Procurement Law

CHAPTER

BASIC PRINCIPLES OF GOVERNMENT

CONTRACT LAW

1. Introduction. A contract is the basic method used by the Government to procure needed supplies and services from private business concerns.1 In most cases, the law which determines the essential validity of Government contracts is similar to that which governs private contracts. There must be a clear manifestation of assent through an offer and acceptance and a sufficient consideration to support the promises. Further, the scope and meaning of Government contracts are often determined by general principles of contract interpretation. Finally, the Government, when acting in its contractual capacity, is liable in damages for a breach of contract.5 It is often stated 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."

Government contracts, however, are normally complex, lengthy documents whose award and performance are controlled by equally

1A contract is, in essence, a consenual relationship based upon promises which the law will enforce. Restatement, Contracts § 1. Cf. 1 Corbin, Contracts § 3 (1952). The definition of Defense Department contracts is quite broad. See ASPR 1-201.4 (22 July 1960):

Contracts means all types of agreements and orders for the procurement of supplies or services. It includes awards and notices of award; contracts of a fixed-price, cost, cost-plus-a-fixed fee or incentive type; contracts providing for the issuance of job orders, task orders or task letters thereunder; letter contracts and purchase orders. It also includes supplemental agreements. . 2 Iselin v. United States, 271 U.S. 136 (1926). Of. United States v. Ellicott, 223 U.S. 524 (1912) (language of contract must be sufficiently definite so that intention of parties can be determined).

...

Willard Sutherland & Co. v. United States, 262 U.S. 489 (1923); United States v. American Trading Co., 138 F. Supp. 536 (N.D. Cal. 1956). But see Reid Murdoch Co., ASBCA No. 1523 (4 Nov 1953) (Government requires receipt of adequate as opposed to sufficient consideration when entering into a contract or giving up a contract right). • See Priebe & Sons v. United States, 332 U.S. 407 (1947); United States v. Bethlehem Steel Co., 205 U.S. 105 (1907); Peck v. United States, 102 U.S. 64 (1880). The Armed Services Board of Contract Appeals has consistently used the general principles of contract interpretation contained in the Restatement of Contracts, §§ 226-249. See Randolph Engineering Co., ASBCA No. 4872 (31 Dec 1958), DA Pam 715-50-2, p. 251, par. 38. These principles are derived from federal rather than state law. See infra chapter 1, par. 13.

See discussion infra chapter 1, par. 9.

The original source of this statement is Cooke v. United States, 91 U.S. 389, 398 (1875). Accord: Perry v. United States, 294 U.S. 330, 352 (1935); Lynch v. United States, 292 U.S. 571 (1934); United States v. Hadden, 192 F. 2d 327 (6th Cir. 1951).

complex statutes and regulations." They procure supplies and services which, by their complexity and quantity, subject the contractor to unique business risks. They impose upon the contractor a multitude of "boiler plate" clauses which have been drafted by the Government and which require compliance with certain policies that are collateral to actual performance.10 In short, there are inherent difficulties in Government contracts that do not exist in private contracts performed in the commercial market place. In addition, a Government contractor is dealing with the sovereign, even though that sovereign is acting in a contractual capacity. This fact adds a unique dimension to Government contract law and raises basic problems which this chapter will explore.

I. Power of United States to Contract

2. Source of authority. The United States, as a sovereign, has inherent power to enter into contracts and to seek their enforcement, even though not expressly authorized by the Constitution or statute." As the Supreme Court stated in United States v. Tingey: 12

the United States, being a body politic, may within the sphere

of the constitutional powers confided to it, and through the instrumentality of the proper department to which those powere are confided, enter into contracts not prohibited by law, and appropriate to the just exercise of those powers.

This general principle recognizes that the abstract power to contract is coextensive with but may not exceed the constitutional authority

*See, in general, Pasley, The Interpretation of Government Contracts: A Plea for Better Understanding, 25 Fordham L. Rev. 211 (1956).

For a discussion of these risks and the Government's efforts to reduce them, see infra chapter 12.

See clauses contained in ASPR, Section VII. Unless otherwise indicated, all ASPR references are to the 1 July 1960 edition.

10 See infra Chapter 3. See also, Miller, Government Contracts and Social Control; A Preliminary Inquiry, 41 Va. L. Rev. 27 (1955).

