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THE COMMON LAW
approval.20 Under their general police powers, States have enacted many kinds of restraints on freedom of contracting which are generally binding with regard to private contracts but were found unconstitutional with regard to Government contracts because they conflicted with the established Federal policy of award to the low offeror. For example, State laws regulating milk prices, 21 rates for the transportation of household goods,22 or public utility rates 23 were held unconstitutional as conflicting with a Federal policy of award to the low offeror. Similarly, State requirements for licensing construction contractors have been held inapplicable to Government contractors as contrary to Government policy for determining the “responsible” contractor.24
The constitutional doctrine of exclusive Federal jurisdiction over land purchased by the Government with the unconditional consent of a State 25 also plays a role in the procurement process. In such enclaves, State laws are generally inoperative. Thus, a State cannot enforce minimum price regulations 26 or levy sales 27 or property 28 taxes in such enclaves. State regulations, however, in effect at the time of the transfer of sovereignty remain enforceable until abrogated by Congress.29 In addition, Congress may waive Federal immunity, as it has done, for example, under the Buck Act, 4 U.S.C. $ 105.
In sum, though there are no specific constitutional provisions for Government procurement and constitutional questions rarely arise, the Constitution is controlling in this area as in other areas of Government operations and Congress and the executive agencies must be ever mindful of constitutional limitations in developing Government procurement policies and practices.
It is often said that when the Government "comes down from its position of sovereignty, and enters the domain of commerce, it submits itself to the same laws that govern individuals there.” 30 This is generally true, but some reservations must be noted. For one thing, as pointed out in detail below, the courts have found a few of the rules of the common law incompatible with the special needs and nature of the Government, and therefore inapplicable to its contracts. Also, the Government is still the controlling authority, and it could, within constitutional limits, subordinate and supersede the common law of contracts. This it has sometimes done. For example, under the common law, one party is not entitled to recover any profit earned by the other nor can one party cancel a contract without compensating the other for his loss of anticipated profits. Nevertheless Congress has authorized the Government to recapture excess profits under the Renegotiation Acts and to terminate Government contracts without liability for anticipated profits under the contract settlement statutes.31 For the most part, the Government has not chosen to assert its sovereign prerogative; hence the common law remains a significant part of the law of Government contracts.
Thus, Government contracts like other contracts are generally subject to the common law rules of offer and acceptance, 32 mutual consideration,33 agency,34 mistake,35 misrepresentation,36 nondisclosure of material facts,37 fraud,38 unconscionability,39 impossibility, 40 illegality,41 privity of contract,42 third-party beneficiaries, 43 liquidated damages, 44 implied warranty of mutual cooperation,45 implied warranty of fitness for use, 46 implied warranty of merchantability,47 suitability of specifications,48 bailee's liability, 49 risk of loss, 50 waiver,51 estoppel,52 ratification, 53 interpretation and construction,54 contra proferentum,55 setoff,56 breach,57 and measure of damages.58 In these respects the Government generally fares no better than private contractors under the common law.
29 Arizona v. California, 283 U.S. 423 (1931). See also Johnson v. Maryland, 254 U.S. 51 (1920). Cf. Commonwealth v. Closson, 229 Mass. 329 (1918).
21 Paul v. United States, 371 U.S. 245 (1963).
22 United States v. Georgia Public Service Comm'n, 371 U.S. 285 (1963).
23 Public Utilities Comm'n v. United States, 355 U.S. 534 (1958).
28 Surplus Trading Co. v. Cook, 281 U.S. 647 (1930) ; Humble Pipe Line Co. v. Waggonner, 376 U.S. 369 (1964).
20 James Stewart & Co. v. Sadrakula, 309 U.S. 94 (1940).
30 Cooke v. United States, 91 U.S. 389, 398 (1875).
31 Note 8 supra. See also Russell Motor Car Co. v. United States, 261 U.S. 514 (1923); DeLaval Steam Turbine Co. v. United States, 284 U.S. 61 (1931).
