Government Contracts Outline
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Government Contracts Outline – Professor Schwartz Allison Geewax – Fall 2012 Table of Contents BASIC CONSIDERATIONS FOR GOVERNMENT CONTRACTS .................................................................... 3 OVERVIEW ................................................................................................................................................................................ 3 THE POWER TO CONTRACT ................................................................................................................................................... 4 APPROPRIATIONS AND THE ANTI-DEFICIENCY ACT ......................................................................................................... 4 AUTHORITY OF AGENTS ......................................................................................................................................................... 6 ASPECTS AND CONSEQUENCES OF SOVEREIGNTY ............................................................................................................ 10 The Federal Government’s Authority to Change its Contracts ........................................................................ 10 State Disabilities Under the Contract Clause ........................................................................................................... 11 Choice of Law in the Field of Federal Procurement .............................................................................................. 12 The Government Contractor Defense .......................................................................................................................... 14 Qualified Immunity for Government Contractors - Richardson ...................................................................... 15 FEDERAL-STATE RELATIONS .............................................................................................................................................. 17 Federal Contractors’ Immunity from State and Local Taxation .................................................................... 17 Federal Contractors’ Immunity from State Regulation (Paul v. United States) ...................................... 18 THE FALSE CLAIMS ACT AND QUI TAM SUITS AGAINST CONTRACTORS..................................................................... 18 CRIMINAL PROSECUTION ..................................................................................................................................................... 19 FREE SPEECH RIGHTS OF GOVERNMENT CONTRACTORS............................................................................................... 20 PROTESTS, CLAIMS, AND DISPUTES ............................................................................................................. 21 CONTRACT AWARD CONTROVERSIES (BID PROTESTS) ................................................................................................. 21 The Bid Protest Jurisdiction of the General Accounting Office ........................................................................ 22 Award Controversies in the Court of Federal Claims Prior to 1996 and After 1996 ............................. 23 U.S. District Courts under the Administrative Procedure Act .......................................................................... 24 Board of Contract Appeals ............................................................................................................................................... 25 The Relationship Between Bid Protest Forums and Performance Dispute Forums .............................. 26 International and Comparative Law Notes Regarding Bid Protests ............................................................ 26 CONTRACT PERFORMANCE DISPUTES ............................................................................................................................... 28 Introduction to the Disputes Process........................................................................................................................... 29 The Role of the Contracting Officer .............................................................................................................................. 29 Choice of Forum and Procedures Under the Contract Disputes Act .............................................................. 29 FORMATION OF GOVERNMENT CONTRACTS ............................................................................................ 31 BASIC PRINCIPLES OF GOVERNMENT CONTRACT FORMATION ..................................................................................... 31 COMPETITION POLICIES ....................................................................................................................................................... 32 ALTERNATIVE PROCEDURES ............................................................................................................................................... 37 Sealed Bid Contracting....................................................................................................................................................... 37 Competitive Negotiation ................................................................................................................................................... 37 QUALIFICATION ..................................................................................................................................................................... 38 Debarment and Suspension ............................................................................................................................................. 38 Responsibility.......................................................................................................................................................................... 39 Pre-Qualification ................................................................................................................................................................... 40 TYPES OF CONTRACTS: ALLOCATION OF THE RISK OF UNCERTAINTY......................................................................... 41 AUDIT AUTHORITY................................................................................................................................................................ 42 COLLATERAL SOCIO-ECONOMIC POLICIES ............................................................ERROR! BOOKMARK NOT DEFINED. GOVERNMENT CONTRACTS OUTLINE 1 INTERNATIONAL COMPETITIVE PROCEDURES .....................................................ERROR! BOOKMARK NOT DEFINED. ADMINISTRATION OF GOVERNMENT CONTRACTS ................................................................................ 44 GENERAL APPROACH TO CONTRACT INTERPRETATION ....................................ERROR! BOOKMARK NOT DEFINED. CONTRACTORS’ RIGHTS ....................................................................................................................................................... 44 Delay ........................................................................................................................................................................................... 44 Changes and Modifications .............................................................................................................................................. 45 GOVERNMENT PREROGATIVES ........................................................................................................................................... 47 Termination for Convenience of the Government.................................................................................................. 47 Inspection/Acceptance....................................................................................................................................................... 48 Default Termination............................................................................................................................................................ 49 APPENDIX I – ANSWERS TO CASE QUESTIONS ......................................................................................... 51 MOTOR COACH INDUSTRIES ................................................................................................................................................ 51 FORMAN .................................................................................................................................................................................. 54 TINGEY .................................................................................................................................................................................... 56 CORLISS................................................................................................................................................................................... 58 BOWSHER ............................................................................................................................................................................... 59 AMERON ................................................................................................................................................................................. 61 34 COMP. GEN. 239 (1954) (TIME ISSUE) ..................................................................................................................... 63 35 COMP. GEN. 319 (1955) .............................................................................................................................................. 64 42 COMP. GEN. 226 (1962) (PURPOSE ISSUE).............................................................................................................. 66 SOLAR...................................................................................................................................................................................... 67 GOODYEAR TIRE .................................................................................................................................................................... 69 C.H. LEAVELL......................................................................................................................................................................... 71 G.L. CHRISTIAN ..................................................................................................................................................................... 73 GORDON WOODROFFE ......................................................................................................................................................... 75 2 GOVERNMENT CONTRACTS OUTLINE Basic Considerations for Government Contracts Overview - - - - - - There are two main areas in government contracts law: o The performance of the contract o The formation of the contract There are two main types of government contracts: o Military procurement (covered by ASPA and the FAR) o All other procurements (covered by FPASA and the FAR) ASPA o Applies to procurement (acquiring); this means that selling and regulating are not covered by the statute. o The language “for its use or otherwise” was added to prevent agencies from tying to evade the statute by buying for another agency. FPASA o This statute is broader than ASPA by using the language “purchases and contracts” as opposed to “procurement.” o It does not apply to the agencies listed in ASPA. o It only applies to executive agencies, which leaves a gap for non-executive, non-military agencies (i.e. judicial agencies). Contract formation disputes: o Also called bid protests. o Brought by a disappointed bidder against the government agency and the winning bidder. o The losing bidder usually argues that the proper procedures were not followed or that they had a lower bid yet were not chosen. o Motor Coach: a government agency cannot attempt to create an “alter ego” with public funds to try to circumvent procurement procedures. o Bid protests are handled by the GAO and the Comptroller General. There is an automatic stay on the execution of the contract while an investigation is done. The agency can override the stay. The Comptroller General issues a very convincing recommendation. Contract performance disputes: o Brought by the contractor usually against the government. o When a contractor has a claim: It files it with the contracting officer, There is a choice between two forums to appeal the contracting officer’s decision: The appropriate board of contract appeals (“BCA”), The Court of Federal Claims (“CoFC”) The appellate decision can then be appealed to the Federal Circuit, which can then be appealed to the Supreme Court. o The government cannot appeal if the contracting officer finds for the contractor. GOVERNMENT CONTRACTS OUTLINE 3 - o Forman: Leases are covered under FPASA even though acquisition of real property is excluded. It is unsure if this is the majority view. The purpose of the contract does not create a restrictive covenant absent the required language, so the USPS was no in breach of the agreement. Doctrinal and Interpretive Approaches o Congruence: When the government enters into a contract, its rights and duties are governed generally by the law applicable to contracts between private individuals. o Exceptionalism: Because of its sovereign status, unique functions, and special responsibilities, the government as a contracting party is not subject to all of the legal obligations and liabilities of private contracting parties. This shields the government from liabilities that would apply to private contracting parties and gives it power that private contracting parties would lack. It arises mostly in performances issues (i.e. the government is allowed to technically be in breach). o Reverse Exceptionalism: The government as a contracting party bears duties that private contractors do not bear. This arises mostly in contract formation disputes (i.e. the government has certain mandatory procurement procedures that private contracting parties do not have). The Power to Contract - - Tingey: o The government has inherent constitutional authority, as well as implied statutory authority, to enter into contracts. o Specific government agencies can enter into contracts that are necessary and proper to the functions and operations of the agency. o The government cannot enter into a contract that is not consensual or authorized by statute. Corliss: o The government and its agencies have inherent authority to suspend or terminate contracts. o They also have the power to enter into settlement agreements that are binding on the government. Appropriations and the Anti-Deficiency Act - The appropriations clause of the constitution states that no money can be drawn from the treasury without appropriations from Congress. This means that the government can enter into contracts before receiving appropriations but cannot pay. However, if the government enters into a contract but cannot pay, it is in breach and must pay damages likely equal to the amount under the contract. 4 GOVERNMENT CONTRACTS OUTLINE - - - - - o To avoid this contradictory result, the Judgment Fund was created to pay damages resulting from breach due to lack of appropriations. o There is some question as to the constitutionality of the Judgment Fund, but no one has standing to challenge it. o The government also includes a “funds availability clause,” which says that the government isn’t liable if it doesn’t get appropriations to pay for the contract. The Anti-Deficiency Act makes it a crime to contract for something before appropriations have been made or to authorize an expenditure that exceeds the amount appropriated. o In practice, this is very difficult to abide by because appropriations are made yearly whereas contracts often last several years. o However, the threat is scary. Bowsher: The GAO and Comptroller General are agents of Congress. Ameron: The GAO and Comptroller General do not violate separation of powers by executing powers given to them under CICA. The general rule is that appropriations must be available on three levels: o Time o Purpose o Amount 34 Comp. Gen 239: In order to be able to use the lapsed funds, you need: o A valid binding contract executed during the funds’ appropriated fiscal year, o Termination of the original contract due to the contractor’s default, o A new contract to complete the work from the original contract, and o The need continued to exist up to the time of the execution of the new contract (and the need existed in the first place). 35 Comp. Gen 319: o In order for the contractors bid to be an offer and the signature by the contracting officer an acceptance, the following factors must be present Each bid must have been in writing, The acceptance of each bid must have been communicated to the bidder in the same manner as the bid was made, and Each contract must have incorporated the terms and conditions of the respective bid without qualification. Otherwise, it is a counteroffer. o The general rule for legally obligating a fiscal year appropriation is that the supplies or services are required to serve a bona fide need of the fiscal year in which the need arises. Ordinarily where a contract is entered into during one fiscal year and the services contracted for are not performed or required until the following fiscal year, the appropriation current at the time the services are rendered is properly chargeable to the cost. 42 Comp. Gen. 226: The general rule is that an express statutory provision is not required for every item of expenditure, but an appropriation in general terms for a particular purpose is available for expenditures necessary to accomplish that purpose, except as to expenditures in contravention of statute or for which other appropriations are more specifically available. GOVERNMENT CONTRACTS OUTLINE 5 - - - - - - Solar: This was a requirements contract, not a multiyear contract, and there was no termination for convenience. Because there was no termination for convenience, the contractor was not entitled to an equitable adjustment. Goodyear Tire: o This case represents extreme exceptionalism. o In order for a multi-year lease to be binding on the government, the government has to affirmatively continue the lease for that year that an available appropriation has been made (i.e. to make a new lease for the year under the authority of such appropriation). This idea would probably be overruled today. o The holdover doctrine (under Ohio law) is an implied in law contract. Therefore, there is no right of action under the Tucker Act. This part is still good law. C.H. Leavell: o A funds available clause only insulates the government from liability for breach, not from an equitable adjustment. o The test for the availability of an equitable adjustment under this suspension of work clause is: The suspension cannot be the fault (or due to the negligence) of the contractor, The suspension must be for an unreasonable period of time, The suspension must be due to an act, or failure to act, of the contracting officer, and The performance of the contractor must not have been prevented by other causes, even without the suspension. o The government cannot use the excuse that the contractor worked too fast, causing the funds to be exhausted, because the contracting officer had approved the schedule. G.L. Christian: Where valid procurement regulations mandate inclusion of particular standardized clauses in government contracts, those clauses are to be read into contracts to which they are factually applicable where they have been omitted by mistake. Force and Effect Principle: When specified conditions are met, agency regulations can be treated as the equivalent of a statute and are binding on private parties affected by its terms. Accardi Doctrine: Agencies must follow their own regulations; when they fail to do so, the resulting agency action may be set aside under the Administrative Procedure Act. Authority of Agents - Types of Authority: o Actual: Actual authority (either express or implied) gives the agent power to bind the government. Express: delegated orally or in writing 6 GOVERNMENT CONTRACTS OUTLINE Implied: delegated by conduct; one instance of conduct does not necessarily delegate authority. Course of dealings evidence is of low probative value on this issue. o Apparent: The actions or statements of the principal cause a third party to reasonably believe that authority has been conferred on the agent, whether or not the principal actually intended to confer such authority. Apparent authority is a way to estop the defendant from arguing that the contract is invalid because the agent did not have authority to bind the defendant. Apparent authority cannot bind the government. The doctrine of ratification: If someone without authority contracts on behalf of the government, someone with authority to contract must ratify that decision in order for it to be binding. o Individual ratification: When an authorized contracting officer expresses a definite opinion concerning the merits of a claim with knowledge of the relevant facts, the contracting officer ratified the contract. (General Electric; Note: Schwartz believes this rationale is false because the contractor didn’t even know that the contracting officer “ratified” the contract, and the contracting officer didn’t intent to ratify the contract.) o Implied ratification: This occurs when the government seeks the benefits of an otherwise unauthorized contract while the officials with ratifying authority know of the promise. (Williams; Note: Schwartz thinks that this case crosses the line and is probably incorrect, but it shows that courts are always looking for ways to get around the inability