Propriety of Contract Modification in Lieu of Competitive Procurement

B-207389: Jun 15, 1982

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The National Park Service requested GAO views on whether it was proper for a city to issue a change order increasing the value of a contract for work not contemplated under the original contract. The project was substantially funded by a grant administered by the Department of the Interior. The city had asked an architect to prepare cost estimates for additional work and the architect recommended modifications to the original contract instead of a new procurement because the incumbent contractor was performing well, and two contractors onsite could create problems with respect to timing. Additionally, the optimum bidding season would have passed before a new solicitation could have been prepared, and inflation might have produced higher prices in a new competition. A modification to the contract was issued and there was no indication that Interior's approval was sought. The Park Service questioned whether the city's action violated a grant condition requiring maximum free and open competition in procurements. The city argued that no grant condition was violated because the city had a contractual right to order the additional work, the city complied with all local requirements, the pricing of the modification was based on bid-unit prices in an open and free competition, and the change order had been called to the attention of the Federal authorities. GAO has cautioned that contracting parties may not change the terms of a contract to interfere with or defeat the purposes of competitive procurement. Improper contract modifications are tantamount to unjustified sole-source awards. If a modified contract is materially different from the contract for which the competition was held, the modification should have been procured competitively. In the view of GAO, the changes and extra work clause of the contract in question permitted extra or changed work only in connection with work contemplated or specified in the contract which the additional work was not. Thus, the purposes of competitive bidding were defeated. GAO found that the city's reasons for granting the modification contract to the incumbent contractor were unconvincing. GAO recommended consideration of corrective action with respect to this matter and of whether any revisions in regulations and grant conditions are indicated.