U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

25–498 2017

ALL WORK AND NO PAY: CHANGE ORDERS 

DELAYED FOR SMALL CONSTRUCTION 

CONTRACTORS 

HEARING 

BEFORE THE

SUBCOMMITTEES ON CONTRACTING AND 

WORKFORCE AND INVESTIGATIONS, 

OVERSIGHT, AND REGULATIONS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MAY 25, 2017 

Small Business Committee Document Number 115–022 

Available via the GPO Website: www.fdsys.gov 

SBREP-219A with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

DON BACON, Nebraska 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RON ESTES, Kansas 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

SBREP-219A with DISTILLER

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Knight ................................................................................................... 1 

Hon. Stephanie Murphy .......................................................................................... 2 

Hon. Trent Kelly ...................................................................................................... 3 

Hon. Alma Adams .................................................................................................... 4 

WITNESSES 

Mr. Edward DeLisle, Co-Chair, Federal Contracting Group, Cohen Seglias 

Pallas Greenhall & Furman PC, Philadelphia, PA ........................................... 7 

Mr. Andy Brown, Vice President, Glen/Mar Construction, Clackamas, OR, 

testifying on behalf of the Associated General Contractors of America .......... 8 

Mr. Greg Long, CEO, Long Electric Company, Napa, CA, testifying on behalf 

of the National Electrical Contractors Association ........................................... 10 

Ms. Colette Nelson, Chief Advocacy Officer, American Subcontractors Association, Inc., Alexandria, VA, testifying on behalf of the Construction Procurement Coalition ...................................................................................................... 12 

APPENDIX 

Prepared Statements: 

Mr. Edward DeLisle, Co-Chair, Federal Contracting Group, Cohen 

Seglias Pallas Greenhall & Furman PC, Philadelphia, PA ....................... 25 

Mr. Andy Brown, Vice President, Glen/Mar Construction, Clackamas, 

OR, testifying on behalf of the Associated General Contractors of America ................................................................................................................... 32 

Mr. Greg Long, CEO, Long Electric Company, Napa, CA, testifying on 

behalf of the National Electrical Contractors Association ......................... 37 

Ms. Colette Nelson, Chief Advocacy Officer, American Subcontractors 

Association, Inc., Alexandria, VA, testifying on behalf of the Construction Procurement Coalition .......................................................................... 44 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

Statement for the Record from Hon. Steve King ........................................... 52 

SBREP-219A with DISTILLER

SBREP-219A with DISTILLER

(1) 

ALL WORK AND NO PAY: CHANGE ORDERS 

DELAYED FOR SMALL CONSTRUCTION 

CONTRACTORS 

THURSDAY, MAY 25, 2017 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

JOINT WITH THE

SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND

REGULATIONS

Washington, DC. 

The Subcommittees met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building, Hon. Steve Knight [chairman of the Subcommittee on Contracting and Workforce] presiding. 

Present: Representatives Chabot, King, Knight, Kelly, Blum, 

Bacon, Fitzpatrick, Marshall, Estes, Evans, Murphy, Lawson, 

Clarke, and Adams. 

Chairman KNIGHT. Good morning. This hearing will come to 

order. Thank you all for coming. 

Before we begin today’s joint hearing of the Subcommittee on 

Contracting and Work Force and the Subcommittee on Investigations, Oversight, and Regulations, I would like to thank our witnesses for taking the time to share their insights with us today and 

I look forward to their testimony. In 2016, our Federal Government spent $90 billion on construction, an industry that is vital to rebuilding our Nation’s crumbling 

and aging infrastructure. Our agencies must have agile, transparent, and fair processes in place in order to ensure high quality 

structures are built at a reasonable cost. Constriction is one particular industry where changes are particularly prevalent and flexibility is crucial. Agencies should be capable of swiftly adapting to 

changing conditions without engaging in a completely new and 

lengthy acquisition process. Issuing contract modifications through 

the use of formally authorized and document change is one way to 

accomplish this task. 

In contracting, a certain degree of reasonable delay is expected 

when changes are made. However, this becomes inexcusable when 

Federal agencies are unwilling to formally execute change orders 

and fail to pay for work that has been completed for months or 

even years. During this waiting period, small contractors are often 

left to finance new work out of pocket. Some of these expenses include paying employees’ salaries, taxes, building materials, running 

expensive machinery and other costs a small construction firm 

SBREP-219A with DISTILLER

2 

must assume. Unfortunately, this creates untenable situations and 

can result in financial distress, and in some cases, bankruptcy. 

Another common problem occurs. Contractors are directed to perform change orders, work without following proper notice and authorization procedures. If change order work is directed without following protocol, contractors may not get paid even for work they 

complete. With the added pressures of staying on schedule and not 

wanting to poison the relationship between the parties, small contractors must choose between working without a guarantee of payment or risk contract termination for nonperformance. Faced with 

this impossible decision, small contractors often decided to go 

ahead and do the work. 

This issue is not unique to small firms, however. Large firms 

have the flexibility and capital to bear extended periods of time 

waiting for change order payments. In contrast, smaller operations 

require a stable and predictable cash flow to replenish their limited 

working capital. 

Many small contractors rely on bank loans and lines of credit to 

bridge the gap, raising the risk of bad credit or worse. When resources are tied up on unprofitable projects, small contractors are 

unable to seek new work. When multiple change orders are delayed, the impact is further compounded. By engaging in these poor 

change order practices, agencies end up struggling with small construction contractors. We need to make it equitable for small businesses to work with the government and reduce these barriers that 

hurt or dissuade small businesses from working with government 

contracts. 

I hope through this testimony of our witnesses we can learn 

more about this issue and discover ways to prevent this unfortunate circumstance. I do look forward to the discussion today. 

I would now like to yield time to the ranking member, Ms. Murphy, for her statement. 

Ms. MURPHY. Thank you, Mr. Chairman. 

For several decades, the Federal Government has relied on the 

private construction industry to build and repair infrastructure for 

its day-to-day operations. Accordingly, a thriving small business industrial base has become essential to the U.S. economy and to our 

national security. However, it is well documented that government 

contracts are less than perfect when awarded. As we will hear 

today, more needs to be done to reduce the burdens imposed on 

small construction firms due to administrative delays. 

During performance of a contract, many changes may be required 

to fix inaccurate specifications, react to new circumstances, or modify the work to better meet agency needs. A change order is a unilateral, written order issued by a contracting officer directing the 

contractor to make a contract modification. Currently, such directives can be made with or without the contractor’s consent. 

The ability of Federal agencies to make such unilateral decisions 

has led to persistent problems in which agencies fail to follow the 

proper procedures to issue change orders. Agencies routinely delay 

the approval process for change orders or bundle them to ease the 

administrative burden on contracting officers. 

This Committee is concerned that such actions have been taken 

without sufficient consideration of the consequences for small conSBREP-219A with DISTILLER

3 

struction businesses. Agency delays can create significant financial 

burdens on contractors. Due to the nature of construction projects, 

processing a change order can slow down other parts of the project, 

jeopardizing the ability of contractors to meet their obligations. 

Firms are often left with little choice but to comply with changes 

without receiving formal approval of the change order or a guarantee that they will receive payment. 

This has created tremendous uncertainty for small contractors 

that do not have the overhead margins of larger primes and cannot 

afford to go unpaid for work performed. Without prompt payment, 

small firms can struggle to meet their payroll, let alone pay their 

bills. In some of the more egregious cases, businesses have gone 

over a year without payment for work completed. 

Although equitable adjustment in the contract price enables a 

contractor to receive compensation for additional performance costs 

incurred by a contract modification, this option falls short of solving the problem. Requests for equitable adjustments (REAs) can 

allow small business construction contractors to afford continuing 

performance, but any delay means the contractor must assume the 

cost and hope for payment after completion of the contract. 

Numerous policies and protections have been enacted to 

incentivize small businesses to continue participating in government contracting, but more are necessary to manage the change 

order process. Small businesses have approached this Committee 

with complaints about the effect of bundling or consolidation of 

change orders on their bottom line. I hope today’s hearing will shed 

light on these challenges, and I look forward to hearing this panel’s 

feedback on legislation that Congressman Fitzpatrick, Chairman 

Knight, and I recently introduced to address the issue. 

Whether it comes to change order delays, reductions in Federal 

procurement staff, or an increase in multiple award contracts, 

there will always be new issues for small businesses to overcome. 

We must ensure that the procurement laws evolve with this changing landscape. Doing so is essential not only for small firms and 

our Nation’s industrial base, but for the overall health of our economy. 

I yield back the balance of my time. 

Chairman KNIGHT. Thank you very much. And this is a joint 

hearing, so we have the Chairman from the Subcommittee on Investigations, Oversight, and Regulations with us, Chairman Kelly, 

to have his opening statement. 

Chairman KELLY. Thank you, Chairman Knight. 

You know, in the Small Business Committee, I thank our Ranking Member Murphy and Ranking Member Adams. We unite in the 

Small Business Committee regardless of party, and we are all great 

advocates for the small business communities that are so important 

to our economy. 

I would also like to thank our witnesses for your willingness to 

testify on the serious problems endangering our small businesses’ 

construction contractors caused by the actions and often the inactions of Federal agencies. 

As the chairman mentioned in his opening statement, small contractors often find themselves at the mercy of Federal agencies 

while they wait for payment on work that they completed months 

SBREP-219A with DISTILLER

4 

ago. Unfortunately, many do not know when that payment might 

be made or if the payment will be made at all. The danger of delayed change orders to small construction contractors was revealed 

by the Government Accountability Office’s study of the Debarment 

of Veterans Affairs construction process in 2013. The GAO found 

change orders took an average of 2 to 3 months to complete from 

start to finish, and sometimes as long as 6 months. In one instance, 

the VA halted change order processing all together for one year 

leaving small contractors without payment or resolution. In 2013, 

$41 million in payments to subcontractors from the VA had not 

been made, leaving 33 businesses in financial distress. Some contractors were waiting for payment for work they completed over 12 

months ago and a few filed for bankruptcy. Because of these issues, 

small businesses would rather work in the private sector than bid 

on financially risky and potentially unprofitable government 

projects. 

The agencies also suffer from their own poor practices. Projects 

become less appealing to contractors, which reduces competition. 

To offset this risk of delayed payment or nonpayment, small contractors will inflate the prices on bids. This forces the agency to accept much higher prices than budgeted. Simply said, change order 

delays can stretch into years and cost overruns can reach upwards 

of tens of millions of dollars. 

Furthermore, the Committee is concerned that agencies may be 

engaging in unfair negotiation strategies with construction contractors. One such tactic involved delaying multiple change order payments until the end of a project to try to leverage for a better price. 

Agencies may also be forcing small businesses to rely on claims 

process to litigate their dispute. Small businesses do not have the 

time or resources to litigate claims and often settle for lesser 

amounts than owed, rather than face thousands of dollars in legal 

fees for the potential benefit of being paid pennies on the dollar. 

I look forward to hearing more from our distinguished panel 

about whether agencies are, in fact, engaging in this unfair treatment and what protective measures might be available. 

Mr. Chairman, I yield back the balance of my time. 

Chairman KNIGHT. Thank you very much. 

And we would like to hear from the ranking member, Ms. 

Adams, for her comments. 

Ms. ADAMS. Thank you, Mr. Chairman. Thank you for holding 

this valuable hearing, and I thank all of the individuals who are 

here to testify today. 

Today’s discussion continues our ongoing work to help more 

small businesses compete successfully in the Federal Marketplace. 

As this Committee seeks ways to foster small business growth and 

expansion, we must always carefully consider what’s being done to 

maximize entrepreneurs’ participation, including their experience 

while performing government contracts. 

One longstanding barrier to small business participation in the 

Federal Marketplace has been the practice of bundling contract 

modifications which delays the payments of contractors while increasing the risk they take on. When Federal agencies group small 

modification actions together, they reduce the negotiating power of 

the contract. And while we have discussed formal contract changes, 

SBREP-219A with DISTILLER

5 

informal contract change are not issued in writing and often result 

from government conduct unforseeing impediments to performance 

or other factors. Much of the time they are disputed, leaving the 

business with costly litigations. These costs hinder the small contractors’ ability to perform other contracts and cut into the profits 

of the firm. 

Considering the prevalence of this problem, it is vital that we ensure the SBA is doing everything possible to intervene in unnecessary bundling by giving them more power to do so. 

This raises a number of important oversight questions, including 

whether the SBA has sufficient staff to monitor contract actions or 

performance and is truly privy to agency actions that negatively 

impact small businesses generally. Because of the nature of the 

work, construction contracts most often have informal changes. 

This leads to delays associated with recognizing them as official 

and receiving compensation for them. As other members have mentioned, this delay greatly affects the capital available to small construction contractors to cover the cost of suppliers or the proper 

bonding. 

Often small businesses do not have the capital to support large 

bonds that they need to participate in the Federal Marketplace. 

This difficulty is exacerbated when bundled change orders increases the original contract price, thereby requiring a larger bond. 

Given the delays associated with bundling modifications that potential increase in bonding could cause a small contractor to not be 

able to complete performance on the contract. And in other cases, 

small contractors avoid bidding entirely which diminishes the pool 

of qualified participants. This Committee must examine how well 

the SBA rulemaking process functions to boost small businesses’ 

ability to compete for Federal contracts and protect them when 

completing performance. 

Mr. Chairman, this Committee has a long track record of working in a bipartisan manner, particularly when it comes to procurement issues. It is my hope that we can continue that tradition to 

further small businesses’ role as successful Federal contractors. It 

is all the more critical that this Committee and the SBA work to 

remove barriers that prevent small firms from successfully performing Federal work and getting paid for all of the work done. 

So I look forward to hearing the witnesses’ perspectives today on 

how we can best accomplish the task, and I yield back the balance 

of my time. 

Chairman KNIGHT. Thank you very much. And I firmly agree 

that this is one of those Committees that is a bipartisan effort to 

try and make it so that we get our small businesses to work, our 

small businesses can create opportunities, and we can have a robust economy. 

So I am going to go through the rules here real quick. If Committee members have an opening statement prepared, I ask that 

they submit it for the record. 

The lights in front are you are kind of our stoplights. So as it 

goes green, you have 4 minutes to give your presentation. When it 

goes yellow, you have a minute to kind of wrap it up. And when 

it is red, you are wrapped up. So we are pretty easy around here, 

SBREP-219A with DISTILLER

6 

but if you can kind of follow that, that would help everyone. And 

we stick to the 5 minutes up here, too, with our questions. 

So I would like to introduce our witnesses. Our first witness is 

Mr. Edward DeLisle. He serves as the co-chair of the Federal Contracting Group at the Law Firm of Cohen Seglias—— 

Mr. DELISLE. Seglias. 