32 United States v. Purcell Envelope Co., 249 U.S. 313 (1919) ; cf. U.C.C. $ 2-205.
33 Savage Arms Co. v. United States, 266 U.S. 217 (1924).
24 American Anchor & Chain Corp. v. United States, 166 Ct. Cl. 1, 331 F.2d 860 (1964).
35 National Presto Industries, Inc. v. United States, 167 Ct. Ci. 749, 338 F.2d 99 (1964), cert, denied, 380 U.S. 962 (1965).
38 Womack v. United States, 182 Ct. CI. 399, 389 F.2d 793 (1968); Morrison-Knudsen Co. v. United States, 170 Ct. C. 712, 345 F.2d 535 (1965).
37 Helene Curtis Industries, Inc. v. United States, 160 Ct. Ci. 437, 312 F.2d 774 (1963).
38 Lalone v. United States, 164 U.S. 255 (1896).
40 Columbus Ry. Pouer & Light Co. v. City of Columbus, 249 U.S. 399 (1919).
But in a few respects it does. Unlike private contractors, the Government is not bound by the common law rule of apparent authority, which makes a principal responsible for the contracts entered into by an agent in excess of his authority when the principal surrounds the agent with all the indicia of unrestricted authority.59 Under the special conditions of formal advertising, the Government is not subject to the general rule that an offer may be withdrawn at any time before acceptance.60 In some circumstances the Government may assert the special defense of sovereign acts to avoid liability for breach of contract when
it disrupts or frustrates performance by a contractor.61 Nor is it generally subject to interest on delayed payments in the event the contractor recovers a judgment against it.62 Moreover, in case of conflict, it is the Federal common law that applies to Government contracts.63
With these few exceptions, the common law generally governs the contract side of Government contract law. It should be noted that the common law is not static. It continues to undergo growth, change, and evolution. Thus, in lieu of allocating to one party or the other the total risk of loss by reason of mutual ignorance of a material matter, the courts may fashion a new rule for sharing the loss by both parties. 64 In view of the fact that the Uniform Commercial Code has been adopted by all the States as the basis for governing private business transactions, Federal tribunals, absent a settled Federal rule, may look to it for guidance as to the rule to be applied to Government contracts.65
In short, though subject to displacement by statutes and regulations, the common law remains a latent but pervasive part of Government contract law, supplementing and construing contract provisions and delineating the rights and relations of the parties.
In Part A of this report, there is a summary of the “Historical Development of the Procurement Process” which includes a discussion of the evolution of procurement statutes from the Revolutionary War period to the present. It points out that “Between 1829 and the Civil War, no major procurement legislation was introduced.”
Today, however, “[a] careful study of the Congressional enactments with reference to Government contracting presents a picture of Congress periodically limiting, granting, cir
41 United States v. Goltra, 312 U.S. 203 (1941).
*United States v. Hamden Cooperative Creamery, 185 F. Supp. 541 (E.D.N.Y. 1960), aff'd, 297 F.2d 130 (2d Cir. 1961).
47 Whitin Machine Works v. United States, 175 F.2d 504 (1st Cir. 1949).
18 Nichols & Co. v. United States, 156 Ct. Cl. 358 (1962), cert. denied, 371 U.S. 959 (1963).
49 Sun Printing & Publishing Ass'n v. Moore, 183 U.S. 642 (1902).
50 Halvorson v. United States, 126 F. Supp. 898 (E.D. Wash. 1954).
51 United States v. Chichester, 312 F.2d 275 (9th Cir. 1963).
B2 Hatchitt v. United States, 158 F.2d 754 (9th Cir. 1946): Man loading & Management Associates v. United States, 461 F. 2d 1299 (Ct. CI. 1972).
63 United States v. Beebe, 180 U.S. 343 (1901). See Poirier, Ratification Under Public Contracts Involving the National Defense, 23 Fed. B.J. 37 (1963).