to use apparent authority against the government when it would be unfair to do so.) The FAR o FAR: Federal Acquisition Regulation. o FAR System: the FAR itself, together with the agency-specific supplemental regulations that implement the FAR, which are themselves authorized under the terms of the FAR. o The FAR requires publication in the Federal Register of an invitation to submit comments on pending regulatory proposals, and consideration of comments received. o The procedural requirements have not been the subject of significant litigation. § 1.601 of the FAR details contracting authority: o Authority and responsibility to contract rests with the agency head. o Contracts may be entered into and signed on behalf of the government only by contracting officers. (Look for the proper name, i.e., not “contracting specialist.”) o In some agencies, a relatively small number of high level officials are designated contracting officers solely by virtue of their positions. Gordon Woodroffe: The doctrine of apparent authority is inapplicable in government contracts disputes. This is a bit of an extension of the holding in Merrill that the government cannot be estopped. - - - - GOVERNMENT CONTRACTS OUTLINE 7 - - - - - - It is important to remember that the authority to contract is not just relevant in the making of the contract, but also in the modification or termination of the contract. A contracting officer is still the only one who can do that. General Electric: When an authorized contracting officer expresses a definite opinion concerning the merits of a claim with knowledge of the relevant facts, the contracting officer ratified the contract. Williams Equipment: The contracting officer knew about the paving work being done and, by his inaction, ratified the contract. Therefore, despite the fact that the agent did not have the authority to enter into a binding agreement, the government is bound. Equitable Estoppel and Its Application Against the Government: o Equitable estoppel prohibits a party from disavowing a representation it has made, where an opposing party has justifiably and foreseeably relied on that statement, and where to allow the change of position would redound unfairly to the detriment of the other party. o The party is barred from raising an otherwise valid legal defense or claim or asserting a truthful version of the facts because to do so would be unfair to the other party in light of the first party’s earlier conduct or statements. o The doctrine of apparent authority is arguable an application of the doctrine of equitable estoppel. o In transactions involving federal agencies, there is great potential for agents to make representations that are inconsistent with applicable statutes or regulations. o The government is immune from equitable estoppel. Merrill: the government cannot be estopped. There is a duty of those who do business with the government to turn square corners. Some cases, however, held open the possibility that estoppel might be applied against the government in a case of what was described as “affirmative misconduct.” The Supreme Court has deliberately neglected to close the door to equitable estoppel. Richmond: There are four different holdings in this case: o The government cannot be estopped when the private party is seeking payment that is prohibited by an appropriations statute. (Strongest argument, narrowest holding) o The government cannot be estopped when the private party is seeking payment that is prohibited by a statute. o The government cannot be estopped when the private party is seeking payment that is prohibited by law (i.e. statutes and regulations). o The government cannot be estopped when the private party is seeking payment at all, regardless of whether or not payment is in violation of a statute or regulation. (Weakest argument, broadest holding) How to recognize an equitable estoppel case: o There is either a factual or legal reason that the government should win, i.e., they are correct. 8 GOVERNMENT CONTRACTS OUTLINE - - o The private party argues that it would be unfair for either the government to profit or for the private party to suffer because of the government’s actions. o Do not confuse an estoppel argument with a finality argument: A finality case is one in which the government clearly should not win but rather just wants to undue a valid decision that it regrets. For example, in Broad Ave. Laundry, the government argued that it should not be bound by its own adjustment to the contract that was not required because the contracting officer (with contracting authority) mistakenly believed that the adjustment was required by law. The adjustment was not prohibited by regulation, so the government cannot “undue” a valid contracting decision. Proper analysis for an equitable estoppel question: o Do we really have an equitable estoppel case? (Don’t believe labels.) o Does an appropriations statute prohibit payment (Richmond)? If yes, there is no recovery. If no… Would payment be in violation of a statute? If yes, there is a strong argument against payment. Would payment be in violation of a regulation? If yes, there is a slightly strong argument against payment, but it is getting weaker. Is the private party asking for money and payment is not in violation of any law? If yes, there is a relatively weak argument against payment. o Was there “affirmative misconduct” on the part of the government? Note: This is very difficult to prove, as case law suggests that mere negligence on the part of a government employee is not “affirmative misconduct.” It would probably have to be some kind of purposeful misconduct. If yes, there may be recovery. If not, there is no recovery. o The government almost always wins estoppel cases. Schwartz’s argument for when relief should be given: o If the agency has any authority under the pertinent statutes and regulations to waive the requirements that the agency is seeking to enforce, o The claimant made a timely request for such a waiver to the government agency involved, and o The refusal of the waiver was an abuse of discretion that may be overturned on judicial review under the Administrative Procedure Act. GOVERNMENT CONTRACTS OUTLINE 9 Aspects and Consequences of Sovereignty The Federal Government’s Authority to Change its Contracts - The Sovereign Acts Doctrine (“SAD”): the government is not liable for breach of contract when its “public and general” acts as a sovereign have the effect of violating contracts that it has entered into with private parties. o Ex: a regulatory rail embargo that prevents that government from performing an undertaking to ship goods to a contracting partner. o The rationale is that the government’s contracts do not include a warranty that performance will not be obstructed or burdened by the regulatory and other uniquely sovereign actions of the government. o This is comparable to the impossibility doctrine in private contracts, but that doctrine is not applicable when the impossibility is the fault of the party invoking the doctrine. o Similarly, the SAD does not apply whenever a significant consequence of the governmental action is to free the government from its own contractual undertakings. (Winstar) - The Unmistakability Doctrine (“UMD”): Contracts to which a governmental entity is a party should not be interpreted to immunize the government’s contracting partner from subsequent exercises that authority against the contracting partner in “unmistakable terms.” - Winstar: o Contract Interpretation Scalia, Kennedy, Thomas, Rehnquist, Ginsburg (5): The UMD cannot be avoided by re-characterizing a contract that promises a particular course of regulatory treatment as though it promised indemnification in the event of a change in the law. Souter, Stevens, O’Connor, Breyer (4): A promise respecting regulatory treatment (to insulate thrifts from changes in regulation) should be understood as a promise to indemnify thrifts, not literally as a promise of immunity from regulatory changes. o Unmistakability Doctrine Scalia, Kennedy, Thomas, Rehnquist, Ginsburg (5): The UMD applies to all government contracts. Scalia, Kennedy, Thomas (3): There is a common sense presumption in the UMD – the government will rarely promise to a contractor that it will be exempt from future changes in the law, so courts should hesitate to read a government contract to make that kind of promise. Such a promise should be found only if the contract is clear. However, the contract only need be reasonable clear in this respect. If the contract explicitly promises a contractor that it will have the benefit of a particular course of regulatory treatment, it need not contain a second promise that the contractor will continue to receive the promised regulatory treatment even if the law applicable to other people changes. 10 GOVERNMENT CONTRACTS OUTLINE - Rehnquist, Ginsburg (2): The UMD creates a very strong presumption against finding a promise to the contractor of indemnification if there is a change in the law. Souter, Stevens, O’Connor, Breyer (4): The UMD is inapplicable in this case. It applies most strongly to contracts directly about the exercise of a sovereign power. This principle applies not at all to routine supply contracts. (Note: Schwartz says this idea is irreconcilable with Bowen v. Public Agencies.) Souter, Stevens, O’Connor (3): When the UMD does apply, it creates a very strong presumption against finding such a promise, as opposed to a common sense presumption. Breyer (1): Congruence should be used in interpreting and enforcing government contracts. The government made a promise to indemnify its contracting partners if the law was changed to their detriment. o Sovereign Acts Doctrine Souter, Stevens, Breyer (3): Only if releasing the government from its own contractual obligations is an incidental effect of a much more widely applicable change in the law can the new law be considered a “public and general act.” If a “substantial effect” of the change in the law is to allow the government to avoid its own contract obligations, the change is not a public and general sovereign act, and the SAD is not applicable. Scalia, Kennedy, Thomas (3): The SAD should add little to the effect of the UMD. Rehnquist (1): The SAD and UMD should be integrated into a single, consistent doctrine. O’Connor, Ginsburg (2): No comment on this issue. Mobile Oil: State Disabilities Under the Contract Clause - Contract Clause: The Contract Clause of the Constitution prohibits the states from enacting any law that retroactively impairs a contractual obligation. - Reserved Power Doctrine: The Contract Clause does not require a State to adhere to a contract that surrenders an essential attribute of its sovereignty. Such a contract is void. Typically, courts find that purely financial contracts do not violate the Reserved Powers Doctrine, although this could technically be considered a surrender of spending power. - U.S. Trust Company: The repeal of the covenant was in violation of the Contracts Clause because the public problem (the increase in commuter traffic) was foreseen and acknowledged at the time the legislature enacted the covenant, and the legislature could have modified the covenant to achieve its goal. - Proper analysis to determine if a state regulation is in violation of the Contracts Clause: GOVERNMENT CONTRACTS OUTLINE 11 o First, you must determine whether a state regulation has impaired a contractual obligation. If not, there is no violation of the Contract Clause and the analysis can end here. The Contracts Clause does not apply to the federal government (only to states). This only applies to legislation, not to judicial decisions. Impairment does not necessarily mean damages (i.e. you can sue before you suffer damages). The regulation mist significantly impair the obligation. o Second, you must determine whether the contract is void because of the Reserved Powers Doctrine because it surrenders an essential attribute of state sovereignty (such as state police power or eminent domain). Essentially, the question is, Did the state have the ability to promise what it promised? If the contract violates the Reserved Powers Doctrine, the analysis can end here. o Third, you must determine whether that impairment violates the Contract Clause. In order for a state regulation that impairs a contractual obligation not to be a violation of the Contract Clause: It must have a significant and legitimate public purpose behind it, such as the remedying of a broad and general social or economic problem; and The regulation must be: If the regulation modifies private contracts, reasonable and appropriate for its intended purpose; or If the regulation modifies public contracts, reasonable and necessary. This is a less deferential standard because the government is modifying its own contracts. o Necessary: Was there a less drastic alternative method of remedying the public problem? If so, the regulation was not likely necessary. o Reasonable: Was the public problem anticipated or foreseeable? If so, the regulation is probably not reasonable in light of the circumstances. o If the government loses at the second step (the Reserved Powers Doctrine), it is likely that the government will lose at the third step as well because it is easy to think, in hindsight, of less restrictive means of remedying the public problem. Choice of Law in the Field of Federal Procurement - Relevant Statutes: o 28 U.S.C. § 1345: The district courts have original jurisdiction of all actions commenced by the United States. o 28 U.S.C. § 1652 (Rules of Decision Act): State law can apply in federal courts (i.e. Erie Doctrine). - Sometimes federal law may consist of “borrowing” state law when there is no applicable statute or when it is otherwise appropriate. 12 GOVERNMENT CONTRACTS OUTLINE - - - - The basic strategy of the federal government is to leave no gaps that could be filled by state law. The Christian Doctrine helps this strategy because government contracts do not even have to incorporate all of the FAR’s provisions – they are read in. Clearfield Trust: Federal law applies to all government contracts cases. Kimbell Foods: Federal courts must consider three factors when determining whether to borrow from state law in government contracts cases in which there is no applicable federal law: the need for uniformity in this type of case; the potential frustration of federal program objectives; and the potential disruption of commercial relationships predicated on state law. American Pipe: When a dispute between a prime and sub contractor arises out of a subcontract dealing with national security, federal law is applied due to the overwhelming need for uniformity. (Note: Schwartz thinks that this case is incorrect. It was a private contract between two private parties. The dispute arose in no way out of the actions of the government. Therefore, state law, not federal law, should have been applied.) Federal law is not, in fact, uniformly applied to govern subcontracts, even when the cases are heard in federal court; it would be hard to square doing so with Erie. Sometimes, issues need to be decided under federal law even if the dispute is between private parties (the definition of “adjustment”). Even if state law is controlling, the state can borrow federal doctrine. (Linan-Faye Construction Co,) Proper analysis for what type of federal law should be applied in government contracts cases: o If this is a government contracts case, federal law must be applied. Be careful when the case involves a dispute between two private parties (a general and a subcontractor). There are two arms of analysis: The dispute is a private contracts dispute, so state law applies; The dispute is private but deals with issues so intertwined with government contracts law that there is a need for uniformity and federal law should be applied (i.e. in national security). o That law must first come from the constitution or a statute. o If there is a gap (unlikely because of how comprehensive the FAR is), the courts can either borrow state law or apply federal common law. The most common result is the applicable of federal common law. The following test must be applied to determine which law should be used: Is there a strong need for uniformity in cases such as this? If so, state law may not be used. However, there may be a case in which the state law is uniform (for example, almost all states have adopted the UCC), and therefore state law may be more appropriate. Will borrowing state law frustrate the specific objectives of the federal programs? If so, state law may not be used. If the agency’s own regulations incorporate state law in the administration of the program at issue, this indicates that objectives will not be frustrated and that state law may be used. GOVERNMENT CONTRACTS OUTLINE 13 Will the use of a federal law disrupt commercial relationships predicated on state law? If so, state law may be more appropriate. Will the borrowing of state law result in discrimination against the federal government? If so, state law is inappropriate. The Government Contractor Defense - The Federal Tort Claims Act (FTCA): Waiver of sovereign immunity for tort claims. o The district courts have exclusive jurisdiction of civil actions on claims against the United States. o Exemptions in the FTCA: Discretionary Function Exception: There is no liability Based on an act or omission of an employee exercising due care in the execution of a statute or regulation, or Based on the exercise or performance or failure to exercise or perform a discretionary function or duty on the part of a federal agency of an employee of the government, whether or not the discretion is abused. Note: The government can only be sued under tort law for an injury caused by the government’s failure to perform a ministerial action. Combatant Activities Exception: The government is not liable for any claim arising out of the combatant activities of the military during time of war. Foreign Country Exception: The government is not liable for any claim arising in a foreign country. o Exceptions Created by the Court or Congress: The Feres doctrine: Service members cannot sue the government for injuries suffered in the course of military service. This doctrine creates a very strong incentive for injured service members to sue government contractors. The Safety Act: A defense to tort liability for manufactures (who may or may not be government contractors) of equipment certified as “qualified antiterrorism technology.” - Boyle: Allowing private litigants to hold government contractors liable for certain torts would just result in the increase in price of government contracts, which would frustrate the purpose of the discretionary function exception. - The holding in Boyle does not apply to “off the shelf” products. - It is unknown whether the Boyle holding applies to service contracts; however, Schwartz believes that it should apply if the three factors are satisfied. It is possible, but less likely. - Boyle applies in both civil and military procurement cases. - Bailey: It does not matter if a claim is labeled as a manufacturing defect or as a design defect. If the three factors of Boyle are satisfied, the government contractor defense applies. - The proper analysis: Liability for design defects in military equipment cannot be imposed on the supplier pursuant to state law when: 14 GOVERNMENT CONTRACTS OUTLINE o The government approved reasonably precise specifications, whether the specifications were created by the contractor or the government; o The equipment conformed to those specifications; and o The supplier warned the government about the dangers in the use of the equipment that were known to the supplier but not to the government. o Note: The requirements of reasonably precise specifications and conformity with them refer to the particular feature of the product claimed to be defective, not to the product as a whole (i.e. the feature in dispute). Qualified Immunity for Government Contractors - Richardson - Qualified Immunity: state or local employees subject to a constitutional tort claim under 42 U.S.C. § 1983 (and federal employees subject to a Bivens claim) are immune from liability unless their actions violate a constitutional right of the plaintiff that was clearly established at the time of the action. - In Richardson v. McKnight, the Supreme Court held that prison guards employed by a private firm that had contracted with the state to manage a Tennessee prison are not entitled to a qualified immunity defense against a constitutional tort claim brought against them by prisoners under 42 U.S.C. § 1983. - Majority Opinion: o It doesn’t matter that the worker is performing a function that is identical to that of state employees. o There are significant differences between the incentives and pressure that face contractors and their employees and those facing governmental agencies and employees that suggest that qualified immunity for contractors’ employees is not warranted. o Privatization permits the private firm to offset any increased employee liability risk with higher pay or extra benefits. o The analysis and holding of the case are specific to this situation: one in which a private firm, systematically organized to assume a major length administrative task (managing an institution) and with limited direct supervision by the government, undertakes that task for profit and potentially in competition with other firms. o The court did not address the possibility of a “good faith” defense. - The Dissent: o Immunity is normally determined by function, not status. o There are no real market pressures for private prisons. The choice is made by politicians with taxpayer money. Therefore, the incentives faced by the contractor and the government are the same. o Cost is the predominate factor in the government’s selection of a contractor for prisons, not quality. A contractor’s price depends on its costs. Lawsuits increase costs. o The more cautious the prison guards, the fewer the lawsuits, the higher the profits. o The majority is using the economic benefits of prison out-sourcing as a justification for a legal rule that will make out-sourcing more expensive. GOVERNMENT CONTRACTS OUTLINE 15 - - o The distinctions between private contractor employees and public employees can be incredibly arbitrary. o The only effect of this decision is that it will artificially raise the cost of privatizing prisons. It would not be surprising if contractors’ employees are ultimately held to have some kind of qualified immunity in this situation. The court might reach a different conclusion on the immunity issue as to contractors’ employees carrying out a different public function. This case does not address the availability of qualified immunity to employees of contractors performing functions for the federal government. o Qualified immunity of state and local government employees when they are sued under 42 U.S.C. § 1982 has generally been defined in the same terms and with the same limits as the immunity of federal employees sued in Bivens actions. o The result will likely be the same. o However, there is a distinction between the liability of federal and state or local contractors: Liability of state and local government officials and employees for constitutional torts arises under 42 U.S.C. § 1983. Liability of federal government officials and employees for constitutional torts arises under Bivens, which is a court-made doctrine. Correctional Services Corp. v. Malesko: a Bivens action may not be brought against corporate federal contractors. o This case does not address the question of whether a Bivens action may be maintained against individual employees of a contractor that are alleged to have violated an individuals constitutional rights. o Suing the individual is less attractive than suing the corporation for monetary reasons. o However, even if individuals and corporations cannot be sued in a Bivens action, they can certainly be sued for common law torts. o However, when common law tort claims are brought against governmental officials and employees, they enjoy the protection of another type of immunity. It is not clear whether this immunity from common law claims applies to government contractors. Barr v. Mateo: Federal officials are absolutely immune from suit for common law torts allegedly committed while performing their official responsibilities even while performing discretionary acts. Only qualified immunity is available on claims of constitutional torts. Westfall v. Erwin: Only qualified immunity should be available with respect to common law tort claims entailing nondiscretionary acts. FTCA Amendment in 1988: Federal employees acting within the scope of their office or employment are absolutely immune from being sued for common law torts. This most definitely does not extend to government contractors. 