Chairman KNIGHT. Pallas. 

Mr. DELISLE. Pallas. 

Chairman KNIGHT. Greenhall and Furman, and is shareholder 

and member of the firm’s board of directors. His practice focuses 

on Federal contracting, construction law, construction litigation, 

and he also counsels clients in all aspects of small business procurement. Mr. DeLisle has appeared before this Committee in the 

past, testifying on challenges facing small business construction 

contractors. And we thank him and welcome him back today. 

Our second witness is Mr. Michael Andy Brown. Mr. Brown is 

the vice president of Glen/Mar Construction, Inc., a woman-owned 

and service-disabled veteran-owned small business construction 

firm. Thank you very much. He has over 18 years of experience in 

the commercial and industrial at-risk construction market and in 

government contracting. Glen/Mar holds construction contracts 

with agencies, including the Department of Veterans Affairs, Army 

Corps of Engineers, and the General Services Administration. Mr. 

Brown will be testifying today in his capacity as the co-chair of the 

Small Business Committee on the Federal and Heavy Division of 

the Associated General Contractors. We look forward to his testimony. 

And now, since we have shuffled chairs back and forth, back and 

forth, I would like to go to the ranking member to introduce Mr. 

Long. 

Ms. MURPHY. It is my pleasure to introduce Mr. Greg Long, 

CEO of Long Electric Company in Napa, California. Mr. Long is 

testifying on behalf of the National Electrical Contractors Association. Mr. Long has been an electrician since 1979. He established 

Long Electric Company in 1990, which now employs dozens of 

workers. The firm serves customers in various markets, including 

biotechnology and pharmaceutical facilities, data centers, wineries, 

education facilities, and commercial and industrial facilities. In 

2015 and 2016, Mr. Long was unanimously elected to serve as the 

council chair for ELECTRI, NECA’s educational foundation. He has 

also served as a representative for the Council for the Electrical 

Contractors Trust of Solano and Napa Counties and as chair for 

the ELECTRI Program Review Committee. Welcome, Mr. Long. 

Chairman KNIGHT. Thank you very much. 

And our final witness is Ms. Colette Nelson. She is testifying 

today on behalf of the Construction Procurement Coalition, which 

includes 14 national trade and professional organizations, including 

the American Subcontractors Association. Ms. Nelson is the chief 

advocacy officer of the Association, and in her 30-plus years with 

the association, she has been involved in most of the major issues 

impacting the construction industry. We are pleased to welcome 

Ms. Nelson to the Committee. 

We look forward to your testimony. I can tell you that Chairman 

Kelly and I are here to have a robust and aggressive program. We 

SBREP-219A with DISTILLER

7 

are not just here to look pretty as Mr. Kelly and I do; we are to 

actually build a program that can be put into law that can help 

small businesses. And I know I speak for the entire, both Committees that that is the goal. 

So with that, we will start with Mr. DeLisle. 

STATEMENTS OF EDWARD DELISLE, CO-CHAIR, FEDERAL CONTRACTING GROUP, COHEN SEGLIAS PALLAS GREENHALL & 

FURMAN PC; ANDY BROWN, VICE PRESIDENT, GLEN/MAR 

CONSTRUCTION; GREG LONG, CEO, LONG ELECTRIC COMPANY; COLETTE NELSON, CHIEF ADVOCACY OFFICER, AMERICAN SUBCONTRACTORS ASSOCIATION, INC. 

STATEMENT OF EDWARD DELISLE 

Mr. DELISLE. Thank you, Mr. Chairman. 

As you indicated, the crux of my practice centers around the representation of construction contractors that perform work for the 

Federal Government, many of whom are small. So I am very familiar with the issue that we are here to discuss today, which is the 

problems associated with government delay in issuing contract 

modifications or change orders. I thank members of the joint Subcommittee for inviting me to testify today. 

If you travel to Washington, D.C., as I do from Philadelphia on 

the train and you take a cab from Union Station toward the White 

House, if you look across the sky, you will see that it is littered 

with cranes, and those cranes sit on construction projects. And as 

you make your way toward the White House an you stop in front 

of one of those construction projects, you will see teams of people 

working, going up and down ladders, pouring concrete, setting 

steel, operating equipment. You see dust and debris everywhere, 

and it is quite chaotic. And it is quite chaotic to the construction 

contractors that are performing, but it is something that they are 

accustomed to. There are a million risks associated with getting a 

construction project successfully performed, but a good contractor 

can manage many of the risks that you see as you drive past. Safety plans are in place to keep workers free from harm. Detailed performance and delivery schedules are in place so that work can be 

accomplished orderly and timely. But what happens when an unexpected change occurs on a project? What happens, for example, 

when the contractor realizes that it cannot build what is depicted 

on the plans and specifications? Or a situation where the government decides to change the configuration of a room in the middle 

of performance? That is where the real risk lies for a construction 

contractor, especially a small one. And they happen all the time. 

Changes in and additions to scopes of work represent unknown, 

and to a large extent, uncontrollable risk that can have an enormous impact on the time of performance and cost. 

The keys to mitigating that risk are to quickly identify the problem, modify the contract as soon as possible so that the performance issues can be addressed, fixed, and paid for. Unfortunately, 

the government often does not move as quickly as it should, which 

puts the contractor, especially a small government contractor, in a 

difficult position. 

SBREP-219A with DISTILLER

8 

I will discuss by way of example what can happen in a situation 

where the government fails to act, but first, let us talk about what 

should happen. 

The Federal acquisition regulations provide the contractor with 

guidance on how to proceed when faced with an unexpected or a 

change in condition. If a contractor runs into such a situation, it 

must generally notify government and ask for guidance. If the contracting officer responds with a directive to do something that the 

contractor thinks is over and above what it is required to do by 

contract, under FAR part 52.243-4, which is the changes clause 

that is typically included in a government construction contract, 

the contractor is supposed to tell the contracting officer that its directive will have a cost and time consequence if that is the case. 

Most of the time that is precisely what happens. Contractors know 

when they are going to incur unexpected cost, and it has all the 

incentive in the world to let the government know that that is the 

case. 

The problem is that the timely recognition of the change by the 

government does not happen when it should, does not happen like 

it should. FAR 52.243-4 states that once a change is made or occurs, the contracting officer shall make an equitable adjustment 

and modify the contract in writing. That notion mirrors FAR 

43.204, which is the FAR section that pertains to contract modifications, which states that the contracting officer shall negotiate equitable adjustments resulting from change orders in the shortest, 

practicable time. 

So when there are changes, the contracting officer is supposed to 

recognize them and negotiate an appropriate adjustment. That 

process does not happen the way that it should. Oftentimes what 

happens is that the change is not dealt with or recognized at all, 

and here is how that can play out in reality. 

I represented a service-disabled, veteran-owned small business on a job for the Department of Veterans Affairs. It was a $6 million 

renovation project with a performance period of 400 days. There 

were a myriad of changes that occurred on that project, all of which 

were obvious. After 700 days of performance and very few change 

orders issued, and a million dollars of his own money spent, this 

service-disabled veteran gave up and left. His reward for leaving 

was a termination for default. After 2 years of litigation, we finally 

settled. The contractor received $960,000 in compensation and the 

termination for default was rescinded, but it was too late. The contractor had already closed its doors. That is precisely why we are 

here. Thank you. 

Chairman KNIGHT. Thank you very much. 

And Mr. Brown, you are now recognized for 5 minutes. 

STATEMENT OF ANDY BROWN 

Mr. BROWN. Thank you. Members of the Committee, thank you 

for inviting me to testify on this important topic impacting small 

business contractors. 

I am vice president of Glen/Mar Construction, a family-owned 

and operated general contractor. As a woman-owned and servicedisabled veteran-owned small business, Glen/Mar performs vertical 

building construction, seismic renovations, and horizontal construcSBREP-219A with DISTILLER

9 

tion for Federal, state, and local agencies. I currently serve as cochair of the Small Business Committee for the Associated General 

Contractors of America. For years, AGC has worked with the 

House Small Business Committee to establish more protections and 

better governing policies for America’s small business contractors. 

The agency appreciates and thanks the Committee for its continued 

efforts to help our Nation’s small businesses. 

Change orders are an inherent process within the construction 

industry. Most contractors refer to it as a necessary evil as a perfect construction project simply does not exist. As with any construction project, unforeseen issues may emerge, resulting in a 

change order. However, in the Federal construction industry, 

change orders have become the bane of all contractors with significant financial impact to small business. 

The financial impact has a ripple effect that extends beyond just 

the prime contractor. It impacts the prime contractor, our subcontractors, and the project as a whole. Delays in processing 

change orders disrupt cash flow on the project. Cash flow is critical, 

and in my business, we often view it to be more important than 

profitability. Without sufficient cash flow, a company will never 

reach the finish line where profitability resides. 

When a Federal Agency fails to timely process and pay change 

orders, the contractor is left with few options. The contractor can 

either finance the work to meet the project schedule or stop work 

all together. Either option brings real problems to small businesses. 

To keep the project moving, often small businesses finance the 

work to complete the project and to avoid unnecessary Miller Act 

or payment bond claims filed by subcontractors and suppliers. 

It should come as no surprise that this adversely impacts our 

overall bonding capacity, which is necessary to pursue additional 

Federal contracts. The ripple effect begins when untimely processing and payment of change orders on one project prevents a 

small business from competing for additional Federal projects. 

In the past, my company has been unable to bid on projects because our equity was tied up while waiting on payment of change 

orders. The result is a decrease in competition for Federal projects, 

less efficient use of taxpayer dollars, and fewer opportunities for 

small business. 

The current state of change order processing continues to limit 

the pool of qualified contractors who desire to pursue work in the 

Federal Marketplace. Simply put, this has become a barrier to 

entry. Contractors, especially small businesses, can only finance 

these projects for so long. Slow payment impacts not only the prime 

contractor but all lower tier subcontractors. 

As an example, I have an active VA project in California. From 

September through December of 2016, we submitted 15 change orders totaling nearly half a million dollars. These change orders are 

undisputed by the agency, but as of today’s testimony, some 5 to 

7 months later, the work is done but we have not been paid. Therefore, I have been unable to pay a key subcontractor 100 percent for 

the additional work they have completed. As a result, this subcontractor is now under a Department of Labor investigation due to 

their inability to make timely payments in their employees’ 401(k) 

SBREP-219A with DISTILLER

10 

plan. This example shows the ripple effect small businesses face because of untimely payment of change orders. 

Conversely, stopping work due to agency indecision or inaction 

can lead to negative past performance evaluations. Negative evaluations can adversely impact a contractor’s ability to gain future 

work. And in extreme cases, stopping work could give rise to the 

agency terminating the contract for default. Either option is detrimental to small business contractors. 

What I have described in my testimony today is quickly becoming the norm rather than the exception with regards to timely processing any payment of change orders. Just as Federal agencies try 

to avoid poor performing contractors, contractors in turn try to 

avoid poor performing agencies, facilities, and/or government personnel, or at least bids accordingly. 

To highlight the irony, when we do not pay our bills, our utilities 

shut off, our cars are repossessed, our houses foreclosed. However, 

when the government fails to pay their bills, small businesses go 

out of business. 

In closing, I would like to thank you again for inviting me on behalf of AGC to testify before the Committee today. I look forward 

to answering any questions you have. 

Chairman KNIGHT. Thank you very much. 

Mr. Long, you are now recognized for 5 minutes. 

STATEMENT OF GREG LONG 

Mr. LONG. Okay. First of all, I would like to thank you, Chairman Knight, Chairman Kelly, Ranking Member Murphy, Ranking 

Member Adams, and members of both Subcommittees for inviting 

me to testify today on behalf of the National Electrical Contractors 

Association (NECA). I greatly appreciate the opportunity to speak 

before you. The Subcommittees are to be commended for holding 

this important hearing to address the critical issues of change orders. 

My name is Greg Long, and I am president of Long Electric Company located in Napa, California. Since founding the company in 

1990 at the age of 28, our family-owned business has provided electrical construction services on everything, including schools, hospitals, wineries, and various sustainable energy projects, to name 

a few. 

We at Long Electric are proud members of the National Electrical Contractors Association, where I have had the honor of serving on a number of industry committees and on the Board of Directors for the Northern California chapter since 1994. 

NECA is a national recognized voice of the $130 billion electrical 

construction industry, and our 4,000 members bring power, light, 

and communication technology to communities across the United 

States. 

Change orders are a part of every construction project. That said, 

our focus as contractors is to complete the job on time and under 

budget with safety as a priority. When we receive a proposed 

change order, we want to execute and address it in a timely manner. Unfortunately, there is a lot of back and forth negotiating the 

cost of the change order—direct cost, indirect cost, and consequential cost. 

SBREP-219A with DISTILLER

11 

A refusal by a contractor to complete a change order, refusal to 

begin on a change order until all paperwork is complete can result 

in loss of payment, potential lawsuits, and other punitive actions. 

Because of this, contractors typically proceed with the work under 

a change directive, requiring them to perform the work even prior 

to an agreement over the contract price and time. 

Navigating the challenges presented by change orders often 

forces us to collide with the very title of this hearing, ‘‘All work and 

no pay.’’ Change orders thrive in a realm where contractors have 

limited leverage in agreeing to the work and even less in extracting 

payment for the hard work they successfully perform. Often, we are 

not recouping our costs. In some cases, we are not paid in a timely 

manner. Sometimes we may not be paid for as long as 18 months 

or longer. This can be crippling to a small business. 

According to a study commissioned by ELECTRI International 

performed by Michigan State University, profits for change orders 

are slim. On average, a mere 3 percent. This also does not account 

for the litany of risk factors previously identified. To make matters 

worse, if this payment process is delayed, subcontractors run the 

risk of not making any profit at all. It can even impact our ability 

to bid future work due to lack of working capital. 

Despite these challenges, there are a handful of opportunities 

that have contractors like myself optimistic, but first is the construction industry growth over the past year, with a nearly 4 percent increase since March of 2016, the industry is expanding. And 

secondly, legislatively it is twofold. The first is Representative Bacon’s recently introduced bill H.R. 2350, the Small Business Know 

before you Bid Construction Transparency Act of 2017. This legislation aims to address the length of time it takes for the Federal 

Government to review, approve, and pay for equitable changes. The 

validity of payment assurances, such as payment bonds and the 

timeliness of monthly payments. 

The second, introduced by Representative Fitzpatrick, Representative Murphy, and Chairman Knight, is H.R. 2594, the Small Business Payment for Performance Act of 2017, offers our contractors 

the ability to continue work without fear of withheld payments for 

change orders. The bill requires a partial payment of 50 percent 

within the timeframe specified by the Prompt Payment Act for any 

additional work. 

