2. Basic Contract Law Breakout Session # 205 Patrick Malyszek, President
M3 Federal Contract Practice Group, LLC
Phone: (607)
Website:
Date: April 24, 2007
Time: 1:40 pm -2:40 pm

3. Topic Index Contract Formation Contract Defenses Contract Remedies
Contract Interpretation
Contract Performance
Contract Change Management
Glossary of Terms

4. Uniform Commercial Code (U.C.C.)
Governs the sale of goods, secured transactions, commercial paper, etc.
Commercial transactions ONLY
Will be used to regulate your subcontracts
Some FAR and U.C.C. correlation
Will impact all transactions
Remedies are different than FARs
Proprietary data protection

5. 1.) Contract Formation
In order to have a binding contract there must be the following:
Mutual manifestation of a willingness to enter into a contract
Objective v. subjective intent
Offer and acceptance
Valuable consideration
Legal detriment
U.C.C. statute of frauds
Types of conditions – present intent

6. 2.) Contract Defenses Lack of Capacity Impossibility of Performance
Intoxication – not of a sound mind
Agency law – no grant of authority to contract
Impossibility of Performance
Impossibility
Economic
Frustration of purpose
Mistake
Mutual
Unilateral
Knew or should have known

7. Contract Defenses Duress Undue Influence Misrepresentation
Negated intent
Economic duress
Undue Influence
Bad faith dealing
Lack of equality
Misrepresentation
Defective contract documents
Defective specifications
Inappropriate funding for contract and modifications

8. 3.) Contract Remedies Breach of contract Money damages Rescission
Reformation
Restitution
Reliance
Specific performance
Failure to perform your obligations
Anticipatory repudiation

9. Contract Types Common Law Contracts: Executory contract
Unilateral contract
Bilateral contract
Express contract
Contracting implied-in-fact
Quasi contract (implied-in-law)
FAR Part Federal Contract Types:
Fixed price contract
Cost reimbursement contract
Fixed price incentive contract
R & D contract
Performance based contracting
Cost plus incentive fee
Cost plus fixed fee

10. 4.) Contract Interpretation
Restatement, Second, Contracts § 200
Interpretation is the process of what the parties agreed to in their bargain
Meaning of words
Resolving ambiguities
Intent
The court will make a determination based upon:
Contract documents
Extrinsic evidence/circumstantial evidence

11. Contract Interpretation
Who holds the sole right of contract interpretation after award?
Big Claims Area
Liability is with the drafter of the contract
Liability is with the drafter of the contract specifications and drawings
There is a duty to provide the contractor with accurate and precise information
There is generally no duty of the contractor to validate the drawings or specifications
Objective test at time of contract formation
What is the intent of the contract

12. This is the most complex form of contracting!
Federal Contracting
To be successful in the federal contracting environment every contract professional must completely comprehend:
Common law contracts
Federal acquisition contracting
The Federal Government’s sovereign contract rights
The application of these principles as a prime and subcontractor
The inherent application to every contract action
Risk mitigation strategies within the FAR
Dispute resolution methods
This is the most complex form of contracting!

13. Federal Contracting Commercial Dept. of Defense
U.C.C./contract requirements
State regulations
Federal guidelines
FAA
FCC
Unique terms and conditions
Prime contractor
Local agencies
Political interrogation
Dept. of Defense
FARs
DFARS
ASBCA/BCA
Dept. of State
Dept. of Commerce
ITAR
Import/Export
Political positioning
International trade

14. Federal Acquisition Regulations (FAR)
Has 53 parts, and 8 subparts
Acquisition planning
Contracting methods and types
Socioeconomic programs
General contracting requirements
Special categories
Contract management
Contract pricing
Contract negotiations
Applicable to all aspects of federal contracting.

15. Federal Acquisition Regulations (FAR)
The primary purpose is to provide uniform policies for all federal agencies
Maintained by the Secretary of Defense
The contractor is NOT obligated to follow all Federal Acquisition Regulations, ONLY those in the contract
FAR supplements
DOD (DFAR)
Applies to procurements involving the Office of the Secretary of Defense, Department of the Navy, Army, Air Force, and the Defense Logistics Agency
NASA
Other agencies have supplements to the FARs

16. U.C.C./FAR The Complex Mix
Contract
Manager
Contracts Personnel – Civilly and Criminally Liable!

17. Federal Contract Formation Considerations

18. Privity of Contract FAR Application
Privity will decide the application of Common Law v. FAR
Contract liability
Limit communications/directives
Government
Privity of Contract
FAR APPLIES
Prime
Privity of Contract
Common Law Applies
Subcontractor

19. FAR Contracting Requirements
Subchapter A: General
Subchapter B: Competition
Subchapter C: Contracting Methods
Subchapter D: Socioeconomic Programs
Subchapter E: Contracting Requirements
Subchapter F: Special Categories of Contracting
Subchapter G: Contract Management
Subchapter H: Clauses & Forms
Part 1 – 4
Part 5 – 12
Part 13 – 18
Part 19 – 26
Part 27 – 33
Part 34 – 41
Part 42 – 51
Part
Have you read the FARs?

