2 Basic Contract Law Breakout Session # 205 Patrick Malyszek, President M3 Federal Contract Practice Group, LLCPhone: (607)Website:Date: April 24, 2007Time: 1:40 pm -2:40 pm
3 Topic Index Contract Formation Contract Defenses Contract Remedies Contract InterpretationContract PerformanceContract Change ManagementGlossary of Terms
4 Uniform Commercial Code (U.C.C.) Governs the sale of goods, secured transactions, commercial paper, etc.Commercial transactions ONLYWill be used to regulate your subcontractsSome FAR and U.C.C. correlationWill impact all transactionsRemedies are different than FARsProprietary data protection
5 1.) Contract FormationIn order to have a binding contract there must be the following:Mutual manifestation of a willingness to enter into a contractObjective v. subjective intentOffer and acceptanceValuable considerationLegal detrimentU.C.C. statute of fraudsTypes of conditions – present intent
6 2.) Contract Defenses Lack of Capacity Impossibility of Performance Intoxication – not of a sound mindAgency law – no grant of authority to contractImpossibility of PerformanceImpossibilityEconomicFrustration of purposeMistakeMutualUnilateralKnew or should have known
7 Contract Defenses Duress Undue Influence Misrepresentation Negated intentEconomic duressUndue InfluenceBad faith dealingLack of equalityMisrepresentationDefective contract documentsDefective specificationsInappropriate funding for contract and modifications
8 3.) Contract Remedies Breach of contract Money damages Rescission ReformationRestitutionRelianceSpecific performanceFailure to perform your obligationsAnticipatory repudiation
9 Contract Types Common Law Contracts: Executory contract Unilateral contractBilateral contractExpress contractContracting implied-in-factQuasi contract (implied-in-law)FAR Part Federal Contract Types:Fixed price contractCost reimbursement contractFixed price incentive contractR & D contractPerformance based contractingCost plus incentive feeCost plus fixed fee
10 4.) Contract Interpretation Restatement, Second, Contracts § 200Interpretation is the process of what the parties agreed to in their bargainMeaning of wordsResolving ambiguitiesIntentThe court will make a determination based upon:Contract documentsExtrinsic evidence/circumstantial evidence
11 Contract Interpretation Who holds the sole right of contract interpretation after award?Big Claims AreaLiability is with the drafter of the contractLiability is with the drafter of the contract specifications and drawingsThere is a duty to provide the contractor with accurate and precise informationThere is generally no duty of the contractor to validate the drawings or specificationsObjective test at time of contract formationWhat is the intent of the contract
12 This is the most complex form of contracting! Federal ContractingTo be successful in the federal contracting environment every contract professional must completely comprehend:Common law contractsFederal acquisition contractingThe Federal Government’s sovereign contract rightsThe application of these principles as a prime and subcontractorThe inherent application to every contract actionRisk mitigation strategies within the FARDispute resolution methodsThis is the most complex form of contracting!
13 Federal Contracting Commercial Dept. of Defense U.C.C./contract requirementsState regulationsFederal guidelinesFAAFCCUnique terms and conditionsPrime contractorLocal agenciesPolitical interrogationDept. of DefenseFARsDFARSASBCA/BCADept. of StateDept. of CommerceITARImport/ExportPolitical positioningInternational trade
14 Federal Acquisition Regulations (FAR) Has 53 parts, and 8 subpartsAcquisition planningContracting methods and typesSocioeconomic programsGeneral contracting requirementsSpecial categoriesContract managementContract pricingContract negotiationsApplicable to all aspects of federal contracting.
15 Federal Acquisition Regulations (FAR) The primary purpose is to provide uniform policies for all federal agenciesMaintained by the Secretary of DefenseThe contractor is NOT obligated to follow all Federal Acquisition Regulations, ONLY those in the contractFAR supplementsDOD (DFAR)Applies to procurements involving the Office of the Secretary of Defense, Department of the Navy, Army, Air Force, and the Defense Logistics AgencyNASAOther agencies have supplements to the FARs
16 U.C.C./FAR The Complex Mix ContractManagerContracts Personnel – Civilly and Criminally Liable!
18 Privity of Contract FAR Application Privity will decide the application of Common Law v. FARContract liabilityLimit communications/directivesGovernmentPrivity of ContractFAR APPLIESPrimePrivity of ContractCommon Law AppliesSubcontractor
20 Every Element of Government Contracting is Regulated Profit marginsProfit margin is usually capped at 15%Disclosure requirementsWritten description of a contractor’s cost accounting practicesFiled with the Contracting Officer, and recognized auditorGenerally required for CAS covered contracts or subcontracts over $25 millionForm CASB-DS-1 and 5FARMust be followed after submissionComplex contract requirementsWalsh Healy ActCompetition in Contracting ActNeed to know the regulationsFARs, etc.PaymentsPrompt Payment Act 31 U.S.C. § 3901Contract must specify payment termsLate payment, without excuse entitle contractor to interest chargesProgress payments/financingPayments made as costs are incurredPaid based on a percentage of completionGood for financing the projectChange ordersChanges allow for additional performanceBill for additional costs and profitsContractual right to capture added scope costs
21 Federal Contract Formation Essentials INTENT – INTENT - INTENTRequest for ProposalContract PerformanceDisputesAppropriations lawGovernment obligationsPublicationFAR parts 2.101, 15, 31Competitive selectionPast performancePriceTechnical solutionSpecificationsIntent of contractQuestions and answersAwardManagement structureQuality assuranceCDRLs/tracking and controlChange managementCost controlsEquitable adjustment pricingAmbiguous specificationsDisputes clauseAdded scopeBad faithImproper rejectionsImpossibility of performanceFAR Part 42Proposal documentsContract documentsIntent of the partiesPerformance limitationsResolution contained within the contractDefective informationFAR disputes mitigationNon-litigious claim resolutionClaim preparationContract 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 productsComplete controlAct in public interestMultiple levels of oversightMaintain constitutional safeguardsContractor:Specific contract guidelinesPrice controlsGuaranteed equityInherent dispute resolutionBusiness developmentContract performance controlsCompetition guarantee
24 Risk Mitigation by Defining Contract Intent Discuss the scope of workObtain complete specificationsIncorporate into contractDrafter is liableNever go beyond contract requirements
25 5.) Contract Performance Program management/officersProject Management Institute (PMI)Federal Publications SeminarsGeorge Washington UniversityNational Contract Management Association (NCMA)Keep a log of all correspondence whether written or oralSchedule slippage leads to problemsJustify every actionKeep track of change orders and defective specificationsDo not exceed contract requirements
26 Contract Performance Controls Set up a database to track all aspects of contract performanceTrack technical planControl communications between the partiesNo oral changesIdentify problems early and resolveProgram meetings and status reportsNo such thing as good will!
27 Contract Performance Checklist Comply with terms and conditionsManage invoicingSpecification complianceEnsure qualityCorrection action plansDevelop in the proposal, a work breakdown structureMonthly performance reviewsMaintain contract filesUnderstand the regulationsAct professionally, not personallyEthics, ethics, ethicsComply with industry standardsLook to the future for new business
28 6.) Contract Change Management Communication between authorized personnelDocument and report to Program Manager and logSeek compensation for changes promptlyClear acceptance/rejection criteriaSubmit a claim if necessaryFollow dispute clauses
29 7.) Glossary of TermsAnticipatory 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.