Supplemental agreement
Supplemental agreement - any alteration or modification of the terms and conditions of a contract not expressly provided for thereunder may be accomplished only by the execution of a supplemental agreement to the contract with the consent of the surety. Supplemental agreements are the proper means to provide for extra work not originally contemplated and not within the general scope of the contract, for termination of the contract on an equitable basis by mutual agreement, for the making of payments to other than the contractor pursuant to a legally authorized assignment of the contract, and for the modification of any essential requirement of the contract, such as the time of commencement, the amount of retained percentage, etc[1].
A supplemental agreement is essentially a new, negotiated contract entered into by the parties and is an addendum to the existing contract. Supplemental agreements are used rather than change orders whenever the parties can agree to the need for change, the cost effect of a change, or both. Supplemental agreements need not be made by any specific authority in the contract.
Supplemental agreements must generally be supported by consideration if they are to be binding. The adequacy of such consideration will not, however, be examined by the boards and courts[2].
Use of supplemental agreements
Supplemental agreements are used to[3]:
- finalize change orders
- accommodate decisions of the boards of contract appeals
- finalize equitable adjustments in connection with other contract clauses
- finalize a termination for convenience
- allow a contractor to complete a contract after non-excusable delay, change contract price
- make major changes in delivery schedule, quantity, quality, or other terms, since the "changes" clause does not permit these types of changes without the consent of the contractor
Beyond the scope of the agreement
A supplemental agreement should be deemed to be "generally beyond the scope of the contract" if one or more of the following circumstances occur[4]:
- the nature of the proposed work under the modification is generally different than that under the original contract
- the quantities of materials and work called for under the modification are substantially beyond those required under the original contract
- the time required for performance of the modification is such that the overall performance time of the contract will need to be substantially lengthened
- the conditions of performance of the proposed modification are materially and substantially different than those of the original contract, in terms such as degree of risk or market conditions.
Examples of Supplemental agreement
- Changes in the scope of work: A supplemental agreement can be used to add or delete elements from the original scope of work. For example, if a contractor was hired to build a new house, a supplemental agreement can be used to add an extra bedroom to the house.
- Changes in the timeline: A supplemental agreement can be used to modify the timeline for a project. For example, if the original timeline for a project was one year, a supplemental agreement can be used to extend the timeline to two years.
- Changes in the payment terms: A supplemental agreement can be used to modify the payment terms of a contract. For example, if the original payment terms were to pay in full upon completion of the project, a supplemental agreement can be used to change the terms to pay in installments over the course of the project.
- Changes in the surety requirements: A supplemental agreement can be used to modify the surety requirements of a contract. For example, if the original surety requirement was a $50,000 bond, a supplemental agreement can be used to increase the amount of the surety requirement to $100,000.
Advantages of Supplemental agreement
A supplemental agreement can provide many advantages in a contractual agreement, including:
- The ability to add additional work not originally included in the contract, allowing parties to further tailor the agreement to their needs.
- The ability to modify the timeline or other essential requirements of the contract, allowing for more flexibility and responsiveness to changing circumstances.
- The ability to terminate the contract on an equitable basis by mutual agreement, allowing parties to avoid costly disputes.
- The ability to make payments to other parties pursuant to a legally authorized assignment of the contract, allowing for greater efficiency in the transfer of funds.
Limitations of Supplemental agreement
A supplemental agreement is a contract amendment that alters or modifies the original terms and conditions of a contract. However, it must be executed by both parties with the consent of the surety and is limited in scope. Specifically, a supplemental agreement:
- Cannot provide for extra work not originally contemplated and not within the general scope of the contract;
- Cannot be used to terminate a contract on an equitable basis by mutual agreement;
- Cannot be used to make payments to other than the contractor;
- Cannot be used to modify an essential requirement of the contract, such as the time of commencement, the amount of retained percentage, etc.
One other approach related to supplemental agreement include:
- A novation, which is a contract between the original parties and a third party in which the third party agrees to assume all of the obligations of the original contract.
- Waiver of contractual rights, either by express or implied agreement, such as a waiver of the right to sue for breach of contract.
- Estoppel, which is a legal principle that prevents a party from denying or asserting something to the contrary of what is already established as true.
- Modification of the terms of the original contract to make them more equitable for all parties.
In summary, other approaches related to supplemental agreement include novation, waiver of contractual rights, estoppel, and modification of the terms of the original contract. These approaches can be used to modify or supplement the terms of a contract to make them more equitable or to accommodate the needs of all parties.
Footnotes
| Supplemental agreement — recommended articles |
| Task order — Construction management contract — Discharge of contract — Provisional sum — Inchoate instrument — Unit price contract — Evergreen clause — Warranty bond — Firm fixed price contract |
References
- Cibinic J., (2010), Administration of Government Contracts, CCH Incorporated, Washington.
- Elleman B.A., (2000), Diplomacy and Deception, M.E. Sharpe, London.
- Kulakowski E.C., Chronister L.U., (2010), Research Administration and Management, Jones & Bartlett Publishers, Boston.
- Orders and Regulations, Corps of Engineers, (2000), U.S. Government Printing Office, Washington.
Author: Kinga Krzyściak
