Capitol Hill Update - A SMACNA Priority: Contract Change Order Reform Introduced in Congress

Due to its popularity with contractors nationwide, federal change order reform has recently been reintroduced in Congress. It has bipartisan support and a promising future of passage.

The Small Business Payment for Performance Act of 2019 (H.R. 2344) reflects SMACNA members’ suggestions for improving contractor payment conditions on federal construction.

The bill would make long overdue reforms advocated by SMACNA’s many federal contractors to resolve change order payment disputes more quickly and fairly.

The Small Business Payment for Performance Act of 2019 forces agencies to be accountable for changed work they order by funding their own construction projects in a timely manner instead of diverting that financial burden to the small contractors.

This important legislation would allow contractors to submit a request for equitable adjustment (REA) or a project contract fee adjustment to an agency that had approved a performed change order to a project’s original design or scope. Once the agency receives the REA, it must pay 50 percent of the billed change order work amount in a timely manner to offset extra costs.

While this legislation is not the entire solution to the millions of dollars in change order inequities that specialty contractors face every year, it is a significant first step most worthy of passage. Mitigating the risks imposed on small construction contractors will encourage small business participation in the federal construction marketplace, driving competition and decreasing prices for the federal government.

SMACNA has told the co-sponsors and the full House of Representatives that SMACNA strongly agrees with the language and intent of H.R. 2344. 

“Equitable changes to the contract, known as change orders, are ubiquitous on construction projects and slow approval can result in delayed payment,” said the bill’s co-sponsors Reps. Pete Stauber (R-8th-Minnesota) and Marc Veasey (D-33rd-Texas) when they introduced H.R. 2344. “Small businesses typically do not have enough capital and resources to sustain long periods of nonpayment and are dependent on a stable cash flow to stay afloat.”

“Changes to scope of work on a contract can be initiated, unilaterally, by one party; often, the federal agency. Small businesses perform the changed work, incurring out-of-pocket costs for labor, supplies, etc. The work that small businesses perform, at the behest of the agency, are done at great financial risk to the small business. Unfortunately, small businesses are not being paid in a timely manner, or at all, for the changed work completed,” they said.

After pushing legislation through the Small Business Committee by an overwhelming vote (18-3) during the 115th Congress last year, SMACNA and the bill co-sponsors were disappointed that it lost out to the short election year calendar. That bipartisan legislation, co-sponsored by Reps. Brian Fitzpatrick (R-8th-Pennsylvania) and Stephanie Murphy (D-7th-Florida), was reported to the floor as H.R. 2594 in June 2017 but did not receive an expected floor vote.

Rep. Stauber also addressed the issue at the recent CEA National Issues Conference and asked members to help build his co-sponsor list by urging their lawmakers to pass the bill out of the Small Business Committee.

H.R. 2344, while just introduced, is expected to see positive consideration in the House Small Business Committee by this summer.

Concurrently on the Senate side, SMACNA, its member firms and allies are seeking a Senate sponsor willing to advance a Senate companion to the House bill. With a version of the change order reform bill moving on both sides of Congress, the odds of passage would significantly increase this year.

Members may read SMACNA’s letter to the House: smac.news/6.

Members are urged to contact their legislators on SMACNA’s Take Action web page.