These reforms streamline the process of bidding on Federal construction work and allows subcontractors to adequately address the 

undue risk they assume when completing change order work. We 

urge the Committee to take positive action on these bills as soon 

as possible and welcome any and all questioning regarding their intricacies. 

With all of this in mind, I would like to thank you again for the 

opportunity to testify before you. NECA applies the Committee’s 

unwavering efforts to examine these important components of our 

expanding construction industry. We are pleased and remain optimistic at this Committee’s efforts to address change order concerns. 

Chairman KNIGHT. Thank you very much, Mr. Long. 

And Ms. Nelson, you are next for 5 minutes. 

SBREP-219A with DISTILLER

12 

STATEMENT OF COLETTE NELSON 

Ms. NELSON. Thank you. Thank the members of the Committee. 

For those of you who have worked with the construction industry 

before, and I am sure that is all of you in your capacity, you know 

that sometimes, frequently, we have trouble coming together and 

agreeing on anything. On these issues, on this change order issue, 

we are united, and that is why we have this Construction Industry 

Procurement Coalition that I am representing today. 

You know, change orders are ubiquitous in the construction industry. I live across the street from the Federal Courthouse in Alexandria, and as I was getting ready for this hearing last night, I 

got a notice that the government sewer connection does not line up 

with the city’s sewer connection, which will create a delay in the 

project and a change order. 

I would like to spend my time talking about solutions that the 

coalition has identified for this problem that we would ask that you 

consider. So we have several solutions that we have debated and 

agreed upon. 

The first would be to provide notice of agency policy and procedures on change orders in the RF process. This proposal is incorporated in H.R. 2350, and it is a very simple concept. Contractors 

and subcontractors are bidding on Federal projects, sometimes 

without knowing what they are getting into. As a quick example, 

on the National Geospatial Intelligence Agency campus outside of 

St. Louis, a several billion dollar, 5-year project at a recent event 

to brief small and emerging firms and encourage them to bid as 

subcontractors, a question was asked about, does the Corps of Engineers delay change orders until the end of the project? The answer was yes, and some small businesses who would otherwise 

have considered bidding left the room. They could not risk a delay 

of years for what will be certainly change order work. 

The second proposal that we make would be to establish deadlines for agency responses to requests for equitable adjustment. 

The Federal Acquisition Regulation sets a deadline for contractors. 

Contractors have to respond in 30 days. They have to submit their 

REA in 30 days. The FAR simply says that the contracting agency 

has to respond in a reasonable amount of time. That is not defined. 

We would suggest that at least for projects on which small businesses are the prime contractor, that a specific time be set. If we 

can compile a bid and a proposal in 30 days, certainly, the agency 

should be able to review and approve that within the same amount 

of time. 

The third proposal was incorporated in H.R. 2594, and that 

would be to require provisional payment of 50 percent of a request 

for equitable adjustment. That is a practice in the private sector, 

and it does not prejudice either the government or the contractor 

on future claims, but it keeps the cash flowing. So it is payment 

for performance that if the contracting officer has directed unilaterally the contractor to perform a change, that the contractor can request payment for up to 50 percent of its actual work on that 

change. Again, it keeps that cash flowing. 

The fourth proposal is to require regular reports on the status of 

REAs. What we have found is that the REAs go in and get put on 

SBREP-219A with DISTILLER

13 

the corner of the contracting officer’s desk for the duration of the 

project. By providing contractors, and thus, subcontractors and 

suppliers, with regular information, perhaps incorporated with the 

monthly progress payments, that at least the contractors would 

know when and if payment would be forthcoming. It would have 

the additional benefit of providing the Congress and other oversight entities informed on when those contracting orders are being 

processed. You know, one thing those of us in management know 

is that you do what is measured. So this would be an opportunity 

to measure those approvals. 

Now, I want to add just two more things. Some payment transparency assistance. Any time the contractor knows what is being 

done, the better we can perform, so we have two more proposals. 

One, to require the government to post in a public environment 

the prime contractor’s payment bond, and secondly, to notify, to 

provide in a public environment when the prime contractor is paid. 

So thank you very much for your time, and I am happy to respond 

to questions. 

Chairman KNIGHT. Thank you very much. 

And we will go now to our questions. I will take 5 minutes to 

start off the questioning. And just a basic question because I think 

you all hit on it, and we have all worked with contractors in a very 

small arena, whether working on our house or working in a business or something of that nature. And I know a lot of us have been 

in just that situation that Ms. Nelson said, that we come up with 

50 percent, they get going on the job, and as the job gets to its completion, then the second payment is made. And I think that is kind 

of a regular thing that happens with small contractors around the 

area. 

And so my first question is, what are the reasons that the government gives for withholding a million dollars or withholding payments to small businesses that have completed the work and now 

they are asking for payment? Is there a reason from the government or is there just no response? And I will—— 

Mr. DELISLE. Yes, Mr. Chairman. The reasoning that contractors will get can certainly vary. It can vary from ‘‘I did not receive 

all the paperwork that I needed,’’ which oftentimes is not the case. 

‘‘I have not gotten around to it yet. I am busy.’’ Oftentimes what 

you will hear is, ‘‘Well, we dispute the basis that there is a 

change,’’ when very clearly you can demonstrate to them that it is 

a change. So there is this guise of a dispute that really should not 

be there. 

Chairman KNIGHT. So there I am just going to add on to my 

second question because we are talking about change orders. If I 

do work in my house and I say, you know what, I want a different 

door than I requested, that is basically a change order right there. 

I am asking for an upgrade in door, and I initial there and say now 

I want this door that is going to cost X number of dollars more. 

And good contractors will do that, and they will say, okay, well, 

you acknowledge that you are doing this and you are saying that 

you are going to pay for this. Is that something that the government or that the subcontractor could require of the government? If 

we are going through these change orders, then there should be 

something that goes back and forth. I see a lot of nodding heads 

SBREP-219A with DISTILLER

14 

going back and forth like this. But is that something that, you 

know, this Committee is looking for answers and things that we do 

not get to these payments at the end where there is a dispute. And 

if there is no dispute when the work is done, there should not be 

any dispute when the work should be paid. But if they do not acknowledge it and they say, yes, there is a change order now but 

6 months later they say, was that really a change order or did you 

just do the work? 

Mr. DELISLE. I can give you a quick example. I alluded to this 

contractor that ended up going out of business in my opening statement. In that particular case, there were a series of change order 

discussions that took place between the government and the contractor. There were 2 weeks’ worth of meetings that happened, and 

at the end of that meeting period there was a handshake deal 

about what the cost should be. It was a negotiated agreement. 

What we found out later was despite that handshake agreement, 

the government simply did not have the money to pay for it. She 

was then going to try to get the money and it did not happen. So 

what they did was they forced the contractor into a claim situation, 

litigation, and the contractor never was able to recover from that. 

Chairman KNIGHT. And, you know, I am going to get to another 

question here but I am kind of going down this road because I 

know a lot of other questions will come about other things, but we 

are trying to fix something. And, you know, I would not shake 

hands with the government, and I am part of the government. So 

I think that what we are trying to say is things have got to be, you 

know, more concrete in everything that goes for a project. And especially if we are talking about a mammoth project where you 

might have 90 subcontractors coming in and doing work on a VA 

situation or building a hospital in Colorado that who knows when 

they will get done. You know, it is those kinds of things I would 

think that we could do something legislatively. 

But, and lastly, and I will never be the person to say we should 

collect more data in the government, but I guess I am this time. 

Is there a data collecting process of this? Everybody is shaking 

their head like this. No, there is not that shows that there are this 

type of activity that is going on year after year and we can kind 

of chart it and say we did not pay these subcontractors on time last 

year at a rate of 17 percent and the year before it was 12 percent. 

There is no data collecting in that arena, is there, Ms. Nelson? 

Ms. NELSON. Mr. Knight, there is a requirement in the Prompt 

Payment Act to report to Congress on late payments, but these are 

not late payments because they are not approved payments. 

Chairman KNIGHT. Okay. Well, we are going to move on to Ms. 

Murphy for her questions. 

Ms. MURPHY. This question is for Mr. Long. 

You know, each construction project has its own unique set of 

factors that help determine the overall cost of the project. For example, a project in Florida would have a different set of conditions 

than maybe a similar project in New York. Do you think that the 

change order process allows the agencies to consider the different 

variables that construction projects face? 

Mr. LONG. I think that a lot of times the proper procedures and 

protocol does not allow for a lot of issues and impacts with regards 

SBREP-219A with DISTILLER

15 

to change orders period. They are not recognized by all as far as 

the circumstance we could have in California or if it is in Florida. 

It could be taken into effect, but in most cases there is just a lot 

of—the problem is people are not recognizing the true cost impacts 

of the change order and, again, those could be the direct costs that 

are pretty obvious—labor materials, subcontractors and equipment, 

or it could be the indirect or consequential costs that you are 

speaking of. So they are just not recognizing the entire costs and 

allowable overhead and profit on top of that. That is a major problem and that is a major excuse you might say of these change orders getting delayed is the first part of that delay is them recognizing our true costs, followed by then the lack of prompt processing and payment thereof, which basically handcuffs us in doing 

business when this is just continual, one after the other on each 

project that we are contracted for. 

Ms. MURPHY. And so if you have laid out some of these problems that a lot of the similar, like small businesses are experiencing with change orders, is it possible that other industries are 

also facing the same challenges? And if they are also facing the 

same challenges, should the use of consolidation be prohibited for 

change orders at a certain stage in the performance of the contract? 

Mr. LONG. Do you mean the other trades? 

Ms. MURPHY. Yes. Other industries. 

Mr. LONG. Yeah. It is happening to all of us. So, you know, you 

could have a change order and it could involve 12 subcontractors 

in that one change order. It might not be just adding 20 outlets 

and 40 light fixtures, you know. We could be adding a generator 

or some mechanical equipment, and there are a lot of people involved in that change order, and it is happening to, like you stated, 

it is happening all the way down the line. So it is impacting all the 

industries. They all fill in exactly the same thing. 

Ms. MURPHY. And Mr. Brown, you had testified to the followon consequences or the flow-down consequences of change order 

delays and the role that this plays in negatively impacting prime 

contractors and subcontractors. How can this Committee work to 

lessen the financial burden of untimely payments on small construction firms at every level in the contracting process? 

Mr. BROWN. The way our subcontract typically is set up, and 

this is universal, and I am sure Mr. Long will confirm, we have a 

pay-when-pay clause. So if we do not get paid as the prime, the sub 

does not get paid, unless we decide to finance the job for the benefit 

of the project and the sub. And oftentimes we have to make that 

call. So yeah, transparency about the process, I would say it is described as consistently inconsistent across the government, across 

agencies, within agencies, different divisions. You get different answers about why it is being held up. And I think Ms. Nelson noted 

it is not late until they have accepted it. So the change order that 

I described in my testimony this morning, I actually recently had 

to reach out to VA headquarters to inquire about the status, and 

coincidentally, that same day I received a follow-on email saying 

that the additional funds request had been received. That would 

have been 7 months to the day. In reading the email string, the 

agency did not submit the request until the end of March. I had 

SBREP-219A with DISTILLER

16 

already been talking to the contracting head in October about what 

is the status and was being told it is going through the process. 

Ms. MURPHY. You all have shared really egregious stories. Are 

there any particular agencies that are worse than others? 

Mr. DELISLE. Just in my experience, I will tell you the answer 

is absolutely yes. I have had my clients, not me personally, but I 

have suffered through it with them, my clients have had a horrible 

time with the Department of Veterans Affairs. I, unfortunately, 

was involved in that mess in Aurora, Colorado. I represented a 

service-disabled, veteran-owned small business there, and but for 

the grace of God, we were able to maneuver him through and he 

survived. But his $18 million project cost him $32 million. And this 

is a small business. And when you do not get paid that kind of 

money, most of the time it does not work out very well for you. So 

that was a VA job. 

The instance that I described earlier during my testimony, that 

was a VA job and the list goes on and on. There are many of them. 

Ms. NELSON. I might suggest that frequently the differences are 

by region rather than by agency. And sometimes it is just by the 

skill and experience of the contracting officer. One of the problems 

that we face is over the last several decades funding for the number and the education of contracting officers or contracting staff for 

the Federal Government has deteriorated. Their ability to do things 

that we would like to have done promptly also has deteriorated. So 

sometimes it is just administrative convenience for an agency to 

put these requests for equitable adjustments to the side and audit 

and process them at the end of the project. 

Ms. MURPHY. Thank you. Thank you, Mr. Chairman, for allowing me a couple extra minutes. 

Chairman KNIGHT. Absolutely. 

And we are graced by the chairman of the Full Committee. 

Chairman Chabot is here. 

And I would like to now yield 5 minutes to Chairman Kelly for 

his questions. 

Chairman KELLY. And I am going to yield my position to Representative Fitzpatrick, who is a leader in pushing legislation in 

this matter, and he has another engagement, and so I want to yield 

that to him because I want to make sure he gets his questions. So 

I yield my time, or yield my position to Mr. Fitzpatrick. 

Chairman KNIGHT. Very well. 

Mr. FITZPATRICK. Thank you, Chairman Kelly, and Chairman 

Knight, and also Chairman Chabot, for bringing this important 

issue to the Committee. 

Our small contractors, as we all know, have endured unfair, onesided treatment for far too long. And as was referenced with the 

help and leadership of both Chairman Knight and Ranking Member Murphy, together we introduced H.R. 2594, the Small Business 

Payment for Performance Act, which we believe is a common-sense 

bill which recognizes that cash flow is the lifeblood of small business contractors. So with that being said, I want to open it up to 

the panel of experts starting with Mr. Long from NECA, as to what 

you think this legislation will accomplish and what remains 

unaccomplished. What steps do we need to take to further close 

that gap? 

SBREP-219A with DISTILLER

17 

Mr. LONG. Well, any time that you are going to put something 

on a bill out there that is going to provide some kind of payment 

relief, that is a good thing. The fact that change orders are being 

recognized as an issue and a problem in all sectors quite frankly, 

and it will be helpful in that manner. Again, cash flow is really everything, you know, to our small business. And if you have a 

$100,000 change order and you have 5 percent profit on it, that 

means you have $90,000 out there that you have already spent on 

that job, on that change order that is not getting approved. That 

is money out of your working capital. You times that by, you know, 

10 or 20 or 50 or 100 change orders and over the course of 10 or 

15 or 20 jobs, you know, we are not going to be able to sustain that. 