16 GOVERNMENT CONTRACTS OUTLINE - o To determine whether this type of immunity would apply to government contractors, the court will likely use an analysis similar to that employed in Richardson (i.e. a policy analysis). Proper Qualified Immunity Analysis: o Is this a constitutional tort? Is the defendant a state contractor? The cause of action arises under 42 U.S.C. 1983. There is probably no qualified immunity defense, as in Richardson. The analysis and holding of the case are specific to this situation: one in which a private firm, systematically organized to assume a major length administrative task (managing an institution) and with limited direct supervision by the government, undertakes that task for profit and potentially in competition with other firms. There might be a “good faith” defense. There could be an argument to distinguish the case from Richardson and, if the factors are met, to see if the Boyle test would apply. Is the defendant a federal contractor? The cause of action arises under Bivens. According to Malesko, Bivens does not extend to federal government contractors. So there is no cause of action. If Bivens did apply, and therefore if the contractor could be sued, it is unclear if the qualified immunity defense would extend to government contractors. o Is this a common law tort? Is the defendant a state contractor? The claims and defenses are controlled by state law. Is the defendant a government contractor? Regardless of the type of contract or claim, the Boyle test applies. If the factors are satisfied, then the government contractor has a defense. If the Boyle test is not satisfied, there is a chance that the contractor could try to use the defense for government employees under Barr v. Mateo and Westfall v. Erwin. However, the court has not addressed whether these extend to government contractors, so it might be a long shot. Federal-State Relations Federal Contractors’ Immunity from State and Local Taxation - The states may not tax the federal government. (McCulloch v. Maryland) - Government contractors may have immunity from state taxation if they can show that the tax levied on the government contractor is actually a tax levied on the government. GOVERNMENT CONTRACTS OUTLINE 17 - Alabama v. King & Boozer: o The mere fact that the increase in price to the contractor will be transferred to the government via an increased cost is not enough to make the government the “purchaser” on whom the tax is levied. This is a rejection of the economic incidence test. o In order to be immune from taxation under state law, the contractor must have been an agent of the government, capable of binding the government to purchases. This is a legal incidence test. o To determine if the contractor was an agent of the government, the court looks at the wording of the contract regarding the passing of title of the purchases or any parts that discuss whether a contractor could have bound the government by making a purchase. For example, the title of the lumber didn’t pass to the government until after the lumber was inspected and accepted by the government (not when the contractor purchased the lumber). The contractor purchased the lumber and was reimbursed by the government after the government determined that the lumber was satisfactory. The contract expressly stated that the government was not bound by the purchases of the contractor until after the government accepted the materials. Federal Contractors’ Immunity from State Regulation (Paul v. United States) - Federal government contractors are not invariably immune from regulation by state agencies or state statutes. - Federal government contractors are only immune from regulations if the particular state regulation, if applied to federal contractors, would frustrate federal policies about procurement. - Minimum price regulation is one of the only forms of regulation that would be so directly passed through to affect the federal government. - If you regulate the minimum price that a contractor can charge, you are necessarily regulating the price that the federal government will have to pay, and eliminating the possibility of competition, which federal policy requires the federal government to seek. - In other words, if the effect of regulating the contractor is to regulate the federal government, the contractor is immune from the regulation. The False Claims Act and Qui Tam Suits Against Contractors - The False Claims Act (“FCA”), 31 U.S.C. § 3279, makes it illegal for a person to knowingly present a false claim for payment to the United States, or to knowingly present a false record in support of a claim for payment. o The falsity may pertain either to the claim/work itself or to the supporting material. (If you claim that you have tested a product but actually have not, that is a violation even if the product is fine.) o A government contractor may be liable for certifying that its subcontractor did something that it actually didn’t. 18 GOVERNMENT CONTRACTS OUTLINE - o The penalties are: a penalty sum ($5,000-$10,000) and treble actual damages. o The FCA provides civil remedies for fraud against the government. o An action may be filed by the Attorney General or by a private party with knowledge of the facts that give rise to a violation (known as the “relator”). o The relator may file an action in the name of the United States (“United States ex rel. “Relator” v. “Defendant”). This is called a qui tam action. The government can take the suit over and then either dismiss it, settle it, or litigate it. The government can choose not to do anything with the suit and just let the private litigant litigate the suit. The government is then able to intervene at a later time for good cause. The government can also ask the court to limit the participation of the relator. o A criminal conviction or a plea of nolo contender to a criminal charge precludes the defendant from relitigating facts that were established by the criminal conviction. o If the government settles a qui tam action initially brought by a relator, the relator can not litigate the claim. o A person can be tried criminally and civilly without a double jeopardy issue, after Harper was overruled. U.S. ex rel. Kelly v. Boeing: affirmed the constitutionality of the qui tam provisions of the FCA: o Standing: The injury in fact test is satisfied because the injury is that of the government, not of the qui tam plaintiff. The government only assigns its claims to qui tam plaintiffs. The qui tam provisions operate as an enforceable unilateral contract, accepted by the relator upon filing suit. (Note: This view has been endorsed by the Supreme Court.) o Separation of Powers: There is no absolute rule that only the executive branch may prosecute. In addition, the FCA permits a degree of executive control that satisfies the Morrison standard. If the government intervenes, it takes over the case. If the government does not intervene, it can intervene at a later time for good cause or ask the court to limit the participation of the relator. The fact that the judiciary decides if the government has good cause to intervene does not run afoul of separation of powers. (Note: So far, there is no conflict among the Courts of Appeals on this issue.) o Appointments Clause: The relator only has power over one claim, not over multiple prosecutions, and thus doesn’t need to be appointed. o Due Process Clause: It doesn’t matter that the relator has a financial incentive to prosecute. The interest of the relator is the same as the interest of the public. Criminal Prosecution - 18 U.S.C. § 287: Criminal provisions of the False Claims Act. Fines of up to one million dollars may be imposed in Defense Department procurement false claims. 18 U.S.C. § 1001: False Statements Act. It is illegal to make a false statement or to conceal a material fact in a statement in any matter within the jurisdiction of any GOVERNMENT CONTRACTS OUTLINE 19 - department or agency of the federal government (i.e. false certifications accompanying claims, and false statements with regard to compliance with specifications). 18 U.S.C. § 201(b): Bribery both of and by public officials. 18 U.S.C. § 371: Conspiracy to commit an offense or to defraud the United States. 18 U.S.C. § 641: Conversion and embezzlement of money or property of the United States. (United States v. Matzkin) 18 U.S.C § 1341: Mail fraud. 18 U.S.C. § 1343: Wire fraud. These two statutes (§§ 1341, 1343) provide a device for prosecution of government officials for fraud in procurement. United States v. Matzkin: Bid information in sealed bidding is both property of the government and a thing of value for the purposes of 18 U.S.C. § 641. The government does not need to have a sole interest in the property or to have sole knowledge of the information in order for there to be a violation of § 641. Free Speech Rights of Government Contractors - - - General Rule: Government contractors can be terminated for a good reason or for no reason, but not for a bad reason. (Umbehr) Government contractors are protected by the First Amendment and the Pickering balancing test applies. The First Amendment rights of government employees and contractors depend on the balance between the interests of the employee as a citizen in commenting on matters of public concern and the interests of the government as an employer in promoting efficiency of public services it performs through its employees. o The contractor must show that the termination of his contract was motivated by his speech on a matter of public concern. o If he can make that showing, the government will have a valid defense if It can show, by a preponderance of the evidence, that, in light of their knowledge, perceptions, and policies at the time of termination, the government would have terminated the contract regardless of his speech; or It can show that the government’s legitimate interests as contractor, deferentially viewed, outweigh the free speech interests at stake. o If the contractor prevails, evidence that the government members discovered facts after termination that would have led to a later termination anyway, and evidence of mitigation of his loss by means of subsequent contracts, would be relevant in assessing what remedy is appropriate. The dissent in Umbehr believes that: o This application of the Pickering test will lead to an influx of litigation. o There are already enough statutes and regulations in public procurement that control this issue. o Political favoritism often happens, and sometimes should happen. o Employees deserve more protection that contractors because the contractors are often rich corporations. This is an issue that has not come up a lot in public procurement. 20 GOVERNMENT CONTRACTS OUTLINE - Recall that while in Umbehr, government contractors are given the same protections as government employees, in Richardson v. McKnight, contractors are not given the same immunities as government employees. Protests, Claims, and Disputes Contract Award Controversies (Bid Protests) Summary of the current process for bid protests: The losing bidder files a bid protest with: The Agency (optional, and sometimes not allowed by the agency) Appeal to (two choices): The GAO (Either go directly to the GAO or appeal agency’s decision) GAO will dismiss if same case is filed at CoFC Appeal to: The CoFC (Either go directly to the CoFC or appeal the GAO’s decision) Appeal to: The Fed. Cir. Appeal to: The U.S. Supreme Court GOVERNMENT CONTRACTS OUTLINE 21 - - - - Bid protest forums currently available: o The procuring agency itself, o The GAO, o The Court of Federal Claims, o Possibly the district courts, but this is very unlikely. The GSBCA was the only forum available for bid protests regarding the procurement of computer equipment, but this jurisdiction was abolished. The GSBCA still exists, but not for this purpose. The district courts used to be another open forum, but due to the expiration of a sunset provision, Congress expressly abolished this jurisdiction. However, there is some controversy over whether this sunset provision had its intended effect because the Administrative Procedure Act (“APA”) actually gave the district courts this jurisdiction, and the APA and its relevant provisions are still in effect. Terminology: o IFB: Invitation for bids; used in a contracting process called “sealed bidding.” This process used to be called “advertising.” o RFP: Request for proposal; used in a contracting process called “competitive negotiation.” o COC: Certificate of competency; a determination that the SBA is authorized to make that overrides a procuring agency’s determination that a particular small business bidder is to be disqualified on grounds of nonresponsibility. o Responsibility: the demonstrable capacity to perform the required work. o Responsiveness: the requirement that an offer satisfy the specification established in the IFB. The Bid Protest Jurisdiction of the General Accounting Office - The jurisdiction of the GAO over bid protests was given to it in CICA. This jurisdiction is not exclusive. - Standing in the GAO is outlined in CICA: o Any “interested party” may bring a bid protest in the GAO. Interested party means any actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or by the failure to award the contract. o A contractor doesn’t have to show that he would have won the contract but for the alleged violation. He only has to show that he had a reasonable possibility of winning. o There is no injury in fact requirement because this is not an Article III court. o Recently, the GAO has shown an inclination towards limited standing by requiring protestors to show that they had a reasonable possibility (i.e. a more probable than not standard) of winning. o Parties such as labor unions or municipalities do not have standing. - The remedies available for a bid protest in the GAO are outlined in 31 U.S.C § 3554(b)(1): o First, there is an automatic stay of the contract in dispute, o The GAO then issues recommendations that range from termination of the contract to the issuance of a new solicitation, but it cannot order that the 22 GOVERNMENT CONTRACTS OUTLINE - - agency do anything. In practice, these recommendations are very persuasive because if an agency does not follow the recommendation, it must explain why in writing. The GAO is then required to send this information to Congress yearly. Therefore, there is the fear that if an agency does not follow the GAO’s recommendation, it will lose funding from Congress the next year. o The GAO can also recommend that the agency pay the protestor’s reasonable costs of bid preparation and litigation and attorney’s fees. There is no recovery of anticipated lost profits. The standard of review is supposed to be deferential. The GAO has weak fact-finding ability. (Dyneteria) The bid protest process in the GAO: o A party files a protest with the GAO. o The GAO notifies the agency of the protest within one day of receiving the protest. o The agency must submit a complete report on the protested procurement to the GAO within 30 days, typically: Express, 20 days; Longer if needed. o There is an automatic stay (the agency cannot award the contract after receipt of the notice) while the protest is pending. o The head of the agency can override the automatic stay upon a finding of urgent and compelling circumstances and upon notifying the GAO of that finding. o The GAO must make a decision within 100 days, typically: Express, 65 days. Most parties choose to go to the GAO as opposed to the CoFC because it is the fastest and because it is not a court, so the rules of preclusion do not apply (second bite at the apple). There is also an automatic stay that is not available in the CoFC. It is also cheaper, and easier to navigate for pro se litigants. Award Controversies in the Court of Federal Claims Prior to 1996 and After 1996 - Jurisdiction of the CoFC prior to 1996 was given by the Tucker Act: o Statutory branch of the Tucker Act: A person can sue the United States for a claim founded upon the Constitution or a statute or regulation, but only those that mandate compensation in the event of a violation (e.g. the Just Compensation Clause). o Contracts branch of the Tucker Act: A person can sue the United States for breach of an express or implied-in-fact contract. There can be no recovery for breach of an implied-in-law contract. (Heyer Products) o Heyer Products: A bid protester may not recover lost anticipated profits, but he may recover the expense to which he was put in preparing his bid. The court stretches the rules to find jurisdiction over the claim by finding an implied-in-fact contract between the government and the bidder. The government agreed to consider all bids fairly; it did not do so in this case. GOVERNMENT CONTRACTS OUTLINE 23 To recover the cost of bid preparation, it must be shown that bids were not invited in good faith, but rather as a pretense to conceal the purpose to let the contract to some favored bidder, or to one of a group of preferred bidders, and with the intent to willfully, capriciously, and arbitrarily disregard the obligation to let the contract to him whose bid was most advantageous to the government. o Relief in the CoFC prior to 1996 was limited to monetary, not injunctive or declaratory, relief. The current status of bid protest jurisdiction in the CoFC can be summarized as follows: o Jurisdiction is granted by the amended Tucker Act – 18 U.S.C § 1491(b)(1). There is jurisdiction over the protest regardless whether it is instituted before or after the contract is awarded. o Any “interested party” has standing. Standing in the CoFC should follow the GAO approach at least where the GAO approach is more restrictive than the standing of district courts once was with regard to bid protests (i.e. no labor unions or municipalities). See below for standing of the district courts prior to 2001. However, there is an argument that standing in the CoFC should follow the standing that was seen in the district courts. This is not the current majority view. The CoFC was intended to take over the jurisdiction of the district courts. It is unconstitutional because a person has a valid government contract claim but has no Article III forum in which to litigate. o The court can award any relief that it deems necessary including: Declaratory relief, Injunctive relief, Monetary relief, limited to bid preparation and proposal costs (i.e. no attorney’s fees, no expectancy damages). Note: The Equal Access to Justice Act (“EAJA”) says that a successful litigant against the United States can recover attorney’s fees but only if the court determines that the government’s position was not substantially justified. The litigant has to have below a certain net worth, at different levels for individuals and corporations. o The standard of review is deferential (“arbitrary, capricious, an abuse of discretion”). This is the same standard of review as that of the APA in the district courts. See below for an explanation. The amount of deference the CoFC would give to the GAO is debateable. o The fact-finding ability of the CoFC is that of a typical court. - U.S. District Courts under the Administrative Procedure Act - Note: The jurisdiction of the district courts over bid protests was terminated when Congress declined to extend it (Sunset Provision). This was the intent of Congress. However, some argue that jurisdiction still exists. 