General Practice, Solo & Small Firm DivisionMagazine
Volume 17, Number 5
CONTRACTING WITH THE FEDERAL GOVERNMENT
BY James F. Nagle
Lawyers may run into a federal government contract in many ways. Clients may ask that a solicitation be reviewed prior to bidding. Alternatively, they may consult the lawyer after the contract has been awarded regarding a performance dispute. Either way, general practitioners will be confronted with a deceptive morass.
Lawyers might assume that since a government contract is still a contract, the common law is the primary fount of rules. Not so. Government contracts are ruled by a labyrinth of statutes and regulations. Furthermore, many of these statutes and regulations prescribe contract clauses about which absolutely no discussion occurs between buyer and seller. Most disturbingly, courts and boards often incorporate these clauses into the contract later.Governing Rules
The government's bargaining strength allows it to dictate a rigid and complex system of rules that governs federal contracting, and generally favors the government over the contractor. This system of procurement regulations consists of the Federal Acquisition Regulation (FAR), department supplements, and standard forms. The FAR mandates solicitation procedures, contract terms and conditions, performance requirements, cost controls, record-keeping requirements, and contract termination procedures.
The FAR and its supplements are the most vital tools for reviewing a government contract. The FAR system consists of the Federal Acquisition Regulation and agency regulations such as the DOD FAR Supplement and NASA FAR Supplement, which implement and supplement the FAR.
The FAR can be found at www.arnet.gov/far/, where you can also find frequently asked questions about the FAR and other valuable information, such as the Prompt Payment Act interest rate.
The FAR is divided into parts, subparts, sections, subsections, paragraphs, subparagraphs, and subdivisions. The first digit(s) represents the part number followed by a decimal point. The numbers after the decimal point represent, in order, the subpart, section (in two digits), and after the dash, subsection and further division, such as paragraphs and subparagraphs. For example, part one, subpart 9, section 8, subsection 3 appears as 1.908-3. This numbering system permits every unit of the FAR to be identified with a unique number that is easily located in the regulation.
To illustrate, FAR subsection 49.402-1 deals with the government's right to terminate a firm fixed price contract for default. The digits to the left of the decimal point represent the part number, part 49, which deals with terminations. Combined with the numbers to the right of the decimal point and to the left of the dash, the result is, in order, the subpart, which can be either one or two digits (in this case the subpart is 49.4, terminations for default), and the section, which is 49.402 (terminations of fixed price contracts for default). The number to the right of the dash represents the subsection that discusses the government's right to terminate.
Part 52, containing the provisions and clauses, is easily researchable once the numbering system is understood. All the clauses are really subsections, so they are numbered accordingly. They begin with the number 52 followed by a decimal point. Next comes a 2 because all of the clauses are in subpart 2 of part 52. Then comes the section number, which corresponds with the part that is the subject matter of the clause. For example, since FAR part 37 deals with service contracts, clauses dealing with that type of contract will be in FAR 52.237. The specific clause will then be identified by a dash and a specific number, for example FAR 52.237-1 is the site visit clause.
Subpart 52.3 contains the provision and clause matrix that separates contracts by subject matter and type of payment, such as fixed price construction or cost reimbursement supply; lists the solicitation provisions or contract clauses that are required or optional; and also identifies whether the material should be in full text or incorporated by reference and where the matter will be in the Uniform Contract Format. The matrix is invaluable because even though a clause is not physically listed as being in the contract, it may well be incorporated by operation of law.
Federal contracts are deemed to include all clauses that are required by law to be in contracts of that type. This means that it will be no defense for the contractor to argue that "It's not in the contract!" If a clause was improperly omitted from the contract by government contracting officials, the contractor will still be responsible for acting in accordance with what the laws require. This is consistent with the tenet that government officials cannot waive governmental rights because this would run contrary to the prime objective of protecting the public interest.
FAR part 53 contains the most frequently used forms. About 250 pages of these standard forms (SFs) are in the FAR and the Defense Department supplement.
The General Services Administra tion's (GSA) website (http:// fillform.gsa.gov/) provides all the forms used in federal procurement. The forms are easy to fill out; you can even fill them in on the screen then save, print, fax, or e-mail-all this directly from the Internet. The federal government has an active small business contracting program. The Small Business Administration (SBA) is an excellent resource to help small businesses learn about and gain access to federal contracting. The SBA is available at www.sbaonline.sba.gov/.