"United States v. Tingey, 30 U.S. (5 Pet.) 115 (1831). Accord: Jessup v. United States, 106 U.S. 147 (1882); United States v. Hodson, 77 U.S. (10 Wall.) 395 (1870); United States v. Linn, 40 U.S. (15 Pet.) 290 (1841); United States v. Bradley, 35 U.S. (10 Pet.) 343 (1836). These decisions support the proposition that the executive departments do not need express permission from Congress to obtain a bond securing faithful performance by public officials if the bond is incident to the duties of the department involved. See also, Perkins v. Lukens Steel Co., 310 U.S. 113, 127 (1940) (United States enjoys unrestricted power to determine with which contractors it will deal and to fix the terms and conditions of the purchase); In re American Boiler Works, 220 F. 2d 319 (3d Cir. 1955) (subject to constitutional restrictions, United States can make such contracts as it pleases even though imposing harsh results). In Dugan v. United States, 16 U.S. (3 Wheat.) 172 (1818), the Court held that the United States had implied power to enforce a valid contract by an action brought in its own name in the absence of a specified mode of enforcement. An underlying assumption is that, as a general rule, the power of the United States to make and enforce contracts should not be less than that of private parties in the same transaction. Of. 6 Corbin, Contracts $ 1373-1378 (1952).

18 30 U.S. (5 Pet.) at 128. In United States v. Bradley, 35 U.S. (10 Pet.) 343, 359 (1836), the Court commented that the Tingey quotation was intended as "a general principle only, without . . . attempting to enumerate the limitations and exceptions which may arise from the distribution of powers in our government, and from the operation of other provisions in our constitution and laws."

of the United States. But constitutional authority is distributed between the legislative and executive branches of Government. The President may derive power to contract from either his position as chief-executive and commander in chief or from acts of Congress. If not expressly conferred, therefore, the power of executive departments to contract is implied as a necessary incident to the proper performance of public duties.13

3. Limitations upon power of executive departments to contract. Congress, in the exercise of its constitutional powers under Article I, may limit the power of the executive departments to contract. Thus, while the executive departments are not wholly dependent upon Congress for power to contract they are clearly bound by congressional restrictions upon the exercise of that power. An important general prohibition is that "no contract or purchase on behalf of the United States shall be made, unless the same is authorized by law or is under an appropriation adequate to its fulfillment." 15 An important general limitation is that "purchases of and contracts for property or services shall be made by formal advertising." 16 These are but two of the many restrictions imposed by statute. Others are found in the regulations which govern the procurement activities of the executive departments. The primary goal in every case, therefore, is to determine the extent to which the theoretical power of the United States to contract has been defined and limited by statute or regulation. Once this has been accomplished, the next question is whether the contracting agency or officer has been delegated actual authority to bind the United States.

13 See United States v. Maurice, 26 Fed. Cas. #11211 (C.C.D. Va. 1823) (power of Executive to contract implied from a general congressional authorization to construct fortifications on theory that power to contract exists where ever necessary to execute a public duty); United States v. Salon, 182 F. 2d 110 (7th Cir. 1950) (power to contract implied from executive order authorizing administrator to take control of and operate private transportation system in wartime emergency). Cf. Larson v. Domestic & Foreign Corp., 337 U.S. 682 (1948); United States v. Bailey, 34 U.S. (9 Pet.) 238 (1835) (unless expressly limited, Government officials have power to perform all actions necessarily incident to performance of their duties).

14 In United States v. Tingey, supra note 11, a bond securing the faithful performance of a Navy purser was invalidated because it was not voluntary as required by an act of Congress. Accord: Moses v. United States, 166 U.S. 571 (1897); Constable v. National Steamship Co., 154 U.S. 51 (1894). There is some authority that the contract must be expressly prohibited. In Neilson v. Lagow, 53 U.S. (12 How.) 98 (1851), Congress prohibited the United States to purchase land unless authorized by law. On the other hand, Congress directed the Treasurer of the United States to obtain regular and punctual payment of money owed the United States. When the Treasurer took title to land as security for a debt owed the United States, the Court sustained the contract. Congress did not expressly prohibit the taking of land as security but did impliedly authorize the Treasurer to use necessary means to secure the payment of debts.

