Key Takeaways:

  • Bilateral modifications are used to mutually alter contract terms when both the contractor and the contracting officer agree to the changes.
  • These modifications are essential for formalizing negotiated adjustments, definitizing letter contracts, or accommodating regulatory updates.
  • Unlike unilateral modifications, bilateral changes require signatures from both parties and often include release or waiver clauses.
  • Contractors should review release language carefully to preserve their right to submit claims or seek equitable adjustments.
  • The Federal Acquisition Regulation (FAR) outlines specific uses and requirements for bilateral modifications, particularly under clauses like FAR 52.243-1 through -4.

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:

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.

When Bilateral Modifications Are Used

Bilateral modifications are used to amend government contracts when mutual consent is necessary. These scenarios typically include:

  • Negotiated equitable adjustments resulting from contract changes (e.g., scope expansions or unforeseen circumstances).
  • Definitization of letter contracts, which begin with limited terms and must be finalized to proceed.
  • Retroactive price adjustments due to economic price adjustment clauses or other contingency-based terms.
  • Implementation of updated statutory or regulatory requirements not foreseen in the original contract.
  • Agreement on revised delivery schedules, milestones, or performance criteria, particularly when external factors necessitate changes.

Because both parties must agree to the terms, bilateral modifications ensure that changes are negotiated, documented, and accepted before execution. This is especially critical in federal contracts governed by the FAR, where the government's authority is balanced against the contractor’s rights.

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.

Understanding Forced or Coerced Bilateral Modifications

There are instances in federal contracting where bilateral modifications may appear forced—for example, when agencies require contractors to sign modifications quickly in response to evolving guidance or newly published rules. Contractors should be cautious in these situations, especially when:

  • The modification references compliance with future guidance or pending regulations without clarity on their scope.
  • Signing the modification could imply waiver of claims or rights the contractor has not yet evaluated.
  • The modification includes vague or broad language related to indemnification, termination, or limitations of liability.

While bilateral modifications are by nature mutual, contractors may feel pressure to sign to maintain good standing or continue performance. In such cases, they should:

  • Clearly reserve rights in writing by stating that the signature does not constitute agreement to all terms beyond those explicitly accepted.
  • Request clarification or removal of overreaching release or waiver clauses.
  • Consult legal counsel to assess whether the modification constitutes a “cardinal change” or materially alters the contract's original scope.

FAR Clauses Relevant to Bilateral Modifications

Several Federal Acquisition Regulation (FAR) clauses govern when and how bilateral modifications are used. These include:

  • FAR 43.103(a) – Describes the authority to execute bilateral modifications.
  • FAR 52.243-1 through -4 (Changes Clauses) – These clauses apply to fixed-price, cost-reimbursement, or other types of contracts and provide for equitable adjustments via bilateral modifications.
  • FAR 16.603-2(c) – Requires that letter contracts be definitized through a bilateral modification.
  • FAR 52.212-4(c) – Applies to commercial item contracts and outlines how changes can only be made by mutual agreement.

Contractors should become familiar with these clauses to understand the government's authority and their own rights when negotiating bilateral changes. Awareness of these clauses also empowers contractors to identify when a modification may be improperly classified or applied.

Frequently Asked Questions

  1. What are bilateral modifications used to do?
    Bilateral modifications are used to mutually agree on changes to a contract, including pricing, scope, performance terms, or regulatory compliance.
  2. What is the difference between unilateral and bilateral modifications?
    A unilateral modification is made by the contracting officer alone, while a bilateral modification requires agreement and signatures from both parties.
  3. Can a contractor refuse to sign a bilateral modification?
    Yes, but refusal may have consequences, especially if the modification involves critical changes. Contractors should reserve rights and seek legal guidance if unsure.
  4. Are bilateral modifications always enforceable?
    They are generally enforceable, but clauses like waivers or releases can be challenged if signed under coercion or if they are overly broad or ambiguous.
  5. What should a contractor watch out for in a bilateral modification?
    Key areas to scrutinize include release language, unclear future obligations, broad indemnity clauses, and any implied waiver of rights to future claims.

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