February 24, 2017

Contractors Beware: Complete Work Directed by CORs at Your Own Risk

Alexandra E. Busch

Can an agent with apparent but not actual authority bind its principal?  The answer depends on whether the transaction is between private parties or involves the federal government.  Practitioners who represent parties in private construction disputes are likely aware of the rule that apparent authority generally can bind the principal in a private transaction.  But, a unique aspect of federal procurement law is that the federal government may typically only be bound by representatives with actual authority – whether that authority is express or implied.

When contracting with the federal government, contractors must act with the understanding that the government does not recognize apparent authority.  This awareness will help contractors to avoid completing work for which they may not ultimately be compensated.  The general rule when the federal government is the project owner is that only the contracting officer (“CO”) has the authority to bind the federal government.  This means that contractors risk nonpayment when they perform work that has not been directed by the CO or an individual who has actual authority to bind the government.  An understanding of the different types of authority is critical to avoiding disputes about work that may be outside the scope of the contract.

I. Brief Overview: Authority of Agents to Bind the Government

An agent of the federal government must have express actual authority or implied actual authority to bind the government Apparent authority is not sufficient.   COs have express actual authority to bind the government in a transaction and are appointed by the principals of government agencies, as required by statute.  This binding authority is often referred to as the CO’s “warrant.”  The limits of the CO’s warrant are memorialized on a Standard Form 1402, Certificate of Appointment, which can be made available to the contractor.  The CO may also delegate his/her authority to a contracting officer’s representative (“COR”).  It is the contractor’s responsibility to determine the limits of the CO’s authority, and a contractor who completes work at the direction of an agent without confirming that agent’s authority does so at the contractor’s own risk.

A government agent may bind the federal government under the theory of implied actual authority as well.  “Actual authority is implied when such authority is an integral part of the duties assigned to the particular government agent.”  Implied authority is grounded in the federal government’s actions and intent, so a government agent may have implied authority when the agent’s actions and statements are appropriate and/or essential to the performance of their duties.  For example, the Court of Federal Claims has held that a government agent has implied authority to contract as is “appropriate and/or essential to the performance of the agents [sic] duties” where an agent who possessed delegated discretionary authority to manage, allocate, and distribute funds guaranteed reimbursement by the government.  In contrast, implied actual authority will not be present when the government agent’s action is contrary to the explicit terms of the contract, such as when the contract contains a provision that exclusively reserves contracting authority to the CO.

Notwithstanding that implied actual authority can bind the federal government; the mere appearance that an agent has authority is not enough to show that an agent has contracting authority.  This is a unique distinction from private transactions in which a principal may be bound by the apparent authority of its agent. Contrary to implied authority, which arises from the government’s actions and intent, apparent authority is grounded in contractor reliance regardless of the government’s intent. Accordingly, a contractor must be confident it is taking direction from an agent with actual authority (express or implied) to avoid nonpayment of completed work. 

II. Baistar Mechanical, Inc. v. U.S., 128 Fed. Cl. 504 (2016)      

The Court of Federal Claims recently reiterated the unique rule about authority to contract in the context of federal procurement law.  In 2011, Baistar Mechanical, Inc. (“Baistar”) executed a contract with the federal government to provide maintenance and snow removal services to a retirement community.  The contract expressly provided that only a CO was authorized to bind the government to a change in the specifications, terms, or conditions of the contract.  Baistar alleged, inter alia, that the government failed to compensate Baistar for services it performed outside of the scope of the contract.  When the CO denied Baistar’s requests for equitable adjustments to the contract, many of which were directed by contracting officer’s representatives (“CORs”), Baistar filed suit to recover on its requests for equitable adjustment.

In Counts I, III, and IV of its complaint, Baistar asserted that it performed maintenance services outside the scope of the contract at the direction of the CORs, and Baistar claimed that it should have been compensated for such work under theories of implied-in-fact contract, constructive change, and breach of contract theories. The Court of Federal Claims rejected Baistar’s positions and granted the government’s motion to dismiss Counts I, III, and IV of Baistar’s complaint regarding the services performed outside of the scope of the contract. The Court reasoned that the CORs did not have the necessary authority to bind the government because the language of the contract reserved such authority for the CO. 

The Court of Federal Claims did, however, acknowledge a possible exception to this general rule regarding Baistar’s claim for out-of-scope snow removal services because the snow and ice potentially created an emergency situation.  In Count V, Baistar alleged that the CORs directed Baistar to provide snow removal services outside the scope of the contract. Baistar asserted that the COs authorized the out-of-scope snow removal work because the COs were copied on the e-mail orders from the CORs and took no steps to prevent Baistar from performing the alleged out-of-scope work.  Although Baistar did not contend that any government agent with actual authority ordered the snow removal services, the Court of Federal Claims denied the government’s motion to dismiss Baistar’s claim for payment on the out-of-scope snow removal work.  The Court’s rationale was that although this work was also directed by CORs without authority to bind the government, the presence of snow and ice posed a potential threat to the residents and may fall within an exception to the requirement that a government agent possess actual authority in order to authorize out-of-scope work.  Notably, the Court acknowledged that “[t]he emergency exception to the actual authority requirement is limited and has been construed narrowly.”

III. Best Practices for Clients to Manage Risk

Appearance is not everything when contracting with the federal government.  A major concern when performing work that is outside of the scope of the contract is whether the contractor will be compensated for such work.  When doing business with the federal government, the contractor may take some steps to manage expectations and the risk of nonpayment because it is incumbent on the contractor to determine which agents have the authority to bind the federal government.  When the contractor receives direction from a government agent, it should determine whether the directive is within that agent’s authority.  One way to check an agent’s authority is that the contractor may request to review the CO’s warrant or the COR’s written delegation.  Without this investigation, the contractor risks nonpayment and increases the likelihood of the inception of a dispute.

To further manage risk, contractors should avoid relying on the narrow exceptions to actual authority, such as the emergency exception.  Likewise, contractors should not rely upon casual dealings and prior governmental course of conduct, especially in a situation in which the government has warned the contractor to wait until the execution of a formal agreement.  Contractors who do not employ risk management strategies complete out-of-scope work at their own risk.

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Alexandra E. Busch

Peckar & Abramson, P.C., Washington, D.C.