24 GOVERNMENT CONTRACTS OUTLINE - - - - - Jurisdiction over bid protests in the district courts was given in the APA. Section 701 of the APA creates a presumption that a final agency action is judicially reviewable except where another statute precludes review. Awarding of a contract is a final agency action (Scanwell). Section 701 extends standing to all those who are aggrieved within the meaning of the relevant statute (outside of the APA) that the plaintiff seeks to enforce. o The injury in fact is that the bidder would have been better off with the contract award and that he is now worse off by having expended the bid preparation costs. The disappointed bidder is within the zone of interests that Congress wanted to protect because government contracts laws are intended to protect not just the public but also the bidders. o The courts generally do not require the plaintiff to show that it had an inside track or certainty of success in getting the contract if it prevailed in its challenged to the existing award. o If the plaintiff is not even eligible for the contract, or if ultimate benefit to the plaintiff from a favorable result in the litigation is highly speculative, the plaintiff may not have standing. o There may be a trend toward more restrictive applications of standing in procurement cases. Relief does not include money damages. The plaintiff can get only injunctive or declaratory relief. The only way that a plaintiff can get money is if the court orders injunctive relief that requires the government to comply with the payment provisions of a statute. The standard of review in the district courts is deferential in findings of fact. o If two agencies disagree, deference should be given to the agency to which Congress has delegated primary enforcement responsibility of the statute in issue. This suggests deference to the procuring agency, rather than to the GAO, in the event the two disagree. Chevron would also support deference to the procuring agency because the GAO is a legislative entity. However, deference to the GAO might be preferable given its expertise and neutrality. o The Chevron doctrine states that considerable weight should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer. Obviously, Chevron cannot mean that complete and total deference should be given in government contracts disputes because that would lead to the government winning every case. The “Little Tucker Act” allowed the district court concurrent jurisdiction over claims within the CoFC core jurisdiction provided that the amount of the claim did not exceed $10,000. Board of Contract Appeals - Coastal Corp.: Boards of contract appeals do not have bid protest jurisdiction. The reasoning employed in Heyer Products does not support the argument for an exercise of jurisdiction because the implied contract in that case was not a contract for procurement. Boards of contract appeals only have jurisdiction over procurement contracts. GOVERNMENT CONTRACTS OUTLINE 25 - The Contract Disputes Act intended to give the boards of contract appeals jurisdiction over performance disputes. This makes the boards an alternative forum to the CoFC for performance disputes. The Relationship Between Bid Protest Forums and Performance Dispute Forums - Sometimes, there can be confusion between where the bid protest dispute ends and where the performance dispute begins. This problem is worse when the protest is litigating in the CoFC, which is also a performance dispute forum. - It is not for the bid protest forum to decide what the financial arrangement should be for the termination of a wrongfully awarded contract. (Amdahl) - This problem occurs when there is a bid protest, but the contract has already been awarded and performance has begun. If the protester wins, the bid protest forum can recommend or order that the contract be terminated and grant a remedy for the protester. - However, the bid protest forum cannot order the remedy for the termination of the contract. - Upon finding that the award was improper, the decision goes back to the agency. The contract then either becomes void or voidable. o Void: The government doesn’t have to terminate the contract because it was void. This gives the contractor less in recovery, as he only gets the “value conferred.” o Voidable: The government can terminate the contract for its own convenience. This gives better compensation to the contractor (performance costs plus a reasonable profit on what it had completed). - First, the government must have a chance to decide what it thinks the terminated contractor deserves after the contract is terminated for convenience (“TFC”). - If the terminated contractor is unhappy with the government’s decision, it can bring a performance dispute under the CDA. International and Comparative Law Notes Regarding Bid Protests - Treaties might be used to interpretatively broaden the standing, remedies, and jurisdiction of the Court of Federal Claims in order for the U.S. to be in compliance with international law. - International law is an avoidance cannon of interpretation: you should avoid interpreting domestic law such that it causes a treaty breach. - WTO and the Government Procurement Agreement (GPA) o Although WTO has over 100 member nations, only ~30 have signed the GPA o GPA only applies to agencies listed in the Annexes o Applies only to procurements over a financial threshold of 130K Special Drawing Rights (SDRs) in the international monetary system. o Requires national treatment – each member nation must treat suppliers from other member nations no less favorably than their own domestic suppliers. o Bid Protest Procedures Required by GPA “Non discriminatory, timely, transparent and effective procedures enabling suppliers to challenge alleged breaches of the Agreement in 26 GOVERNMENT CONTRACTS OUTLINE - the context of procurements in which they have, or have had, an interest” Same thing as “actual or prospective bidder”? Court or non-judicial tribunal subject to judicial review or a set of due process requirements GAO or CoFC appears to meet these standards Foreign entities appear to be allowed to bring a claim of violation of U.S. domestic procurement law in either the GAO or CoFC Nothing in Tucker Act or CICA suggests a limitation disqualifying foreign bid protestors Required Remedies: “rapid interim measures . . . “ o GAO’s automatic stay provision? “correction of breach or compensation for loss . . which may be limited to costs for tender preparation or protest” o Arguably GAO’s authority, which is limited simply to recommendations, does not meet this test. But b/c protestors can go to CoFC instead, US is incompliance w/ GPA NAFTA – Similar procurement requirements, but unlike GPA, does not seek to regulate the quality of bid protest tribunals made available by member nations. European Union - Directive 2004/18/EC, consolidated the Public Supplies Directive, Public Works Directive, and Services Directive. Did not address remedies for violation of procurement rules. o Review Directive 1989 – Addresses remedies and procedures for enforcement Requires procedures for prompt and effective review for alleged violations of European Community law No requirement that review extend to alleged violations of nat’l procurement law, but if review rights are extended to domestic suppliers, foreign suppliers must also have access. Standing: “any person having or having had an interest . . . how has been or risks being harmed . . .” Tribunals must have authority to Take interim measures to prevent further damage to interests Either Set aside or ensure setting aside of unlawful decisions, including removal of discriminatory specifications . . . or Award damages Not explicit, but most EU tribunals limit monetary damages to bid preparation costs and deny expectancy damages. Does not mandate that initial review tribunal be independent of procuring agency (unlike GPA) GOVERNMENT CONTRACTS OUTLINE 27 Contract Performance Disputes Summary of performance dispute process: The contractor has 6 years to bring a claim: To the contracting officer. If the CO rules against the government, The government cannot appeal. A losing contractor has two choices for appeal: The appropriate BCA 90 statute of limitations De novo review 120 days to appeal to Fed. Cir. The CoFC 1 year statute of limitations De novo review 60 days to appeal to Fed. Cir. Government needs DoJ permission to appeal The dispute can be appealed to the Fed. Cir. Questions of Law: De novo review Questions of Fact: Clearly erroneous standard The dispute can then be appealed to The US Supreme Court 28 GOVERNMENT CONTRACTS OUTLINE Introduction to the Disputes Process - Current contract dispute (all “sections” refer to the Contract Disputes Act): o The protester brings his claim to the Contracting Officer for the procuring agency. There is a six-year statute of limitations. o If the Contracting Officer decides the matter adversely to the government, the government cannot appeal. If the Contracting Officer decides the matter adversely to the protester, the protester can appeal to either: The appropriate board of contract appeals (military – ASBCA, or civilian – CBCA), or Ninety-day statute of limitations De novo review (Section 7103) The CoFC. One-year statute of limitations De novo review (Section 7104) o The decision can be appealed, in either case, to the Federal Circuit. The government can only appeal with permission of the Attorney General. If the appeal comes from the board of contract appeals, there is a 120day statute of limitations. The standard of review is deferential (Section 7107(b)). If the appeal comes from the CoFC, there is a 60-day statute of limitations. The standard of review is deferential (Fed. R. App. Pro.). o The decision of the Federal Circuit can be appealed to the Supreme Court of the United States. The Role of the Contracting Officer - Contracting officers have dual (incompatible) roles as both the government’s representative and the primary unbiased adjudicator of disputes. - The de novo standard of review of a contracting officer’s decision reflects that courts are not confident that contracting officers can be entirely impartial. - Keystone: The statute of limitations for appeal doesn’t begin to run if there is no dispute. Where the contracting officer outright denied the contractor any input, but rather merely demanded payment, there is no dispute. - Penner: The findings of fact of a contracting officer, affirmed on appeal, are conclusive unless the evidence shows he acted arbitrarily or capriciously or that his decisions were so grossly erroneous as to show bad faith. But a contracting officer must act impartially in settling disputes. Choice of Forum and Procedures Under the Contract Disputes Act - The Contract Disputes Act (CDA) gives a board of contract appeals jurisdiction over a contracting officer’s final decision on a claim. o The CDA does not define “claim.” o The FAR fills the gap: Written demand or written assertions by one of the contacting parties Seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. GOVERNMENT CONTRACTS OUTLINE 29 A voucher invoice or other routine request for payment that is not in dispute when submitted is not a claim. The submission may be converted to a claim by written notice to the contracting officer if it is disputed to either as to liability or amount or is not acted upon in a reasonable time. o Requests for equitable adjustments are, by definition, claims. o Those demands that are not routine do not also have to already be in dispute. o Proper analysis: If it’s a non-routine submission, it must be a demand as a matter of right to a sum certain. If it’s a routine submission, the contractor must dispute it and then contract must request a final decision. There is no formal language required to request a final decision from the contracting officer. Transamerica: Given all of the facts and the circumstances, should the contracting officer have known there was a request for a final decision? If the contractor is willing and prepared for a final decision, even if he is also willing to bargain or negotiate, he has submitted a claim. The contractor must say something that would reasonably communicate to the contracting officer that they are willing and prepared for a final decision The CDA has a certification requirement for claims of more than $100,000.00 made by a contractor. o The certification must state that: The claim is made in good faith The supporting data are accurate and complete to the best of the contractor’s knowledge and belief, The amount requested accurately reflects the contract adjustment for which the contractor believes the government is liable, The certifier is authorized to certify the claim on behalf of the contractor. o The certification must be executed by an individual authorized to bind the contractor with respect to the claim. o Failure to certify of defective certification: A contracting officer is not obligated to render a final decision on a claim of more than $100,000.00 that is not certified if, within 60 days after receipt of the claim, the contracting officer notifies the contractor in writing of the reasons why any attempted certification was found to be defective. A defect in the certification of a claim does not deprive a court or an agency board of jurisdiction over the claim. Prior to the entry of a final judgment by a court or a decision by an agency board, the court or agency board shall require a defective certification to be corrected. - 30 GOVERNMENT CONTRACTS OUTLINE It is unclear what would happen if there were no certification. I think it would defeat jurisdiction because the contracting officer likely won’t make a final decision on the issue. Without a final decision, there is no jurisdiction. But this was not discussed much in class. Formation of Government Contracts Basic Principles of Government Contract Formation - - - - - In sealed bidding: o Offer: when a company submits a bid o Acceptance: when the government sends a black contract to the company that wins the bid In competitive negotiation: o An RFP is just a request for offers o Offer: when the winning bidder sends its signed contract back to the government o Acceptance: when the government signs the contract Government contracts need consideration unless a statute or regulation says otherwise. (Torncello) o When contracts are ambiguous, they should be interpreted such that consideration is preserved. o Even though consideration is required, nominal consideration is almost always allowed. There is no litigation on the adequacy of consideration. o There is no requirement that option contracts have separate consideration from the contract. Types of contracts: o Definite quantity contracts: have a minimum and a maximum o Indefinite quantity contracts: have only a minimum (without a minimum, there is no consideration) o Requirements contracts: have neither a minimum or a maximum (the consideration is the fact that the government promises to get all of its specified needs from a single contractor, thus giving up its power to choose). Implied contracts: o Implied in law Created by the courts for equitable remedial purposes even though there was in fact no agreement The government has only waived its sovereign immunity with regard to contracts implied in fact, not contracts implied in law. Implied in law contracts are not actionable in government contracts. o Implied in fact The court is finding that the parties actually had an agreement. It may not have been manifested, but it was bade on a meeting of the minds. GOVERNMENT CONTRACTS OUTLINE 31 As long as an objective observer can discern by the parties conduct and words that an agreement existed, a contract implied in fact has been formed. Requirements of an implied in fact contract: Mutual intent to contract Offer Acceptance Consideration Formation or ratification by a person with actual authority to bind the government Remedies: Where a benefit has been conferred by the contractor on the government in the form of goods or services, which it accepted, a contractor may recover the value of the conforming goods or services received by the government. (Amdahl) A contract implied in fact for the continued storage of government furnished materials existed where there are numerous provisions imposing obligations on the plaintiff to maintain, repair, and protect government furnished materials so long as they were in his possession, the government issued a form to the contractor requesting information as to how much storage space he had for the materials, which the contractor returned, and the government accepted by its conduct by leaving the materials on site. (Algonac) There was no implied in fact contract to indemnify the contractor against losses for third party claims where there Contracting Officer is well aware of the statutory mechanisms under which he could have provided indemnity, and the Anti-Deficiency Act, which would prohibit an open-ended promise. Statute of Frauds o Government contracts must be in writing. o This requirement is intended to protect both sides from the possibility of fraud or misrepresentation. o If only the private party had to have a written contract to enforce, there would be consideration. o The requirement that contracts be in writing to be enforced does not bar enforcement of an implied in fact contract. - Competition Policies - Full and open competition is required unless one of the following is true: o There is only one responsible source or only a limited number of responsible sources for the property or services and no other type of property or services will satisfy the government’s needs. o The government’s need for the property or services is of such an unusual and compelling urgency that the United States would be seriously injured unless the agency is permitted to limited the number of sources from which it solicits bids or proposals. The urgency may not have been created by the government due to lack of planning. The head of the agency must request 32 GOVERNMENT CONTRACTS OUTLINE - offers from as many potential sources as is practicable under the circumstances. o It is necessary to award the contract to a particular source or sources in order (any one of the following): To maintain a facility, producer, manufacturer, or other supplier available for furnishing property or services in case of a national emergency or to achieve industrial mobilization. To establish or maintain an essential engineering, research, or development capability to be provided by an education or other nonprofit institution or a federally funded research and development center. To procure the services of an expert for use, in any litigation or dispute (including any reasonably foreseeable litigation or dispute) involving the federal government, in any legal dispute, or to procure the services f an expert or neutral for use in any part of an ADR or negotiated rule-making process, whether or not the witness is expected to testify. o The terms of an international agreement or treaty between the United States and a foreign government or international organization, or the written directions of a foreign government reimbursing the agency for the cost of the procurement of the property or services for such government, have the effect of requiring the use of procedures other than competitive procedures. o A statute expressly authorizes or requires that the procurement be made through another agency or from a specified source, or the agency’s need is for a band-name commercial item authorized for resale (subject to subsection K). o The disclosure of the agency’s needs would compromise national security unless the agency is permitted to limit the number of sources from which it solicits bids or proposals. The head of the agency must request offers from as many potential sources as is practicable under the circumstances. o The head of the agency: Determines that it is necessary in the public interest to use procedures other than competitive procedures in the particular procurement concerned, and Notifies Congress in writing of such determination no less than 30 days before the award of the contract. If full and open competition is required: o Sealed bidding is required if all of the following are satisfied: Time permits the solicitation, submission, and evaluation of sealed bids (lack of time cannot have been created by the agency due to lack of planning), The award will be made on the basis of price and other price-related factors, A non-price factor must be real and not just a way to avoid the use of sealed bidding GOVERNMENT CONTRACTS OUTLINE 33 - - Track record is an acceptable factor when it is used as a weighted factor and not as a pass/fail element It is not necessary to conduct discussions with the responding sources about their bids, and Essex: The GAO will not question the judgment of the agency when it determines that certain specifications are sufficiently important to warrant discussions and thus negotiated procurement unless the determination is shown to be unreasonable. Racal: The possibility that bidders will not fully understand the request is not a good reason to have competitive negotiation (that’s what a bidder’s conference is for. The possibility that bidders will not be able to produce is supposed to be handled in the responsibility investigation. Possible changes in quantity, delivery schedules, opening dates, etc. are supposed to be handled using cancellation of the IFB and reissuing a new invitation for bids, even if it’s inconvenient. Inconvenience is the price we pay for full and open competition. There is a reasonable expectation of receiving more than one sealed bid o Otherwise, competitive negotiation can be used. If full and open competition is not used: o The contracting officer for the contract must justify the use of noncompetitive procedures in writing and certify the accuracy and completely of the justification, o The justification must be approved by: The competitive advocate for the procuring agency (without further delegation) for contracts between $500,000.00 and $10,000,000.00. By the head of the procuring agency (or the head’s delegate) for contracts between $10,000,000.00 and $75,000,000.00. Ways to circumvent full and open competition: o Task order contracts (indefinite delivery/indefinite quantity contracts; framework contracts) The government can call and ask for a certain delivery of a product at a certain price in a certain amount of time. They are supposed to be used in emergency situations (i.e. what FEMA should have done during Hurricane Katrina). They are frequently used under the GSA system, where one agency can order through another agency’s task order contracts, and where the hosting agency and the ordering agency are not the same. It is not clear who is responsible for ensuring full and open competition. o Government purchase cards: Competition is supposed to be ensured by the operation of the free market. 