In 2015, the Navy awarded a contract to HCS Inc to repair a leak in an 8" water line. After work began, it was discovered that the leak was in a 4" line that intersected the 8" line. Since the 4" line was no longer needed, the Navy instructed HCS to cap the 4" line, thus solving the leakage problem.
After the work was completed, the Navy unilaterally reduced the contract price by about half because HCS, while solving the problem, didn't have to do as much work as initially contemplated by the contract. HCS didn't care for the Navy's action and appealed the unilateral price reduction to the ASBCA (Armed Services Board of Contract Appeals).
The Board noted that under the Changes clause, the contract price must be equitably adjusted when a change in the contract work causes in increase or decrease in the cos of performance of the work. The purpose underlying an equitable adjustment is to safeguard both contractors and the government against the increased costs engendered by modifications adding or deleting contract work. However, in the case of a reduction, the government has the burden of proving the amount of cost savings due to the deletion of work. A contractor is entitled to receive its contract price unless the government demonstrates the government is entitled to a price reduction for deleted work.
The Board stated that it was not aware of any authority allowing the Navy to delete work from a contract after work performance and then refuse to pay for the work initially specified and performed and so ruled that a contractor is entitled to receive its contract price where the government fails to demonstrate entitlement to a contract price reduction for deleted work..
The ASBCA ordered the Navy to pay HCS the full contract price plus interest.
Click here to read the entire ASBCA decision.