Chapter 6
Types of Procurement Vehicles
Grants and Cooperative Agreements
Lack of Ambiguity in Offer and Acceptance
Authority to Bind the Government: Legal Competency
The government needs many different things for many different situations, and as a result it needs a wide range of legal instruments— “procurement vehicles”—to get those things. They include agreements like cooperative agreements and grants, blanket purchase agreements (BPAs), and contracts like express and implied contracts, as well as task and delivery orders issued under requirements contracts.
The generic word for the piece of paper that shows some sort of “deal” between an agency and somebody else is called an “agreement.” As we will see, not all agreements are binding contracts.
Agreements come in all sorts of shapes and sizes. There are two common agreements: interagency agreements that describe how one agency will work with another agency and blanket purchase agreements that an agency sets up with a vendor so that it’s easier for the agency to buy certain items repeatedly.
Only some of these agreements are “contracts.” It is important to know whether or not the document the government has signed is a contract. For example, only some agreements are contracts subject to the Contract Disputes Act. If a vendor has an agreement with the government that is not subject to the Contract Disputes Act, the vendor’s rights and remedies against the government are limited.
Because the focus of this book is procurement, this chapter focuses on “procurement vehicles.” Procurement vehicles are also called “contract vehicles” and include contracts and task orders. We will first discuss the various types of agreements in which the government gets involved so that the distinction between generic “agreements” and binding “contracts” becomes clearer. Next we discuss the procurement contract and the essential elements required for forming an express government contract. Finally, we discuss implied contracts—an inadvertently binding government contract.
DIFFERENT KINDS OF AGREEMENTS
Grants and Cooperative Agreements
Grants and cooperative agreements can be tempting alternatives to the contract procurement process, because acquiring something under the grant or cooperative agreement process involves a lot less red tape. These types of agreements can be misused and so it is important to discuss them.
The difference between a grant and a procurement contract lies in its purpose. In a grant, the government is usually giving money to someone to do something that is primarily of interest to the recipient. In a procurement contract, the government receives something primarily of interest to itself: goods and services, for example. A grant—when properly used—is not the way the government procures something for itself.
Federal law describes when an agency should use a grant, a cooperative agreement, or procurement contract.
An agency uses a grant when—
(1) the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and
(2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.1
An agency uses a cooperative agreement when—
(1) the principal purpose of the relationship is to transfer a thing of value to the State, local government, or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and
(2) substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.2
An agency uses a procurement contract when—
(1) the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; or
(2) the agency decides in a specific instance that the use of a procurement contract is appropriate.3
As mentioned above, grants and cooperative agreements have their own set of rules. For example, they do not allow the nongovernment signatories to file a claim under the Contract Disputes Act.
The rules for an agency to obtain something under cooperative agreements are not as burdensome as the contracts covered by the rules in Federal Acquisition Regulation (FAR). Thus, an agency can be tempted to misuse the cooperative agreement rules by trying to procure something improperly using a cooperative agreement.
Two Court of Appeals for the Federal Circuit (CAFC) decisions give examples of when a cooperative agreement may be used and when a procurement contract must be used.
Agency Improperly Using a Cooperative Agreement
In the first case, the CAFC ruled that the U.S. Department of Housing and Urban Development (HUD) improperly used a cooperative agreement to get contract administration support for its rent-subsidy program when it should have used a procurement contract.4
The appeals court based its decision in part on its curious but reasonable conclusion that the federal funds HUD was using were not a “thing of value” under the Federal Grant and Cooperative Agreement Act (FGCAA). That law requires an agency to use a cooperative agreement when “the principal purpose of the relationship is to transfer a thing of value to the [recipient] to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring . . . property or services.” Procurement contracts have a different purpose. They are to be used when “the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States government.”
The case involved HUD’s administration of its rent-subsidy program. This program helps low-income families find housing by paying landlords a subsidy to lower the rent for these families. HUD accomplishes this in one of two ways. One way is for HUD to pay the subsidy directly to the landlord under a Housing Assistance Program contract (HAP contracts), which is a contract between HUD and the landlord. The other way involves state and local public housing authorities (PHA) giving the HUD subsidy to landlords. Under this alternative, HUD gives the PHA the subsidy money under an Annual Contributions contracts (ACC) between HUD and the PHA; the PHA in turn has a HAP contract (which authorizes the distribution of the subsidy) with the local landlords.
These HAP contracts needed people to administer them. When budget cuts in the late 1990s forced HUD to cut department personnel who administered t hese HAP contracts, HUD wanted to outsource the administration of HAP contracts to contractors.
The problem lay in the competition process HUD used to find the contractor to provide these support services. When HUD issued its request for proposals (RFP), the RFP claimed that the solicitation process “is not a formal procurement within the meaning of the Federal Acquisition Regulations (FAR) but will follow many of those principles.”
Following FAR principles was wise because the process certainly looked like a procurement. HUD paid PHAs to do HUD’s administrative work under the program. The winning contractors would be offer-ors that represented “the best overall value, including administrative efficiency, to the Department.”