34 GOVERNMENT CONTRACTS OUTLINE However, nothing can stop an employee from going to a favored retailer and buying at a higher price. o Excessively narrow specifications: Memorex: Where the government has no reasonable basis for its stated needs, and the requirements exceed the government’s minimum needs, the scope of the procurement is excessive and unwarranted. When a specification is framed merely as a factor for consideration as opposed to a required element, it is less likely to be considered an undue restriction on competition. The government can express specifications in terms of a commercial product. However, when used a brand name or equivalent requirement in an IFB, the government has to at least express the features of that brand name product that it is interested in, so that bidders can evaluation whether their product is equivalent. o Improper bundling: Illegal bundling: putting too many items together in a contract to make something true that wouldn’t otherwise be true (i.e. bundling so many plane parts together that only one bidder can provide them). Administrative convenience is not a sufficient reason alone to justify bundling that effectively limits competition. Where the agency anticipates that new sources for the good or service will come into being during the contract, the contract should not be of such length as to effectively limit competition. A “break out” clause that authorizes the agency to get parts currently under a five year sole source contract from new contractors as they come online effectively turns ensuring full and open competition into a discretionary function. o Other transaction authority (OTA): A proposed alternative to the government procurement system. An agency is given the authority to do some kind of alternate agencyspecific procurement. Proper analysis: o Is the procurement subject to full and open competition? The procurement must be for foods and/or services. Land procurement is not subject to full and open competition (See Motor Coach). If the procurement falls within one of the seven statutory exceptions, it is not subject to full and open competition (Section 2304(c)): Only available from one or a few sources, and no other product will satisfy the need (1). Bona fide emergency (2). Necessary to award contract to a particular source or source in order to: - GOVERNMENT CONTRACTS OUTLINE 35 - - - Maintain facilities/supplies for national emergency or to achieve industrial mobilization (3)(a). Establish and maintain research and development (3)(b). Hire an expert witness for the government in litigation (3)(c). International treaty or agreement requires noncompetitive procedures (4). Statute requires it or need is for a brand name item for resale (5). National security exception (6) Catch-all exception: Head of agency determines that it is necessary and in the public interest, and he notifies Congress at least 30 days before awarding the contract (7). If full and open competition is not required, did the government adequately justify its use of an exception? o Justification must be contemporaneous with the decision (no after-the-fact rationalization). o Justification must be written. o Justification must be certified. How much money is involved will determine who must certify the justification. If full and open competition is required, which type of competitive procedure is the procurement subject to? o Sealed bidding must be used if: Time permits the solicitation, submission, and evaluation of sealed bids (lack of time cannot have been created by the agency due to lack of planning), The award will be made on the basis of price and other price-related factors, It is not necessary to conduct discussions with the responding sources about their bids, and There is a reasonable expectation of receiving more than one sealed bid. o Otherwise, use competitive negotiation. Was the procedure done correctly? o In sealed bidding: Was the winning bidder responsive, or did the contracting officer waive a nonmaterial deviation from the IFB? A material deviation is one that affects price, quantity, or quality of the final product. Was the winning bidder the lowest price? If so, the bidder should win after a responsibility determination. o In competitive negotiation: Was the contract awarded to the contractor with the best value using the weighted factors in the RFP? Was the contract awarded to a responsible contractor? Debarred and non-responsible bidders have standing to challenge their own status. 36 GOVERNMENT CONTRACTS OUTLINE No bidder has standing to challenge a failure to debar or deem non-responsible a competing bidder. Alternative Procedures Sealed Bid Contracting - A synopsis of the proposed procurement is published online. - In response to the synopsis, people who want to bid can request an invitation. - The agency then sends out an IFB to all who request one. - The IFB contains all the terms of the contract and more details than the synopsis. - Offerors submit their bids simply by filling in the price and schedule of performance. - If a bid is submitted even one second late, the government is free to reject it. - Bids are opened publically and evaluated without discussion with bidders - A bidders’ conference is held before bids where bidders ask questions about the IFB in front of everyone else and receive answers from the agency. - Bids may be withdrawn on written or telegraphic request received from bidders prior to the time fixed for opening. o Negligence on the part of the bidder in preparing the bid confers no right for the withdrawal of the bid after it has been opened. o Exceptions: When the government should have known that there was a mistake in the bid. When the government unreasonably delays in award a contract. o If bidders were allowed to withdraw and correct bids after bids are opened, contractors could cheat to increase profits while still maintaining the lowest bidder status, or to achieve lowest bidder status. - The government is always free to reject all the bids if such action is in the public interest. - The government must notify losing bidders within three days of the award. Competitive Negotiation - The government issues an RFP. - The source selection plan says what the non-price related factors are and how they are going to be weighted. - The government must state whether it will hold discussions or whether it just reserves the right to do so. - The government must explicitly reserve the right to award immediately on the initial round in order to do so. - The government tends to reserve the right to award immediately on the initial round of proposals, but the government is always free to talk to the parties or to do a series of rounds winnowing the offers in which each surviving offeror in the competitive range is requested to submit a new proposal. - During negotiations, the Contracting Officer discusses the offeror’s proposal and points out where the proposals are weak or what would make them better. - The offers are not opened publically because the bids tend to include proprietary information. GOVERNMENT CONTRACTS OUTLINE 37 - A losing bidder can request a debriefing as to why it lost. This request and debriefing will form the basis of a bid protect. Qualification - - - - Qualification: a determination, based on past conduct, that a potential bidder should be generally ineligible to receive government contracts. This determination cannot be challenged in a bid protest jurisdiction because they are not tied to a particular contract. Prestex: A contract awarded to a nonresponsive bid is in effect one issued without competitive bidding and is therefore invalid. A remedy in the case of awarding the contract to a nonresponsive bidder is payment for goods already delivered and received under an implied in fact contract. Responsive: the bid meets all of the terms, conditions, and specifications of the invitation for bids or the request for proposal. In competitive negotiation, there is no bright line rule that a nonresponsive bid be rejected, unlike in sealed bidding. In competitive negotiation, the government should see whether a technically nonresponsive bid achieves the functional needs of the government at the best value. Nonresponsive bids cannot be cured after the bids have been opened. If we allowed contractors to place illegal conditions on a bid and later cure them, they could use this tactic to game the system. When is a bid nonresponsive? o Deviations from the specifications in the IFB may be waived by the contracting officer provided they do not go to the substance of the bid or work an injustice to other bidders. o A substantial deviation is defined as one which affects either the price, quantity, or quality of the article offers. o A bid that could not be publically opened because it was marked as confidential was determined to be nonresponsive. Debarment and Suspension - Debarment: a longer term of ineligibility o Debarred contractors are not allowed to bid on any government contract. o Each agency has its own special debarment official. o The debarment process is not part of the contract award sequence. It can happen at any time and is not supposed to be initiated by a bid. o It usually results in executive-brand-wide debarment. o The GSA maintains a central list of debarred contractors. o Potential challenges to debarment: Procedures didn’t accord due process: likely to fail due to the presence of regulations government debarment procedures. Decision was arbitrary and capricious: likely to fail due to the deferential standard of review. The agency didn’t follow its own procedures. No one has standing to challenge the failure to debar a competitor. 38 GOVERNMENT CONTRACTS OUTLINE o De facto debarment: Actions which have the practical effect of debarment although the agency has not formally recognized them as methods of or reasons for debarment (Old Dominion) Responsibility - Responsibility: a contractor’s present and future capability to perform a specific contract. - Responsibility determination is the last step in the process. First, the competitiveness of bids must be definitely decided. - However, technical capability and financial responsibility may be factors that go into the type of contract that is selected. - Responsibility can be challenged in a bid protest forum because it is tied to a contract. o A contractor can challenge its own determination of nonresponsibility. o Losing bidders can challenge another’s determination of responsibility. o Agencies are unlikely to wrongly affirm responsibility because that will saddle them with an incompetent contractor. o Therefore, it is easier to challenge you own determination of nonresponsibility than it is to challenge someone else’s determination of responsibility. (Keco) - Responsibility includes: o Adequate financial resources, o Ability to comply with the proposed performance schedule. o A satisfactory performance record. o A record of integrity and business ethics. o Organization, experience, accounting and operation controls, technical skills, etc. o Production, construction and technical equipment and facilities. o Otherwise qualified and eligible. - If a contractor hasn’t bought the equipment but promises it will, that isn’t good enough for responsibility. - Past behavior can be evidence of present and future capability to perform the contract. - Pre award surveys are used to ask bidders information about their responsibility. - Non-Small Businesses: o The GAO will generally not question a non-responsibility determination unless the protestor can demonstrate bad faith by the agency or a lack of any reasonable basis for the determination. o The nature and extent of the information needed to assure a Contracting Officer that a firm will meet its contractual obligation is for the Contracting Officer’s judgment. o The dollar value of the contract seems to be a factor in determining how much the contracting officer has to investigate before deciding nonresponsibility. - Small Businesses: GOVERNMENT CONTRACTS OUTLINE 39 - o Small businesses have been protected by Congress against determinations of nonresponsibility through the SBA. o A decision of the SBA regarding the size status of a business is conclusive and may not be ignored by the GAO. o Small businesses get notice of determination of nonresponsibility and can appeal to the SBA. o The SBA can override a determination of nonresponsibility by issuing the bidder a Certificate of Competency. Neither the agency nor the GAO can second guess the SBA’s decision to issue a COC. If the COC isn’t issued within 15 business days (or whatever time was agreed upon between the agency and the SBA), the contracting officer is authorized to proceed with the acquisition and award the contract to another offeror. Agencies might be able t get around this procedure by using competitive negotiation instead of sealed bidding and making responsibility-like factors as factors in source selection. It isn’t clear whether a prospective bidder would be successful in the GAO claiming that the agency is doing this because the GAO is so deferential. Due Process o Unless a bidder is a small business, no bidder requires notice or due process measures prior to a determination of nonresponsibility. o Exception: Old Dominion Bidders have a right grounded in the due process clause to some kind of opportunity to be heard within whatever time is available when the nonresponsibility determination is based on a recurrent and stigmatizing claim, such as engaging in illegal or unethical behavior, as opposed to simply not having the right equipment. This is not a hearing, just a right to be heard. It is unclear whether such a claim can be brought in district court today. Would this be a bid protest challenge for which there is arguable no more district court jurisdiction? Would this be a challenge to an agency action under the APA, which has constitutional implications? o When in doubt, courts tend to construe statutes such they do not have constitutional problems, so a court might say that even under the sunset provision, this limited kind of claim could be brought in district court. Pre-Qualification - Pre-qualification determination: used to make a generic determination of the responsibility and capability to perform a particular class of contract in advance, so as to winnow the field of contractors to be considered when an actual solicitation is made. 40 GOVERNMENT CONTRACTS OUTLINE - - o Usually, this is not legal in the United States because it is anticompetitive. o It can be done, but there has to be an extremely well-justified reason for doing so. o Mere administrative expediency and efficiency are not a good reason to be able to do this. If you must do prequalification: o There must be a written justification. o You cannot limit the bidding to those not on the list of qualified bidders. You have to give room for contractors to try to show they are qualified. o This effectively removes the incentive to do prequalification, on purpose. Many U.S. procedures are effectively a form of pre-qualification, but not admittedly so. o Multiple Award Schedules: The pretense is that they represent the award of an umbrella contract under which the government has the right to order or not order at prices that the contractors have offered. There is a lack of consideration issue that no one seems to address. There is supposed to be competition to get on the list, but there isn’t in reality. You can protest not getting on the list, but you cannot protect not getting an order. o The FAR defines the problem out of existence: “orders placed against a [MAS], using the procedures [provided for the MAS] are considered to be full and open competition.” Types of Contracts: Allocation of the Risk of Uncertainty - - - Sealed bidding must result in one of the two types of fixed price contracts. Competitive negotiation can result in any valid type of contract. The contracting officer is given discretion in choosing the type of contract, although the FAR indicates a preference for fixed price contracts. Fixed price contracts: o Firm fixed price: The price is X widgets for $X. Should be used when the risk involved is minimum or predictable. o Fixed price with economic price adjustments The price is X widgets for $X. But if your widgets are made primarily out of copper and the price of copper is volatile, then we can change it by X amount under X circumstances. This encourages contractors not to increase their bid price to cover the uncertainty. We’d rather get the lower price for the government at the outset and have to adjust it later. This allocates some of the risk to the government and away from the contractors. Time and materials contracts: o A hybrid between fixed price and cost-reimbursement contracts. GOVERNMENT CONTRACTS OUTLINE 41 - o (Fixed hourly rate) times (the number of hours the contractor personnel worked) plus (the cost of materials). o Criticism: creates no incentive for the contractor to control costs. o The FAR requires a ceiling price above which the contractor cannot exceed without securing an adjustment from the government. o This may not be sued absent a written determination by the contracting officer that, because it’s impossible to estimate the amount of labor required or the costs, no other form of contract is suitable. o Personal Services Contracts: a subspecies of time and materials contracts where the contractors are hired to effectively just be regular employees. (No materials, just time) Technically there is a prohibition on this, but it is often violated. Cost reimbursement contracts: o This type of contract is only in the government’s interest when the risk attributable to the uncertainty about the cost of performance is so great that either: There will not be a vigorous market of offerors under a fixed price contract, or Bidders will bid in such a risk averse manner that the price will be way too high. o Cost plus percentage of cost contracts (CPPC): These are unlawful because they create an incentive for the contractor to increase their costs. o Cost plus incentive fee contracts: A formula makes it so the fee proportion goes up as the cost base goes down. The more money the contractor saves in performance, the larger incentive fee you get. The formula is the opposite of a CPPC contract. o Cost plus award fee contracts: a panel decides how good of a job the contractor did and then gives them an award. Audit Authority - The GAO and the procuring agency have audit authority. The GAO: o The GAO can audit to identify government waste and investigate the reasonableness of the prices the government is paying. o The audit authority only extends to contracts formed from competitive negotiation. It extends to both fixed-price and cost-reimbursement contracts which were the product of competitive negotiation. The GAO cannot audit any contract created by sealed bidding. o When auditing, the records used must directly pertain to the contract. Fixed Price Contracts (Merck) Under a fixed price contract, the comptroller general should be permitted to access records of direct costs. He should be barred however from inspecting records of costs incurred in areas of research and development, marketing and 42 GOVERNMENT CONTRACTS OUTLINE promotion, distribution, and administration except to the extent the contractor has allocated these costs as attributable to the particular contract. The procuring agency has two types of audit authority. Audit authority under the ordinary course of procurement: o The agency can only audit cost-reimbursement contracts. o It cannot audit fixed price contracts. This means that it can only audit contracts done under sealed bidding, only competitive negotiation. o The purpose of this audit authority is to make sure that the contractor is being honest about which costs are attributable to which contract, and that all costs are legally eligible to be reimbursed. Audit authority under the Truth in Negotiations Act (TINA) o This audit authority applies only to competitively negotiated contracts above a certain price threshold, currently set at $500,000.00. o This applies to both fixed price contracts and cost reimbursement contracts resulting from competitive negotiation. o Under TINA, the agency can request cost and pricing data during contract formation, and if the agency does, then there is audit authority to back that up. If the agency couldn’t (because TINA didn’t apply) or didn’t (because it chose not to) request the data, then there is no audit authority. TINA’s audit authority only exists where it was used to demand cost and pricing data during contract formation. The purpose of this isn’t to determine how much should be reimbursed but to determine if the original disclosure at the time of contracting was honest and accurate. This covers all facts that a prudent buyer or seller would expect to affect the price significantly. Labor, capital, etc. Extremely intrusive Submissions must be certified as accurate. This makes the certifier potentially liable under the FCA. o Exceptions to TINA Audit Authority. Contracts under $500,000.00 cannot be audited. Where there is adequate price competition: GOVERNMENT CONTRACTS OUTLINE 43 TINA is not applicable to fixed price contracts that result from competitive negotiation. TINA is applied primarily to cost reimbursement contracts created by competitive negotiation Where prices are fixed by law. Commercial items (what is a commercial item?) Administration of Government Contracts Contractors’ Rights Delay - Excusable delay: the contractor should be excused from sanctions for later performance, including termination for default, that would otherwise be applicable. o Excusable delay in fixed price supply and service contracts: o Except for the defaults of subcontractors, the contractor shall not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the contractor. o Examples of such causes include (as long as the contractor is not at fault): Acts of God or of the public enemy, Acts of the government in either its sovereign or contractual capacity. Fires Floods Epidemics Quarantine restrictions, Strikes Freight embargoes, and Unusually severe weather. o If the failure to perform is caused by the default of a subcontractor, and if the cause of the default is beyond the control of both the contractor and the subcontractor, and without the fault or negligence of either, the contractor shall not be liable for any excess costs for failure to perform unless the subcontracted supplies or services were obtainable from other sources in sufficient time for the contractor to meet the required delivery schedule. o When there is an excusable delay or express suspension order, the time during which the contractor was on excusable standby gets added to the available performance times when the work results. o Thus, if the contracting officer terminates for default when the original deadline passes, the termination for default is improper and should be converted into a termination of convenience. - Compensable delay: A contractor is entitled to an equitable adjustment to cover cost of the delay where a Suspension of Work clause is applicable. 