Bilateral Modification: Everything You Need to Know
Bilateral modification is a supplemental agreement to a contract that both the contracting officer and the contractor sign.3 min read
Bilateral modification is a supplemental agreement to a contract that both the contracting officer and the contractor sign. In general, modifications change the terms and the conditions of a contract, including but not limited to the performance period, the statement of work, the price, or the quantity. A bilateral modification is typically used to:
- Negotiate equitable adjustments when a change order occurs.
- Definitize letter contracts.
- Reflect other types of modifications.
Bilateral Versus Unilateral Modification
In contrast to a bilateral modification, only the contracting officer can sign a unilateral modification, and it can be used to:
- Issue a change order.
- Make an administrative change.
- Make changes that specific contract clauses authorize.
- Issue notices of termination.
Government contract changes typically create more work and more money for the contractor. However, it is important to consider specific factors before conducting work that a unilateral contract modification will order, such as:
- Is the additional work required?
- Is the work funded?
- Is the maximum price binding?
- Does the modification contain binding release language?
The government mandates that contract modifications must be priced before they can be executed, and that if no price can be agreed on, a maximum price must be negotiated. This often occurs because the work under the modification must be done urgently. Sometimes, a maximum price is included in a unilateral modification. However, since the contractor did not sign this type of modification, the price in question may not be binding.
In some cases, release language is included that establishes the maximum price as complete compensation. However, the Civilian Board of Contract Appeals has ruled that this type of release language is not enforceable, even when the contractor signs it.
It is important to keep detailed cost records during any contract, since courts tend to favor the use of actual costs after the work is complete when a contract has been modified. The better your records, the greater your chance for complete cost recovery.
If you are not sure whether you are bound by a modification, avoid signing it but perform the work in question unless a material breach or other extreme situation has occurred. Not performing the work leaves you liable for a:
- Breach of contract
- Default termination
- Other claims.
Some contractors are concerned that performing the work, even though the modification has not been signed, may constitute a legal agreement with its terms and conditions. You can take measures to protect yourself by objecting to the maximum price and the release language in writing and noting that the work in question is being performed but under protest.
You can also agree to the direct modification costs while reserving the right to negotiate impacts to the cost and the delay. Treat unilateral modifications as one-sided changes that do not require your assent.
Implications of Bilateral Modification Release Language
Contractors must be aware of the implications of bilateral modifications when submitting a request for a claim or an equitable adjustment. Sometimes, a contracting officer will attempt to execute a change through a bilateral modification that you feel is outside the original contract scope. This is sometimes called a cardinal change.
In this case, you can either perform the work, thus accepting the change, or you can risk a default termination by refusing performance and risking negative reviews. This makes continued performance the only viable option for most contractors.
When accepting a cardinal change, reserve the right to pursue any damages regarding disputed terms such as the performance time, the costs, or the scope of work. This requires you to read and understand all the modification's terms and conditions.
It is especially important to note waiver language, which releases the agency from future damage claims.
In one recent case with the Armed Services Board of Contract Appeals, a contractor signed a bilateral modification while agreeing to a termination for convenience and zeroing out the contract value. This agreement included waiver language.
Later, the contractor attempted to recover certain costs from the agency. The board agreed with the agency because the modification to the waiver language had been signed by the contractor, and it contained clear, unconditional, and unambiguous language.
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