When the agreements were ready to expire, HUD began to prepare for a recompetition in 1011. The HUD solicitation for the first time expressly referred to the agreements as cooperative agreements and called its competition a “Notice of Funding Availability” (NOFA), a phrase usually associated with cooperative agreements. HUD also changed the competition’s rules. It limited the ability of a PHA in one state to win the work in another state.
Because this eliminated some PHAs from the competition, they protested the limitations to the Government Accountability Office (GAO). GAO concluded that the NOFA competition was for a procurement contract and not for a cooperative agreement, because the awarded agreements procured the contract administration services of the state and local personnel administering the HUD program.
The U.S. Court of Federal Claims (COFC) disagreed with GAO. The case ended up at the CAFC, and they agreed with GAO that HUD was improperly using a cooperative agreement. The primary purpose of the agreement was to provide for local services “to support HUD’s staff and assistance to HUD with the oversight and monitoring of Section 8 housing assistance . . . the outsourcing program was created in response to federal budget restraints and sought to improve the oversight of HUD’s project-based program.”
The CAFC also pointed out language that HUD should not have used if it were attempting to avoid making the solicitation look like a procurement: “HUD acknowledged its intention ‘to procure the services of contract administrators to assume many of these specific duties, in order to release HUD staff for those duties that only government can perform and to increase accountability for subsidy payments.’ HUD also acknowledged that due to ‘major staff downsizing . . . HUD sought new ways to conduct its business[,] such as the Request for Proposals for outside contractors to administer HUD’s portfolio of Section 8 contract[s].’ “
The HUD solicitation also referred to the money HUD was paying to improve HUD’s “performance of the management and operations” of the rent-subsidy program. HUD “has also consistently described the role of the [local organizations] as ‘support’ for HUD’s Field Staff.”
The appeals court considered the issue of whether or not the HUD funds were a “thing of value.” It concluded that they were not under these circumstances because HUD had to provide the payments to the landlords. The local PHAs had no rights to the HUD funds and had to give any excess funds back to HUD. The appeals court did concede that federal funds can be a “thing of value”—to use the phrase from the statute— but the HUD funds used by the local PHAs in this case were not: “the administrative fee here appears only to cover the operating expenses of administering HAP contracts on behalf of HUD.”
Agency Properly Using a Cooperative Agreement
Two years later, by a 1-1 CAFC decision, the appeals court held that the U.S. Fish and Wildlife Service (FWS) properly used a cooperative farming agreement (CFA). This cooperative agreement allowed farmers to raise commercial crops in national wildlife refuges in exchange for reserving a portion of their crops to feed migratory birds and wildlife. First, the FWS principally intended the CFAs to transfer a thing of value (i.e., the right to farm specific refuge lands and retain a share of the crop yield) to carry out a public purpose authorized by law (i.e., to conserve wildlife on the refuges). Second, the FWS remained substantially involved in the activity, advising on decisions related to crop selection, farming methods, pesticide and fertilizer use, and crop harvest.
The agreements could not be a procurement contract “because the agency did not intend to acquire farming ‘services’ for the ‘direct benefit or use of the United States Government’“ for two reasons: the agency “does not receive payment from the farmers” and the crops are used by wildlife in the field or retained by the farmers, leaving no excess crops for the agency to dispose of.5
Other Transaction Agreements
These relatively new types of agreements have the extremely vague name of “other transaction” agreements.
They are a special type of legal instrument used for various purposes by federal agencies that have been granted statutory authority to use “other transactions.” GAO’s audit reports to the Congress have repeatedly reported that “other transactions” are “other than contracts, grants, or cooperative agreements that generally are not subject to federal laws and regulations applicable to procurement contracts.”6
This “other transaction” authority (OTA) will not be used to buy pencils, for example. OTA use provided to the Department of Defense is generally limited to basic, applied, and advanced research projects.7
Blanket Purchase Agreements
By definition, a blanket purchase agreement (BPA) is not a contract but is simply an agreement. BPAs are common under the U.S. General Services Administration’s (GSA) Federal Supply Schedule and are a standalone award to contractors for simplified purchases under FAR Part 13 and for task orders under FAR Part 16.
Although BPAs are often thought of as contracts, they are not contracts because they lack “legal” considerations discussed later in this chapter.
EXPRESS CONTRACTS
FAR 1.101 defines a contract quite broadly, including even an unwritten contract:
“Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications.