44 GOVERNMENT CONTRACTS OUTLINE o All compensable delays are excusable, but not all excusable delays are compensable. o Two potential situations: Express suspensions by order of the contracting officer Constructive suspensions: Has the same effect and consequences of an actual suspension, and relief should be granted as if an actual suspension order had been issued. o Substantive requirements for a compensable delay (Fruehauf): The contractor must be without fault in contributing to the ensuring delay. The work was interrupted for the convenience of the government. Work interrupted by an incompetent other contractor whom the government refuses to terminate for default or convenience constitutes work interrupted for the convenience of the government. (Fruehauf) Delay is either the governments fault or delay is so lengthy that it would be unreasonable to expect the contractor to shoulder the added expenses. o Procedural requirements for a compensable delay: If the suspension order is express, there is no contemporaneous notice requirement (because the government already knows the contract is suspended). If the contractor believes that there has been a constructive suspension, it must give a contemporaneous notice (within 30 days) to the contracting officer that it is seeking an equitable adjustment. Failure to give a contemporaneous notice isn’t a jurisdictional bar, but you lose the number of days worth of compensation that you didn’t give notice. For both express and constructive delays, the contractor must submit a claim to the contracting officer within the statute of limitations of six years if the equitable adjustment is denied. o Compensation available for compensable delay: Losses caused by the delay. Losses that flow from compacted lead and mobilization time. Losses that flow from subsequent acceleration of work. Expectancy damages are not available. Under constructive changes, however, the contractor is entitled to reasonable profits on the additional work that has to occur under the change. This causes some contractors to argue that it wasn’t just a compensable delay but that the delay amounted to a constructive change. Changes and Modifications - Changes must be within the general scope of the contract. GOVERNMENT CONTRACTS OUTLINE 45 - - - - o General scope: anything that’s even vaguely related to contractor performance. o This limitation is not designed to protect the contractor. o It is designed to protect full and open competition by preventing endless modification of contracts so that the contracting officer doesn’t have to begin a new bidding process. o The test for whether the change is lawful (i.e. in the general scope of the original contract): Given the change, would the contract have elicited a different field of competitors for bidding? o An argument that a change is illegal because it is outside of the general scope should go to a bid protest forum. Changes should be, but do not have to be, in writing. o W.H. Armstrong: A change order doesn’t have to be written to constitute a constructive change if the change was the result of an authorized contracting officer’s oral change order. o A mutual misunderstanding of an ambiguous contract where the contractor’s interpretation is reasonable and the government’s interpretation requires a more expensive performance that the contractor anticipated may result in a constructive change because contracts shall be construed against the drafter. Types of constructive changes: o Additional work: The government misleads the contractor as to the nature or extent of the performance that will be required. o Acceleration o Lack of appropriate government cooperation in facilitating performance: This includes an overzealous inspection. The contractor must give timely notice to the government that it is seeking an equitable adjustment: o 30 days from the receipt of a written change order. Failure to give contemporaneous notice isn’t a jurisdictional bar, but you lose the number of days worth of compensation that you didn’t give notice. Flexible timing when it comes to constructive change because of the uncertainty as to when the change occurred. o If the contractor is unsatisfied, it must submit a claim to the contracting officer within the six year statute of limitations. Equitable adjustment o Cost of the extra labor and costs plus a reasonable profit thereon. o If effect, the compensation for the extra work is a cost reimbursement contract. o Thus, sometimes changes can turn a fixed price contract into a cost reimbursement contract. 46 GOVERNMENT CONTRACTS OUTLINE Government Prerogatives Termination for Convenience of the Government - In order to terminate for convenience (“TFC”), the contracting officer must determine that the termination is in the interest of the government. o The court does not have to agree as to whether the termination was in the interest of the government. o The court must only find that the contracting officer determined that it was in the best interest of the government. o Terminations for default (“TFD”) held improper are turned into constructive TFCs. (College Point Boat) - Krygoski: o No change in circumstance is required for a TFC. o The test for when a TFC can be made is one of objective good faith. o There are two possibilities: If the government entered into a contract in objective bad faith, not intending to perform, unless something changes, the government is still in bath faith, so it cannot use a TFC. However, a change circumstances can give the government that reason it needs to TFC. If the government entered into a contract in objective good faith, no changed circumstance is needed to terminate for the convenience of the government. - Proper analysis: Was the original contract entered into in good faith with the intent to perform? o If not, is there is changed circumstance which justified termination? If yes, the TFC is valid. If no, the TFC is not valid (Torncello). o If yes, is the termination itself in bad faith (i.e. simply because they do not like the contract they made)? If no, the TFC is valid (Krygoski). Amdahl: needing to re-solicit to preserve full and open competition because the award has been made improperly is a good faith reason to TFC. If yes, the TFC is not valid. - Determining contractor compensation following a TFC o The contracting officer issues a TFC. o The contractor responds with a Termination Settlement Proposal (TSP). The TSP initiate’s the contracting officer’s obligation to determine the amount of compensation due. If the contracting officer and the contractor agree on either the TSP or a price that results from further negotiations, then no one has standing to challenge the amount agreed upon. Negotiation factors: Contract price for work completed and accepted that hasn’t been paid for. GOVERNMENT CONTRACTS OUTLINE 47 Cost attributable to work partially performed or unavoidable at the time the TFC notice was received. For example, the contractor has a subcontract that needs to be terminated. The cost of the subcontractor’s work in the interim should be recoverable. A reasonable profit on work performed unless there would have been a loss on the entire contract if it were completed. The government doesn’t have to pay profit to the contractor just to stop the bleeding. There is no right to recover anticipated profits for work not performed. This would be expectancy damages, which is not allowed. If they can’t agree, it goes through the CDA process for performance disputes. Inspection/Acceptance - Performance problems usually fall into two categories: o Timeliness o Quality of performance - Contractors must come up with their own quality assurance program. - The government can terminate for default just for failing to come up with a program, even if there are no problems with performance. - The government has its own right to inspection. o The government’s right to inspect does not relieve the contractor of the duty to inspect. o The government had latitude with time, place, and frequency of inspection. o However, excessive inspection ratified by an authorized contracting officer can leave to a constructive change (either under W.H. Edwards or acceleration). - The government and the contractor rights depend on whether an error is caught before or after final acceptance: o Before final acceptance: the government has more rights than a private party before it accepts. The government can reject the goods, even for a non-material breach (Arrow Lacquer). The government can require correction. The government can order delivery of the good, which does not constitute acceptance, and then institute an equitable price adjustment downward. This is a change order. The amount of the adjustment can be disputed through the CDA. o After final acceptance: the government has fewer rights than a private party would after it accepts. The government has given itself extremely weak warranties. 48 GOVERNMENT CONTRACTS OUTLINE Exception: when off-the-shelf commercial items are purchased under less-competitive procedures, UCC-type warranties apply. Latent defects, fraud on the part of the contractor, or gross mistake amounting to fraud are all reasons for which final acceptance may be revoked. Default Termination - Wegematic: The default rule is that unless the parties agree otherwise, the contractor assumes the risk that it cannot accomplish that which it promised. o Having promised the impossible is not a defense to default. o This rule was created by borrowing from the UCC to create federal common law. - Contractors have a significant incentive to avoid received a TFD because past performance can be used as a factor in future procurements. This also gives them an incentive to contest a TFD, even if doing so doesn’t give them any more money. - Timeliness problems: o The ability to TFD applies to both failed interim deadlines and final deadlines. There is no requirement for cure notice for failure to meet an interim or final deadline. The right to terminate for this reason can be waived if the government seems to continually not care about the deadlines. (DeVito) If the government is sitting idle and suddenly decides to care about timelines, it needs to either send a cure notice or set a new deadline. Some sign must be sent to the contractor before termination. The new deadline doesn’t necessarily need to be realistic. o This applies where performance has closed so much that timely performance is endangered. Cure notice is required where a deadline has not been missed but where timely performance appears likely to not occur. The burden is on the government to show that the contractor is not likely to be able to complete the performance on time. - Quality problems: o Strict compliance doctrine: the government can TFD for failure to achieve specification even if the failure is not material. o Substantial compliance doctrine: The contractor is entitled to a cure notice if: Nonconforming goods were delivered on time, and The contractor reasonably believed that the goods were conforming. o If the contractor does not cure, then the strict compliance doctrine applies, no matter how nonmaterial the nonconformance appears to be. o In many cases, cure notice is a formality because it is unlikely that the defect can be fixed within ten days. GOVERNMENT CONTRACTS OUTLINE 49 - To invoke this doctrine, the defects must be minor and readily correctible, and the contractor must have reasonably bleiveed that the goods were in fact conforming. Determining contractor compensation following a TFD: o The contractor is only entitled to the value of work already completed and accepted. o If the government chooses to have the contractor deliver half-completed work or materials, it must pay for that. o There is no entitlement to reasonable profit. o The government is entitled to cover costs (the difference between the cost of the re-procurement and the defaulting contractor’s bid. o Any disputes then go to the proper performance dispute forum under the CDA. 50 GOVERNMENT CONTRACTS OUTLINE Appendix I – Answers to Case Questions Motor Coach Industries Date: August 29, 2012 1. This case is in the 4th Circuit. It was appealed from the district court. This procedural posture is not possible today. 2. This is a bid protest. 3. This is probably in federal court because a government agency is a party. This could also be federal question jurisdiction. 4. MCI is suing the FAA and Eagle for failure to follow appropriate procurement procedures. Therefore, it is a procedural challenge. 5. The government concedes that it did not comply with the requirements. Instead, it argues that it didn’t have to because the FAA didn’t seek bids – the Trust, a “private” entity, did. 6. a. The action is brought by MCI, a disappointed bidder who actively participated in the procurement process that it is now saying is illegal. The government’s standing objection is based on an unclean hands argument, that MCI shouldn’t be allowed to protest a bid as illegal when it doesn’t have clean hands. MCI probably responded by saying that it didn’t know the process was illegal, or that but for the illegal process they would have won the bid. b. The defendants are the FAA, Eagle, and the Trust. Eagle is the winning bidder. The Trust is paying for the contract as an alter ego of the FAA> They have mostly the same interest – executing the contract. 7. MCI wants injunctive relief to prevent the execution of the contract. Eagle argues that it acted in good faith and should not be punished for the FAA’s failure to comply with procurement guidelines. It also argues that the district court didn’t have the power to grant injunctive relief, only money damages. Injunctive relief can only be ranted by the court of claims (now the Court of Federal Claims). 8. Eagle was an innocent player in the FAA’s attempt to bypass appropriation guidelines, yet it now faces serious consequences. Granting injunctive relief would allow bad actors to participate in illegal bidding and just sue when they lose. However, this is not a typical case, and allowing the contract to go forward would effectively endorse the creation of alter egos by government agencies for the purpose of bypassing procurement requirements. If MCI had been awarded the contract, Eagle would have sued on the same grounds. Eagle’s unclean hands argument is inconsistent with its argument that it was an innocent player. GOVERNMENT CONTRACTS OUTLINE 51 9. The court says that allowing the contract to go forward would undermine the procurement process. I find this rationale persuasive. Additionally, if MCI were allowed to seek money damages instead of injunctive relief, the court would effectively be saying that the FAA would have to pay twice for the buses out of what has been established as public funds. 10. There were a few arguments that FPASA didn’t apply: a. The FAA argued that the money used to create the trust was private, not public money. Therefore, the trust was a private entity, so federal procurement provisions did not apply. The court rejected this argument, saying that the FAA effectively lured the airlines into a deal that resulted in a savings of millions of dollars and that diverted public funds into the trust. This, along with the FAA’s control over the trust, made the trust an alter ego of the FAA. b. The FAA next argued that it was exempt from FPASA for the purpose of buying buses. However, the FAA is only exempt from the public advertising requirements of 41 U.S.C. § 5. Congress refused to extend this exemption to all procurements. And there is nothing in FPASA to indicate that Congress intended to treat the FAA any differently than other agencies that were exempt from advertising requirements. 11. The court interprets the advertising exemption and the amendments to FPASA that maintained that exemption. The court determined that if Congress had wanted to extend the exemption for the FAA to all procurement practices, it would have done so. 12. a. To determine if a trust is an alter ego, the court must look at the totality of the circumstances and, at a minimum, analyze the following facts: i. The purposes for which the trust was established. ii. The public or private character of the entity spearheading the trust’s creation. iii. The identity of the trust’s beneficiary and administrators. iv. The degree of control exercised by the public agency over disbursements and other details of administration. v. The method by which the trust is funded. b. The parties thought it would be easier, most likely. c. The ruling will have a deterrent effect. d. The test appears to be designed to discourage the creation of alter egos and to force agencies to comply with procurement requirements. 13. Eagle argues that the court cannot grant injunctive relief. MCI must seek money damages in the court of claims. 52 GOVERNMENT CONTRACTS OUTLINE 14. See answers for questions 10 and 11. 15. Eagle lastly argues that 1) MCI has unclean hands, and 2) that the award was reasonable (i.e. harmless error). The court says that it can only review whether or not the procedure was properly followed, not whether the award was reasonable. If the harmless error standard were followed in judicial review of procurement disputes, the government would never lose because the court must defer to the government in this area. 16. – 17. – GOVERNMENT CONTRACTS OUTLINE 53 Forman Date: August 29, 2012 1. This case was decided in the Federal Circuit on appeal from the Postal Service Board of Contract Appeals (“board”). 2. The winning contractor is suing the government for breach of contract. In Motor Coach, there was no contract in dispute, just the bid and award. 3. The dispute is a contract performance dispute. Contract performance disputes are between the government and the contractor. 4. The Formans entered into a contract with USPS to build a postal facility and to lease it to the USPS in 1961. Since 1980, the USPS has sublet portions of the facility to various businesses and has presumably made money off of these subleases. 5. The Formans argue that the sublets constitute breach of the lease. First, they requested that the contracting officer either terminate the lease or give the profit from the sublets to the Formans. 6. The contracting officer refused to grant either form of relief, so the Formans appealed to the board. 7. The board concluded that: a. It had jurisdiction. b. Federal law applies. c. The USPS was not in breach. The Formans appealed. 8. The government contends that there is no jurisdiction because the Disputes Act doesn’t apply to the procurement of real property in being. 9. The government argues that the Disputes Act specifically excludes contracts for real property in being from Board jurisdiction. It is compared to the Policy Act, which excludes contracts for the acquisition of leases from board jurisdiction. 