41 U.S.C. § 11 (1958). A contract is invalid to the extent that the value of work done exceeds the appropriation. Sutton v. United States, 256 U.S. 574 (1921). See also, 10 U.S.C. § 2306 (1958) (cost-plus-a-percentage-of-cost system of contracting prohibited).

16 10 U.S.C. 2304 (a) (1958) (procurement by Armed Forces); 41 U.S.C. 252 (c) (1958) (procurement by General Services Administration). See 30 Comp. Gen. 490 (1951); 23 Comp. Gen. 395 (1943) (failure to comply with formal advertising requirements invalidates contract).

II. Authority of Contracting Officers To Bind the United States

4. Contracting officers required to have actual authority. The general power of the Government to contract is delegated to and exercised by specified executive agencies." These agencies and their contracting officers 18 cannot bind the United States beyond the actual authority conferred upon them by statute or regulation.' Private parties are charged with notice of all limitations upon the contracting officer's actual authority 20 even though that officer is apparently authorized to contract,21 misrepresents 22 or misinter

"In The Floyd Acceptances, 74 U.S. (7 Wall.) 666, 675-676 (1868), the Court invalidated the Secretary of War's unauthorized acceptance of a commercial draft. In considering the authority of Government agents, the Court stated:

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. . . . The answer, which at once suggests itself to one familiar with the structure of our Government, in which all power is delegated, and is defined by law, constitutional or statutory, is, that to one or both of these sources we must resort in every instance. We have no officers in this Government, from the President down to the most subordinate agent, who does not hold office under the law, with prescribed duties and limited authority. 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. 18 "Contracting Officer means any person who, in accordance with Departmental procedures, is currently designated a contracting officer with the authority to enter into and administer contracts and make determinations and findings with respect thereto, or with any part of such authority. The term also includes the authorized representative of the contracting officer acting within the limits of his authority." ASPR 1-201.3 (22 July 1960). See ASPR 7-103.1.

A contracting officer is appointed by the head of a Procuring Authority, ASPR 1-401. His responsibilities are extensive, see ASPR 3-801.2, but his authority to contract is dependent upon compliance with all applicable requirements of law, regulations and departmental procedures. ASPR 1-403.

19 See, e.g., Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947); Sutton v. United States, 256 U.S. 574 (1921); Pine River Logging Co. v. United States, 186 U.S. 279 (1902); Whiteside v. United States, 93 U.S. 247 (1876); Filor v. United States, 76 U.S. (9 Wall.) 45 (1869); The Floyd Acceptances, 74 U.S. (7 Wall.) 666 (1868).

20 See Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947) (contractor on notice of authority limitation contained in regulation published in Federal Register); Sutton v. United States, 256 U.S. 574 (1921) (contractor on notice that Secretary of War had no authority to permit construction in excess of appropriation). See also, National Electronics Laboratory v. United States, 180 F. Supp. 337 (Ct. Cl. 1960).

Under the doctrine of apparent authority, an agent without actual authority may bind his principal to a third party where the principal has manifested to the third party his consent to the agent's contract or representation. Restatement, Agency § 8; Mechem, Agency 90 (4th ed. 1952). See Note, 55 Mich. L. Rev. 447 (1957). But in Government contracts, contractors who deal with contracting officers are presumed to know their actual authority as defined by statute or regulation. Consequently, they cannot rely upon the apparent authority of these officers. See Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947) (reliance but no detriment); United States v. Zenith-Godley Co., 180 F. Supp. 611 (S.D.N.Y. 1960) (both reliance and detriment). See also, McIntire, Authority of Government Contracting Officers: Estoppel and Apparent Authority, 25 Geo. Wash. L. Rev. 162 (1956).

22 National Electronics Laboratory v. United States, 180 F. Supp. 337 (Ct. Cl. 1960). Cf. Pine River Logging Co. v. United States, 186 U.S. 279 (1902); Utah Power & Light Co. v. United States, 243 U.S. 389 (1916); Kelley v. United States, 91 F. Supp. 305 (Ct. Cl. 1950), cert. denied, 340 U.S. 850 (1950); Lee v. Monroe, 11 U.S. (7 Cranch.) 366 (1813).

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