A government contract includes the same requirements established centuries ago by the common law.
the common law of contract governs the creation of a contractual relationship between the United States and a private party.8
There are three common-l aw contract requirements: (1) mutual intent to contract, (1) consideration, and (3) lack of ambiguity in the offer and acceptance. A valid government contract requires a fourth element: it is entered into by someone with authority to bind the government.9
It is rare for a decision to find any of the first three requirements for an express contract missing. There’s a saying in the military that its systems “are designed by geniuses to be used by us idiots.” Whether we are idiots or not, the system with which we procurement professionals work quite efficiently establishes express contracts. The procurement process is so highly structured that using it properly automatically produces a binding legal procurement contract. For example, vendors submit offers or bids that can be accepted by the government. When these offers or bids are accepted, it’s clear that both parties mutually intend to contract and that the offer and acceptance are lacking any ambiguity. The contractor’s promise to perform the contract work in exchange for a government check (or electronic fund transfer [EFT]) is the consideration required. These highly structured procurement processes usually indicate that the first three contracting requirements have been met.
Typically, it is the fourth requirement—authority—that is the issue in government contract formation.
The material that follows gives examples of the first three elements of an express contract. Since there are so few cases involving invalid express contracts—a government “contract” missing one of these essential elements—some of these examples will be taken from cases discussing implied contracts. It makes no difference—for our purposes here, whether or not a required legal element such as consideration is missing from a contract, express or implied. Why? As discussed below, an express contract needs the same four elements as an implied contract. The major difference between the two is that there’s no hard (paper) copy in an implied contract.
Mutual Intent to Contract
It’s obvious from the time and effort that vendors and the government devote to the procurement process that both intend to contract; this contract requirement is an issue that rarely gets litigated.
In one case finding no “mutual intent to contract,” the fact that the parties never discussed rates of pay or an actual payment schedule defeated a contractor’s claim for court reporter services for a canceled government Equal Employment Opportunity Commission (EEOC) hearing.10
“Mutual intent” starts with basics like “offer” and “acceptance” of the offer. On rare occasions, the issue of whether or not there has been an offer and acceptance gets litigated.
“Offers” versus “Quotes”
Although often used interchangeably, an offer is different from a quote in government contracts. The rules for an offer become import ant because an offer followed by an acceptance is needed before a binding contract can be formed. In government contracting, offers have various names: a “bid,” as in invitation for bids (IFB) in sealed bidding; an “offer,” as in solicitation for offers (SFO) or request for offers (RFO); or a “proposal,” as in request for proposals (RFP). These offers have different rules regarding being held open, being irrevocable, and being accepted. But all of these are alike in that they come from the vendor and put the “acceptance” ball in the government’s court. Unless and until the government accepts the offer, there is no contract.
A vendor may give a “quote” to the government before the vendor gives an official offer. Quotes typically are used for smaller dollar items and gives the government an idea of what the marketplace is charging for the item the government wants to buy.
GAO gave an excellent description of a quote:
We recognize that, in practice, agencies and vendors often treat quotations just as they treat offers. Nonetheless, as a matter of law, quotations are different from bids or offers. The submission of a bid or proposal constitutes, by its very nature, an offer by a contractor that, if accepted, creates a binding legal obligation on both parties. Because of the binding nature of bids and offers, they are held open for acceptance within a specified or reasonable period of time, and our case law has necessarily developed rules regarding the government’s acceptance of “expired” bids or proposals. A quotation, on the other hand, is not a submission for acceptance by the government to form a binding contract; rather, vendor quotations are purely informational. In the RFQ context, it is the government that makes the offer, albeit generally based on the information provided by the vendor in its quotation, and no binding agreement is created until the vendor accepts the offer. A vendor submitting a price quotation therefore could, the next moment, reject an offer from the government at its quoted price.11
The difference between a nonbinding quote and a binding offer was important in a case where the government accepted a quote that the vendor mistakenly held open until “June 31, 1003”—a nonexi s-tent date.
The Department of Agriculture asked for quotes from Federal Supply Schedule (FSS) vendors for “change management” software. Agriculture set the quote up properly. Its solicitation explained that it was looking for information and that any quotations submitted in response were not offers. One vendor gave Agriculture something that respected neither government contract terminology nor the calendar. Its “quote” said “This offer is valid through June 31, 1003.” When Agriculture issued a purchase order to that vendor well after June 31st, a competitor protested, arguing that the agency could not accept the quote that had expired. GAO disagreed. “Because vendors in the RFQ context hold the power of acceptance and their submissions are purely informational, there is nothing for vendors to hold open; thus, it simply does not make sense to apply the acceptance period concept or the attendant rules regarding expiration of bids or offers to RFQs.”12
The price in a quote can be irrelevant. The relevant price can be in the subsequent government purchase order that the vendor has accepted through delivery of the items.
After issuing a request for quotations (RFQ) for 1,355 pounds of 80 percent lean ground beef, and getting a $0.60/lb quote that was more than a dollar per pound lower than the prices of seven other vendors, a contracting officer asked that low-priced vendor, Lacey Newday Consulting, LLC, to confirm that its price of $0.60 a pound was good. The vendor did so, initially. Seeing such a low price, the contracting officer asked if Lacey Newday could provide 10,000 pounds. This oral government “offer” was rejected by Lacey Newday several days later. The vendor told the contracting officer that it could provide 10,000 pounds but that it had to be paid by purchase order (PO), not a government credit card, which involved paying a significant fee.