So promptly what needs to be done still I would say, if there is 

anything I could recommend, we need standardized change order 

protocol. There is a document that ELECTRI put out that is change 

order guidelines for electrical contractors right here. If that was 

used in creating a standardized change order document, we would 

take of a lot of the problems of at least getting to the approval 

process. Okay? And we still have the issue of timely handling and 

payment. So I would say another thing that needs to happen is a 

timeframe that becomes standard as well. You know, a deadline. 

And there has to be accountability and responsibility with that. In 

other words, what happens if they do not meet the deadline? You 

know, there has to be a hammer. There has to be leverage. There 

has to be something there to not just go over that deadline. But 

timely processing of change orders and receiving fair payment for 

those change orders, any legislation that can meet that end is what 

I know I am after. 

Mr. FITZPATRICK. What consequences would you suggest for 

delayed payments? 

Mr. LONG. Well, obviously, the best thing for me is I am not 

going to keep continuing to do work when I am not getting paid, 

so I am going to stop work. And I think entities do not want to see 

that work stop but I want to see payment, too. I do not want to 

see my whole company go away and all of our team, our employees, 

and that whole company that was referenced earlier that did not 

make it. And we are not doing anything wrong. You know, they 

have asked us to do the change order work. We have priced it fairly. If you follow this document, it is a fair price. Like I said, we 

are making 5 percent on a change order, possibly 3 to 5 percent. 

So I do not understand what the hang up is with approving that 

when we have provided the backup and we are continually dealing 

with no approval. Because there is no hammer. They have to be 

held accountable and it has to be if you do not pay, then we are 

going to stop work. 

Mr. FITZPATRICK. I yield back. 

Chairman KNIGHT. Thank you very much. 

And we will now go to the ranking member, Ms. Adams, for her 

questions. 

Ms. ADAMS. Thank you, Mr. Chair. 

To Mr. Long, small businesses play an important role in the 

American economy and national security. So as we continue to try 

to grow our economy, it is vital that we provide small businesses 

with the necessary opportunities to thrive to remain in the supply 

SBREP-219A with DISTILLER

18 

chain and to maintain our industrial base. If barriers continue to 

prevent new and existing small businesses from participating in 

the Federal Marketplace, such as delays in change orders and 

packing their bottom line, what will this mean for the industrial 

base and businesses like yours? 

Mr. LONG. Well, again, our company—I can only speak for our 

company. We will not work under those conditions because we 

would be out of business. When you are performing a service and 

paying out that labor and materials, subcontractors, equipment, 

and you are not getting paid, you are not going to be around long. 

So I would say that personally, if we find a contract like that, we 

will not bid it, so we will just go to other sectors to still remain, 

you know, a growing company in our community. 

Ms. ADAMS. Okay. Would other members of the panel like to respond? Mr. Brown? 

Mr. BROWN. Could you repeat the question real quick? 

Ms. ADAMS. If barriers continue to prevent new and existing 

small businesses from participating in the Federal Marketplace, 

such as delays in change orders that impact your bottom line, what 

will this mean for the industrial base and businesses like yours? 

Mr. BROWN. Yeah, I think Mr. Long hit it. There is a huge sector with the government contracting and small business programs 

that are there to encourage participation and really help start-up 

companies. It would be fool-hearted to say that that is the right 

place to go if you are just starting out. And change orders do become a barrier because you are forced to either proceed with the 

work or not proceed with the work. And as I kind of alluded in my 

testimony, we are faced with adverse past performance evaluations 

or the threat of termination for default. And that does not give us 

a lot of leeway to have any say unless you are prepared to go down 

that path. It is kind of a buyer beware as you try to enter the government marketplace. But just as the testimony up here earlier, I 

think one thing that is missing, it is clear in the FAR and in the 

contract terms that we have timeframes by which we are supposed 

to provide notice and get in pricing. The back half is missing and 

it sits there unbeknownst in the process. 

Ms. ADAMS. Okay. Thank you very much. 

Ms. NELSON. Ms. Adams, may I? 

Ms. ADAMS. Yes. 

Ms. NELSON. When we talk about the industrial base, we too 

often talk about other than small businesses, but every other than 

small business was a small business at some point. And if we do 

not encourage the development and growth of small businesses, we 

will not have those large businesses for our industrial base in the 

future. 

Ms. ADAMS. Okay. Thank you very much. 

So Mr. Brown, what has been the impact of contract modification 

delays on small business past performance rating? 

Mr. BROWN. Oftentimes, the issues in the past performance 

when you get an adverse rating, it is dictated by the morale that 

was created during the project and that issue is never identified as 

being a source of conflict during the course of construction. So it 

leaves the contractor to reply to the, I would say misleading or 

mischaracterization of our performance by having to kind of sling 

SBREP-219A with DISTILLER

19 

a little mud about what the other side of the story was. And so, 

but it is in the record, right? And then it is up for other agencies 

who are reviewing our past performance as to whether they are 

going to decide are we qualified enough, or do they want to hire 

us for the procurement that is in progress? 

Ms. ADAMS. Thank you. I am just curious about how change orders impact women and minority-owned construction firms when 

completing contracts, and do they face any different challenges 

when they are navigating from this process than their counterparts? If anybody, we have got about 18 seconds. 

Ms. NELSON. I think it is a problem for any small and emerging 

firm. The smaller and less experience you are, the more serious the 

problem. 

Ms. ADAMS. Okay, 7 seconds. 

Mr. BROWN. Yes. The change order issues I do not think sees 

small business versus large, women-owned versus emerging. It is 

universal. 

Ms. ADAMS. Thank you, sir. 

I yield back, Mr. Chair. 

Chairman KNIGHT. Thank you very much. 

And I now yield 5 minutes to Chairman Kelly for his questions. 

Chairman KELLY. As a former small business owner, I know 

cash flow is the lifeblood of a small business. Even if you are not 

getting paid what you are worth or what it costs you, to not have 

that cash flow absolutely forces you to appoint a bankruptcy or the 

inability to honor your obligations to others. So cash flow and timely cash flow is very huge. 

That being said, Ms. Nelson, as you noted in your testimony, the 

Federal Acquisition Regulation, FAR, does not define how long the 

shortest practicable time is for the government to review and request an equitable adjustment. In fact, you state an agency like the 

Army Corps waited for all requests for equitable adjustments until 

the end of the construction project likely for funding reasons. Can 

you talk about how the small business payment for performance 

acts would impact how agencies like the Army Corps pay out their 

change orders? 

Ms. NELSON. Well, it is really quite simple. On a unilateral 

change order, if the Corps of Engineers were to direct a prime contractor to do some extra work, the contractor would be required to 

submit its request for equitable adjustment within 30 days under 

the current FAR, and as that prime contractor performed, it could 

then invoice for up to 50 percent of the request for equitable adjustment that it submitted to the government. That would prejudice neither the government nor the contractor, but it would keep 

that cash flowing. Under the Prompt Payment Act, the prime contractor has to pay its subs and suppliers within 7 days of receipt 

of payment by the government, so it would then make sure that 

that cash flow went to the lower tiers as well so that those who 

need to pay labor, who need to purchase materials to get the government’s work done, will have the cash to do it. 

Chairman KELLY. And I have spent my whole life fighting for 

the little guy. I do not know if it is my southern DNA or what it 

is, but I have got a chip on my shoulder. But you know, I find they 

use that leverage, and so they know that small businesses have to 

SBREP-219A with DISTILLER

20 

have that cash flow just like I talked about initially, and they use 

that as leverage to make them take less than what they are worth, 

and also, the longer they drag it out, the less they will take. And 

we have just got to break that thing where they cannot do that. 

My next question is to Mr. Brown. In your testimony, you identify one of the greatest challenges Federal contractors face is obtaining timely decisions from Federal employees. Could you elaborate on any ideas you might have to motivate the government to 

act more efficiently and swiftly? 

Mr. BROWN. Well, you know, we get the contract thrown at us 

any chance the agency can. And unfortunately, we do not have 

much leverage when it comes to getting timely decisions. Even if 

we are talking about undisputed change orders, maybe just RFIs 

and submittals. I mean, there is a guideline and a timeline that everybody has to participate in. It is a project. It is a team. 

I think the thing that is missing is with regards to the change 

order FAR is a requirement of the timeliness to get the approval. 

It cannot just sit on somebody’s desk. We cannot just be told it is 

going through the process. We are requesting prior year funds. As 

a small business, I do not know what that is. I do not know if it 

is true. I go talk to another VA employee and that is not the answer I get. So it is hard to figure out what is really going on, and 

you are trying to just develop some trust and rapport, and I am 

taking it on face value. But not until I send an email up to headquarters does the tree get rattled. I cannot do that every day. I 

hope that answers your question. 

Chairman KELLY. It does. And I guess one of the things is people have to have skin in the game. There has got to be some personal accountability of those government employees so it costs 

them, not the agency, it costs them something for bad acts or acts 

of bad conduct or bad faith. And I do not know what the right answer is but I know this; if people are not held personally accountable and there is some big bureaucracy, they do not have that 

sense of urgency which is required. And trust me, our small businesses, each and every one, unless they are a whole lot more fortunate than I was and a lot better businessmen, those cash flow and 

timeliness of that cash flow is very important. 

With that, I yield back, Mr. Chairman. 

Chairman KNIGHT. I think that says a lot right there. 

We are going to go to Mr. Lawson, the ranking member on the 

Subcommittee on Health and Technology. 

Mr. LAWSON. Thank you, Mr. Chairman. I want to thank you 

all for being here. 

And I do not know a lot about this particular area, and so I will 

need your help because I would like to be able to help you all. 

You know, when you are building a house and there is a change 

order, the contractor normally will inform you. Like your wife said 

she wants Pella windows, unlike the windows that were being 

bidded on. And so as a result, then you go back to talk to the bank 

and say we are going to need a little bit more money in order to 

do it. In a situation where you all are involved in, who determines 

the change order? Is it the agency that determines the change 

order? And when they say that we want different a different kind 

of fixtures now in our restrooms, better access for handicap and so 

SBREP-219A with DISTILLER

21 

forth like that, at that point, do you start to talk dollars with 

them? Or what really happens? Which I do not quite understand, 

because I know cash flow ends. I have been in business for 36 

years but we did not have change orders in the insurance business. 

So I have to understand a little bit better about the contract. 

Maybe some of you all can enlighten me. What happens when this 

occurs? 

Mr. BROWN. In construction, there are really three scenarios 

that kind of give rise to a change order. One is the one where the 

agency requests the change. We want a bigger space or a new door 

or a different type of window. The other is if there is a different 

site condition. We encounter something typically subsurface that 

we did not anticipate. There is a sewer line that was not noted on 

the drawings. We have got to deal with it. Or there are conflicts 

within the drawings. The drawings and specs are not accurate, and 

as we are getting out into the field, what is drawn on paper is not 

really working in the field, and those give rise to change orders 

when we have to change the course of action or the fix. 

Mr. LAWSON. And if I may follow up, Mr. Chairman, then how 

does the agency start to handle that? When you see those things 

that did not appear on the specs and it is going to be $10,000- 

$15,000 more to be able to fix it correctly, how long does it take 

the agency to really determine whether they are going to give you 

the resources that you need in order to be able to do it? 

Mr. BROWN. Well, this is the consistently inconsistent part. It 

varies from project teams, both the government and the contractor 

side. Some will acknowledge, yep, this is a change and will go down 

the change order place. They will say, yes, and the agency will 

issue us an RFP. Here is how we want you to change it, price it. 

We negotiate it and we move forward. Other times, they will want 

to dispute the entitlement of the change order and they will try 

and find different ways within the contract or a clause in the specs 

and play that kind of game which only delays the project. And then 

once the change order finally comes to fruition, your $20,000 

change order became $40,000 or $60,000 because of the delay, and 

there is really no added value on that additional $20,000 to 

$40,000. Nothing. Right? The building did not get any bigger. And 

as a change order, we do not make any money in change orders. 

Mr. Long alluded to that. We are recovering costs at that time. 

Costs. And if we settle for anything less, we are settling for 30 

cents on the dollar. Or if they tell us, hey, if it is really egregious, 

they will say, hey, why do you not file a claim and you can go access money from the judgment fund. And that has been a common 

response that we have received as a small business. 

Mr. LAWSON. And at that point, and then you can talk, Ms. 

Nelson, what do you do with the subs? 

Mr. BROWN. We hold hands. I mean, you know, it depends. We 

will get subcontractor pricing, and then depending on, as a prime, 

just a case-by-case basis, and depending how many other projects 

we have similar, we will fund it ourselves or we will split it and 

try and give enough cash to the subcontractor to keep them going. 

Because the worst thing that could happen is they would pull off 

the job. We do not want that. Or they go out of business and then 

SBREP-219A with DISTILLER

22 

the cost to the contractor becomes greater to find a replacement 

contractor. So it is a dance. 

Mr. DELISLE. Representative Lawson, on that Aurora, Colorado 

project, the prime contractor was very large. It was a joint venture 

between two very large companies. And what it decided to do in 

that case was pay millions of dollars to various small, individual 

companies, service-disabled companies, 8(a) companies, to prevent 

them from filing bankruptcy, because those companies could not finance carrying on the work. They had to be paid in some way. So 

luckily, the prime in that case had the wherewithal to pay them 

or it would have been all over. Two companies filed bankruptcy out 

of 33. You would have had them all go down but the prime stepped 

up. 

Mr. LAWSON. Well, thank you. 

I yield back, Mr. Chairman. 

Chairman KNIGHT. Very good. And we are going to take one 

more. We are voting, but we have got a little bit of time so we will 

go to Mr. Bacon for his questions. 

Mr. BACON. Thank you to both chairmen, and to our ranking 

members. I appreciate you all being here today. 

I heard really loud and clear during our campaign and when I 

get back to the district that small businesses are struggling with 

getting their contracts with government delayed payments, the rescinded orders or the change orders like you have already mentioned and so forth, lack of transparency. And so we worked with 

a variety of folks that put this bill together called Know before You 

Bid, so I want to thank Mr. Long for your support today during testimony. 

I just wanted to ask if the other three may have had a chance 

to read it. I would love to have your feedback on this bill. And I 

know Mr. Fitzpatrick is also submitting a bill. But what else do we 

need to do? What can we do to better support the small business 

team with contracts for government? 

Ms. NELSON. Mr. Bacon, the members of the coalition all support the bill as introduced. 

Mr. BACON. Thank you. It is great to hear that. 

What other work do we need to do then? Is there another bill 

here we need to work on or what is some other target areas that 

we should be focusing on? 

Ms. NELSON. I outlined in my written testimony four proposals, 

including yours. But I would like to expand on one of those items. 

Mr. Fitzpatrick had asked what is the enforcement mechanism that 

if you establish a timeframe as we have recommended for when the 

government must approve a request for equitable adjustment, how 

does one enforce that? 

