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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 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 construction 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 don’t 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, or R.E.A.s, 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 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.   

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