10. First, the court says that this contract did not provide for the acquisition of a leave, but rather for the creation of a new lease. Second, the court says that this was a hybrid contract that also had a construction component, which is clearly within the board’s jurisdiction. 11. This wasn’t an acquisition of a lease because the lease was not a lease in being at the time of the contract. The contract created the lease. Had a lease already existed on the land purchased by the government, the Disputes Act would not apply because it was an acquisition of a lease. 12. Federal law controls because Federal Circuit precedent clearly states that federal law applies to contracts in which the government is a party. Also, the contract was a form contract constantly used by the Postal Service. 54 GOVERNMENT CONTRACTS OUTLINE 13. The court borrows state law because property and contract interpretation are issues usually litigated in state court. There is no federal common law on point. 14. The important phrase in the lease is “for postal purposes.” The Formans say it is a restrictive covenant. The government says that it is just a phrase that describes the intended purpose of the premises. 15. The Formans say that the lease should be interpreted against the drafter. The government says that any restrictions to a lease should be interpreted against the landlord. These maxims do not necessarily depend on the fact that this is a government contract. However, given the fact that the government is a repeat player in litigation, any ambiguities in its own form lease should be construed against it. 16. The court concludes that the disputed phrase does not specifically state the proper limiting language for a restrictive covenant. The lease only states the intended purpose of the lease. In fact, evidence suggests that the language was necessary to be in compliance with 39 U.S.C. § 2103(a). GOVERNMENT CONTRACTS OUTLINE 55 Tingey Date: September 4, 2012 1. – 2. The U.S. sued Tingey for debt on a bond. This case is different from previous ones we have studied because the party being sued is not a party to the contract, but rather is the surety of the contractor. 3. Tingey is Deblois’ surety. Deblois was a purser in the navy who was required to have a performance bond in order to keep his position and benefits. 4. The purpose of a performance bond is to guarantee a contractor’s performance under a contract. A surety is the person or corporation who guarantees the contractor’s performance. If the assured performance does not occur as promised, the surety is liable for monetary damages that result from the lack of performance up to the amount of the bond, in this case, $10,000.00. 5. Tingey had a number of responses. One of which is that the bond is illegal because it was extorted from Deblois and his sureties by the Secretary of the Navy. 6. “Issues were joined” just means that there are factual issues in dispute. A demurrer is just the old equivalent of a 12(b)(6) motion. 7. The trial court ruled for Tingey on the demurrers. I do not know on what grounds. 8. The case was appealed form the Supreme Court from the D.C. Circuit Court. This procedural posture would not happen today. 9. The main issue is whether the government can enter into contracts. The court says it can. It can be implied from Congress’ legislation requiring such contracts, such as the bond. However, the fallback argument is that the government has apparent authority to enter into contracts. 10. This is not a procurement contract. This is a performance bond. 11. The bond is illegal because it was coerced and no voluntary. This, combined with the fact that it exceeds statutory authority, makes the bond illegal. a. Deblois was to be liable for all money and public property received, whether officially as purser or otherwise. b. Because there is no legal bond, the government cannot recover from the surety. 12. The government argues that it shouldn’t matter that the bond exceeded statutory requirements. They can contract just as a private party can. The court replies that if the bond had been entered into voluntarily, it would have been legal. 56 GOVERNMENT CONTRACTS OUTLINE GOVERNMENT CONTRACTS OUTLINE 57 Corliss Date: September 4, 2012 1. This case comes from the Court of Claims. 2. – 3. Corliss sued the U.S. for the balance due on the contract. The Court of Claims is a forum for claims of money damages against the government. 4. There were two contracts: a. The contract between the Navy and Corliss for steam engines. b. The settlement agreement. 5. The Navy suspended work under the contract. 6. Corliss wanted to get paid for work done. It gave the Navy two choices: a. Corliss keeps the incomplete machines and the Navy pays $150,000.00 b. The Navy gets the incomplete machines and pays around $259,000.00. 7. Corliss’ second option was chosen. The Navy gave one condition: partial payment on delivery with the certificate of balance due to be paid when Congress appropriates funds. The Navy cannot disburse funds that have no been appropriated. 8. The government can argue that it doesn’t have to appropriate funds because it was not a party to the settlement agreement. However, the Navy couldn’t disburse funds that weren’t already appropriated. Using the government’s argument, government departments could escape payment by promising appropriated funds with no intention of following through. 9. The Navy likely argues that the Secretary of the Navy cannot bind the government into a settlement agreement because it had no power to terminate the contract in the first place. 10. The court finds that the Secretary of the Navy has the power to terminate contracts that it enters into. Statute authorizes the Secretary to make procurement contracts. Therefore, he must also be able to terminate those contracts and to agree upon compensation for partial performance. To hold otherwise would be a serious detriment to public service. 11. See answer to question 10. 12. The Navy could always give the machines back and pay only $150,000.00. 13. The government has the power to enter into settlement agreements and to terminate agreements. The Secretary of the Navy has the power to bind the government. 14. This case exhibits both exceptionalism and congruence. First, the government can enter into settlement agreements. Second, the government can terminate for convenience. 58 GOVERNMENT CONTRACTS OUTLINE Bowsher Date: September 5, 2012 1. The main question is whether executive functions had impermissibly been assigned to the Comptroller General. 2. a. The Comptroller General is nominated by the President from a list of three individuals recommended by the Speaker of the House and the President pro tempore of the Senate. b. The Comptroller General can be removed by: i. Impeachment, or ii. A joint resolution of Congress at any time resting on any one of the following bases: 1. Permanent disability, 2. Inefficiency, 3. Neglect of duty, 4. Malfeasance, or 5. A felony or conduct involving moral turpitude. This could create a problem under Chadha because the President does not have to sign it into law. c. Congress supposedly must conform its reasoning for removal to the 5 options. However, they are so broad that Congress could sustain removal for virtually any transgression, actual or perceived. The majority also states that the removal may not be subject to judicial review, as that issue is contested. 3. a. Yes. Congress can remove the Comptroller General even in the face of Presidential opposition, with a 2/3 vote. b. No. The President cannot remove the Comptroller General without support from Congress. 4. This is different from executive brand officers, who are either removable by the President at whim or for cause as prescribed in a statute. Congress can limit this power slightly but cannot play a role in the removal of executive officials. 5. There are several provisions that govern the Comptroller General position that make him a legislative official: removal power, AAA of 1950 (“as an agent of Congress”), and other legislation. The removal power is a critical factor, but not necessarily dispositive. Stevens says that the Comptroller General also has certain duties and obligations with respect to the executive brand. He is not so clearly an GOVERNMENT CONTRACTS OUTLINE 59 agent of Congress as the majority says. Stevens looks mostly at the Comptroller General’s responsibilities to determine that he is an agent of Congress. 6. The Comptroller General’s responsibilities are repeatedly framed in terms of his specific obligations to Congress: a. Helps a congressional committee to develop a statement of legislative goals upon request, b. Makes annual reports on specified subjects to Congress, c. Etc. 7. The GAO at its inception may have been intended primarily to provide an expert accounting capacity to Congress that could be used to guide the development of legislative policy and facilitate legislative oversight of government operations. Over time, the GAO developed a stance more independent of Congress. While its formal ties to Congress were never broken, the GAO drifted from a position clearly subservient to Congress to a more independent role. In constitutional terms, it is impermissible to assign a combination of executive functions and legislative control found in the case of the Comptroller General and the GAO. 60 GOVERNMENT CONTRACTS OUTLINE Ameron Date: September 5, 2012 1. Ameron is a losing bidder who is suing the Army in a bid protest because it says it had a lower bid than the winner. 2. Ameron had the lowest bid, but the Army claimed that the bid was nonresponsive because its bid bond did not comply with the requirements. 3. Ameron filed a bid protest with the Comptroller General. The Comptroller General issued a stay on the execution of the contract. The Army proceeded with the execution because it believed the stay provisions to be unconstitutional. American filed suit in District Court seeking injunction relief. The district court ruled for Ameron. The Court of Appeals of the 3rd Circuit affirmed. The case was argued after Bowsher. 4. See question 3. 5. The government is intentionally breaking the law because it wants to challenge the constitutionality of the law. It uses unconstitutionality as a defense. It is never a good idea to refuse to comply with a statute because you think it is unconstitutional. The government should have asked for a declaratory judgment on this issue. The government probably couldn’t have waited for someone else to challenge the law because not many people have standing to do so. 6. The Army challenges CICA’s delegation of power to the Comptroller General. CICA allows disappointed bidders to file a complaint to the Comptroller General. While a protest is pending, there is a stay on the execution of the contract. The Comptroller General then issues his recommendations to the agency. If the agency does not accept the Comptroller General’s recommendation, the agency must explain its reasoning to Congress. 7. Procedurally, the procurement process is suspended, barring exigent circumstances. Substantively, while the agency does not have to follow the recommendation, it is compelled to do so. 8. No. The agency is not legally required to abide by the GAO’s advice. However, it could suffer if it doesn’t, mainly in funding from Congress. 9. Bowsher described the mission of the GAO as a way for Congress to have some oversight into the procurement process while giving final control over decisions to the executive branch. 10. Congress wanted to address the fact that agencies intentionally violate procurement regulations (i.e. competitive bidding) and then try to finish the projects before the bid protest is complete, rendering it moot. By having an automatic stay, the agency must wait to execute the contract. Practically, agencies want contracts executed quickly, so it isn’t worthwhile to intentionally violate procurement regulations. 11. First, the Army argues that CICA is unconstitutional because it authorizes the Comptroller General to execute the laws (an executive function) in violation of GOVERNMENT CONTRACTS OUTLINE 61 separation of powers. Second, the Army argues that CICA impermissibly gives the Comptroller General control over the procurement process, again authorizing the Comptroller General to execute the law. Third, the Army argues that CICA gives the Comptroller General excessive influence over the procurement process and thereby authorizes excessive legislative interference in a domain assigned to the executive branch by the Constitution. 12. The court declines to focus on the manner in which the Comptroller General acts to the exclusion of the power he wields. Instead, the court looks at whether the power Congress gave the Comptroller General lies outside congressional authority, or is of a kind that Article II of the Constitution grants exclusively to the President and his subordinates. Therefore, the court looks more at the means as opposed to the ends, and at direct as opposed to indirect consequences of the GAO’s exercise of authority. 13. The court determines that there is no usurpation of executive authority or interference with executive functions on several theories. a. First, it says that one can interpret the law without executing it; otherwise, the judiciary would be unconstitutional (Marbury v. Madison). b. Second, the court states that Congress may investigate executive conduct when it does not act through legislation. It also has the power to seek to influence executive action through the force of its opinions. CICA permits an agent of the legislature to investigate potential government misconduct in the execution of procurement laws and to influence the executive’s execution of the laws through the power of public illumination and persuasion. Congress has the authority to delay procurement activity in pursuit of these goals. c. Third, the court says that CICA’s stay provisions do not attempt to usurp the President’s authority to execute the laws because CICA does not allow Congress to wield powers that had been given to the executive. d. Fourth, CICA does not authorize the Comptroller General to execute the procurement laws because the executive can always override the stay and because the Comptroller General can only issue recommendations. e. Fifth, the Act does not intrude too much on the executive’s performance of its procurement duties. 14. Boards of contract appeals are one of the forums available to hear disputes arising out of the performance of a government contract. They do not have jurisdiction over formation disputes, which are heard either by the GAO or the Court of Federal Claims. 15. The system devised by Congress under which the GAO’s formal authority is limited to the power to recommend to a procuring agency that it alter or redo the procurement decision is clearly in part a response to the separation of powers issue. Congress wanted a bid protest mechanism that is likely to be effective but which does not violate constitutional norms. 62 GOVERNMENT CONTRACTS OUTLINE 34 Comp. Gen. 239 (1954) (Time issue) Date: September 6, 2012 1. The Secretary of the Interior requested an opinion from the Comptroller General to decide if it could use money appropriated for FY 1952 for a FY 1954 contract. There is a private party with an interest – the new contractor. They are not present here however. This way, the agencies don’t have to wait to get sued. They can ask for approval in advance. 2. The obligation is for exploratory drilling in Utah. The agency wants to hire a new contractor to finish the work left incomplete by the old contractor (under a FY 1952 contract). 3. The problem is that the funds were appropriated for use in FY 1952, but the agency wants to use them for a FY 1954 contract. 4. The contract is dated June 23, 1952. The funds did not have to be expended entirely in FY 1952, only under a contract executed in FY 1952. 5. If the funds aren’t spent in the fiscal year, they go back to the Treasury. Congress may be willing to give the agency less money the next year as a result. Also, this way the agency doesn’t need to use FY 1954 appropriations – i.e. this is essentially found money. This creates an incentive to try to find a way to spend unused funds, even on unneeded contracts. 6. The agency argues that the funds will be spent to finish the work still left on the FY 1952 contract. The Comptroller General accepts this theory. 7. In order to be able to use the lapsed funds, you need: a. A valid binding contract executed during the funds’ appropriated fiscal year, b. Termination of the original contract due to the contractor’s default, c. A new contract to complete the work from the original contract, and d. The need continued to exist up to the time of the execution of the new contract (and the need existed in the first place). 8. Section 1311 of the Supplemental Appropriations Act of 1955 states that appropriations for a given fiscal year can only be used if the contract was executed before the expiration of the period of availability (i.e. before the end of the given fiscal year). This technically means that 1952 funds can only be used on contracts executed in 1952. 9. The Comptroller General says that there is no issue because the original contract was executed prior to the expiration of the period of availability. The new contract is just to finish what wasn’t done by the original contractor. GOVERNMENT CONTRACTS OUTLINE 63 35 Comp. Gen. 319 (1955) Date: September 6, 2012 1. The Assistant Secretary Controller requested reconsideration of four rejected requests for appropriations. The Secretary of State recorded certain expenses as obligations for FY 1954, but the Comptroller General doubted that they were for that year. 2. The four contracts were executed on June 26 and June 30, 1954 but weren’t forwarded to the contractors for signature until after July 1, 1954 (FY 1954 ends on June 30, 1954. There was no evidence to show that the bids were accepted prior to the close of FY 1954. Thus the contracts were not concluded. 3. The department contends that there were binding offers and signatures (signaling acceptance) in FY 1954. The Comptroller General states that, even if that is true, before it can be held that this was a binding agreement in each instance, the following factors must be present: a. Each bid must have been in writing, b. The acceptance of each bid must have been communicated to the bidder in the same manner as the bid was made in FY 1954, and c. Each contract must have incorporated the terms and conditions of the respective bid without qualification. Otherwise, it is a counteroffer. The Comptroller General said it would examine the matter further. If all of the factors are met, it will allow the obligation against FY 1954 funds. 4. The second item involved two maintenance service contracts for government properties in Paris. The Comptroller General said that the services contracted for did not appear to be intended to serve a bona fide need of FY 1954, current at the time the contracts were executed. Maybe the agency was just trying to use unspent FY 1954 funds for FY 1955 needs. This is a different problem than the one illustrated by the first item. The first item presented an issue of when a binding agreement was form. The second item is about whether a need even existed. 5. The general rule for legally obligating a fiscal year appropriation is that the supplies or services are required to serve a bona fide need of the fiscal year in which the need arises. Ordinarily where a contract is entered into during one fiscal year and the services contracted for are not performed or required until the following fiscal year, the appropriation current at the time the services are rendered is properly chargeable to the cost. This prevents agencies from trying to spend unused FY 1954 funds on FY 1955 contracts just by contracting right before the end of FY 1954. Both contracts were executed in June of 1954. This was a continuing service, not one job, and no work started prior to September 1954. Therefore, this was not a bona fide need for FY 1954. 6. The third item involves an unsubstantiated tax obligation of $2,000.00 to cover anticipated municipal taxes on two buildings for which no billings had been received during prior years. In July 1954, a tax bill was received on a third building 64 GOVERNMENT CONTRACTS OUTLINE for which no billings had been received during prior years. On that basis, it was considered that taxes might be assessed on the other two buildings. Tax authorities have advised that a tax bill for $824.00 will be rendered b the municipality in which the smaller building is located. However, at the time the obligation was recorded, there was only conjecture. Therefore, only the $824.00 tax bill may be charged to FY 1954 funds, as long as the other requirements are met. To get money for another tax bill to be charged to FY 1954 funds, the agency as to provide similar proof of the bill. 7. The fourth item concerns an obligation recorded on June 30, 1954 for the government’s share of the cost of replacing an elevator. The issue is that there was no binding agreement to replace the elevator in FY 1954. In fact, it was not definitely known at the time that replacement would be necessary. A letter dated June 29, 1954 only confirms that the government would have to pay 10% of the cost of replacement if the majority of co-proprietors agree that the replacement is necessary. The commitment comes into being once a decision is made. In February 1955, still no such decision had been made. GOVERNMENT CONTRACTS OUTLINE 65 42 Comp. Gen. 226 (1962) (Purpose issue) Date: September 6, 2012 1. The expenditure in question is for the construction of a pneumatic tube delivery system between the White House and the Department of State. 