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Members of the House Small Business Committee this week pressed the case for improving the procurement process for small businesses competing in the federal marketplace. The hearing focused on the process by which the federal government can change work requirements in contracts toward the end of a project, often creating challenges for smaller contractors. When federal agencies issue so-called “change orders”, small businesses often encounter difficulty receiving compensation for the extra work they perform.  

“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,” said Congresswoman Stephanie Murphy (D-FL), the Ranking Member, House Subcommittee Committee on Contracting and the Workforce.  “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.”

“One longstanding barrier to small business participation in the federal marketplace has been the practice of bundling contract modifications, which delays payment to contractors while increasing the risk they take on,” said Congresswoman Alma Adams (D-NC), the  Ranking Member of Subcommittee Committee on Investigations, Oversight, and Regulations. “When federal agencies group smaller modification actions together, they reduce the negotiating power of the contractor.”   

The problem of change orders is exacerbated when these directives are “bundled” together, creating a cascade in changes in work small companies must perform to receive payment.   During the hearing, witnesses described how small businesses face a daunting task when they file a claim seeking equitable treatment after a change order.  Small construction firms in particular are hardest hit by misuse of the change order process.

“A refusal to complete an order or to challenge the validity of a change order can result in a loss of payment or potential lawsuit by the contracting officer or even the prime contractor,” added Greg Long, President and Owner of Long Electric Company.  “Therefore, contractors proceed with the work and do their best to account for the consequential costs and risks incurred when the timing and scope of a job is altered.”

“When we (small construction contractors) don’t pay our bills our utilities shut off, our cars are repossessed, and our houses are foreclosed,” said Andy Brown, Vice President of Glen/Mar Construction, Inc.  “However, when the government fails to pay their bills, small businesses go out of business.”

Both Adams and Murphy agreed that the Small Business Administration must conduct stricter scrutiny and oversight of the change order mechanism, so fewer small businesses are denied compensation for their work.  

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