Several weeks later, Lacey Newday got the PO for 10,000 pounds at $0.60/lb for a total price of $6,000. Lacey Newday “accepted” the PO, not in writing, but by delivering the 10,000 lbs. of beef to the Bureau of Prisons. The invoice, however, did not show the unit price of $0.60/1b but rather $1.05/lb. After the government refused to pay that invoice, Lacey Newday filed a claim which the agency denied and then went to the CBCA, arguing that its original $0.60/lb quote was a mistake and had been based on the price of chicken legs.
The Board denied the claim. The allegedly mistaken quote “was not an offer, but merely information furnished to the agency for its possible use. The contracting officer attempted to place an oral purchase order on December 11, 1011, based on the information she had obtained. The oral purchase order may well have constituted a government offer, but that offer was rejected by Lacey because it was conditioned on payment being made by government purchase card.” To the Board, the written purchase order “was the government’s offer. Although, in accordance with the FAR, the contracting officer might have sought written acceptance of the offer from Lacey New-day, by its signature of the purchase order or by some separate writing, she did not do so. Instead, acceptance in this case was properly effected by delivery of the ordered meat items[.] The purchase order clearly called for delivery of 10,000 pounds of ground beef at $.60 a pound and there is no evidence that Lacey Newday attempted to vary these terms of the purchase order between its issuance and delivery.” As to the alleged mistake in bidding based on the quote, the Board found the quote’s price irrelevant: the controversy over the quote’s mistaken price “all predated both the agency’s offer and Lacey Newday’s acceptance and thus would not be relevant to the parties’ agreement on contract terms.”13
Acceptance
Because FAR sets clear rules for acceptance of offers/proposals, it’s rare to find the issue litigated. In one such rare case, someone (for clarity’s sake, we’ll call this person Bidder A) tried to buy forfeited property from the U.S. Marshals Service (USMS). After Bidder A submitted its bid, a government employee told Bidder A that, while its bid was the highest received thus far, the government would have to wait a short time for more offers. Several days later, the USMS told Bidder A that its bid was not the winning bid. When the government did not sell the property to that bidder, Bidder A sued, arguing that the government had to sell him the property. The crux of Bidder A’s argument was that the government had to accept the offer because it was the highest offer received by the government before the deadline. The COFC did not agree:
Here, there was no unconditional acceptance—the USMS, through its representatives, never stated or otherwise conveyed to plaintiff the message that it had accepted plaintiffs offer. Indeed, the record plainly indicates—and plaintiff does not contest—that the USMS first indicated that plaintiff’s offer had not been accepted and then, ultimately, stated that another offer had been accepted.14
The Army was looking for alternative uses of the Army Reserve’s property at Orlando International Airport. Peninsula Group Capital and the Army began to pursue a transfer of the property to Peninsula in exchange for renovations on other property the Army Reserve owned. The document that would seal the deal was an exchange agreement between the parties.
As negotiations t oward the exchange agreement proceeded, the Army gave Peninsula approval of its “concept,” with the government signing the concept approval document. That led to Peninsula hiring a contractor, getting permits, and attending numerous meetings with the Army Reserve. As negotiations continued, both parties exchanged correspondence referring to developing “a legally binding Exchange Agreement.” For example, Peninsula sent the government a proposal in July 1003 that expressly referred to a future “legally binding Exchange Agreement.”
But the parties never got to that final stage. Congress passed legislation that would require competitive bids for the property. In addition, the Greater Orlando Airport Authority was apparently also interested in the property and—according to Peninsula—hampered Peninsula’s negotiations with the Army Reserve.
Peninsula and the Army Reserve never signed the exchange agreement. That led to Peninsula suing the government for $8.15 million in damages, $100 million in lost profits costs and fees in the COFC.
The court dismissed the case because there was no government contract that the court had jurisdiction over. Peninsula’s July 1003 proposal was not an offer. It even referred to the later, legally binding exchange agreement. Moreover, there was never a government acceptance of any “offer.”15
Consideration
The typical government contract involves something specific in exchange for money. Lack of consideration therefore is, typically, not an issue.
Consideration does become an issue with several types of contract vehicles: blanket purchase agreements (BPAs), indefinite delivery, indefinite quantity (IDIQ) contracts, and requirements contracts.
Blanket Purchase Agreements
As mentioned earlier in this chapter, a BPA is not a contract until orders are accepted by the contractor. Until then, there is no “legal” consideration. If the government terminates a BPA under which the government has issued no orders, the contractor cannot challenge the termination because the BPA is not a contract.
Crewzers Fire Crew Transport, Inc. (Crewzers) was one of the companies that won a blanket purchase agreement (BPA) with the United States Forest Service to provide the Forest Service with crew carrier buses, the heavy duty buses that carried fire crews to wildfires.
