REA PREPARATION COSTS: RECENT BOARD OPINION

Judge Park-Conroy of the Armed Services Board of Contract Appeals (ASBCA) recently has opined on the issue of whether a contractor can recover its costs of putting together, presenting and attempting to negotiate a settlement of a request for equitable adjustment (REA).  "The Costs of professional and consultant services are unallowable if they are incurred in connection with the prosecution of a claim against the government," she says.

"Contract administration costs, on the other hand, are 'presumptively allowable if they are also reasonable and allocable'," she quickly points out.  (Citations omitted.) In evaluating a contractor's claim for REA costs, the Board must examine the reasons the costs were incurred.  If they were incurred as contract administration costs, they are allowable.  But if they were incurred incidental to the prosecution of a claim, they are not.

Costs incurred for the real purpose of fostering and furthering the negotiation process should be viewed as contract administration costs even where negotiations fail and the REA is turned into a claim.  Thus says the Court of Appeals for the Federal Circuit (COFC) upon which precedent Judge Park-Conroy relies.  In the Appeal of TMS Environcon, Inc., however, Judge Park-Conroy denied recovery of the costs because they were not incurred in furtherance of settlement negotiations.

Converting the REA to a claim begins the running of interest at the Treasury rate which at last check was slightly under 2 percent.  Seeking recovery of the costs of contract administration seems the wiser choice as long as the prospects of settlement remain alive.

The costs of contract administration that are properly associated with the REA include:

1. Identification of changes and research of documents relating to changes;
2. Interviews with key personnel about the changes and examination of their files;
3. Review of all relevant files including any government files obtained under the Freedom of Information Act (FOIA);
4. Preparation of REA presentation narratives, appendixes and exhibits;
5. Presentations to the contracting officer in support of the REA;
6. Review of and response to reviews and audits conducted by the government;
7. Attendance at settlement negotiation meetings, negotiation telephone calls and preparation of negotiation strategy; and
8. Negotiation of and obtaining approval for final settlement including preparation of the contract modification.

And these costs are recoverable even if the negotiations are not successful and the REA becomes a claim and is litigated.

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