Equitable Adjustment
Also known as: Equitable adjustment, price adjustment for a change
What you do here: Quantify the cost and time impact of a change and adjust the contract to make yourself whole
At a Glance
- Who it's for
- A contractor whose cost/time increased (or decreased) because of a change
- What it does
- Adjusts contract price and/or delivery to account for the change's impact
- Governing authority
- The Changes clause (FAR 52.243-1) and FAR 43.205; other clauses also allow adjustments
- Measure
- The reasonable added cost plus profit (or the reduction) caused by the change — no windfall either way
- How it's finalized
- Negotiated and definitized in a bilateral modification
What It Is
An equitable adjustment is the money-and-time remedy that makes a contractor whole when a change increases (or decreases) the cost or time of performance. It's the counterweight to the government's power to direct changes: the Changes clause lets the contracting officer order a within-scope change, and it entitles the contractor to an equitable adjustment for the impact. The principle is restoration, not enrichment — an equitable adjustment is meant to leave the contractor in the position it would have occupied but for the change, neither better nor worse off. In practice the adjustment covers the reasonable increased costs the change caused — added direct labor and materials, added subcontract costs, disruption and inefficiency, extended overhead — plus profit on the added work, and any needed extension of the delivery schedule. If a change *reduces* the work, the adjustment runs the other way and lowers the price. Equitable adjustments arise not only from change orders but from other clauses too (differing site conditions, government-caused suspensions of work, and the like). They are asserted through a Request for Equitable Adjustment and, once negotiated, captured in a bilateral modification.
When You See It
- After a change order directs a within-scope change that raises (or lowers) your cost or time.
- When a differing site condition, suspension of work, or government delay increases your cost of performance.
- When the government deletes or reduces work and the price should come down.
- Whenever a contract clause entitles you to adjust price or schedule for an impact you didn't cause.
Key Features
| Feature | What It Means |
|---|---|
| Make-whole, not windfall | An equitable adjustment restores you to where you'd have been but for the change — it's not a penalty on the government or a profit windfall for you. |
| Covers costs plus profit | The adjustment includes reasonable added direct and indirect costs and profit on the added work; on a deletion it reduces the price. |
| Includes ripple effects | Disruption, inefficiency, and extended overhead caused by the change are recoverable — not just the obvious direct cost of the new task. |
| Schedule as well as price | The adjustment can extend the delivery or performance schedule, not only change the dollars. |
| Proven with segregated costs | The strength of an equitable adjustment depends on documentation — costs tracked to the change, not estimated after the fact. |
The SDVOSB Angle
For a small SDVOSB, the equitable adjustment is how you survive a change without eating the cost — but it only works if you can prove it. The firms that recover well open a cost-segregation file the moment a change hits and track the changed-work labor, materials, and subcontract dollars separately from base-contract costs. They also claim the ripple effects small firms usually miss: the inefficiency of stopping and restarting, and the extended overhead of a longer schedule. Price your adjustment the way you'd price a bid — the Price-to-Win Calculator's cost build-up logic applies here too — and remember that added scope may move your limitations-on-subcontracting math, so re-check self-performance.
How to Handle It
- Open a cost-segregation file when the change hits and track changed-work costs separately from the base contract.
- Build the adjustment from actual/estimated costs: direct labor, materials, subcontracts, indirect costs, disruption, and profit.
- Include schedule impact — request an extension of the delivery or performance period where warranted.
- Submit the adjustment as a Request for Equitable Adjustment with supporting cost data.
- Negotiate and definitize the adjustment in a bilateral modification; re-check limitations on subcontracting if scope changed.
Watch Out For
- Estimating the impact after the fact instead of tracking segregated costs weakens the adjustment.
- Forgetting disruption, inefficiency, and extended overhead — the indirect impacts small firms under-claim.
- Missing the notice/assertion timeframe in the Changes clause.
- Signing a definitizing modification with a broad release before you've quantified all the impacts.
Run the Numbers
Frequently Asked
What is an equitable adjustment?
An equitable adjustment is the adjustment to contract price and/or schedule the government owes a contractor when a change increases (or decreases) the cost or time of performance. It is the contractor's remedy under the Changes clause and other adjustment clauses, and its purpose is to make the contractor whole — to restore it to the position it would have been in but for the change, neither better nor worse off. It covers reasonable added costs plus profit, including disruption and extended overhead.
What costs can I include in an equitable adjustment?
You can include the reasonable costs the change caused: added direct labor and materials, added subcontract costs, the cost of disruption and lost efficiency, extended overhead from a longer schedule, and profit on the added work. You should also request any needed extension of the delivery or performance schedule. The key is documentation — costs tracked and segregated to the change are far more persuasive than a lump-sum estimate prepared afterward.
How is an equitable adjustment different from a claim?
An equitable adjustment is the substantive remedy — the money and time you're owed for a change. A Request for Equitable Adjustment (REA) is how you ask for it, and it's typically resolved by negotiation and a bilateral modification. A claim under the Contract Disputes Act is a formal demand for a contracting officer's final decision, which starts interest running and opens the door to appeal at a board of contract appeals or the Court of Federal Claims. Many disputes start as an REA and become a claim only if negotiation fails.
Primary Sources
- FAR 43.205 — Contract clauses (Changes)
- FAR 52.243-1 — Changes—Fixed-Price
- FAR 52.212-4 — Contract Terms and Conditions—Commercial Products and Services
Plain-English reference, not legal advice. Contract modification, options, novation, and termination rules are fact-specific, and the FAR and agency supplements are amended from time to time — always read the current FAR text, follow the notice and certification timeframes in your specific contract clauses, confirm the requirements with the contracting officer, and consult qualified counsel before relying on a modification, settlement, claim, or termination position.
Change log (1)
- LaunchedPublished the federal contract modifications, options & change management reference covering how a federal contract changes after award — the bilateral supplemental agreement and the unilateral modification (FAR 43.103), the change order under the Changes clause (FAR 52.243-1), the administrative change (FAR 43.101), the equitable adjustment and the Request for Equitable Adjustment (FAR 43.204 / 43.205), the constructive change doctrine, the options to extend the term and quantity (FAR 52.217-8, 52.217-9, and the Subpart 17.2 quantity options 52.217-6/-7), the novation and change-of-name agreements (FAR Subpart 42.12), and the terminations for convenience and default (FAR Part 49 / 52.249-2 / 52.249-8) — each with an at-a-glance quick-facts card, a when-you-see-it list, a key-features table, an SDVOSB-specific angle, a how-to-handle-it checklist, watch-outs, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source FAR citations, and cross-links into the glossary, regulation explainers, clauses, forms, contract types, protest & dispute forums, compliance deadlines, how-to guides, FAQ, and the limitations-on-subcontracting, price-to-win, size-standard, and set-aside eligibility calculators.