Equitable-Adjustment Theory Law and Legal Definition

Equitable-adjustment theory refers to a legal doctrine settling a federal contract dispute. Under this doctrine, the contracting officer should make fair adjustment within a reasonable time before the contractor has to settle with its subcontractors, suppliers, and other creditors. In DRAVO CORP. v. UNITED STATES, 1978 U.S. Ct. Cl. LEXIS 788 (Ct. Cl. Aug. 3, 1978), it was held that direct tracing to a specific loan or necessity for increased borrowing is required to be proven in order for a contractor to recover for interest costs under an equitable adjustment theory.