The Civilian Board of Contract Appeals ruled that a contractor is not only entitled to overhead and profit on change order work under the VA’s Changes Clause, but also to overhead and profit on other work that was impacted or delayed by the change order work. Appeal of Industrial Maintenance Services, Inc., CBCA No. 5618 (September 15, 2017) This is new precedent and could change the way we calculate impact costs. Impact costs stem from a change’s impact on unchanged work. For example, a change in the HVAC duct work might impact or delay electrical work that cannot be completed until the HVAC duct work is done. In such a case, the Board ruling would allow the contractor to apply overhead and profit on the value of the electrical work as the appropriate measure of impact costs or “delay overhead”:
However, in seeking delay overhead, the contractors did not raise and opinions have not addressed or recognized that in terms of dollars, the actual scope of the underlying change extended beyond the dollar value of work added, altered, or deleted. As is apparent in this case, with the critical path of performance affected, the impact of the change reached beyond the immediate work modified, and the impacted work is just as much a part of the change as the actually added and altered work. The dollar value of the impacted work is an element of the costs of the modified work. It is from that total amount that the overhead and fee percentages must be calculated to properly compensate the contractor for its costs not recoverable as direct costs.
This decision is interesting and could have a wide sweeping impact on how one calculates impact costs, at least with respect to VA contracts. Note that contractors can still seek delay damages under the suspension of work clause, if a particular change suspends performance. Careful review of the modes of recovery should be looked at to ensure compensation is fair and reasonable.