My response would include two options. The option that the contractors might prefer is that if the government does not respond in 

a timely manner, the request for equitable adjustment is automatically approved. As a taxpayer, I might suggest that another alternative would be that if the contracting officer does not respond in 

a timely manner, that the request for equitable adjustment is automatically denied. That allows the contractor to file a claim if it 

chooses to do so. 

Mr. BACON. Thank you very much. 

SBREP-219A with DISTILLER

23 

Any other comments from our panel? 

Mr. DELISLE. Very quickly. One of the issues I think that still 

needs to be tackled is this issue of creating a dispute where one 

does not exist. And Mr. Brown made reference to it. I mean, these 

construction contracts are 3 and 4 inches thick. And if the government wants to find a dispute in there somewhere, they can. And 

the problem is when it does find a dispute, it can just simply deny 

a change order which could very well be legitimate and obviously 

so. So I think one thing to think about in terms of moving forward 

is how can we create a resolution process that is quicker than what 

the contractor has available to him now? Because what is available 

to him now is filing a claim, waiting 60 days, having that claim denied, appealing that denial and going through a very long, protracted litigation process. There needs to be some mechanism, a 

better mechanism in place to assist the contractor through that 

type of problem. 

Mr. BACON. Thank you very much. I yield back. 

Chairman KNIGHT. Thank you very much. 

And we are going to go to Ms. Clarke. And you can wrap this 

whole thing together and figure everything out in 5 minutes. 

Ms. CLARKE. Thank you very much, Mr. Chairman. I am afraid 

it looks like it is going to take a bit more time from all of us to 

sort this thing through. 

I want to thank all of our witnesses for testifying here this morning. This has been a pretty vexing problem for quite some time. As 

a New Yorker, I travel across a Brooklyn Bridge that looks like it 

is suffering from change order-itis. 

Mr. DeLisle, in your testimony, you gave an example of a contracting officer that had a practice of issuing unilateral change orders for 10 percent of the value claimed for the additional work. 

With agencies having so much control in the contract modification 

process, how can we reverse this trend? 

Mr. DELISLE. Well, I think as we have discussed this morning, 

Congressman Fitzpatrick’s bill would certainly assist in doing that 

because it would not be 10 percent that the contracting officer 

would be justifying, if you will; it would be 50. Okay? So there 

would be more cash flow for the contractor, so I think that would 

certainly help. It is a big part. Cash flow is a big part of the problem. 

Ms. CLARKE. And then just to the panel, the covering contract 

modification process is causing anxiety among small business contractors and in some cases inhibiting them from participating in 

the Federal Marketplace. In your opinion, what is the number one 

challenge that small businesses in your industry are facing when 

it comes to using the change order process? The number one. 

Ms. NELSON. Cash flow, cash flow, and cash flow. 

Mr. LONG. Yeah, the position we are being put in right now is 

not one that I do not think we should be responsible for. We are 

not a bank and that is the position that we are all being put in. 

We are being put in the position of the bank. We are financing 

these jobs, and that is the easiest way to explain it, you know. 

Yeah. 

Ms. CLARKE. Anyone else? 

SBREP-219A with DISTILLER

24 

Mr. BROWN. I guess part of the cash flow is time, right? So in 

our world, time is money. Our proposals and our costs are based 

on time. So the sooner we can close the change order negotiation, 

the better off we are, and it will help with the cash flow. But cash 

flow is king. 

Ms. CLARKE. Do you agree, Mr. DeLisle? 

Mr. DELISLE. For sure. One of the other issues, and Mr. Brown 

just mentioned, is the time factor. If the government is held to 

strict accountability in terms of how long it has to resolve these 

change order issues, it would go a long way for sure. 

Ms. CLARKE. Very well. Mr. Chairman, I yield back the balance 

of my time. 

Chairman KNIGHT. Well, thank you very much. 

I think this has been a robust Committee hearing. You have already heard two pieces of legislation have come out of this. I would 

expect we are going to see more. We are going to be continuing to 

talk about this because it affects every district in every state with 

every subcontractor and every small business across the country. 

We have heard that cash is the issue and that is for a small business. Your biggest assets are your employees and how much money 

you can leverage. Whether you have it or you can get it. And if it 

is all out, then there is problems. And so we always like to see 

small businesses bringing more money in than putting out. And so 

you will see more ideas and more pieces of legislation coming out 

of small business, but we appreciate you being here. Thank you 

very much. 

And we are, hang on, I always have smart people next to me. 

All right. I ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the 

record. Every member hear that? 

Without objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 11:19 a.m., the Subcommittees were adjourned.] 

SBREP-219A with DISTILLER

25 

A P P E N D I X 

SBREP-219A with DISTILLER


Insert offset folio 25 here 25498.001

Statement of 

Edward T. Delisle 

Cohen Seglias Pallas Greenhall & Furman PC 

to the 

U.S. House of Representatives 

Committee on Small Business' Subcommittees on 

Contracting and Workforce and Investigations, Oversight, 

and Regulations 

For a hearing on 

"All Work and No Pay: Change Orders Delayed for Small 

Construction Contractors" 

May 25, 2017 

COHEN SEGLIAS 

Since its founding in 1988, Cohen Seglias has grown from a three-attorney office 

in Philadelphia to a Firm with more than sixty lawyers across offices in 

Pennsylvania, New Jersey, New York, Delaware, Maryland, and Kentucky. We 

represent more than one thousand clients annually in industries ranging from 

construction, federal contracting and real estate to manufacturing, health care, 

automotive, transportation, distribution, technology, hospitality, and professional 

services. 

United Plaza, 19th Floor, 30 S. 17th Street, Philadelphia, PA 19103 • Phone: (215) 564-1700 
26 

Statement of Edward T. DeLisle 

Cohen Seglias Pallas Greenhall & Furman PC, Philadelphia, 

Pennsylvania 

Subcommittees on Contracting and Workforce and Investigations, 

Oversight, and Regulations 

Committee on Small Business 

United States House of Representatives 

May 25, 2017 

Chairman Knight, Chairman Kelly, Ranking Member Murphy, 

Ranking Member Adams and members of the committee, thank you 

for inviting me to testify on the important topic of change order 

delays in the federal construction market. My name is Ed DeLisle. 

I am a partner with the law firm of Cohen Seglias, where I cochaired our federal contracting group and work very closely with 

our federal construction clients. I regularly counsel federal contractors on a wide variety of small business issues, including advice on 

affiliation rules; mentor-prote ́ge ́ programs; small business and setaside strategy and compliance (8(a) contracting, ANC, NAC, 

HUBZone, SDVOSB); small business subcontracting plan compliance; and small business size protests. 

Construction projects are subject to a wide array of variables 

that may require a federal agency to alter their initial plans. Consequently, reasonable delays and changes may be required to meet 

conditions on the ground. The concern is not with reasonable 

delays and changes to the initial contract. Rather, the concern rests 

with agencies failing to execute change orders and make payment 

to contractors for months—and even years—at a time. 

Unsurprisingly, this delay causes serious harm to the project 

schedule and has a deleterious impact upon payment to the prime 

and subcontractors, especially small businesses which depend upon 

that cash flow to remain in business. To avoid these impacts, small 

business prime contractors, or subcontractors, may walk off a job, 

as a protracted change order delays can impede the small 

business’s very ability to operate and survive. When that occurs, 

small businesses can be with non-small business prime contractors 

or subcontractors. 

In this testimony, I will discuss: 

• Define change orders; 

• How they typically come about on a construction project; 

• The steps involved in submitting a change order; 

• The FAR provisions giving authority to change orders; and 

• The significant challenges small businesses face in the 

change order and claims processes when working for federal 

agencies. 

Overview of Change Order Process 

SBREP-219A with DISTILLER

27 

1FAR 52.236-2 

Change orders and contract modifications describe the same action. You may hear these terms used interchangeably, but these 

terms are essentially synonymous. In this context, we are referring 

to contractual changes between construction contractors and the 

federal government. Broadly speaking, a change order is any 

change to the scope of work of an already existing contract and the 

price to be paid, and/or the time to complete, the new work. Federal construction contracts contain a ‘‘Changes’’ clause, which permits the government to make changes in the general scope of the 

contract, including modifications to the drawings, specifications, 

materials, manners of performance or method of performance. See, 

e.g., Federal Acquisition Regulations (FAR) Part 52.243-4. This 

clause requires the government to make an equitable adjustment 

in the contract price for these changes. This clause also permits the 

contractor to assert that a change has occurred if the government 

gives any written or oral order (such as an instruction, interpretation, direction) that causes a change to the contract. This concept 

is known as a constructive change. Under the language of the 

clause, these changes are treated as if the government ordered the 

change, entitling the contractor to an equitable adjustment. 

Differing Site Conditions 

Changes orders can arise through several avenues. Federal construction projects are typically large and complex. The agency may 

realize that a size of a room does not match the intended purpose, 

and may need to expand, or reconfigure it. This is a common issue 

for federally owned hospitals, where modern medical equipment, 

such as Magnetic Resonance Imaging (MRI), may change size in 

the years since the design specifications were agreed upon. This 

problem occurred on the much maligned VA hospital project in Aurora, Colorado and resulted in increased costs of approximately 

$1.1 billion. 

There may be a differing site condition at the worksite that was 

unknown to either party or not listed in the contract specifications. 

Differing site conditions 1 generally arise in two way, and are sometimes referred to as ‘‘Type 1’’ or ‘‘Type 2.’’ Type 1 conditions are 

physical conditions that are materially different from those described in the contract. An example of a Type 1 condition occurs 

when the contract documents identify the expected ground conditions, do not show rock and the contractor encounters rock during 

excavation, which requires extensive, unanticipated effort to remove. Type 2 conditions are ‘‘unknown physical conditions of an 

unusual nature which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract.’’ For example, the contractor begins to excavate the site and there is an unknown subterranean 

issue, such as a high, undisclosed water table in a place where 

water would not be expected. Finding such a condition would require different, extensive excavation efforts and increase the cost to 

the project. 

SBREP-219A with DISTILLER

28 

When either Type 1 or Type 2 differing site conditions occur, the 

contractor must notify the federal agency’s contracting officer, who 

is obliged to investigate the site conditions and determine if an equitable adjustment should be made and the contract modified to reflect the actual cost to perform given the unexpected conditions. 

Bilateral and Unilateral Change Orders 

FAR Part 43.103 discusses the different types of change orders 

available to a contractor. On a federal construction project, there 

are bilateral change orders and unilateral change orders. A bilateral change order, or modification, to a contract is a supplemental 

agreement where the parties have negotiated and agreed the specified additional work that will be accomplished in return for specified consideration, normally additional money and/or time. Where 

a contractor accepts and signs without reservation or protest a bilateral contract modification, it is generally barred by accord and 

satisfaction from later claiming an additional adjustment. 

A unilateral change order, or modification, is one which is issued 

by the contracting officer without requiring the consent or signature of the contractor. Unilateral change orders typically arise 

when the parties agree that there is a changed condition, but cannot agree on the extent of the change, price and/or impact on 

schedule. It is a one-sided directive from the federal agency to perform and, although a contractor must abide by a unilateral directive, it is free to file a claim for the additional costs or time incurred beyond what set forth in the modification. Since a unilateral 

change order does not require the contractor’s signature, the 

change order cannot act as a release of further claims. 

Submitting a Change Order 

Bilateral change orders are common in both the federal and private construction markets. In either context, parties can agree 

upon changes in scope of work. The difference in the federal market is that a federal agency does not act like a private entity. The 

federal agency does not have the same incentives to quickly finish 

a project or act in the best interest of the construction project. The 

federal agency has the luxury of time and vast resources that small 

businesses, in particular, simply do not have. To that end, contracting officers will often try to force a contractor to sign a bilateral modification for less time and money than a contractor has requested knowing that the bilateral contains binding release language. A contractor may sign that modification for the sake of certainty, particularly if the CO has indicated that there may be some 

dispute regarding scope of work. That said, the contractor at least 

has a choice. 

Unilateral change orders are a different story and are unique to 

the federal market. Here, the government holds all the cards and 

can decree by fiat that a contractor will change the scope of work. 

There is no ‘‘submission’’ process per say. The government agency 

simply issues a modification, requiring the contractor to proceed for 

the price indicated. The contractor, especially a small business conSBREP-219A with DISTILLER

29 

2FAR 43.102 

tractor, has little recourse but to comply with the federal agency’s 

directive, or suffer the consequences, financial or otherwise. 

The process for submitting a bilateral change order begins when 

a party to the contract realizes a desire or need to modify the scope 

of work. A request for a change order may be generated from the 

contractor and sent to the federal agency, typically to the CO. FAR 

Part 43.204 states that a CO ‘‘shall negotiate equitable adjustments resulting from change orders in the shortest practicable 

time.’’ Unfortunately, the time is seldom short, but the contractor 

is told that it must continue to perform and not delay job completion. Failure to comply could result in default, a poor performance 

rating, or both. Alternatively, a change may be requested or directed by the government and sent to the contractor. The contractor will price the cost for additional work and submit it to the 

CO. Only contracting officers can sign change orders and bind the 

government.2

Often the COs are not very involved on a construction project. 

Typically, the project engineer, or other lower level government 

personnel, are the only ones who are personally involved in and 

physically at the project and understand the problem. This is especially problematic when a change order is needed quickly. Lower 

level government personnel will often tell a contractor to do the 

extra work prior to receiving a change order. This puts the contractor in a difficult bind. Delays in changing the scope of work can 

have a ripple effect, costing the government and contractor excess 

money and delaying the overall completion of the project. If the 

contractor proceeds without a change order, however, the contractor is put at risk and faces potential liability should an issue 

arise. 

Issues Facing Small Businesses with Claims against Federal Agencies 

When small business contractors and federal agencies disagree 

as to when work is, or is not, covered under a construction contract, a contractor may file a claim for equitable adjustment, or a 

certified claim, wherein it demands payment from the government. 

The claims process is often long, expensive and risky. Small businesses neither have the luxury of deep pockets to bear long periods 

of time without payment, nor can they generally handle such risk. 

The claims process generally takes years—sometimes five or more 

years—to conclude. During that time, small businesses may have 

to pay thousands, or tens of thousands, of dollars in legal fees for 

the potential benefit of being paid pennies on the dollar later 

through a settlement that it is forced to accept simply to cut its 

losses and survive. That is the simple reality of the process. 