There are at least three different types of contracting officers: the procuring contracting officer initiates the process; the administrative contracting officer administers the contract; and the termination contracting officer terminates the contract. The contracting officer's warrant authorizes the individual to obligate the government and will contain any limitations on the contracting officer's authority. People dealing with an agent of the United States are on notice of any of the limitations placed on a contracting officer's or representative's authority. When these agents act outside of their actual authority, the United States will not be bound. Thus, the government routinely tries to preclude the implication of authority by expressly limiting the authority of particular personnel. Contractors must be sure that the government agents with whom they are dealing have the requisite authority.
Despite how it may seem to the novice, government contracts follow a definite pattern. A Uniform Contract Format (UCF) exists for most contracts and solicitations. It need not apply to construction contracts, however. The UCF, described in FAR 14.201-1 and 15.204, divides solicitations into four parts: the schedule; the contract clauses; the list of documents, exhibits, and other attachments; and the representations and instructions. These parts are further divided into 13 separate sections. The UCF facilitates the preparation of the solicitation and the contract and provides bidders and contractors easier use of the document.Contract Formation
There are two primary methods by which the government forms its contract: sealed bidding and negotiation, often called competitive proposals.
Sealed bidding is a rigid process in which the Invitation For Bids (IFB) states the government's needs in sufficient detail to permit all bidders to compete on the same basis by bidding on the same or virtually identical work. The contracting officer must use sealed bidding if: time permits the use of sealed bidding procedures; the award shall be made on the basis of price or price-related factors; no need exists to discuss the bids with the offerors; and the government has a reasonable expectation of receiving more than one sealed bid.
In sealed bidding, only firm fixed price or fixed price with economic price adjustments contracts can be used. This is logical since otherwise price and price-related factors could not be the basis of an award. These and other types of contracts are discussed below. In sealed bidding when the bids are opened, the contracting officer evaluates the bids and prepares an abstract of bids.
The contracting officer must determine if the bidder is responsive. "Responsive" refers to whether the bidder is offering what the government wanted. Sealed bidders must virtually accept the bid schedule as is; otherwise the bidders are not bidding on the same item. Unless bidders can convince the contracting officer to change the schedule at the bidders' conference or by questions submitted prior to the deadline, any deviation from the schedule will result in the bid's being considered nonresponsive and rejected (FAR 14.404-2). If the contracting officer is satisfied, then the lowest responsive responsible bidder in a sealed bidding must receive the contract. (This process is explained below.)
Negotiation is used if the requirements for sealed bidding are not met, e.g., there is insufficient time or a need to discuss the proposal with the offerors. Negotiation is much more flexible for both the government and the offerors. It is often used when the government cannot specify its needs with any precision. Consequently, an RFP states a general need and allows offerors the opportunity to use their ingenuity and propose what they believe is the best way to meet those needs.
After the proposals are received, the contracting officer evaluates them and separates them into the most highly rated proposals and all others. Those that are not the most highly rated are dropped from the competition, while the others remain in the competitive range. The contracting officer then enters discussions with the remaining offerors to learn more about their proposals and try to improve their technical ability or reduce their price. Discussions are not mandatory since one offeror might clearly be the best. At the end of the discussions, the government calls for final proposal revisions (formerly called best and final offers), in which the offerors reevaluate their proposals and decide what they want their final offer to be.
Before awarding any contract, the contracting officer must determine that the contractor is responsible (see FAR Part 9). Responsibility refers to whether the bidder has the ability to perform the contract. These qualities can include financial considerations, experience, or production capability. Determining responsibility may be a matter of making an informal telephone call to prior contracting officers, or of reviewing documents the contractor has submitted; or it may require a full-blown pre-award survey. (For more information on contract formations issues, see Nash and Cibinic, Formation of Government Contracts, 3d ed.)Contract Type
The type of contract can drastically change the risks and responsibilities of the parties. FAR part 16 describes the various types of contract in detail, but they will be summarized here. Contract type is a chameleon term that can mean what the government is buying, such as supply or service; the procurement method, either sealed bidding or competitive proposals; the dollar amount of the contract, small purchase or not; and the method of payment, either fixed price or cost reimbursement. The rules will differ since different clauses may be used in supply or service contracts; in contracts procured by sealed bidding as opposed to competitive proposals; or in contracts of varying dollar amounts.
There may be no perfect contract type, but selecting an inappropriate type can limit the number of competitors or can increase the cost to the government. Although variations abound, there are basically only two such contract types: fixed price and cost reimbursement.