54 Priebe & Sons v. United States, 332 U.S. 407 (1947).
55 United States v. Lennox Metal Mfg. Co., 225 F.2d 302 (2d Cir. 1955). Under this rule of interpretation, contract ambiguities are resolved against the party drafting the language, provided there is no better indication of the intent of the parties.
Bulls United States v. Munsey Trust Co., 332 U.S. 234, 239 (1947).
67 United States v. Behan, 110 U.S. 338 (1884) ; United States v. Spearin, 248 U.S. 132 (1918).
58 United States v. Behan, 110 U.S. 338 (1884); United States v. Speed, 75 U.S. 77 (1869).
69 Federal Crop Ins. v. Merrill, 332 U.S. 380 (1947). Whelan & Dunningan, Government Contracts; Apparent Authority and Estoppel, 55 Geo. L.J. 880 (1967). But see Comp. Gen. Dec. B-176393 (Oct. 13, 1972).
60 Scott v. United States, 44 Ct. Cl. 524, 527 (1909) ; Refining Associates, Inc. v. United States, 124 Ct. C. 115 (1958).
61 Horowitz v. United States, 267 U.S. 458 (1925).
62 Ramsey v. United States, 121 Ct. . 426, 101 F. Supp. 353 (1951).
3 Clearfield Trust Co. v. United States, 318 U.S. 363 (1943).
" National Presto Industries, Inc. v. United States, 167 Ct. Cl. 749, 338 F.2d 99 (1964).
66 See Federal Pacific Electric Company. IBCA, 1964 BCA 1 4494 and cases cited.
the Armed Services Procurement Act and the Federal Property and Administrative Services Act.
Thus, within the first 20 years, Congress developed the main root forms of procurement statutes covering organization, program authorization, funding, award procedures, accounting, and conflicts of interest. Today, about 4,000 procurement-related statutory provisions have been identified. Most follow the early forms, but new ones have been added for such things as remedies, national emergencies, and price and profit controls. The most striking development has come from the recognition that procurement can buy more than goods and services; it can directly promote the general welfare. Accordingly, it has been loaded with a broad range of collateral Government objectives in socioeconomic areas such as labor, Buy-American, small business, nondiscrimination, etc.
cumscribing, defining and redefining contract authority . . . It is an unusual session of Congress, today, which does not enact at least one piece of legislaticn with reference to Government contracts.” 66 In fact, there has been no such session since World War II.
Also, throughout this report, specific statutory problems and recommendations are covered. In this appendix, no effort is made to point out what is good or bad or how it can be made better. The only purpose is descriptive to convey a sense of the scope, number, and kinds of procurement statutes and identify the most important.
The procurement statutes go back to the “Acts of the first Congress of the United States.” During the first session, they established the executive departments of Foreign Affairs, War, and Treasury, and the Post Office; 67 authorized a program for the establishment and support of lighthouses, beacons, buoys, and public piers; 68 made appropriations for 1789, including $137,000 for “defraying the expenses of the Department of War,” 69 and for 1790, including "a provision for building a lighthouse on Cape Henry." 70 Thus with the very first Congress, the basic pattern of procurement statutes—chartering an agency, authorizing a program, and appropriating funds—was beginning to take shape.
Shortly thereafter on May 8, 1792, Congress enacted the first law focusing specifically on procurement operations. It directed the Treasury to make all purchases for the Army. However, this initial effort at centralizing procurement did not last long.