These problems were most recently publicized on the Department 

of Veterans Affairs’ Aurora Hospital project in Colorado, which was 

referenced above. On the VA Aurora Hospital project, the refusal 

of the VA to process appropriate contract modifications left the general contractor and its subcontractors without proper payment for 

SBREP-219A with DISTILLER

30 

3David Migoya & Mark Matthews, Aurora VA Hospital Project Spooked Subcontractors, Causing Cost Hikes, DENV. POST, May 15, 2015 available at http://www.denverpost.com/news/ 

ci—28125325/aurora-va-hospital-project-spooked-subcontractors-causing-cost 

4 Id. 

5 Id. 

6 Cathy Proctor, SBA: Progress being made on Helping Unpaid VA Hospital Subcontractors, 

DENV. BUS. J., April 4, 2013 available at http://www.bizjournals.com/denver/news/2013/04/ 

04/sba-urges-va-to-speed-payments-for.html 7 Id. 

8 Id. 

extended periods of time with severe consequences. The contracting 

officer there had a practice of issuing unilateral change orders for 

10% of the value claimed for the additional work. He promised that 

these modifications represented ‘‘part one’’ of what would be a ‘‘two 

part’’ change order. The problem was that ‘‘part two’’ often never 

came and the costs for additional work totaled tens of millions of 

dollars. Along the way, the VA simply stopped processing change 

orders.3 Small companies rely on prompt payments to meet payroll 

and expenses, often unable to cover those costs for very long.4

Many rely on bank loans and lines of credit to bridge the gap, but 

on the Aurora project some banks balked at letting small business 

clients rely on its money to continue work.5 According to the Colorado SBA, at least 33 small businesses were not paid for work in 

a timely fashion, and some were waiting more than a year after 

work was completed for payment.6 Of those 33 companies, at least 

two filed for bankruptcy.7 The prime contractor even paid subcontractors several million dollars out of its own pockets while 

waiting for payment from the VA, which was highly unusual.8

While the project in Aurora is a recent and, unfortunately, wellknown example, problems with processing change orders happen in 

every federal construction agency on a regular basis. The problem 

is that those change order delays are happening on projects worth 

$5 million, $10 million and $100 million, over which Congress does 

not ordinarily conduct oversight. The issue is that when the dollar 

amount is not high, and media attention is not existent, meaning 

that there’s a lack of public outrage, the problems persist but go 

unnoticed by everyone except the small business that may have to 

close its doors. 

There will always be legitimate discrepancies between a small 

business contractor and the government based on the terms and 

scope of a contract. That’s normal. However, our concern is when 

the claims process is used unfairly—where the government fails to 

act in good faith—to the detriment of small businesses. Generally 

speaking, project funds comes from a different budget account than 

the funds used to litigate and pay claims. Consequently, with 

project budgets tight, some federal contracting officers may tell contractors that there will be no change orders issued on a project, or 

no further change orders issued, regardless of how apparent the 

need may be for a modification. That happens. If there is an issue, 

the contractor will have to do the work and file a claim. The expense of litigating the claim, in the long run, will often cost more 

to the government and taxpayers than issuing the change order in 

the ordinary course. It will certainly result in additional costs to 

the contractor. However, forcing a contractor into this situation is 

not something that will typically impact the contracting officer on 

SBREP-219A with DISTILLER

31 

the project or that project’s budget. As such, it is easier for the government to simply kick the can down the road and use the unlimited time and financial resources of the federal government to wait 

the small business out until it can no longer afford to continue, 

forcing it to settle. 

Thank you again for inviting me to testify before the committee 

on this important topic. I look forward to answering your questions. 

SBREP-219A with DISTILLER

32 

SBREP-219A with DISTILLER


Insert offset folio 32 here 25498.002

Statement of 

Andy Brown 

Glen/Mar Construction, Inc. 

on behalf of 

The Associated General Contractors of America 

to the 

U.S. House of Representatives 

Committee on Small Business' Subcommittees on 

Contracting and Workforce and Investigations, Oversight, 

and Regulations 

For a hearing on 

"All Work and No Pay: Change Orders Delayed for Small 

Construction Contractors" 

May 25, 2017 

The Associated General Contractors of America (AGC) is the largest and oldest national 

construction trade association in the United States. AGC represents more than 26,000 firms, 

including America's leading general contractors and specialty-contracting firms. Many of the 

nation's service providers and suppliers are associated with AGC through a nationwide network of 

chapters. AGC contractors are engaged in the construction of the nation's commercial buildings, 

shopping centers, factories, warehouses, highways, bridges, tunnels, airports, waterworks 

facilities, waste treatment facilities, dams, water conservation projects, defense facilities, multifamily housing projects, site preparation/utilities installation for housing development, and more. 

2300 Wilson Boulevard, Suite 300 • Arlington, VA 22201 • Phone: (703} 548-3118 
33 

SBREP-219A with DISTILLER


Insert offset folio 33 here 25498.003

Statement of Andy Brown 

Glen/Mar Construction, Inc., Clackamas, Oregon 

Subcommittees on Contracting and Workforce and Investigations, Oversight, and Regulations 

Committee on Small Business 

United States House of Representatives 

May 25,2017 

Chairman Chabot, Ranking Member Velazquez and members of the committee, thank you for inviting me 

to testify on this important topic impacting federal small business contracting. My name is Andy Brown. I 

am Vice President of Glen/Mar Construction, Inc. I have over 18 years of experience in the commercial 

and federal construction markets. As a Woman-Owned and Service Disabled Veteran Owned Small 

Business, Glen/Mar perfonns vertical building construction, seismic renovations, and horizontal 

construction for federal, state and local agencies including the Department of Veterans Affairs (VA), 

Anny Corp of Engineers (USACE), the General Services Administration (GSA) and other agencies 

throughout the West Coast and Hawaii. 

I currently serve as Co-Chair of the Small Business Committee for the Associated General Contractors of 

America C AGC"). AGC is a national association of more than 26,000 businesses involved in every 

aspect of construction, with 92 chapters representing member companies in every state. For years, AGC 

has worked with the U.S. House Small Business Committee to establish more protections and better 

governing policies for America's small construction businesses. These include repealing unnecessary and 

burdensome regulations, such as the Fair Pay and Safe Workplaces Executive Order, as well as 

advocating for rules that benefit small businesses, most recently this includes the rule allowing federal 

prime contractors to count lower tier small business subcontractors towards their small business 

subcontracting goals. AGC appreciates and thanks the committee for its continued efforts to help our 

nation's small businesses. 

In my testimony today, I will try to highlight some challenges that small businesses face when federal 

agencies delay processing and paying for change orders on federal construction contracts. Change orders 

are an inherent process within the construction industry. Most contractors refer to it as a "necessary evil,'· 

as the perfect construction project simply does not exist. There is no perfect set of construction drawings 

and specifications, there is no perfect or accurate existing working condition, and lastly, there is never a 

design in which the client or end user's entire "wish list" of wants and needs has been inclusive in the 

construction documents. Each one of these issues can, and too often does, surface during the course of a 

construction project, resulting in a change order. 

Overview 

As with any construction project, unforeseen issues may emerge. However, in the federal construction 

industry, change orders have become the bane of all federal construction contractors, with significant 

financial impact to small business. The issue is not the additional work that results from a change order, 

or the potential impact to the project schedule, but rather the financial hardship due to a lack of timely 

processing and payment of change orders. The financial impact of untimely processing and payment of 

change orders has a broad and far ranging ripple effect that extends beyond just the prime contractor. It 

impacts the prime contractor, its subcontractors, and the project has a whole. 

2 
34 

SBREP-219A with DISTILLER


Insert offset folio 34 here 25498.004

Cashflow and Schedule Impact 

One of the greatest challenges contractors face with federal agencies' delays in processing change orders 

is the disruption of cashflow on the project. Cashflow is the oxygen that keeps the construction project 

functioning. As with most things, if you cut off the oxygen the entity will quickly wither. Construction 

projects are no different. Cash flow is critical, and in my business, we view it as more important than 

profitability. Profitability lies at the end of the project. However, without sufficient cashflow, a company 

will never reach the finish line where profitability resides. 

When a federal agency fails to process and pay a change order in a timely manner, the contractor is left 

with few options. In the interim period, the contractor tries-as best as possible--to work around the 

issue. Depending on the issue, the contractor can be left in the precarious position of either (I) selffinancing the work to meet project schedule; or (2) stopping work altogether. Either option brings real 

problems and threats to small businesses. When work must be stopped or slowed down because of 

untimely processing of change orders, overhead costs remain. If demobilization and remobilization are 

required, that only adds to unnecessary and inefficient costs related to the use of that equipment. 

Contractors will go to great lengths to keep the project going, but there are times when the agency issued 

change orders dictate the schedule. 

For example, in 2014 my company was awarded a contract to build a new patient simulation learning 

center, a medical training facility for the Department of Veterans (VA) Affairs Palo Alto Health Care 

System. However, after award and the issuance of a Notice to Proceed, the agency requested a proposal 

for additional work, which had to be completed prior to the start of the project. The pricing for the 

agency's requested additional work, requested by the agency, included both direct costs for construction 

and additional time and costs for schedule impacts to the original contract schedule. The time to price, 

negotiate, procure and construct the additional change order added !59 days to the contract schedule, 

before we could even start the original contract work. The chauge order pricing was issued to the agency 

on December 2, 2014. Although we have been paid for the direct construction costs associated with the 

additional work, after 2 Y, years we have yet to be paid the $115,000 in costs associated with the delay in 

schedule. This same project also had a significant design flaw that further impacted the schedule. The 

initial construction documents failed to incorporate a required exterior wall blast desii,'Il. This issue 

greatly impacted the schedule and sequence of work, adding an additional three months to the 

construction schedule and $237,000 to the project. The initial change order was issued on May 27,2016, 

but nearly a year to the day, my company has yet to be paid for this change order. The agency does not 

dispute either of these charges and has acknowledged that we are entitled to payment. These two 

examples demonstrate just a few of the contributing factors that have manifested in a project delay of 15 

months with a cost totaling more than $900,000. I would consider this to be a significant ripple effect. 

Unfortunately, this project is not an anomaly and small businesses working for various federal agencies 

are effected in similar ways. 

The Miller Act-which applies to all federal construction contracts in excess of $150,000--requires the 

prime contractor to provide to the agency performance and payment bonds in an amount equal to 100 

percent of the total value of the contract. The performance bond provides security to the government that 

the project will be performed and completed as contracted. The payment bond provides security to the 

government that all costs associated with the delivery of the project will be paid for and done in a timely 

manner. The prime contractor's payment bonds also provide statutory relief to lower-tier subcontractors 

and suppliers for payment of labor and material, under a federal contract, should a prime or subcontractor 

be unable to make timely payments. With standard payment terms of "Pay When Paid" contained in 

3 
35 

SBREP-219A with DISTILLER


Insert offset folio 35 here 25498.005

subcontract agreements between prime and subcontractors, it is clear to see how a prime contractor 

becomes stuck between a rock and a hard place when agencies fail to timely pay for change order work. 

Often, to keep the project moving, small businesses self~ finance government projects and work that needs 

to be done to complete the project, to avoid unnecessary Miller Act or payment bond claims filed by 

subcontractors and suppliers. It should come as no surprise that this adversely impacts our overall 

bonding capacity, which is necessary to pursue additional work and bid on other federal projects. Thus, 

begins a common sequence of events where untimely processing and payment of change orders on one 

project, prevents a small business from competing for additional federal projects. My company has been 

unable to bid on many projects, public or private, because our equity was tied up while waiting on change 

orders to be processed and paid. The result is a decrease in competition for federal projects, less efficient 

use of taxpayers' dollars, and fewer opportunities for small business. Additionally, these barriers prevent 

prospective construction companies from wanting to enter the federal market. The current state of change 

order processing has limited, and continues to limit, the pool of qualified contractors who desire to pursue 

work in the federal marketplace. 

Contractors, especially small businesses like mine, can only self-finance these projects for so long. Slow 

payment impacts not only the prime awardee, but all lower-tier subcontractors. For example, I have an 

active project for the VA in Menlo Park, California to expand an existing parking lot. From September 

through December of2016 there were 15 change orders totaling $479,000. These change orders are 

undisputed by the agency, but as oftoday's testimony, some five months later, the work is done but my 

company has not received payment. Therefore, my subcontractor has not been paid for the work that was 

completed. Due to this, I am told by my subcontractor that his company is now under a U.S. Department 

of Labor investigation due to his inability to timely make payments into his employees' 401(k) retirement 

plan. This example is among many that shows the flow-down consequences small businesses face as a 

result of untimely process and payment of change orders. The impact is further magnified when you have 

the same subcontractor on multiple projects. The current state of change order processing has limited, and 

continues to limit, the pool of qualified contractors who desire to pursue work in the federal marketplace. 

Untimely processing and payment of change orders makes it difficult to maintain a qualified and reliable 

workforce. It is detrimental to my employer-employee relationship when I must ask my workers to move 

between projects or lay them off because of such work delays or stoppages. I, and other small 

construction business, arc far too familiar with the negative consequences of stoppages and delays. 

Stopping work due to indecision can lead to negative past performance evaluations issued by the federal 

agency against the contractor. Those negative evaluations play a role in whether the agency, or other 

agencies, will give the contractor another job in the future. Incidents such as those I have described, 

strains the relationships between prime contractors and federal agencies, between prime contractors and 

subcontractors, and adversely impacts the overall morale on a project. 

Incentivizing Efficient and Timely Construction Execution 

The construction business is a people business. The people on the jobsite, both contractor and owner, will 

ultimately determine project success. In the private sector, owners have various incentives to complete a 

project on time and on budget, or even ahead of schedule or under budget. These private owners have 

finite resources. Their employees can be hired, fired, rewarded or held accountable with relative ease 

based on performance. There are clear incentives for getting the job done as efficiently as possible. 

In federal construction, there are not always similar economic or ideological incentives to efficiently or 

quickly complete the job. Federal employees may be entrenched and protected-in many ways-from 

4 
36 

SBREP-219A with DISTILLER


Insert offset folio 36 here 25498.006

being held accountable. The federal employees may not have the resources necessary to quickly manage 

administrative tasks. Jobsites can be in remote locations where field staff can be left to their own devices. 

The agencies are not paid based on how quickly or efficiently they complete work. Rather, they are paid 

based on the amount of project funding Congress appropriates. To our knowledge, there are no clear, 

incentives for agencies or their employees to deliver a project on time or on budget, let alone ahead of 

schedule or under budget. 

One of the greatest challenges federal contractors face on their construction projects jobsite is obtaining 

decisions, especially timely ones, from federal agency employees. As with any construction project, 

unforeseen issues may emerge. The problem comes with getting the federal agency to make a decision to 

act-or not. Decisions may have to move up the chain of command. If the right person or persons are not 

available, the decision sits on their desks. 

What I have said above, however, is not applicable to every agency or agency employee. Just as there are 

good contractors and subpar ones, there are good federal construction employees and not so good ones. 