20. Every Element of Government Contracting is Regulated
Profit margins
Profit margin is usually capped at 15%
Disclosure requirements
Written description of a contractor’s cost accounting practices
Filed with the Contracting Officer, and recognized auditor
Generally required for CAS covered contracts or subcontracts over $25 million
Form CASB-DS-1 and 5
FAR
Must be followed after submission
Complex contract requirements
Walsh Healy Act
Competition in Contracting Act
Need to know the regulations
FARs, etc.
Payments
Prompt Payment Act 31 U.S.C. § 3901
Contract must specify payment terms
Late payment, without excuse entitle contractor to interest charges
Progress payments/financing
Payments made as costs are incurred
Paid based on a percentage of completion
Good for financing the project
Change orders
Changes allow for additional performance
Bill for additional costs and profits
Contractual right to capture added scope costs

21. Federal Contract Formation Essentials
INTENT – INTENT - INTENT
Request for Proposal
Contract Performance
Disputes
Appropriations law
Government obligations
Publication
FAR parts 2.101, 15, 31
Competitive selection
Past performance
Price
Technical solution
Specifications
Intent of contract
Questions and answers
Award
Management structure
Quality assurance
CDRLs/tracking and control
Change management
Cost controls
Equitable adjustment pricing
Ambiguous specifications
Disputes clause
Added scope
Bad faith
Improper rejections
Impossibility of performance
FAR Part 42
Proposal documents
Contract documents
Intent of the parties
Performance limitations
Resolution contained within the contract
Defective information
FAR disputes mitigation
Non-litigious claim resolution
Claim preparation
Contract Disputes Act

22. Common Law Contracts v. FAR
Does not regulate the proposal process!
Does not control profit rates!
Does not require mandatory audits by the DCAA!
No contract oversight!
No controlled dispute process!
No right of unilateral contract terminations!
No management controls!
No specific quality standards!
No competition requirements!
No congressional appropriations!

23. Benefits of the FAR Government: Prevent fraud Best price
State-of-the-Art products
Complete control
Act in public interest
Multiple levels of oversight
Maintain constitutional safeguards
Contractor:
Specific contract guidelines
Price controls
Guaranteed equity
Inherent dispute resolution
Business development
Contract performance controls
Competition guarantee

24. Risk Mitigation by Defining Contract Intent
Discuss the scope of work
Obtain complete specifications
Incorporate into contract
Drafter is liable
Never go beyond contract requirements

25. 5.) Contract Performance
Program management/officers
Project Management Institute (PMI)
Federal Publications Seminars
George Washington University
National Contract Management Association (NCMA)
Keep a log of all correspondence whether written or oral
Schedule slippage leads to problems
Justify every action
Keep track of change orders and defective specifications
Do not exceed contract requirements

26. Contract Performance Controls
Set up a database to track all aspects of contract performance
Track technical plan
Control communications between the parties
No oral changes
Identify problems early and resolve
Program meetings and status reports
No such thing as good will!

27. Contract Performance Checklist
Comply with terms and conditions
Manage invoicing
Specification compliance
Ensure quality
Correction action plans
Develop in the proposal, a work breakdown structure
Monthly performance reviews
Maintain contract files
Understand the regulations
Act professionally, not personally
Ethics, ethics, ethics
Comply with industry standards
Look to the future for new business

28. 6.) Contract Change Management
Communication between authorized personnel
Document and report to Program Manager and log
Seek compensation for changes promptly
Clear acceptance/rejection criteria
Submit a claim if necessary
Follow dispute clauses

29. 7.) Glossary of Terms
Anticipatory Repudiation:
Statements or acts of a contractor before an actual breach of contract that indicates that the contractor is unable to complete, or does not intend to continue to perform under the contract.
Change Order:
A written order signed by the Contracting Officer directing the contractor to make a change without the contractor’s consent, as authorized by the changes clause in FAR through 6. This change may be unilateral, within the scope of the contract.

30. Glossary of Terms Implied in Fact Contract:
Duress:
A condition that occurs when one party is induced by a wrongful act or threat of another party to enter into a contract which would deprive the first party from exercising their free will in order to force performance of an act that would not have otherwise been performed. Examples of duress conditions in government contracting are: (a) threat of economic harm through the contracting officer’s violation of its duty of good faith and fair dealing; and (b) showing that the contractor acted against its will because the circumstances permitted no alternative.
Implied in Fact Contract:
A contract not created or evidenced by an explicit agreement of the parties, but reasonably inferred from the parties acts or conduct.

31. Glossary of Terms Implied Warranty of Specifications:
A warranty that implies that the Government’s design specifications can be successfully used to perform the contract.
Mutual Mistake:
A mistake that is common to both parties to a contract. Mutual mistakes can occur when the parties include contract terms that don’t conform to or express their actual intent or agreement. They can also occur when both parties labor under the same misconception in relation to a fundamental fact on which the contract was based.

32. Glossary of Terms Proprietary Data:
Technical data submitted to the Government under a contract and subject to protection by the contractor. Such data is subject to limited rights if they are developed at private expense.
Proprietary Information:
Information contained within a bid or proposal, cost or pricing data, or any other information submitted to the Government by a contractor and designated as proprietary.

33. Glossary of Terms Quasi-Contracts: Unilateral Mistake:
Implied in law, obligations imposed on a person by law, not pursuant to the person’s expressed or implied intentions and even against that person’s will and design, because circumstances between the parties render justification that one party should have a right and the other party a liability, similar to what would arise if their was an actual contract between them.
Unilateral Mistake:
A mistake made by only one party, usually the contractor. If they are not mistakes in business judgment, relief for such mistakes may be given if they are alleged by the offeror before award. No relief will be given for such mistakes alleged by the contractor after award unless the contracting officer knew or should have known of the mistake before award or failed to request verification.

34. Questions?