In 1798, as a first step toward accounting for all outstanding contracts, Congress required copies to be deposited in the Treasury.'1 In 1808, it passed an “Officials-Not-to-Benefit” law." In 1809, it prescribed competitive advertising for all contracts. This requirement eventually evolved into the famous R.S. $ 3709, 41 U.S.C. § 5, which is still on the books and, for over 80 years, governed all Federal procurement until it was generally superseded by
Organization and Charter Acts
The need for organization and charter acts is aptly described in The Floyd Acceptances as follows:
But the Government is an abstract entity, which has no hand to write or mouth to speak, and has no signature which can be recognized, as in the case of an individual. It speaks and acts only through agents, or more properly, officers. ... And while some of these, as the President, the Legislature, and the Judiciary, exercise powers in some sense left to more general definitions necessarily incident to fundamental law found in the Constitution, the larger portion of them are the creation of statutory law, with duties and powers prescribed and limited by that law.73
Since the establishment of the departments of Foreign Affairs, Treasury, War, and Justice in 1789, Government agencies have proliferated. Today there are more than 150 departments, independent agencies, boards, committees, and commissions, ranging from giants like the Department of Defense 74 to diminutives like the Committee on Purchases of Blind-Made Products.75 Most are the creatures of statute; some of Executive order.
Moss, Government Contracts: Nature, Scope and Type, 5 Bost.
67 1 Stat. 28, 49, 65, 70.
73 74 U.S. 666, 675 (1868).
All are operational in the sense that all procure at least office supplies and equipment. But with many, buying is negligible, and they have no further participation in procurement; for example, the National Mediation Board.76 Some agencies, such as the Small Business Administration, Department of Labor, and General Services Administration, are also regulatory in the sense that they shape the procurement of other agencies. The Committee on Purchases of Blind-Made Products is unique in that its only mission is regulatory; it fixes the price and suitability of certain products purchased by other agencies.77
for five years.82 The Army, Navy, or Air Force may contract for architect-engineer services.83
Statutes such as those cited above take the form of grants of contract authority. Authority may be express or implied. As a matter of general law, there is no need for Congress to authorize contracts in so many words. The authority to contract may be implied from a general congressional authorization to accomplish a project or program.84 For example, authority "to construct fortifications” implies authority for “execution by means of a contract.” 85
The doctrine of implied powers has broad ramifications. Thus the authority to contract includes the power to decide with whom and upon what terms and conditions.86 It also includes general authority to administer the contract and, as an incident thereof, to terminate or breach the contract and enter into a settlement agreement. 87
The doctrine of implied powers is, of course, essential. No government could run on the basis that the legislature has to provide specifically for every contingency and alternative which might arise in the course of carrying out an authorized program. As the court said in United States v. McDaniel:
A practical knowledge of the action of any one of the great departments of the Government, must convince every person that the head of a department, in the distribution of its duties and responsibilities, is often compelled to exercise his discretijn. He is limited in the exercise of his powers by the law; but it does not follow that he must show a statutory provision for everything he does. No government could be administered on such principles. To attempt to regulate, by
The statutes include numerous provisions dealing with the continuing authority of an agency or agencies to contract. These may be general or specific, grants or limitations, and the authority thereunder may be express or implied.
Some statutory provisions are general in that they apply to all agencies; for example, 5 U.S.C. $ 3109 which provides the underlying authority for agencies to procure expert and consultant services by contract; 31 U.S.C. $ 686 which authorizes agencies to place purchase orders on other agencies.
Other statutes are specific in that they apply only to one agency; for example, AEC may “acquire," "purchase," or "enter into contracts” for various things such as material, facilities, buildings, real and personal property, and services.78 The Army may “procure” tools, materials, and facilities.79 The military departments may “acquire" patents, copyrights, and designs.80 They may “contract” for research,81 and they may enter into research “contracts"
82 10 U.S.C. $ 2352 (1970).
84 United States v. Tingey, 39 U.S. 114. (1831); Floyd Acceptances, 74 U.S. 666 (1868); Neilson v. Lagow, 53 U.S. 98 (1851) ; United States v. Bradley, 35 U.S. 343 (1836); United States v. Butlet, 297 U.S. 1 (1936).
85 United States v. Maurice, 26 F. Cas. 1211 (C.C.D. Va. 1823) where Mr. Justice Marshall said, “[T]here is a power to contract in every case where it is necessary to the execution of a public duty."
