Opinion ID: 159646
Heading Depth: 3
Heading Rank: 2

Heading: The Equitable Adjustment

Text: 11 The contract originally required AAA to perform photography services for six months from April through September 1993, but it was later extended through December 1993. The contract called for a fixed monthly payment of $23,240. There were some circumstances, however, under which AAA's payment could be decreased or increased. 12 The way AAA could receive an increase in payment was by requesting an equitable adjustment. AAA could receive such an adjustment if it performed more work than was contemplated by the government at the time the contract was signed. Technical Exhibit Two to the contract specified the government's estimate of the amount of work AAA would be required to perform for specific tasks. If in the course of its performance AAA believed it was performing more work than indicated in the government's estimates, it could seek an equitable adjustment. Because the numbers recorded on the work orders should reflect the exact amount of work AAA had performed, in order to pursue an equitable adjustment AAA would need to calculate the total of the numbers recorded in the amount produced and amount delivered sections of those forms (the production quantity sections). If this total exceeded the government's previous production quantity estimates, AAA could use the work orders to support a claim for an equitable adjustment. 13 Indeed, on June 21, 1993, AAA complained in a letter to the government contracting officer (CO) Steve Hammond that it had performed work in excess of that estimated by the government and thus requested an equitable adjustment. AAA first specifically linked this request to the work orders at a meeting with the government on June 30, 1993. At this meeting, AAA's president distributed a handout indicating that AAA's workload had exceeded the government's production estimates by an average of 31% per month during the first three months of the contract. AAA continued to claim that it was performing work in excess of the government's estimates throughout the contracting period. In January 1994, after the contracting period ended, AAA claimed that it had performed more work than the government's estimates in almost every category of work under the contract. 14 AAA originally claimed it was entitled to an equitable adjustment of $184,872 for the first six months of the contracting period. Because the requested equitable adjustment was greater than $100,000, AAA was required to certify the claim. AAA's President did so in a letter to the government which stated: 15 I certify that this claim for equitable adjustment in the amount of $184,872 is made in good faith, the supporting data is accurate and complete to the best of my knowledge, and that the amount to which I believe AAA is entitled accurately reflects the contract adjustment for which I believe the government is liable. 16 AAA later adjusted its claim to include expenses allegedly incurred for excess work performed during the last three months of the contract. The adjusted claim was for $248,410.15, and AAA issued a new certification based on this amount. 5 17 In the hope of reaching an agreement on the equitable adjustment claim, the two sides agreed in early 1994 that AAA representatives and government representatives would together count the production quantities recorded on the work orders (the joint count), starting with work orders completed at the beginning of the contract. In spite of this agreement, however, the attempt to make the count a joint effort soon failed. After the first day, AAA employees and the government QAEs separated and conducted two distinct production quantity counts. QAE Marianne Griffeth counted on behalf of the government and Garbutt counted on behalf of AAA. The matters on which the two sides disagreed continued to be set aside for an ultimate determination by the CO. 18 Despite the disagreements which arose at the joint count, the government QAEs did not then suspect that the production quantities recorded on the work orders might have been falsely inflated. QAE Griffeth was not instructed to examine the work orders to determine if there was evidence that AAA had falsely inflated its workload, and she did not report any problems of that kind. Additionally, Garbutt testified that the disagreements concerned only whether certain work should have been included on the work orders even if it was performed. Thus, at the time of the joint count, no one questioned whether the production quantities recorded on the work orders had been falsely inflated, either when they were originally completed or through subsequent alteration by AAA employees. 19 In addition to conducting its own count, the government requested assistance in evaluating AAA's equitable adjustment claim from the Defense Contract Audit Agency (DCAA). DCAA examined AAA's general financial records but did not examine the work orders. DCAA determined that AAA's equitable adjustment claim was computed by subtracting the total contract payments from its claimed total contract costs. As a consequence, DCAA concluded that AAA's calculation did not account for its own possible inefficiencies in performing the contract. AAA responded that there was no inefficiency on its part and that the government's estimated workload figures were simply inaccurate. 20 After the production quantity counts, the DCAA audit, and further communication between AAA and the government COs, the government offered to settle AAA's equitable adjustment claim for $78,190. The government estimated that if AAA had hired one-and-a-half more employees at the beginning of the contract, it would have been able to timely complete the quantity of work reflected in the production quantity sections of the work orders. The government's settlement offer thus roughly equaled the salary of one-and-a-half additional employees for the duration of the contract. AAA eventually invoiced the government for and received the $78,190 as an equitable adjustment. 6 At the time of the settlement offer, the government COs and QAEs still did not suspect that information submitted by AAA on the work orders were falsified to make it appear as if AAA had completed more work than it had in fact performed. CO Hammond testified that if the government had known the work orders were falsely inflated, it would not have settled the equitable adjustment claim.