The Forest Service tailors its contracts to allow it as well as these companies maximum flexibility to efficiently fight widely scattered fires. For example, this BPA had “dispatch priority lists” that ranked each BPA holder’s crew carrier buses within each of six geographic zones. The Forest Service would go to the first-ranked company based on lowest price and offer the work to that company. If the company was not fighting a fire elsewhere and had the equipment available, it would accept the Forest Service’s offer, forming a contract for the work. If the company was not available, the Forest Service went to the next lowest price company on the list and so forth until it got the buses it needed. However, neither party made any commitments to the other. The Forest Service was not required under the terms of the BPAs to place any orders with Crewzers. Likewise, Crewzers promised only to accept orders to the extent it is willing and able and is thus perfectly free not to accept any orders at all.
After the Forest Service terminated Crewzers’ BPA, Crewzers filed a claim that the CAFC threw out. Because the appeals court had jurisdiction over a government “contract,” Crewzers’ right to sue the Forest Service depended on whether the BPA was a contract. But because the BPA lacked “consideration,” it was not a contract. A promise that is “illusory” cannot be consideration because such a promise in reality promises nothing. This BPA was based on illusory promises that do not impose obligations on either party.16
Indefinite Delivery, Indefinite Quantity Contracts
Under an IDIQ contract, the government agrees to buy and the vendor agrees to sell, within some limits, whatever quantity of goods the government chooses to purchase. Under a requirements contract, the government agrees to buy all its requirements from the vendor.
Because the buyer is not obligated to purchase all requirements from the seller, unless the buyer contracts to purchase a minimum quantity, an IDIQ contract is “illusory and the contract unenforceable against the seller. The enforcement of such a contract [an indefinite quantity contract, or a requirements contract] would fail for lack of consideration in the absence of a clause stating a minimum quantity or a clause requiring the government to purchase all of its requirements from [the contractor].” Therefore, an IDIQ contract requires the government to order only a stated minimum quantity of supplies or services, . . . and once the government has purchased the minimum quantity stated in an IDIQ contract from the contractor, it is free to purchase additional supplies or services from any other source it chooses. An IDIQ contract does not provide any exclusivity to the contractor.17
So in a requirements contract, consideration is in the form of the government’s promise of exclusivity: it will buy whatever it needs only from the requirements contractor. And in an IDIQ contract, the consideration is in the form of the minimum-stated quantity.
In rare cases, other kinds of government agreements with vendors have been found to not be a binding contract.
A forest fire-fighting company signed a government document called an “Interagency Engine Tender Agreement” that described the kind of fire-fighting equipment the vendor was willing to provide the government. After not getting any calls, the vendor sued the government, arguing that the Department of Agriculture was violating the implied duty of good faith and fair dealing in denying it jobs. The Court of Appeals for the Federal Circuit (CAFC) concluded that the agreement was not a contract because it lacked consideration. “To constitute consideration, a performance or a return promise must be bargained for. And the promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances . . . for] if the promises are illusory. Under the agreement, the government had the option of attempting to obtain firefighting services from the vendor or any other source, regardless of whether that source had signed a tender agreement. The Agreements contained no clause limiting the government’s options for firefighting services; the government merely ‘promised’ to consider using Ridge Runner for firefighting services. Also, the Tender Agreement placed no obligation upon the vendor. If the government came calling, Ridge Runner ‘promised’ to provide the requested equipment only if it was ‘willing and able.’ It is axiomatic that a valid contract cannot be based upon the illusory promise of one party, much less illusory promises of both parties.”18
Lack of Ambiguity in Offer and Acceptance
Having an ambiguity in a government contract is not unusual, as chapter 7 will clearly show. But rarely is there any ambiguity about the basic arrangement between the government and the “contractor.”
In one rare case, the parties had strikingly different ideas about the deal.
An alleged property owner sued the government for back rent he thought the Army owed him but what deal, if any, the parties had was in doubt: the Army thought that the property it was using belonged to a foreign government which was letting the Army use it rent-free but the alleged property owner believed it was his property and that the Army was renting it for a specific sum—not rent-free. A board concluded there had been no contract.19
Authority to Bind the Government: Legal Competency
Asking contracting officers if they are legally competent seems insulting. It sounds as if their mental competency is being challenged, but it’s not. “Legal competency” goes to the heart of the deal between the government and the vendor. Only if a “legally competent” person has signed a contract is there a binding contract. A contract entered into by someone who is legally competent is one of the requirements of a binding contract with the government.
Usually, in government contracting, the “legally competent” person representing the government is the contracting officer. They have been given the authority to bind the government by their agency as shown in their warrant. A warranted contracting officer acting within the limits of their authority is legally competent to bind the government. This is why contracting officers have warrants authorizing them to sign contracts. No warrant, no authority, no deal. That’s the rule.
In view of the importance of warranted authority, it’s surprising how seldom vendors ask contracting officers about the contracting officer’s authority. If you are a contracting officer, how many times has a vendor asked you what the limits of your authority are? How many times has a vendor asked to see your warrant? Typically, the answer to both these questions is “rarely.” Actual authority is the general rule for government contracts. The warrant shows the contracting officer’s actual authority.
