Construction Law

Government Contractor Collects Consultant’s Fees incurred in Preparing a Request for Equitable Adjustment

By John P. Ahlers

In government contracting, claim preparation costs (attorneys' fees and consultant costs) are generally not recoverable by the contractor when pursuing a claim. On the other hand, if  consultant costs are incurred in preparing a "request for equitable adjustment,"  the consultant costs and attorneys' fees may be recoverable.  It depends on the somewhat nebulous distinction between an administrative cost and a cost incurred incident to prosecution of a contract claim.  As long as the consulting costs and attorneys' fees are incurred in the preparing of a request for equitable adjustment, for the purpose of seeking a negotiated resolution of pending issues, the costs are allowable.  If the contractors' "genuine purpose" in incurring the costs was to further the negotiation process, it is a contract administrative cost allowable under FAR 31.205‑33.  On the other hand, however, if the underlying purpose was to promote the prosecution of a Contract Disputes Act (CDA) claim, the costs are not allowable.  Under FAR 31.205‑33(b), the cost of legal and consulting services are generally allowable "when reasonable in relation to the service rendered."  "A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business."  FAR 31.201‑3. 

The Board held that the contractor was entitled to the consulting costs incurred in preparing the request for equitable adjustment, but because the consultant's work had not been monitored and because the consultant's services were categorized under generalized terms such as "schedule analysis," "developing issue files," "summarized findings/developed schedule REA" and "finalized REA," the Board determined it was not possible to discern the level of detail of work that was actually being performed by any given person on a given day and therefore, reduced the contractor's costs.

Government contractors, when faced with whether to present a request for equitable adjustment or file a certified claim, should weigh the recovery of claim preparation costs, but non‑recovery of interest in a request for equitable adjustment presentation vs. making a claim pursuant to which interest is recoverable under the CDA, but claim preparation costs are not.  To prevail, however, on the request for equitable adjustment, the contractor's burden is to show that the "genuine purpose" in incurring the attorneys' fees and costs was to further the negotiation process rather than to simply disguise a claim.  Find the case here

Full post as published by Construction Law Blog on April 06, 2008 (boomark / email).