Fixed price. Fixed price contracts are used when the specifications are relatively definite and precise, so that it is fair to impose most risks on the contractor. For example, if the government is buying paper clips or some other commonly produced items, a fixed price contract is most appropriate. However, if it were buying a never before produced jet fighter, requiring companies to bid on a fixed price basis would bring two results. Many companies would refuse to bid because they could not realistically project their costs and risks. Others would bid but would inflate their bids to cover every conceivable risk. In such cases, the government and the taxpayers are better served by agreeing to reimburse the contractor for its allowable costs, subject to the ability to audit the contractor's books to ensure the taxpayer is not being charged for extraneous items.
Cost reimbursement contracts. In cost contracts, the government assumes a much greater risk because the government does not have adequate specifications, such as in research and development contracts, or when the item is needed so urgently that the government is willing to assume a greater share of the risk. For example, if the government needs a million rattan chairs within three months, contractors may be unwilling to take such a contract unless the government assumes a greater share of the risk. These contracts are discussed at FAR 16.3.
Cost contracts normally contain a cost limitation clause that sets a cap on the contract; this cap may not be exceeded without the contracting officer's approval. Indisputably, cost contracts can be abused by unscrupulous or inefficient contractors. To avoid that, cost contracts provide the government with extensive rights to audit the records and inspect the contractor's plant.
Other contract types include incentive contracts and indefinite delivery contracts. Time and material contracts (FAR 16.601), labor hours contracts (FAR 16.602), or letter contracts are less commonly used and lawyers will rarely encounter them. Full explanations of these contract types can be found in FAR part 16.Contract Administration
During performance, clients will most frequently contact lawyers when they believe the contract must be modified to account for a change in the work; a delay in the work; or in construction contracts, a different site condition. All of these are covered by various contract clauses including: the changes clause (FAR 52.243-1 through 52.243-6); delay clauses, such as the stop work order clause (FAR 52.242-15); the suspension of work clause (FAR 52.242.14); and the differing site conditions clause (FAR 52.236-2).
If these are implemented, the client will most likely need the lawyer's help in proving the equitable adjustment-the amount of time and money by which the contract is modified. (This subject is tremendously complicated. For more information, see Nash and Cibinic, Administration of Government Contracts, 3d ed.)
The most serious aspect of contract administration about which a client may consult a lawyer is contract termination. The vast majority of contracts are performed satisfactorily. The government pays the full amount and both parties go their separate ways until the next contract. Sometimes, however, a contract will have to be terminated. How it is terminated will make an enormous difference. The government reserves the right to terminate for convenience, typically using clause FAR 52.249-2. Using this method, the contractor is not at fault, but the government's needs have changed so it no longer needs this contract to be performed. The government does agree, via the clause, to reimburse the contractor for all its allowable incurred costs plus a reasonable amount of profit on those costs, and for the costs of settling the termination, such as consultants' fees and attorney costs.
On the other extreme is a termination for default in which the government terminates the contract essentially because of the contractor's breach. Such a termination has drastic ramifications for the contractor. Typically, the vast majority of contractors cannot survive a termination for default. Most default terminations are effected under FAR 52.249-8, and the lawyer should study that clause to assert any procedural or substantive defenses available.
Both types of terminations are covered under FAR part 49. (Nash and Cibinic, Administration of Government Contracts, 3d ed., provides an excellent discussion.)Disputes
Regardless of the issue, whether it's an alleged delay, an improper change, or a termination for default, government contracts may wind up in litigation. The prescribed format is in the Contract Disputes Act (41 U.S.C. 601 et seq.) and FAR part 33. Under this regime, the contractor must submit a claim to the contracting officer who will issue a final decision. If the contractor decides to appeal the final decision further, he or she cannot go to a federal district court. The contractor must go either to the agency Board of Contract Appeals, or to the U.S. Court of Federal Claims. Both forums are very specialized and resolve these matters without juries. At the agency Boards of Contract Appeals, the agency will be represented by its in-house attorneys, while at the Court of Federal Claims the agency is represented by Department of Justice attorneys.
The federal government, and specifically the Court of Federal Claims and the Boards of Contract Appeals, urge litigants to attempt to resolve their matter through alternative dispute resolution (ADR). The federal government has issued a new website on federal ADR procedures. The Boards of Contract Appeals especially are willing to have settlement judges (typically not the judge assigned to hear the case if ADR fails) meet with the parties to try and resolve the matter.
James F. Nagle is a partner in the Seattle, Washington, law firm of Oles Morrison Rinker & Baker. He is the author of How to Review a Federal Contract and Research Federal Contract Law, 2d ed. (ABA General Practice, Solo and Small Firm Division, 2000).