Actual authority is just one of several types of authority in the business world. Another type is “apparent authority.” In the private market, when two vendors make a contract, someone with “apparent authority” can bind the vendor. What is apparent authority? It is when a principal allows someone to act as their official agent, but in reality, the person is not the official agent.
In government contracts, when a vendor contracts with the government, the government agent must have actual authority. “Apparent authority” cannot bind the government. An agency could let an unauthorized employee sit in an office with someone else’s unlimited warrant on the wall, but the government would not be bound if the vendor made a contract with this unauthorized employee.
Exceptions to Delegated (Express) Authority
The basic concept of authority in government contracts—that the government is not bound by the acts of its employees unless the employee is authorized to do the act—continues to be eroded by exceptions to this most basic of government contracting principles. These exceptions are implied actual authority and institutional ratification.
Implied Actual Authority
Authority can be express or implied. A warrant shows express authority. Implied authority “comes with the job”—there’s no warrant but the authority is “an integral” part of their work. One court defined “integral” like this:
Contracting authority is integral to a government employee’s duties when the government employee could not perform his or her assigned tasks without such authority and the relevant agency regulation does not grant such authority to other agency employees.20
In other words, the test is whether or not contract authority is essential or necessary for the person to do their job. To see if there is implied actual authority, you would have to look at the government employee’s duties and the agency’s regulations.
For example, government informers try (usually unsuccessfully) to argue that they are entitled to payment for the help they give the government. Their argument is that there is a binding contract between them and the government based on the word of (say) an FBI agent or a DEA official. It’s a difficult argument to win, because often agency regulations expressly prevent these officials from making a binding commitment.
In another decision, a professional artist was successful in proving that the government employee had implied actual authority, but she lost her case because she couldn’t prove that the employee knew about the deal she claimed to have with the government.
In 1990, artwork was stored on government premises but was later destroyed. The artist sued the government claiming that the government breached the contract. Clearly, there was no express contract between the federal government and her. In trying to prove there was an implied contract, she had to establish the implied actual authority of the two government employees she dealt with. But the assistant to the cultural affairs officer (CAO) did not have implied actual authority: “Nothing in his position description implies that he led any [government] programs or that contracting authority was necessary for him to discharge his duties successfully.” Being responsible for planning these programs wasn’t enough to prove that he had contracting authority. But the court found that his supervisor, the cultural affairs officer, did have implied actual authority. Her job description included “planning, coordinating, and carrying out cultural programs in support of diplomacy objectives.” She oversaw all programs and activities at the American Cultural Center and reported directly to the country public affairs officer. The only way she could carry out her duties would be to enter into contracts with artists. There was “no reasonably efficient alternative” to the government giving her authority to contract. If she didn’t have the authority to contract, she couldn’t do her job well. The CAO had implied actual authority.21
Institutional Ratification
Another exception to delegated authority is institutional ratification. This exception is also based on fairness. If the government gets an unauthorized item, uses it, benefits from it, and pays for part of it, should the government later be allowed to argue that there was no deal as there was no authorized authority? Although denying there was a deal would be consistent with the general rule, it wouldn’t be fair. Because the government benefited from the unauthorized act, the government should pay for it, according to the law of “institutional ratification.”
To understand “institutional ratification,” we have to talk first about ratification. Ratification is an after-the-fact approval. It’s sort of like the saying, “It’s better to ask for forgiveness than permission.” When someone without authority to commit the government to something has in fact committed the government to it and later wants to make things right, the unauthorized person asks the properly warranted person to retroactively authorize it. Presumably this request for permission comes along with a request for forgiveness.
Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him. For ratification to be effective, a superior must not only (1) have possessed authority to contract, but also (2) have fully known the material facts surrounding the unauthorized action of her subordinate, and (3) have knowingly confirmed, adopted, or acquiesced to the unauthorized action of her subordinate.22
Institutional ratification is when the institution executes of all these items.
an agency can institutionally ratify the contract even in the absence of specific ratification by an authorized official. Specifically, institutional ratification occurs when the Government seeks and receives the benefits of an otherwise unauthorized contract.23
One example of this is the Air Force’s institutional ratification of an unauthorized deal after using the product for sixteen months.
The Air Force was sued for payment of products and services provided by Digicon under a task order. The government argued that it did not have to pay because the contracting officer did not have the authority to sign the contract nor was the unauthorized contract ever authorized by someone with appropriate ratification authority. The court found an institutional ratification. The Air Force had accepted the task order involved and had benefited from Digicon’s products and services for 16 months. It had already paid Digicon over $16 million and tried to get out of the agreement with Digicon under the terms of the contract. In addition, a contracting officer with unlimited authority “was directly involved in the implementation and oversight of the contract. These indicia of intent sufficiently demonstrate the government’s institutional ratification of the contract.”24
CONCESSION CONTRACTS
Concession contracts are a contentious issue in government contracting. They are “sort of, but not quite” procurement contracts. Strictly speaking, the government doesn’t buy anything in these types of contracts. Rather, the government uses concession contracts to give a company a business opportunity, such as running a convenience store on a military base or running a campground in a national park, on federal land.