2. The Department of State wanted to charge the construction to appropriations in the “no year” fund market for “extension and remodeling of the State Department building.” 3. A pneumatic tube system was contemplated when making the appropriation, but within the building, not between the Department of State and the White House. The Department tries to justify this by arguing that the President’s counsel is required on matters affecting the security of the country, so the secure communication to the White House is an essential part of the communication system of the Department and is an integral part of the Department’s operations and responsibility. 4. The Comptroller General says that it is important to look at the specific purpose of the appropriations. The general rule is that an express statutory provision is not required for every item of expenditure, but an appropriation in general terms for a particular purpose is available for expenditures necessary to accomplish that purpose, except as to expenditures in contravention of statute or for which other appropriations are more specifically available. 5. The construction of a pneumatic tube system between the White House and the Department is not necessary to accomplish the purpose for which the appropriation involved was made (to extend and remodel the State Department building). 6. Had the appropriation had language in it that extended it to projects that would help it to improve communication, the Department might have been able to charge the expenditure to these funds. 7. The Comptroller General cites 31 U.S.C. 628, which says that appropriations can only be sued for expenditures for which the appropriations are made. It also cites 41 U.S.C. 12, which forbids contracts that would bind the government to pay a larger sum than the amount appropriated for the specific purpose. 8. If the State Department had already entered into the contract before an appropriation for the tube system was made, it would be in violation of the AntiDeficiency Act. Had the Department also already paid for the contract, it would be in violation of the Appropriations Clause. There would be no violation of either if the appropriation had been made for the tube system. 9. Today, the statutory requirement that money be spent only for the statutorily designated purpose of the appropriation is codified in 31 U.S.C. 1301(a). 66 GOVERNMENT CONTRACTS OUTLINE Solar Date: September 11, 2012 1. This case was appealed to the Court of Claims from the ASBCA. This would not happen today. 2. Equitable adjustment is a remedy exclusive to government contracts that allows an adjustment in compensation in the event the government needs to make a constructive change to the contract. This eliminates the need to terminate contracts and the go through the procurement process again. 3. Solar won a bid for requirements contracts for five years to supply power plans and generators to the Air Force. The Air Force ended up purchasing less than its Best Estimated Quantity (BEQ). Solar believes that the BEQ was a minimum and that it is due the difference between what it earned and what it thought it was going to earn. 4. The government argues that it was only bound to purchase its requirements exclusively from Solar at fixed prices, without regard to any particular dates or minimum quantities, and that the quantities referred to in the contract were merely the government’s best estimates of its potential requirements set forth for Solar’s convenience. 5. Solar says that the government constructively changed the contract such that it is entitled to an equitable adjustment. 6. Framing the claim as one for equitable adjustment, as opposed to breach, may affect: a. The applicable procedure, b. The standard to be applied in judging the claim, which may be more generous to the claimant, and c. The availability of certain government defenses, which may be disallowed. 7. Solar says that the government terminated part of the contract for convenience. 8. The government supposedly terminated for convenience by failing to order some of the items in the contract. 9. Solar argues that contra proferentem requires any contract ambiguities to be interpreted against the government. In order to prevail under the rule of contra proferentem, Solar must establish that its interpretation of the disputed language was within the “zone of reasonableness” and that it reasonably relied on that interpretation in the course of bidding on performance. 10. The court looks at the five factors that Solar says reasonably led it to interpret the BEQs to mean firm order that had to be placed within the program year specified: the contract schedule, ASPR 1-322, the government’s response to an inquiry at the 1967 bidder’s conference, the glossary of terms, and practical considerations. The first argument fails immediately because the contract clearly states that the amounts given are anticipated and best estimates, not minimums. Also, orders could be issued as needed, not just at the beginning of the year as Solar contends. Last, if GOVERNMENT CONTRACTS OUTLINE 67 the contract were interpreted as Solar says, the cancellation clause limiting recovery to 5% would be pointless. 11. ASPR 1-322 says that multi-year procurement is a method for competitive contracting for known requirements for military supplies, in quantities and total cost not in excess of planned requirements for 5 years. However, Solar could not reasonably have believed that ASPR 1-322 was written into the contract because that would require disregard of the express terms of the contract. It would also require disregard of other regulations dealing with requirements contracts (ASPR 3409-2), which says, among other things, that the requirements contract will state an estimated total quantity for the information of prospective contractors. Funds are obligated by each order, not by the contract. In short, just because the contract spans multiple years doesn’t mean it’s a multi-year contract that requires ASPR 1322, especially when that expressly contradicts both the express terms of the contract and other regulations. 12. The government argues that Congress appropriates funds for only a single year’s obligations, and the Anti-Deficiency Act prohibits anyone from obligating the government in excess of dollars appropriated by Congress. Accordingly, ASPR 1322-5 requires all multi-year contracts to have a funds availability clause. This clause does not appear, meaning this was not a multi-year contract. 13. This clause is not needed in a requirements contract because there is no obligation to perform or buy until orders are placed. The government avoids liability by compensating the contractor under the cancellation clause. 14. Had this been a multi-year contract, the government would want ASPR 1-322 and the funds availability clause to be read into the contract. It would seem contradictory for a government agency to be unable to pay for the contract, constitutionally, but required to pay for breach. 68 GOVERNMENT CONTRACTS OUTLINE Goodyear Tire Date: September 11, 2012 1. The Tucker Act (28 U.S.C § 1491) waives the sovereign immunity of the government with respect to contract claims among other things. 2. Goodyear sued under the Tucker Act to recover rent claimed under a lease to the U.S. 3. The lease provided that if an appropriation was not made under which the rent for any succeeding fiscal year might be paid, it should automatically terminate as of June 30 of the year for which an appropriation was last available. The lease began in October 1921 for a term ending June 30 1926. 4. The lease essentially said that if appropriations were made, the lease was renewed. And if there was no appropriation, the lease was terminated. 5. This language is necessary because if no appropriation was made, the agency would be in violation of the Anti-Deficiency Act by continuing the lease. 6. – 7. At the end of FY 1923, the agency was supposed to give up occupancy of the premises as previously agreed despite the fact that appropriations were made for FY 1924. However, the agency officials decided in June 1923 that they wanted to stay for longer than agreed and would pay only for the period of occupancy as opposed to for the entire year. 8. The landlord wants payment for rent for the entire FY 1924. The argument is that under Ohio state law, a hold over tenant becomes obligated to pay rent for the entire lease term as if the lease had been renewed. The government argued that the lease was no binding for any year after FY 1922 because it had to affirmatively continue the lease for the next year, which it did not do. 9. The court agreed with the government. Even though the language of the lease indicates that the lease renews once an appropriation was made, the government is not bound because it is contrary to the express provisions of the predecessor to the Anti-Deficiency Act. The court acknowledges that the outcome may have been different had this been a private contract decided using state law. 10. This decision is not necessary to prevent a statutory violation because in this case, an appropriation was made. If this lease must be renewed every year, then it is really a one-year lease, not a five-year lease. Thus, the promise to lease for five years is illusory. This case basically stands for the idea that the government has the power by use of sufficiently clear language to obligate itself to renew in subsequent years of a contract if funds were in fact appropriated. Goodyear now serves to caution the contractor that it must negotiate carefully over the contract language to make sure that the government is obligated for additional years if the funds do become available. GOVERNMENT CONTRACTS OUTLINE 69 11. The final alternative basis for the court’s decision is that the holdover doctrine is an implied in law contract. The Tucker Act waiver of sovereign immunity does not extend to claims based on contracts implied in law. 12. This doctrine is well-settled and is still good law. Some jurisdictions, however, believe that the holdover doctrine rests on an implied in fact contract, which would mean that it would be a valid claim. 13. This case represents extreme exceptionalism. 14. This principle has not been applied to multiyear contracts for goods, as opposed to services. 15. Federal, not state law, is controlling. 70 GOVERNMENT CONTRACTS OUTLINE C.H. Leavell Date: September 12, 2012 1. This was a long-term contract for construction of the Jonesville Lock and Dam. The work was to be complete within three years. Monthly progress payments were to be made on estimates approved by the contracting officer, less a 10% retention by the government until completion and acceptance of the work. 2. The Corps included a funds availability clause, which only guaranteed funds in the total amount of $75,000.00, unless the contractor is informed of additional appropriations in writing. This is different than Goodyear because instead of being obligated to continue the contract upon appropriations, the Corps has to receive appropriations and notify the contractor in writing. 3. The funds availability clause prevents the government from have to pay for damages under the entire contract when appropriations are not made. 4. The work was suspending in January 1969 and was resumed in June 1969 due to the exhaustion of appropriated funds. 5. The contractor is seeking an equitable adjustment under the suspension of work clause because the government’s failure to provide sufficient funds forced a shutdown of Leavell’s operations. 6. The suspension of work clause provides a basis for relief. 7. The government argued that Leavell had elected to suspend operations during that period, as it had the right to do under the funds availability clause, when appropriated funds available for work under the contract were exhausted, and the government relied upon that part of the clause providing that the government would not be liable for damages on account of delay in payments due to lack of available funds. 8. No. Leavell contends that while the funds availability clause may preclude any claim for common law damages for breach of contract, it does not bar an equitable adjustment under the suspension of work clause when work is suspended for an unreasonable length of time due to lack of funds. 9. See answer to question 8. 10. The court says that the funds availability clause only insulates the government from liability for breach, as opposed to equitable adjustment. 11. The basis for this distinction comes from legislative history. The funds available clause originally came into effect to insulate the government from liability for breach of contract when funds aren’t appropriated. Many years later, the suspension of work clause became widely used along with the concept of equitable adjustment. However, the funds availability clause remained unchanged when it was easy to have changed it. GOVERNMENT CONTRACTS OUTLINE 71 12. The language of the two clauses together implies that there can be no equitable adjustment for suspension of work due to lack of funds. But this would result in the contractor being completely at the mercy of the government. 13. This case reflects contra proferentem because the ambiguities in the contract are interpreted against the government. 14. The suspension was unreasonable because the schedule was approved by the contracting officer, who now wants to use the contractor’s efficiency as an excuse for the delay. 15. The test for the availability of an equitable adjustment under this suspension of work clause is: a. The suspension cannot be the fault (or due to the negligence) of the contractor, b. The suspension must be for an unreasonable period of time, c. The suspension must be due to an act, or failure to act, of the contracting officer, and d. The performance of the contractor must not have been prevented by other causes, even without the suspension. The court doesn’t seem to focus on the unreasonableness of the delay length, even though the clause does so. 16. The court does not place any significance on the speed or efficiency of the contractor because the contractor followed the schedule approved by the contracting officer. The result might have been different had the contractor worker faster than the approved schedule. 17. This appears to illustrate congruence. 72 GOVERNMENT CONTRACTS OUTLINE G.L. Christian Date: September 12, 2012 1. The contract was for the construction of housing units of Fort Polk for military personnel. 2. The government terminated the contract. 3. The termination was due to the military base’s deactivation. 4. The government argues that the contractor is entitled to be made financially whole, and most of the claims were settled. However, the contractors argue that they are entitled to lost profits, which the government disputes. 5. The right to recover for anticipated profits arises only if the termination of the contract by the government is wrongful and constitutes breach. If the government has reserve the right to terminate a contract for its convenience and then does so, there is no breach. 6. Although the Fort Polk housing contract did not contain a provision authorizing the government to terminate for convenience, the government argues that the contract should be read as if it did contain such a clause. This is because the clause is mandatory by law. 7. See answer to question 6. 8. See answer to question 6. 9. The government’s argument is entirely inconsistent with the doctrine of contra proferentem. 10. The statute is directed to contracting officers, not to contractors. 11. Because the statute is directed at contracting officers, not contractors, the provision should not be read in as this unfairly punishes contractors. The regulation could have been reworded to say that the government may always terminate a contract for convenience. 12. The court agrees with the government and reads the provision in. Because the government terminated for convenience pursuant to the provision, the contractor cannot recover anticipated profits. 13. The argument is not very logical. The logical result would have been to construe the omission against the government. 14. The court seems to focus on the importance of this particular provision historically in military contracts. It does not explicitly hold that whenever a provision required by regulations to be included in a government contract is omitted, the contract should be read as though it were present. 15. Courts have interpreted this case to say that where valid procurement regulations mandate inclusion of particular standardized clauses in government contracts, those clauses are to be read into contracts to which they are factually applicable where they have been omitted by mistake. This is known as the Christian doctrine. GOVERNMENT CONTRACTS OUTLINE 73 16. This is an important holding for the government because it means that it will not be held liable for mistakes made by contracting officers. This holding appears to be an exception to the ability of agents to bind the government. Basically, every contract requirement in the FAR is automatically in the contract unless the contracting officer expressly excludes it. 17. In Solar, the government argued that there was no funds availability clause, so it was intentionally left out. This might still be a sound argument as long as the clause was expressly excluded because it was not necessary. 18. – 19. This is an exceptionalist approach. Had the contra proferentem argument worked, it would have represented congruence. 74 GOVERNMENT CONTRACTS OUTLINE Gordon Woodroffe Date: September 13, 2012 1. This dispute arose from a contract for turbo alternator generators. Tientsin Company owned the generator. Woodroffe Company secured an option to purchase the generator. Woodroffe was in talks with Walsh (via Duke and McGhee) to buy the generator from Woodroffe for $900,000.00, despite the fact that Woodroffe was only going to pay $458,000.00. However, while these negotiations were going on, Tientsin Company had sold the same generator to Athens Piraeus (the end user if Walsh had purchased it) for $524,400.00. Walsh was a special assistant to the Coordinator (McGhee) who purported to enter into a contract on behalf of the government. 2. The contract terms were: the generator for $900,000.00 subject to inspection. 3. Walsh sent Woodroffe a telegram, with Deputy Wild’s signature, that said he was accepting “this unit for and on behalf of the American Mission for Aid to Greece and the Athens Piraeus Electricity Company.” 4. The court does not say what the theory of harm and remedy requested are. However, I would guess Woodroffe wants the different between the actual and anticipated profits under breach of contract theory. 5. The government argues that there was no contract because Walsh and Wilds did not have the authority to bind the government. 6. The court looks at the statutes concerning contracting authority. The President transmitted his authority to the Secretary of State. The Secretary of State then delegated the authority to the Chief of the American Mission for Aid to Greece. The court looks to see if any one of those people or organizations expressly gave Walsh and Wild contracting authority through phone calls or telegrams. 7. The court determines that only the President, Secretary of State, and the Coordinator had the authority to bind the government unless they expressly delegated that authority. 8. Upon tracing the chain of authority, the court finds that it does not lead to Walsh or Wild. 9. As the government is a repeat party in litigation, it would cost the government a lot of money if it could be bound by the mistakes of all of its employees under the doctrine of apparent authority. 10. Had the government wanted to enforce the contract and Woodroffe wanted it to be declared void, it could have probably just had someone with authority ratify it or expressly give Walsh or Wild contracting authority. 11. The dissent argues that Walsh indeed had authority given to him by the Secretary of State, through the nature of Walsh’s office. 12. Actual authority is that which is intentionally conferred on the agent by a principal. It can be either expressly conferred or implied from the surrounding circumstances. GOVERNMENT CONTRACTS OUTLINE 75 However, in private transactions, an agent has apparent authority when the actions or statements of the principal cause a third party to reasonably believe that authority has been conferred on the agent, whether or not the principal actually intended to confer such authority. The dissent suggests that Walsh has both kinds of authority: implied actual authority and apparent authority. 13. Merrill held that the U.S. and its agents are not subject to the doctrine of equitable estoppel. This doctrine, like apparent authority, is a doctrine that allows courts to find contracts where there are none because it is fair to do so. By citing Merrill, the majority appears to be acknowledging that the government sometimes should not be subject to the same rules as private parties for policy reasons. Here, the majority is holding that apparent authority does not apply to the government. Apparent authority is a way to estop the government from using the defense that the apparent agent did not have the authority to bind the government. In general, courts seem to find that you cannot estop the government. 14. The dissent distinguishes this case from Merrill by point out that in Merrill, the agent’s action was contrary to statute. In this case, Walsh was given authority to do what he did by appointment. However, the majority would argue that Walsh was not given any authority by statute to contract for the government. 15. This is once again an exceptionalist approach. 76 GOVERNMENT CONTRACTS OUTLINE
