Request for Equitable Adjustment (REA): Complete Contractor Guide
Master the REA process for federal contracts. Learn when to submit an REA, documentation requirements, calculation methods, and negotiation strategies for recovering increased costs.
Quick Answer
A Request for Equitable Adjustment (REA) is a contractor's written request to the government for a contract price increase and/or schedule extension to compensate for increased costs caused by changes, differing site conditions, or other government actions. Unlike a formal claim, an REA is a negotiation request that doesn't require contracting officer final decision or certification under $100,000.
What is a Request for Equitable Adjustment?
A Request for Equitable Adjustment (REA) is a formal written request from a contractor to the government seeking compensation for additional costs and/or schedule relief caused by government actions or conditions beyond the contractor's control. The REA process allows contractors to recover legitimate costs without escalating to a formal claim.
Key Characteristics of an REA
- Negotiation Request: Not a formal claim; seeks cooperative resolution
- Bilateral Resolution: Aims for mutual agreement on adjustment amount
- Contract-Based: Must cite applicable contract clauses authorizing adjustment
- Documentation Required: Must be supported by cost data and analysis
Contract Clauses Supporting REAs
Changes Clause (FAR 52.243)
Authorizes adjustments for government-directed changes to specifications, method of shipment, or time of performance.
Differing Site Conditions (FAR 52.236-2)
Covers unexpected subsurface or latent physical conditions at construction sites.
Suspension of Work (FAR 52.242-14)
Addresses government-ordered work stoppages and resulting cost impacts.
Government Property (FAR 52.245-1)
Covers issues with government-furnished property, equipment, or materials.
REA vs. Claim
Understanding the difference between an REA and a claim under the Contract Disputes Act (CDA) is essential for choosing the right approach.
| Characteristic | REA | CDA Claim |
|---|---|---|
| Nature | Negotiation request | Formal demand for final decision |
| Certification | Not required | Required if over $100K |
| CO Response | No deadline for decision | 60 days (routine decisions) |
| Interest | Not automatic | CDA interest from claim date |
| Appeal Rights | None (must convert to claim) | CBCA/ASBCA or Court of Federal Claims |
| Relationship | Cooperative | Adversarial |
When to Use an REA
- Government acknowledges the change/issue
- Good working relationship with CO
- Want to preserve relationship
- Expectation of good faith negotiation
When to File a Claim
- REA negotiations have failed
- Need CDA interest to accrue
- Approaching statute of limitations
- Government denies entitlement
Converting REA to Claim
If REA negotiations fail, you can convert the REA to a CDA claim by adding a certification statement (for amounts over $100K) and requesting a contracting officer's final decision. The claim should reference the REA and clearly state it is now a formal claim.
Grounds for an REA
An REA must be based on a recognized legal theory supported by applicable contract clauses. Common grounds include:
1. Directed Changes
Written or oral direction from the CO that changes the work, specifications, or schedule.
2. Constructive Changes
Government conduct that has the effect of a change order even without formal direction.
- • Defective specifications requiring different approach
- • Overly strict inspection standards beyond contract requirements
- • Failure to disclose superior knowledge
- • Late or inadequate government-furnished information
3. Differing Site Conditions
Physical conditions at construction sites that differ from contract representations.
4. Government-Caused Delays
Delays attributable to government action or inaction that impact contractor performance.
- • Late delivery of GFE/GFM
- • Delayed access to work site
- • Slow approval of submittals
- • Suspension of work orders
5. Acceleration
Government direction to complete on original schedule despite excusable delays.
Preparing Your REA
A well-prepared REA is essential for successful negotiation. Thorough documentation and clear presentation of entitlement and quantum are critical.
REA Components
Executive Summary
Brief overview of the issue, entitlement basis, and adjustment requested
Statement of Facts
Chronological narrative of events leading to the REA with supporting references
Entitlement Analysis
Legal and contractual basis for the adjustment with clause citations
Quantum (Cost) Analysis
Detailed calculation of additional costs with supporting documentation
Schedule Impact Analysis
Time extension request with schedule analysis if applicable
Supporting Documentation
Exhibits, invoices, timesheets, correspondence, photos, schedules
Documentation Best Practices
Contemporaneous Records
- • Daily logs and reports
- • Meeting minutes
- • Email correspondence
- • Time and material records
Cost Documentation
- • Labor timesheets with rates
- • Material invoices and receipts
- • Equipment usage logs
- • Subcontractor invoices
Change Evidence
- • Direction from government
- • Photos/videos of conditions
- • Test results and reports
- • Specification comparisons
Schedule Evidence
- • Baseline schedule
- • Schedule updates/fragments
- • Critical path analysis
- • Delay narratives
Cost Calculation Methods
Quantum (cost) calculation is often the most challenging aspect of an REA. Different methods apply depending on the circumstances and available data.