Just as the federal government tries to avoid the poor perfonning contractors, I try to avoid poor 

performing federal construction employees or, at least, bid accordingly. And, after major disasters like 

Hurricane Katrina, no agency-state or federal-was more motivated and able to rise to the occasion to 

rebuild New Orleans better than the Army Corps of Engineers. It's those times when there are not major 

disasters or the eyes of the country are not on us that we must find ways to ensure federal agencies and 

employees are properly motivated-economic or otherwise--to perform in an efficient manner. 

During this Congress, AGC would like to work with the committee on: 

Ensuring greater transparency in the agency decision making process-to help allow for greater 

accountability--during the construction execution phase of project delivery; 

Reducing the links in the chain of command necessary to obtain timely decisions during 

construction; 

Reevaluating how agencies are paid for the projects they deliver; and 

Rewarding federal agency employees based on project perfonnancc. 

Lastly, I would like to express support for the proposed bills "Small Business Know-Before-You-Bid 

Construction Transparency Act of 20 17" and "Small Business Payment for Perfonnancc Act of 201 7" as 

they advance protections and transparency needed for small businesses where federal agencies untimely 

process and pay change orders. 

Thank you again for inviting AGC to testify before the committee today. I look forward to answering any 

questions you may have. 

5 
37 

SBREP-219A with DISTILLER


Insert offset folio 37 here 25498.007

Statement of Mr. Greg Long 

President and Owner of Long Electric Company 

on behalf of the 

National Electrical Contractors Association 

to the 

Subcommittee on Subcommittee on Contracting and 

the Subcommittee on Investigations, Oversight, and 

Regulations 

U.S. House of Representatives 

for a hearing on 

"All Work and No Pay: Change Orders Delayed for 

Small Construction Contractors" 

May 25, 2017 

NECA's 4,000 member contractors are the voice of the $130 billion electrical construction 

industry that brings power, light, and communication technology to buildings and communities 

across the U.S. NECA's national office and 119 local chapters advance the industry through 

advocacy, education, research and standards development. 

NATIONAL ELECTICAL CONTRACTORS ASSOCATION 

412 First Street, SE Suite 110 

Washington, D.C. 20003 

Phone: (301) 657-3110 

FAX: (301) 215-4500 

@NECAGovtAffairs 

1 
38 

Statement of Mr. Greg Long 

President and Owner of Long Electric Company 

On behalf of the National Electrical Contractors Association 

(NECA) 

Subcommittee on Contracting and the Workforce 

Subcommittee on Investigations, Oversight, and Regulations 

Committee on Small Business 

May 25, 2017 

Thank you Chairman Knight, Chairman Kelly, Ranking Member 

Murphy, Ranking Member Adams, and members of the both Subcommittees for inviting me to testify today at this very important 

hearing. On behalf of the National Electrical Contractors Association (NECA), we greatly appreciate the opportunity to submit a 

statement for the record to the Subcommittee on Contracting and 

the Workforce and the Subcommittee on Investigations, Oversight, 

and Regulations on ‘‘All Work and No Pay: Change Orders Delayed 

for Small Construction Contractors.’’ The subcommittees are to be 

commended for holding this important hearing to address the critical issue of change orders and their effect on small businesses, 

particularly within the construction industry. 

My name is Greg Long and I am the President and CEO of Long 

Electric Company located in Napa Valley, California. Shortly after 

graduating from Napa High School, I entered the electrical trades 

in 1979 and quickly moved through the ranks. Later, I founded 

Long Electric company in 1990. Over the years, our family-owned 

business has provided its services for everything from local schools 

to hospitals, wineries, and various sustainable energy projects. Our 

business has never seen more exciting times as we continue to 

promise that ‘‘not only are we large enough to do the job, we are 

small enough to care.’’ 

We at Long Electric are proud members of the National Electrical Contractors Association (NECA), where I have had the honor 

of serving as a member of the NECA Northern California Chapter’s 

Board of Directors since 1994. NECA is the nationally recognized 

voice of the $130 billion electrical construction industry, that brings 

power, light, and communication technology to buildings and communities across the United States. NECA, as a member of the Construction Procurement Coalition, continues to build on a legacy of 

protecting the public and making innovation possible in construction contracting. We, as member contractors, strive to be solutionproviders for our customers and our industry expertise benefits everyone working on an electrical construction projects. 

Workforce Development and the Apprenticeship Program 

One of the ways which Long Electric and NECA are able to provide the highest level of electrical work comes from our involveSBREP-219A with DISTILLER

39 

ment in a rigorous and rewarding training program. We are extremely proud of the level of skill and professionalism that is crafted in each-and-every one of our electricians nationwide by these 

programs. While there is true merit to a traditional college education, our programs offer an experience, education and career path 

that rivals the colleges and universities of this country, all without 

the burden of graduating with hundreds of thousands of dollars in 

student loan debt and no guarantee of employment. 

Over 70 years ago, NECA and the International Brotherhood of 

Electrical Workers (IBEW) embarked on a joint venture to develop 

the National Joint Apprenticeship Training Program (NJATC). The 

newly rechristened ‘‘Electrical Training Alliance’’ invests $100 million in private funds annually in what we believe is the largest and 

most successful apprenticeship and training program in the nation. 

Today, there are more than 300 jointly administered local programs that are trust financed and together we have trained over 

350,000 apprentices to journeyman status. 

Our apprenticeship program is a well-organized and supervised 

method to train people with little or no prior knowledge of a craft 

or trade to become capable, qualified craftpersons or 

journeypersons. It is an ‘‘earn while you learn program.’’ The ‘‘onthe-job’’ portion of the training is a full-time, well-paid job. The 

goal is to provide the electrical construction industry with the highest level of training and highly skilled workforce possible. To accomplish this goal, apprentices receive the highest level of training 

in the industry, with a requirement of 8,000 hours of on-the-job 

training and 900 hours of classroom time over a five-year period. 

Upon completion of the curriculum and on-the-job training, apprentices receive certificates documenting their successful completion of 

the program. Incidentally, all electrical apprentices receive incremental raises as they reach certain set milestones. They are not a 

burden to the taxpayers because the training is fully funded by the 

industry without any taxpayer assistance. Perhaps the greatest 

benefit is that in the end they are earning while they are learning. 

Each year, participants in the program contribute in excess of $600 

million dollars in federal, state, and local taxes. Lastly, they also 

receive retirement plans and medial coverage for themselves and 

their families that are also provided at no cost to the American taxpayer. 

Addressing our nation’s current and future employment needs is 

critically important to our industry and we believe the existing apprenticeship infrastructure provided by construction trades is a 

sure-fire bet for success, particularly for small businesses. More important, the program is 100 percent industry designed and funded 

and is a wheel that does not need to be reinvented. 

The apprentices that graduate from our training centers work 

across the commercial and industrial sectors and specialize in a 

broad range of areas including traditional power and lighting, 

power quality, lighting controls, fire, life safety and security systems, backup power generation, communication and connectivity 

systems, automation controls and energy efficiency projects. 

SBREP-219A with DISTILLER

40 

While successfully completing this work, we on the management 

side of the business, often run into the topic of today’s hearing, 

change orders. 

Change Orders: Their Current State and Effect on Small 

Construction Businesses 

Change orders are an essential part of every construction project. 

In a perfect world, we would have zero change orders and all jobs 

would be bid exactly as is, with no hiccups or complications in their 

completion., But that is not the world we live in. That said, our 

goal as contractors is to be as adaptable and accommodating as 

possible to the contracting officer’s needs and to respond efficiency 

and effectively to their request for an equitable change. 

Today, a change order is defined as a written order, agreed upon 

by the owner, contractor and designer, authorizing changes to the 

scope of the work, the contract sum, and the contract time. While 

this appears to be a clear-cut definition, the processes that formalizes and compensates a contractor for a change order is not so. Due 

to the lack of a clear standard for administering change orders, beyond the requirement that they be within the ‘‘scope of the project,’’ 

much of the onus of risk falls directly on contractors like myself to 

accommodate contracting officers working on behalf of the federal 

government. 

A refusal to complete an order or to challenge the validity of a 

change order can result in a loss of payment or potential lawsuit 

by the contracting officer or even the prime contractor. Therefore, 

contractors proceed with the work and do their best to account for 

the consequential costs and risks incurred when the timing and 

scope of a job is altered. 

These costs and risk factors generally present themselves in one 

of three forms, either: 1) project and field conditions, known for delaying project completion like capacity issues, or season and weather changes; 2) added cost factors, including increased contract administration, supervision time for another job, and/or lost profits 

due to delayed scheduling; and, 3) labor productivity-related factors, involving the stacking of trades, morale and attitude, and/or 

crew size inefficiency. The combination of these factors amounts to 

one anxious estimator and project manager. This pair of individuals, in conjunction with the job’s foreman, are then expected to 

issue a hastily revised and accurate bid proposal, where both parties expeditiously and in good faith can negotiate and adjust the 

contract price and/or the contract timing. 

Once we are able to navigate the various challenges change orders present, too often we collide with the very title of this hearing, 

All Work and No Pay. As stated previously, change orders do not 

exist in a perfect world. Instead, they thrive in a realm where contractors have extremely limited leverage in agreeing to completing 

the work and even less in extracting payment for their hard work. 

In some cases, contractors are not paid for as long as 18 months. 

In some cases, this can last even longer. This elongated period can 

be crippling to a small business like my own who must balance the 

books monthly and anticipate capital for upcoming project. If we 

SBREP-219A with DISTILLER

41 

are unable to anticipate prompt pay, or to receive prompt payment 

as guaranteed under the Prompt Payment Act of 1982 (PPA), our 

business is unable to function, let alone prosper. 

When timely payments are made under the PPA by the contracting officer to the prime contractor, subcontractors have no 

ability for knowing when that transaction takes place. This again 

adds another layer of complexity for subcontractors when it is time 

to be paid themselves. Jobs that have multiple layers of subcontractors can be extremely tough to navigate when the date of 

payment from the government to the prime contractor is unknown. 

Any solution that requires a notice of payment by the contracting 

officer would be gratefully welcomed by all contractors involved in 

this process. 

It is clear that the single most common area of dispute in the 

change order process leading to delayed work or payment is cost. 

In fact, a 2014 study by Michigan State University found that 

‘‘among cost-related disputes, items related to recoverable direct 

cost, overhead-profit percentages, and impact factors resulting in 

inconsequential costs constitute the clear majority of the disagreements.’’ Every change order could hypothetically run into these 

problems, but those that are most prone are the ones that have not 

addressed an ‘‘agreed upon price or percentage amount (for such 

costs) in the initial contract.’’ This is disturbingly common as ‘‘most 

standard contract documents do not provide specific guidance’’ on 

these percentages. To make matters more complicated, subcontractors must deal with multiple parties, including other subcontractors, designers, prime contractors, and of course the owner of the 

project. 

The ultimate challenge for these issues is the true lack of any 

real profit for our business in the completion of a change order. In 

reality, most electrical contractors consider change orders as not 

profitable. Cases where change orders are truly profitable are few 

and far between. The same Michigan State University study mentioned previously found that change order work results in a profit 

of merely two-to-five percent, as opposed to the generally anticipated ten to 15 percent for the job as a whole. Once all other costs 

like overhead or direct material costs have been accounted for, electrical contractors have been found to make a profit of only 3.54 percent. This is drastically low and does not adequately account for 

the risk factors previously identified. 

Payment Bonds 

Branching out from the topic of change orders, one key component of the construction world that comes into play concerns bonds. 

Payment bonds are an essential investment where a financier provides a prime contractor with the backing of funding necessary to 

assure payment of its subcontractors and suppliers. These bonds 

are generally defined for a set amount of time and are held at a 

fixed interest rate. Typically bonds and the assurance we as contractors receive from them do not come into play until a contractor 

is unable to complete their work or pay for the work of subcontracSBREP-219A with DISTILLER

42 

tors, in such a case the bonding company would then be obligated 

to do so. 

When considering change orders and the effect they may have on 

the bonding process it is paramount to recognize that in any dispute that may delay the construction timeline or negate the contract altogether, the bonding agency is obligated to provide services 

or payment in lieu of the faltering company. As a subcontractor, 

our main concern for such disputes generally arises over concerns 

of receiving payment for services. When a prime contractor becomes unable or unwilling to pay for services rendered, subcontractor are able to file a claim to the bonding agent. Under the Federal Miller Act of 1935, Federal Acquisition Regulation requires 

that payment bonds of this type be utilized on all jobs exceeding 

$150,000. 

Too often the information for contracting bonding officers or the 

text of the bond itself is either kept private or it remains privy to 

a handful of people involved on the job, making is extremely difficult for a subcontractor to extract the information from a contracting officer when need be. There is an industry wide need for 

and easier method to access bond information which could be fixed 

through the already existing network of internet platforms that 

house so many of todays construction documents. 

Opportunities Lay Ahead 

Although I have painted a gloomy picture of the current state of 

change orders, there are a handful of opportunities in the near future that have contractors like myself optimistic for the industry as 

a whole. The first, is the growth that the construction industry has 

experienced over the past year. 

At nearly a four percent increase since March 2016, our markets 

continue to expand. This growth, combined with the current political support for a nationwide infrastructure plan have the entire industry tinted with a positive glow. 

On a legislative note, we at NECA were delighted to learn about 

two recently introduced bills. The first, introduced by Rep. Bacon, 

H.R. 2350, the ‘‘Small Business Know-Before-You-Bid Construction 

Transparency Act of 2017.’’ This legislation aims at addressing the 

length of time it takes the federal government to review, approve 

and pay for equitable changes; the validity of payment assurances, 

such as payment bonds; and the timeliness of monthly payments. 

These reforms will streamline the process of bidding on federal construction work and allow subcontractors to adequately address the 

consistent and undue risk they assume when completing change 

order work. 

The second, introduced by Rep. Fitzpatrick, Rep. Murphy, and 

Chairman Knight, the ‘‘Small Business Payment for Performance 

Act of 2017’’ offers our contractors the ability to continue work 

without fear of withheld payments for change orders. The bill requires a partial payment of 50 percent within the time frame specified by the Prompt Payment Act for any additional work perSBREP-219A with DISTILLER

43 

formed. This bill does note that the 50 percent payment does not 

amount to a mutual agreement on price itself. 

Conclusion 

The issues this Committee is willing to tackle concerning change 

orders, bonds, and contract information are ones that do not just 

affect Long Electric’s work in California or solely the electrical contracting industry; these are issues that affect each-and-every small 

business contractor and others bidding on government contracts 

nationwide. 

