due to "multiplicity of changes", etc., even on definitized changes/mods. Many wait until the end, tally up the books to see if they met their profit expectations, then submit a claim, if they didn't. The big boys I deal with would "holler and scream" about that provision! happy sails! joel

By Vern Edwards on Wednesday, May 29, 2002 - 01:50 pm:

Joel:

I don't doubt that a construction contractor would holler and scream, but construction is a business in which changes often have unforseen consequences and are often complicated by differing site conditions and defective specifications. The clause that I cited is used by a weapons development command.

By joel hoffman on Wednesday, May 29, 2002 - 04:17 pm:

I agree that such a clause may be more appropriate for other types of contracts than construction. happy sails! joel

By Linda Koone on Wednesday, May 29, 2002 - 04:56 pm:

Joel:

I guess we'll agree to disagree. I still believe there are times when block "d" can be used for bilateral mods, although I concede that it is probably used most often for unilateral mods that are authorized by other contract clauses (options, terminations...)

By joel hoffman on Wednesday, May 29, 2002 - 11:55 pm:

Linda, I agreed with you, up until last night or this morning, when everyone pointed out that all bilateral mods are supplemental agreements, by definition. It then follows that block 13 c must have been designed to be used for all supplemental agreements. The explanation of the SF30 in FAR 43.301 is consistent with that revelation.

Actually, I don't think it matters whether you use block 13 c or d for an "other" bilateral mod. It will still be legal. happy sails! joel

By Anon on Thursday, May 30, 2002 - 07:40 am:

I wish it was available online, but many moons ago, Marshall Doke, Jr of the law firm Doke and Riley (based in Dallas) wrote an interesting article in the Federal Contracts Report (1 July 91) about the block 13 authorities and their use.

By joel hoffman on Thursday, May 30, 2002 - 09:23 am:

Tried to find it in our general and law libraries. Can anyone give us the Reader's Digest version? How about block 13d? hee! hee!
hs joel

By Anon on Thursday, May 30, 2002 - 11:06 am:

13D, how about Option to Extend the Term of the Contract, or Stop Work?

By Vern Edwards on Thursday, May 30, 2002 - 11:06 am:

Joel and Linda:

Do either of you think that an erroneous entry in SF30 block 13 affects the legal validity of a contract modification?

By joel hoffman on Thursday, May 30, 2002 - 11:47 am:

That's a broad statement. I believe I said that I don't think that it would matter whether block 13c or 13d were used to cite the authority for a supplemental agreement, under an "other" clause. happy sails! joel

By Anon on Thursday, May 30, 2002 - 12:59 pm:

Vern, wouldn't an erroneous entry in block 13 of the SF 30 fall within the realm of a dispute? For example, what if I cited the Changes clause for a FFP supply contract and accelerated the delivery schedule, and the contractor came back and said I have no authority to do such an action pursuant to the Changes clause would I not have a dispute?

By joel hoffman on Thursday, May 30, 2002 - 01:03 pm:

To: Anon on Thursday, May 30, 2002 - 11:06 am:

You asked: "13D, how about Option to Extend the Term of the Contract, or Stop Work?"

Yes, block 13d is correct. happy sails! joel

By Anon on Thursday, May 30, 2002 - 01:08 pm:

I was just being overtly obvious Joel J

By Linda Koone on Thursday, May 30, 2002 - 01:14 pm:

Vern:

No, I don't believe it would, but I haven't researched it. Point taken, though. I'll drop the discussion.

Anon 12:59:

I wish I had the cite or time right now to research this issue, but I believe it was a BCA case that decided a dispute in a situation where the Government used the authority of the changes clause to accelerate delivery under a fixed price supply contract. If my memory serves me correctly, the BCA ruled in favor of the Govt.

If I find time to look up the specifics, I will.

By Anon on Thursday, May 30, 2002 - 01:29 pm:

Never mind the specifics Linda, the point was that it fell into the realm of a contract dispute.

By Vern Edwards on Thursday, May 30, 2002 - 01:58 pm:

Anon 12:59:

The basis for such a dispute wouldn't be the fact of an erroneous entry on SF30, but the fact of the government's attempt to unilaterally accelerate delivery on the basis of the changes clause. The contractor wouldn't dispute the entry in block 13; it would appeal dispute the contracting officer's action in issuing a unilateral modification to accelerate delivery. Presumably, the contractor would dispute the contracting officer's action even if the contracting officer had left block 13 blank.

By Anon on Thursday, May 30, 2002 - 02:04 pm:

Argumentative as is someone's wont but a claim under the Disputes Act of 1978 is in part defined as "'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."

An example does not represent the entire gene pool of what may constitute a claim.

By Vern Edwards on Thursday, May 30, 2002 - 02:51 pm:

Anon 2:04:

"An example does not represent the entire gene pool of what may constitute a claim."

I don't understand what you have just said.