Analysis of FAR Part 43 - Contract Modifications

Overview

FAR Part 43 prescribes the policies and procedures for preparing and processing modifications to all types of government contracts. It establishes the framework for both bilateral (agreed upon by both parties) and unilateral (issued by the government only) changes, ensuring that contractual adjustments remain within the legal scope and are properly funded.

Key Rules

• Authority to Modify: Only Contracting Officers (COs) acting within the scope of their authority are empowered to execute contract modifications. No other government personnel may direct or encourage a contractor to perform work that should be the subject of a modification.
• Bilateral vs. Unilateral Modifications:
  • Bilateral (Supplemental Agreements): Require signatures from both the CO and the contractor; used for definitizing letter contracts or making negotiated equitable adjustments.
  • Unilateral: Signed only by the CO; used for administrative changes, change orders, or exercise of options.
• Availability of Funds: A CO cannot execute a modification that increases funds without first obtaining a formal certification of fund availability, except for specific "subject to funds" or "limitation of cost" clauses.
• Change Order Accounting: For complex changes, contractors are required to segregate costs associated with the changed work (nonrecurring vs. recurring costs) to ensure accurate pricing and audit trails.
• Definitization: Change orders that are not "forward priced" (priced before work begins) must be definitized in the shortest practicable time to mitigate financial risk to the government.
• Standard Form 30 (SF 30): This is the mandatory form for most contract modifications, including solicitation amendments, change orders, and supplemental agreements.

Responsibilities

• Contracting Officer (CO):
  • Ensures all modifications are within the general scope of the contract.
  • Secures funding certifications before execution.
  • Negotiates equitable adjustments and ensures cost analyses are performed.
  • Establishes suspense systems to track unpriced change orders.
• Administrative Contracting Officer (ACO):
  • Issues change orders when authority is specifically delegated.
  • Must obtain CO concurrence before adjusting contract delivery schedules.
• Contractors:
  • Must continue performance of the contract as changed (except for certain cost-reimbursement limits).
  • Notification Requirement: Must notify the government in writing as soon as possible if they believe a "constructive change" (an oral or written direction not signed by the CO) has occurred.
• Other Government Personnel (e.g., Program Managers, CORs):
  • Strictly prohibited from acting in a manner that leads the contractor to believe they have the authority to bind the government or change the contract terms.

Practical Implications

• Preventing "Scope Creep": Part 43 protects the government from unauthorized "constructive changes." If a Program Manager tells a contractor to perform extra work, the contractor must invoke the "Notification of Changes" clause (FAR 52.243-7) to avoid a situation where the government is not legally obligated to pay for that work.
• Risk Mitigation through Pricing: The regulation strongly encourages "forward pricing." In real-world scenarios, executing a change order before agreeing on price (unpriced change order) is risky because the government loses bargaining leverage once the contractor has already incurred costs.
• Finality of Agreements: To avoid future litigation, COs use the "Contractor’s Statement of Release" in supplemental agreements. This language legally bars the contractor from coming back later to claim more money for the same change, providing financial "closure" for the government.
• Administrative Efficiency: The use of unilateral modifications for administrative changes (like changing a paying office address) allows the government to maintain the contract without the time-consuming process of seeking contractor signatures for non-substantive updates.