Thank you for the opportunity to testify at this very important 

hearing. NECA applauds the committee’s unwavering efforts to examine these important components of our expanding construction 

economy. We are pleased and remain optimistic at this committee’s 

efforts to address change order concerns. We will continue to offer 

our support in helping advance the committee’s agenda and look 

forward to working with you all as you move forward in enacting 

smart and sound policy for the entirety of the construction industry. 

SBREP-219A with DISTILLER

44 

Statement of 

E. Colette Nelson 

Chief Advocacy Officer 

American Subcontractors Association, Inc. 

on behalf of the 

Construction Industry Procurement Coalition 

to the 

U.S. House of Representatives 

Committee on Small Business 

Subcommittee on Contracting and Workforce 

Subcommittee on Investigations, Oversight, and Regulations 

for a hearing on 

‘‘All Work and No Pay: Change Orders Delayed for Small 

Construction Contractors’’ 

May 25, 2017 

SBREP-219A with DISTILLER

45 

Statement of E. Colette Nelson 

Construction Industry Procurement Coalition 

On behalf of the Construction Industry Procurement Coalition, 

I’d like to thank the Committee on Small Business, its members 

and staff for taking seriously construction industry concerns about 

processing and paying for change orders on federal construction 

projects. The Coalition is a 14-member group of trade associations 

representing construction design professionals, prime contractors, 

specialty trade contractors, subcontractors, suppliers, sureties and 

surety bond producers. For those of you who have worked with the 

construction industry on other issues, you know that all too frequently it is difficult for us to agree on almost anything. Thus, I 

am pleased to report to you that the construction industry is united 

on both the problem and possible solutions to the problem of slow 

approval and payment of change orders on federal construction 

projects. 

Since the United States government began purchasing construction services and materials—that is, since its inception—there have 

been disagreements between the government and its suppliers 

about payment. Indeed, even before the Declaration of Independence was signed, the states issued ‘‘war bonds’’ promising to pay 

the Continental Army’s suppliers. 

In the construction industry, even in the private sector, we have 

more than our share of payment challenges. While George Washington was in charge of buying for the war effort, one of Virginia’s 

other founding fathers, Thomas Jefferson, introduced the concept of 

a mechanics lien into the New World’s statutory system. That is, 

since a construction contractor’s work is incorporated into the real 

property and cannot easily be removed, the contractor who has not 

been paid may reduce its financial risk by acquiring an interest in 

that real property in the form of a mechanics lien. Eventually, the 

courts rules that a contractor cannot lien public property—the 

king’s land. Congress responded by passing the Heard Act in 1894; 

this law required a prime contractor to provide a single performance and payment bond to protect the government and subcontractors, respectively. In 1935, Congress replaced the Heard Act with 

the Miller Act, which requires a federal prime construction contractor to post bonds guaranteeing both the performance of their 

contractual duties and the payment of their subcontractors and material suppliers. 

By the 1980’s, the construction industry was again reporting 

challenges with getting paid on federal projects. Congress responded by enacting the Prompt Payment Act of 1982, and, when 

problems persisted, the Prompt Payment Act Amendments of 1988. 

The law established very specific time frames for the government 

to pay its construction prime contractors for work performed and 

for those prime contractors to pay their subcontractors and so on 

through the construction tiers. These laws have done an excellent 

job in assuring prompt payment on federal construction for 

SBREP-219A with DISTILLER

46 

progress payments and final payment—but, unfortunately, not for 

requests for equitable adjustment, more commonly called change 

orders. 

I review this history both to show the insidious nature of payment problems on federal construction and to demonstrate 

Congress’s willingness to address them. The legislative history also 

demonstrates that while the current statutory structure helps assure contractor payment, it also protects the federal government. 

For example, when a federal prime contractor submits an invoice 

for payment, it must include the following certification: 

‘‘I hereby certify, to the best of my knowledge and belief, 

that— 

(1) The amounts requested are only for performance in accordance with the specifications, terms, and conditions of the 

contract; 

(2) All payments due to subcontractors and suppliers from 

previous payments received under the contract have been 

made, and timely payments will be made from the proceeds of 

the payment covered by this certification, in accordance with 

subcontract agreements and the requirements of Chapter 39 of 

Title 31, Untied States Code; 

(3) This request for progress payments does not include any 

amounts which the prime contractor intends to withhold or retain from a subcontractor or supplier in accordance with the 

terms and conditions of the subcontract; and 

(4) This certification is not to be construed as final acceptance of a subcontractor’s performance.’’ 

Penalties for a contractor who falsely certifies to the government 

are between $10,781.40 and $21,562.80 per claim, plus three times 

the amount of damages that the federal government sustains because of the false claim—certainly a deterrent to a false certification. 

As other witnesses will testify, existing payment protections for 

contractors on federal construction are not working when it comes 

to changes, more commonly referred to as change orders or requests for equitable adjustment. A change order, in its simplest 

form, is an agreement to affect a change to the already executed 

contract. Often, it is necessitated by added, deleted or simply 

changed work from the plans and specifications already bid and 

agreed upon. While a change order typically adds value to the contract in exchange for the changed scope, it also can delete funds, 

change work without affecting price, and add or subtract time to 

completion of the work. The change order process is complex, and 

involves the construction owner, the prime contractor and the subcontractor tasked with the change. 

In federal construction, the most easily identifiable change orders 

come from the federal government in what is commonly called a directed change—a ‘‘written order designated or indicated to be a 

change order, make changes in the work within the general scope 

of the contract.’’ This includes changes in the specifications, in the 

method or manner of performance, in the government-furnished 

property or services, or acceleration of the work. 

SBREP-219A with DISTILLER

47 

The Federal Acquisition Regulation requires a contractor to submit a request for payment for the increased cost of performing the 

revised contract within a fairly tight time frame—within 30 days 

after receipt of the written change order or notice. The FAR provides an additional incentive for a contractor to act expeditiously 

by stating that ‘‘except for an adjustment based on defective specifications,’’ no adjustment in cost can made for any costs incurred 

by the contractor ‘‘more than 20 days before the Contractor gives 

written notice as required.’’ That means during a 20 to 30 day window, the prime contractor must consult with its subcontractors, 

and put together a cost estimate that will stand up to the federal 

government’s strict pricing and audit requirements. 

Yet the federal government’s rules establish no minimum requirements on when the government itself must review and approve the contractor’s request for equitable adjustment. Instead, 

the FAR requires a contracting officer to ‘‘negotiate equitable adjustments from change orders in the shortest practicable time’’ with 

no further specificity. Thus, while the prime contractor and its subcontractors must act swiftly to price their increased work, all the 

while performing the work at the direction of the government, federal agencies apparently have interpreted ‘‘shortest practicable 

time’’ to mean a time that is administratively convenient for them. 

As an example, let’s look at the stated policies and procedures of 

just one federal construction agency, the U.S. Army Corps of Engineers (USACE). Again, nothing in the FAR, the Department of Defense FAR Supplement (DFAR), the U.S. Army Supplement to the 

DFAR (AFARS) or the USACE Acquisition Instruction (UCI) 

[Version 3; 1Nov14) specifies time periods during which a contracting officer is required to act on a contractor’s REA, on the contractor’s request for additional funding or a schedule adjustment to 

accommodate the government’s unilateral change order. In addition, the UCI specifies that any contract modification in excess of 

the Simplified Acquisition Threshold ($150,000) requires a formal 

Independent Government Cost Estimate (IGE), pursuant to 

USACE Procurement Instruction Letter (PIL) 2012-03-R1 (Requirements for Development, Review and Approval of the Independent 

Government Estimates (IGE)). 

Further, under USACE procedures, a contracting officer is authorized to bundle the contractor’s requests for written change orders ‘‘for ease of administrative processing,’’ which is exclusively 

beneficial to the government. The USACE contracting officers routinely defer consideration of all of a contractor’s REAs to the end 

of the construction project when they an be ‘‘resolved as an omnibus settlement.’’ Again, this is solely to the benefit of the government, since the contractor and all of the subcontractors and suppliers are funding the performance of the multiple unilateral 

change orders issued by the government during the total duration 

of contract performance. Most likely, such unconscionable deferral 

of action by the government flows from the desire to conduct only 

one IGE and the necessity to make certain that adequate funding 

is available to fund the ‘‘omnibus settlement.’’ 

SBREP-219A with DISTILLER

48 

The Construction Industry Procurement Coalition hereby petitions this Committee and others in Congress to take action to provide relief to prime construction contractors and subcontractors 

from the slow processing and payment of change orders on federal 

construction. The Coalition has identified and supports several legislative solutions to the problems experienced by construction contractors and subcontractors with respect to change orders. 

Provide Notice of Agency Policy and Procedures on 

Change Orders 

The CIPC recommends that Congress require federal agencies to 

advise competing offerors about the agencies’ policies with respect 

to the time for processing and paying for change orders, so that 

they make appropriate business judgments prior to submission of 

bids or offers. 

For example, if this proposal were in place, the USACE would 

have to tell its prospective bidders that it has the right to ‘‘bundle’’ 

the processing of change orders until the end of the project. By obtaining this information in advance, prospective offerors could factor into their offers to the federal government the risk and resulting cost of delayed payment for change orders. On projects with a 

short time frame, businesses simply may increase their bids to take 

into account the cost of money. On projects with a longer time 

frame, many businesses, particularly small and emerging firms, 

may choose not to participate. 

The proposed ‘‘Small Business Know-Before-You-Bid Construction Transparency Act’’ (H.R. 2350) takes one approach to this notice requirement by requiring a federal agency to actually report 

information about the agency’s past performance in processing requests for equitable adjustment in its IFBs and RFPs. The Coalition supports H.R. 2350. 

Establish Deadlines for Agency Response to an REA 

The CIPC recommends that Congress specify deadlines for the 

issuance of a written change order and a response to the contractor’s proposal for modification to the construction contract schedule 

and additional funding to cover the contractor’s estimate of the additional costs associated with performing the work flowing from a 

unilateral change order. As noted previously, the FAR establishes 

deadlines for a contractor to submit an REA, but establishes no 

such deadlines for agency action. 

Such a directive, for example, could require that a contracting officer issue a final decision regarding an REA submitted by a small 

business within 14 days with respect to a request in the amount 

of $1 million or less and 28 days with respect to a request in an 

amount more than $1 million. 

Require Provisional Payment of 50 Percent of an REA 

The CIPC recommends that Congress establish a requirement 

that when an agency issues a unilateral change order, that the contracting officer provisionally authorize the payment of 50 percent 

of the additional funds requested by the contractor to cover the 

government’s unilateral change order, without an IGE. 

SBREP-219A with DISTILLER

49 

Such provisional payment is considered a best practice in the private construction market. For example, model documents published 

by ConsensusDocs—a coalition of more than 40 construction owner, 

design professionals, contractor, subcontractor and surety organizations—state in their changes clause: 

‘‘8.2.2 The Parties shall negotiate expeditiously and in good 

faith for appropriate adjustments, as applicable, to the Contract Price or Contract Time arising out of an Interim Directive. As the directed Work is performed, Constructor shall submit its costs for such Work with its application for payment beginning with the next application for payment within thirty 

(30) Days of the issuance of the Interim Directive. If there is 

a dispute as to the cost to Owner, Owner shall pay Constructor 

fifty percent (50%) of its actual (incurred or committed) cost to 

perform such Work. In such event, the Parties reserve their 

rights as to the disputed amount, subject to the requirements 

of ARTICLE 12 [Dispute Resolution and Mitigation]. Owner’s 

payment does not prejudice its right to be reimbursed should 

it be determined that the disputed work was within the scope 

of the Work. Constructor’s receipt of payment for the disputed 

work does not prejudice its right to receive full payment for the 

disputed work should it be determined that the disputed work 

is not within the scope of the Work. Undisputed amounts may 

be included in applications for payment and shall be paid by 

Owner in accordance with this Agreement.’’ 

Excerpt from ConsensusDocs Form 200, Standard Agreement and 

General Conditions Between Owner and Constructor (Lump Sum) 

(2017). 

The CIPC notes that, under the Prompt Payment Act Amendments of 1988, such payment to a prime contractor would be required to flow through to subcontractors for their performance on 

such change order work. 

Require Regular Reports on the Status of REAs 

The CIPC recommends that Congress require federal agencies to 

regularly report to their prime contractors, actions taken on requests for equitable adjustment. Specifically, CIPC suggests that a 

federal agency include with each progress payment to a prime contractor, information on the status of each REA submitted by the 

contractor. Contractors, particularly small and emerging firms, 

must plan and carefully manage their cash flow. A status report on 

its REAs would alert a contractor whether or when it can expect 

payment for change order work performed. Alternatively, a federal 

agency could post such information on an appropriate government 

Web site. 

A requirement for regular status reports on REA would complement other payment transparency provisions supported by the 

CIPC. This includes language included in H.R. 2350, which would 

require a federal agency to post on a Web site each payment made 

to the prime contractor, including the date of payment and the 

amount paid, specifying any amounts withheld from the amount requested by the prime contractor and a general explanation of why 

an amount was withheld. This information would allow a subconSBREP-219A with DISTILLER

50 

tractor or supplier to determine when its payment is due, without 

resorting to contacting directly the already harried federal contracting officer or the prime contractor. Further, the prime contractor would benefit from having a clear statement of why its federal customer did not issue full payment so that it can more expeditiously address and correct any problems. 

The CIPC also supports the provision in H.R. 2350, which would 

require a federal agency to post on a Web site a copy of any payment bond provided for the contract and any modification to such 

bond required by the agency. This information will allow a subcontractor or supplier to obtain a copy of the payment bond without 

resorting to contracting directly the contracting officer or the prime 

contractor. Subcontractors and suppliers need a copy of the bond to 

determine its existence and validity and where required notices 

must be provided. 

Thank you again for inviting the Construction Industry Procurement Coalition to testify before the committee today. I look forward 

to answering any questions you may have now or subsequent to the 

hearing. 

SBREP-219A with DISTILLER

51 

SBREP-219A with DISTILLER


Insert offset folio 51 here 25498.008

Appendix A 

Construction Industry Procurement Coalition 

American Council of Engineering Companies 

American Institute of Architects 

American Society of Civil Engineers 

American Subcontractors Association 

Associated General Contractors of America 

Construction Management Association of America 

Council on Federal Procurement of Architectural and Engineering Services 

Independent Electrical Contractors 

Management Association for Private Photogrammetric Surveyors 

National Association of Surety Bond Producers 

National Electrical Contractors Association 

National Society of Professional Surveyors 

Sheet Metal and Air Conditioning Contractors National Association 

Surety and Fidelity Association of America 

8 
52 

Æ 

SBREP-219A with DISTILLER


Insert offset folio 52 here 25498.009