When a contractor incurs costs due to (i) formal or constructive changes to the contract; (ii) governmental defect or delay; or (iii) the Government's breach, the contractor is entitled to request an equitable adjustment ('REA'). An 'equitable adjustment' is an adjustment to a contract's price or schedule under a Changes clause to compensate a contractor for adverse governmental action. REA preparation 'normally requires a substantial effort, including contract analysis, factual investigation, legal entitlement analysis, the drafting process, the collection of documentary evidence and the pricing of the equitable adjustment.' (Citations omitted.)Basically, the REA preparation and negotiation costs are allowable unless they are incurred in connection with the prosecution of claims or appeals against the government. So Judge Wheeler summarizes the law by stating the costs are presumptively compensable as part of the equitable adjustment where:
(i) The contractor incurred the costs due to (a) formal or constructive changes to the contract, (b) governmental defect or delay, or (c) the Government's breach;
(ii) (a) The contractor incurred the costs in furtherance of information exchange or negotiation with the Government, whether or not it ultimately succeeded in forestalling a Board appeal, or (b) the Government received some other benefit from the expenditure; and
(iii) Where applicable, the contract incurred the costs before the actual filing of its Board appeal. (Citations omitted.)The practical lesson to take from Judge Wheeler's recitation of the law is that the costs of preparing, presenting and negotiating an equitable adjustment in contract price or schedule are presumed allowable as part of the equitable adjustment up until the time that the the REA is turned into a claim or until an appeal is taken (whether to the Board or the COFC).