Concession contracts have been controversial. The National Park Service believes that these contracts are not procurement contracts that are subject to, for example, the protest jurisdiction of the Government Accountability Office (GAO) or the claims jurisdiction of a board of contract appeals (BCA). The controversy over these contracts will be discussed in chapters 9 through 11. These chapters examine procurement litigation.
IMPLIED CONTRACTS
An oral contract is not worth the paper it’s written on, according to Sam Goldwyn. This perhaps typical Hollywood delusional thinking is not a fair statement of contract law. It’s possible for the government to stumble into a binding contract even though there is no written document— but it’s rare.
Nonetheless, in the back of their minds, contracting officers worry that they could make a mistake and end up with an implied-in-fact contract. Their worst fear—that a contractor could claim an implied contract in the absence of any writing (essentially a contract “out of the blue”)—is really remote.
Common law recognizes two kinds of implied contracts: implied-in-fact contracts and implied-in-law contracts. We’ll discuss implied-in-fact contracts first and then proceed to implied-in-law contracts.
Implied-in-Fact Contracts
An implied-in-fact contract is just like an express contract—only there is nothing in writing. It is “founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding.”25
To prove an implied contract with the government, a contractor has to establish not only the three usual common law elements of an express contract—mutuality of intent to contract, offer and acceptance, and consideration—but also one more element essential to a valid government contract—actual authority. In other words, the contractor must prove that the government agent had actual authority to bind the government.
The COFC handled a case where the court concluded that there was an implied contract based on certain facts but no implied contract based on other facts.
A government employee training center was run by the center’s director—a person who was not a warranted contracting officer. For years, the director would contact various training companies and assign them certain classes. The companies in turn reserved certain instructors for their assigned courses. When the course was done, they submitted an invoice to the director, who completed and signed an SF-182 (Standard Form 182) requesting payment. In the middle of one academic year, a new director told Advanced Team Concepts (ATC) that ATC would not be needed to teach seven courses it had been scheduled to teach that year. ATC received prior warning regarding the next academic year—before the start of that year, the new director circulated next year’s class schedule to vendors but warned them that the center might change its course content and delivery. After ATC had been assigned no courses for that year, it sued the government arguing that it had implied-in-fact contracts for both of those academic years. The court concluded that the government had an implied contract for the first year’s canceled courses but no implied contract for the second year’s courses.
The implied contract for the mid-year canceled courses.
The court found an implied contract for the classes the center canceled in the middle of the year because the conduct of the parties provided all the essential elements of a contract—there was just no written arrangement. The elements included were:
1. Mutual intent to contract: “To find an implied in fact contract, the claimant must demonstrate that there was an unambiguous offer to contract upon specific terms and mutuality of intent between the parties to enter a contract. Here there is no one document reflecting a contract, but instead various documents. The court may read all the documents together in order to find the intention of the parties. The court finds that for academic year 2001 ATC and the center had intent to contract.”
2. Offer and acceptance: the director of the center prior to an academic year “circulated the schedule to various vendors. The classes taught by ATC were part of the schedule. ATC accepted the offer by the director to provide these classes and scheduled its instructors to teach the courses, thereby committing its resources as done in previous years.”
3. Consideration: “in consideration, ATC would be paid for its services.”
4. Actual authority: even though the director was not a warranted contracting officer and therefore had no express actual authority, she had implied actual authority: “if the authority to bind the government is central to the duties of the person holding himself out as the contracting officer, implied authority exists.” In this case the director had implied authority because she scheduled and paid teachers, proposed schedules of courses, and had authorization to hire contractors by her supervisor and the contracting officer by using the SF-182.
No implied contract for the second year’s courses.
But there was no implied contract for the second year’s courses because there was no mutual intent to contract, nor an unambiguous offer and acceptance. The new director “clearly indicated that there would be a reduced course schedule and that he would contact the vendors personally with regard to the future schedule. This uncertainty of courses for the 2002 year was certainly an ambiguity in offer and acceptance and therefore the court finds no mutual intent sufficient to create an implied in fact contract for that year.”26
The rare situation in which a court could find an implied-in-fact contract typically involves written contracts gone wrong, such as an option not properly exercised.
If a contractor delivers something to the government on the supposition that the option had been exercised, and the government uses what has been provided, then the government should pay the contractor. It’s not fair for the government to get something for nothing. In this case, a court might find an implied-in-fact contract just to get a contractor paid.
Sociometrics had a contract for a one-year base with four option years to help put on regional conferences. Sociometrics put on several conferences during the base and option years. One option, however, inadvertently was not exercised; Sociometrics worked on the conference nevertheless. When Sociometrics tried to get paid for the services it had provided under the unexercised option year, the government refused to pay the invoice. The Armed Services Board of Contract Appeals (ASBCA) made the government pay the implied-in-fact contract. Even though the option was not formally exercised, the parties conducted themselves as if it had been. “The government actively encouraged and participated in Sociometrics’ efforts.”