Preferred: Actual Cost Method
Direct comparison of actual costs incurred versus costs that would have been incurred without the change.
Total Actual Costs - Bid/Contract Costs = Adjustment
Requirements: Detailed cost accounting, segregation of change-related costs, comparison to original estimates
Alternative: Modified Total Cost Method
Used when actual costs cannot be segregated; compares total project cost to bid.
- 1. Impracticability of proving actual costs
- 2. Reasonable bid/estimate
- 3. Reasonable actual costs
- 4. Not responsible for added costs
Estimating: Should-Cost Analysis
Forward-pricing based on engineering estimate of what work should cost.
Cost Elements to Include
Direct Costs
- • Direct labor (hours × rates)
- • Materials and supplies
- • Equipment (owned or rented)
- • Subcontractor costs
- • Travel and per diem
Indirect Costs
- • Field/job overhead
- • Home office overhead
- • Extended general conditions
- • Profit (typically 10-15%)
- • Bond premium increases
Eichleay Formula for Home Office Overhead
For government-caused delays on construction contracts, the Eichleay formula calculates daily home office overhead rate based on contract billings, company overhead, and original contract duration. Strict criteria apply for its use.
Negotiation Process
Successful REA negotiation requires preparation, patience, and a collaborative approach while firmly advocating for your position.
Negotiation Steps
Deliver comprehensive REA package to contracting officer
CO reviews with support from DCAA, technical, and legal advisors
Response to government questions and requests for additional data
Discussion of entitlement issues and quantum methodology
Bilateral modification executed with agreed adjustment
Negotiation Strategies
Be Prepared
- • Know your documentation thoroughly
- • Anticipate government questions
- • Have backup positions ready
- • Understand government constraints
Stay Professional
- • Maintain working relationship
- • Focus on facts, not blame
- • Be responsive to requests
- • Document all discussions
Know Your BATNA
- • Best Alternative to Negotiated Agreement
- • Understand claim conversion option
- • Know litigation costs/risks
- • Consider relationship value
Be Flexible
- • Consider creative solutions
- • Prioritize key cost elements
- • Look for non-monetary trade-offs
- • Know when to compromise
Common Mistakes to Avoid
1. Inadequate Notice
Failing to provide timely written notice to the CO when a change or problem occurs. Many contract clauses require notice within specific timeframes (e.g., 20 days for differing site conditions).
2. Poor Cost Segregation
Failing to track and segregate change-related costs from base contract costs. Without clear cost records, proving quantum becomes extremely difficult.
3. Weak Entitlement Analysis
Focusing only on costs without clearly establishing the legal/contractual basis for entitlement. Must connect facts to specific contract clauses.
4. Inflated or Unsupported Amounts
Requesting amounts that cannot be supported with documentation or are clearly excessive. This damages credibility and prolongs negotiations.
5. Delay in Submission
Waiting too long to submit the REA. Memories fade, records are lost, and the 6-year statute of limitations may become a factor.
6. Ignoring Concurrent Contractor Issues
Failing to address contractor-caused delays or problems that may offset the adjustment. Government will identify these; better to address proactively.
Frequently Asked Questions
How long does REA negotiation typically take?
REA negotiations can take anywhere from a few weeks to over a year depending on complexity, government workload, and documentation quality. Simple REAs with clear entitlement and straightforward costs resolve faster than complex multi-issue REAs.
Can I include profit in my REA?
Yes, profit is generally allowable on equitable adjustments. Typical profit rates are 10-15% on direct costs, though the specific rate depends on the nature of the work, risk, and negotiation. Profit on overhead is less common.
What if the government ignores my REA?
Unlike a claim, there's no required response time for an REA. If the government is unresponsive, follow up in writing and consider converting to a formal CDA claim to trigger response deadlines and begin accruing interest.
Should I hire a consultant for my REA?
For significant REAs, consultants with claims experience can be valuable for documentation, cost analysis, and schedule analysis. Consider the cost-benefit based on REA value. For complex cases, legal counsel may also be advisable.
Does submitting an REA affect my past performance rating?
Simply submitting an REA should not negatively affect past performance. REAs are a normal part of contract administration. However, the manner of pursuing the REA and relationship with the government can influence overall perception of contractor cooperation.
Find Your Next Federal Contract
Better contracts mean fewer REAs. BidFinds helps you identify opportunities that match your capabilities and track contract performance across the federal marketplace.
Ready to Find Your Next Contract?
Get instant access to thousands of government construction bids with our AI-powered platform.
Get Started