S6 Arizona v. California, 373 U.S. 546 (1962) ; Mail Divisor Cases, 251 U.S. 326, 329 (1915).
87 United States v. Corliss Steam Engine Co., 91 U.S. 321, 323 (1875). Whether existing statutes limit the breach settlement authority of an agency to termination breaches rather than interim performance breaches is a matter of sharp controversy. Cibinic and Lasken, The Comptroller General and Government Contracts, 38 Geo. Wash. L. Rev. 349, 362 (1970).
75 41 U.S.C. $ 46.
Against the use of proceeds of sale or other
moneys received, 31 U.S.C. $$ 484, 487 Against the purchase of automobiles or air
craft unless specifically authorized or ap
propriated for, 3 U.S.C. $ 638a. The legal effect of these express limitations of contract authority is to circumscribe the doctrine of implied authority and require a showing of express authority.89 The practical significance is that, regardless of the extent to which a contracting officer may think it clearly in the best interests of the Government, he simply cannot go beyond the express limitations on his authority.90 He cannot, for example, enter into a contract in excess of an appropriation," or a contract under an annual appropriation for more than the current fiscal year. 92 It is these statutory limitations which give rise to specific problems in connection with multi-year procurement, incremental funding, contingent obligations, catastrophic risks, etc. It is also these statutory limitations which make it necessary to go through the annual budget process to provide express authorizations and express appropriations.
law, the minute movements of every part of the complicated machinery of government would evince a most unpardonable ignorance on the subject. Whilst the great outlines of its movements may be marked out, and limitations imposed on the exercise of its powers, there are numberless things which must be done that can neither be anticipated nor defined, and which are essential to the proper action of the government. Hence, of necessity, usages have been established in every department of the government, which have become a kind of common law, and regulate the rights and duties of those who act within their respective limits.88
Nevertheless, the doctrine of implied powers was judge-made law, and did not altogether reflect the congressional ideal of a proper distribution of legislative and executive authority. To curb what it regarded as administrative excess, guard against a misreading of its intent, and assert stronger control, Congress enacted a series of laws in the form of limitations on contract authority. These include provisions generally: Against contracting without an appropria
tion, or in excess of appropriations, 41
U.S.C. § 11a Against contracting in excess of one year,
41 U.S.C. § 13 Against contracting for construction in ex
cess of specific appropriations, 41 U.S.C.
§ 12 Against the purchase of land without an
authorizing law, 41 U.S.C. § 14, or an
express law, 10 U.S.C. § 2676 Against construing a law to authorize, or
appropriate funds for, contracting unless
specific, 31 U.S.C. § 627 Against an advance of money, 31 U.S.C.
$ 529 Against expending or obligating in excess or
advance of appropriations or apportion
ment, 31 U.S.C. $ 665 Against contracts under annual appropria
tions other than those made within the applicable fiscal year, 31 U.S.C. $$ 712a,
718 Against the use of appropriations for ob
jects other than for which made, 31 U.S.C.
§ 628 * 32 U.S. 1, 14 (1833).
Program Budgeting, Authorizations, and Appropriations
The Budget and Accounting Act of 1921 93 establishes the National Budget System. Under this act the President is required at the opening of each session of Congress to transmit a budget recommending appropriations with 12 categories of supporting information.94 The budget identifies the substantive legislative authority for each program being funded. This is necessary because, in the absence of prior or concurrent legislative authorization, an appropriation is subject to a point of order on the floor of the House and must be stricken
80 United States v. Tingey, 39 U.S. 114 (1841) ; Moses v. United States, 166 U.S. 571 (1897); Floyd Acceptances, 74 U.S. 666 (1868). 30 37 Comp. Gen. 60 (1957). 91 Sutton v. United States, 256 U.S. 575 (1921). 82 Lieter v. United States, 271 U.S. 204 (1926). »3 31 U.S.C. $ 1 (1970). # 31 U.S.C. $ 11 (1970).