FAR 50.103-2—Types of contract adjustment.
Plain-English Summary
FAR 50.103-2 explains the main types of contract adjustments available under the Defense Production Act / national defense contract adjustment framework. It covers three distinct subjects: amendments without consideration to protect a contractor’s productive ability when a loss threatens essential defense performance or supply; adjustments to address losses caused by Government action when fairness supports relief; and correction of mistakes, including obvious unilateral mistakes, mutual mistakes, and ambiguities or omissions in the written contract. It also addresses formalizing informal commitments so that people who relied in good faith on apparent Government authority and furnished supplies or services without a formal contract can be paid. In practice, this section tells contracting officers when relief may be legally and policy-wise appropriate, and it tells contractors and suppliers that extraordinary adjustments are possible, but only within the limits of national defense needs, fairness, and the specific facts. The section is designed to speed defense procurement, preserve critical production capacity, and avoid unjust results while still respecting the basic rule that contract changes are not automatic and must be justified.
Key Rules
Amendments Without Consideration
A defense contract may be amended without consideration when an actual or threatened loss would impair a contractor’s productive ability and that contractor’s continued performance or continued operation as a source of supply is essential to national defense. Any relief must be limited to what is necessary to prevent the impairment.
Government-Caused Losses
If a contractor suffers a real loss, not just reduced expected profit, because of Government action, the nature of that action controls whether an adjustment is appropriate and how far it should go. When the Government acts primarily as the contracting party and fairness supports relief, an adjustment may be made even if the Government has no legal liability.
Fairness-Based Relief
Where Government action increases performance cost and causes a loss, the contract may be adjusted in the interest of fairness. This is an equitable remedy, not a guarantee of full reimbursement, and it depends on the circumstances and the relationship of the Government’s action to the contract.
Correcting Mistakes
A contract may be amended or modified to correct or mitigate a mistake. Examples include a written contract that fails to reflect the parties’ actual agreement, a contractor mistake that was obvious or should have been obvious to the contracting officer, and a mutual mistake about a material fact.
Prompt Correction of Errors
Mistakes should be corrected with the least possible delay because prompt action supports national defense, speeds the contracting program, and reassures contractors that errors will be handled fairly and efficiently.
Formalizing Informal Commitments
Under certain circumstances, informal commitments may be formalized so payment can be made to persons who acted without a formal contract but relied in good faith on an agency official’s written or oral instructions and apparent authority. This can apply when supplies or services were furnished to the agency or to a defense contractor or subcontractor.
Responsibilities
Contracting Officer
Determine whether the contractor’s continued performance or source-of-supply role is essential to national defense before granting relief without consideration. Evaluate whether Government action caused a loss, whether fairness supports an adjustment, whether a mistake exists and what correction is appropriate, and whether an informal commitment may be formalized for payment.
Contractor
Show the actual or threatened loss, the impact on productive ability, the nature of any Government-caused loss, or the existence of a mistake that warrants correction. Provide facts supporting good-faith reliance, obvious error, mutual mistake, or the need for equitable adjustment.
Agency
Support timely and fair resolution of defense-related contract problems, including prompt correction of mistakes and appropriate handling of informal commitments when national defense and fairness considerations justify payment or contract formalization.
Person Furnishing Supplies or Services
Demonstrate that action was taken in good faith in response to an agency official’s written or oral instructions and apparent authority, and that supplies or services were actually furnished or arranged for without formal contractual coverage.
Practical Implications
This section is about extraordinary relief, not routine contract administration. Parties should not assume every loss, error, or unauthorized commitment will be corrected; the facts must fit one of the recognized categories and the remedy must be limited to what is necessary.
Contracting officers should document the basis for finding national defense essentiality, fairness, mistake, or apparent authority. Weak documentation is a common pitfall because these adjustments are highly fact-specific and can be scrutinized later.
Contractors should distinguish between actual loss and lost profit. FAR 50.103-2 speaks to real losses and impairment, so claims framed only as reduced expected earnings are less likely to qualify.
Obvious mistakes and mutual mistakes should be raised quickly. Delay can complicate proof, increase performance disruption, and undermine the policy goal of fast correction.
Informal commitments are risky for both sides. Suppliers and subcontractors should seek formal authorization before performance whenever possible, and agencies should be careful not to create apparent authority problems through unclear instructions.
Official Regulatory Text
(a) Amendments without consideration. (1) When an actual or threatened loss under a defense contract, however caused, will impair the productive ability of a contractor whose continued performance on any defense contract or whose continued operation as a source of supply is found to be essential to the national defense, the contract may be amended without consideration, but only to the extent necessary to avoid such impairment to the contractor’s productive ability. (2) When a contractor suffers a loss (not merely a decrease in anticipated profits) under a defense contract because of Government action, the character of the action will generally determine whether any adjustment in the contract will be made, and its extent. When the Government directs its action primarily at the contractor and acts in its capacity as the other contracting party, the contract may be adjusted in the interest of fairness. Thus, when Government action, while not creating any liability on the Government’s part, increases performance cost and results in a loss to the contractor, fairness may make some adjustment appropriate. (b) Correcting mistakes. (1) A contract may be amended or modified to correct or mitigate the effect of a mistake. The following are examples of mistakes that may make such action appropriate: (i) A mistake or ambiguity consisting of the failure to express, or express clearly, in a written contract, the agreement as both parties understood it. (ii) A contractor’s mistake so obvious that it was or should have been apparent to the contracting officer. (iii) A mutual mistake as to a material fact. (2) Amending contracts to correct mistakes with the least possible delay normally will facilitate the national defense by expediting the contracting program and assuring contractors that mistakes will be corrected expeditiously and fairly. (c) Formalizing informal commitments . Under certain circumstances, informal commitments may be formalized to permit payment to persons who have taken action without a formal contract; for example, when a person, responding to an agency official’s written or oral instructions and relying in good faith upon the official’s apparent authority to issue them, has furnished or arranged to furnish supplies or services to the agency, or to a defense contractor or subcontractor, without formal contractual coverage. Formalizing commitments under such circumstances normally will facilitate the national defense by assuring such persons that they will be treated fairly and paid expeditiously.