The case had an added wrinkle: Sociometrics had not been dealing with the contracting officer on this contract. Rather, Sociometrics had dealt exclusively with the contracting officer’s representative (COR). This did not change the board’s mind that the government should pay for the work because it was:
fair in the circumstances to impute knowledge of the contracting officer’s representative to the contracting officer where we can draw no conclusion but that the contracting officer’s representative was the eyes and ears of the contracting officer.27
There are three situations where creating an implied contract is impossible.
The first is when the plaintiffs claim that the implied contract does not have specific terms.
For example, one judge refused to find an implied contract where the plaintiffs did not “rely on specific documents or the conduct of any government employee but ask that we look at the overall conduct of the regulators. . . . It is not clear what plaintiffs’ alleged implied-in-fact contract provides . . . we cannot know if anyone acting for the United States did so with authority because plaintiffs have not alleged who such persons were or what they did. They have not pinpointed documents or conduct by which the court can establish the elements of an implied-in-fact contract.”28
The second situation is when a party argues that there is both an express contract and an implied contract. In fact, one of the best safeguards against an implied contract is an express contract. You cannot have both, at the same time, dealing with the same subject matter.
the existence of an express contract precludes the existence of an implied-in-fact contract dealing with the same subject matter, unless the implied contract is entirely unrelated to the express contract.29
In one case, a newly hired employee of the Indian Health Service had a contract with the agency for repayment of the employee’s student loans. But the employee believed he was entitled to more so he argued that there was an implied contract giving more benefits. The COFC disagreed, finding no implied contract possible due to the existence of a written contract.
Plaintiff’s express written contracts with the 1HS [loan repayment program] covering the loan repayment necessarily defeat his claim that an oral contract providing greater benefits arose as a result of [government employee statements] and the government’s erroneous payment. The subject matter of Plaintiff’s alleged oral implied-in-fact contract and express written contract with 1HSLRP dealt with identical subject matter—the student loan repayments Plaintiff was to receive in exchange for working at the Maniilaq Association.30
The third situation is an agency regulation that requires a written contract. Agency regulations routinely require a contract to be written. Any contractor trying to argue that it had an implied contract with the government has to jump this hurdle.
A contractor claimed that the contracting officer told the contractor— orally—that the contractor would get a contract for the next phase of a project. The applicable law required an agency to contract for l ater phases of the project through solicitations and only after review of proposals. FAR §2.101 says that all contracts “except as otherwise authorized” must be “in writing.” The contractor had not submitted a proposal and there was no written contract. The COFC said there was no implied contract. Quoting precedents, the court said that “agency procedures must be followed before a binding contract can be formed . . . Oral assurances do not produce a contract implied-in-fact until all the steps have been taken that the agency procedure requires; until then, there is no intent to be bound. Thus, it is irrelevant if the oral assurances emanate from the very official who will have authority at the proper time, to sign the contract or grant.”31
Implied-in-Law Contracts
An implied-in-law contract is not a contract at all. It’s simply a device—a “legal fiction”—that a judge uses to do something fair in a particular case. They imply that the parties had a contract, and by doing so, judges get the result they want.
The classic use of an implied-in-law contract is to fix unjust enrichment. For example, if a person allows a plumber to put a swimming pool in their yard, knowing that the pool really was supposed to be put in next door, the plumber would get paid by the unscrupulous homeowner because a judge would imply that a contract existed between the homeowner and the plumber. Of course, there never was a contract. There was no meeting of the minds. But it would be unfair for a judge to let the homeowner get a pool for free—to deprive the plumber of getting paid.
Neither the COFC nor the BCAs have jurisdiction over an implied-in-law contract. But there is some leeway in government contracts, and GAO provides it.
The GAO Red Book has a helpful discussion of how an implied-in-law contract works for ratifications:
If an agency determines that it cannot ratify the transaction in question, it should then proceed with the only remaining possibility, a “quantum meruit” analysis. The underlying premise is that the government should not be unjustly enriched by retaining a benefit conferred in good faith, even where there is no enforceable contractual obligation, as long as the “benefit” is not prohibited by law. . . . This is the pure “contract implied-in-law” situation. The Court of Federal Claims and the boards of contract appeals decline jurisdiction over contract implied-in-law claims because there is no “contract” for purposes of their jurisdictional statutes (Contract Disputes Act, Tucker Act). . . . However, GAO regards claims of this type as coming within its general claims settlement jurisdiction. . . . Thus, contract implied-in-law claims can be settled administratively even though judicial review may be unavailable in many, if not most, cases.32
Sometimes the phrase quantum meruit is used. It means “how much is merited” or fair and therefore should be granted by a judge. Quantum valebant refers to fairness in a services contract context.
Often these Latin phrases are used to refer to implied-in-law contracts but they are also used to refer to implied-in-fact contracts.33