Government Contracts Outline
Professor Schwartz, Fall 2001
Table of Contents
I.Basic Legal Considerations Concerning Contracting w/ Govt. Entities
A. The Subject Matter: Transactions and Agencies Covered by Fed. Procurement Law; Exceptions
Motor Coach Industries v. Dole...... 1
Forman v. United States...... 1
B.The Power to Contract
United States v. Tingey...... 2
United States v. Corliss Steam Engine...... 2
C.Appropriations and the Anti-Deficiency Act
Bowsher v. Synar...... 2
Ameron v. United States Army Corps of Engineers...... 2
Appropriations Clause cases...... 3
Solar Turbines International v. United States...... 4
Goodyear Tire and Rubber v. United States...... 4
C.H. Leavell & Co. v. United States...... 4
D.Authority of Agents
G.L. Christian & Associates v. United States...... 5
Gordon Woodroffe Corp. v. United States...... 5
General Electric v. United States [and GE Appeal...... 5
Williams v. United States...... 6
Federal Crop Insurance v. Merrill...... 7
Office of Personnel Management v. Richmond...... 7
Chart for Richmond problems...... 8
E.Aspects and Consequences of Sovereignty
1.Contract and Statute: the Fed. Govt.’s Authority to Change Its Mind (and Contracts)
Winstar v. United States...... 9
Schism v. United States...... 10
2.Comparison: State Disabilities under the Contract Clause
United States Trust Co. v. New Jersey...... 10
3.Choice of Law in the Field of Federal Procurement
Clearfield Trust Co. v. United States...... 12
United States v. Kimball Foods...... 12
American Pipe & Steel Corp. v. Firestone Tire and Rubber Co...... 13
4.The Government Contractor Defense to Tort Liability
Boyle v. United Technologies...... 13
Feres v. United States...... 14
Bailey v. McDonnell Douglas...... 14
Richardson v. McKnight...... 14
F.Federal-State Relations
1.Federal Contractors’ Immunity from State and Local Taxation
Alabama v. King & Boozer...... 14
2.Federal Contractors’ Immunity from State Regulation
Paul v. United States...... 14
G.The False Claims Act and Qui Tam Suits Against the Govt.
United States ex rel. Kelly v. Boeing...... 15
H.Criminal Prosecution: A Risk of Transacting Business with the Government
United States v. Matzkin...... 15
I.First Amendment Protections for Government Contractors
Board of County Commissioners v. Unbehr...... 16
II.Protests, Claims and Disputes: Adjudication of Controversies Concerning Contract Award and Performance
A.Contract Award Controversies
1.The Bid Protest Jurisdiction of the GAO
In re Dyneteria...... 16
2.Award Controversies in the CoFC Prior to 1996
Heyer Products Co. v. United States...... 18
Keene Corp. v. United States...... 18
3.U.S. District Court under the APA
Scanwell Labs v. Shaffer...... 19
Steinthal v. Seamans...... 19
Merriam v. Kunzig...... 20
Shoals American Industries v. United States...... 20
4An Unavailable Alternative: the BCAs
Coastal Corp. v. United States...... 22
5.Judicial Bid Protest Jurisdiction After the 1996 Tucker Act Amendments
6.The Relationship b/w Bid Protest Forums and Performance Dispute Forums
United States v. Amdahl Corp...... 22
B.Contract Performance Disputes: The CO and the CDA
1.Introduction to the Disputes Process
2.The Role of the CO
Keystone Coat & Apron v. United States...... 23
Penner Installation Corp. v. United States...... 23
3.Choice of Forum and Procedures under the CDA
United States v. Grumman Aerospace Corp...... 24
Reflectone Inc. v. Dalton...... 24
TransAmercia Insurance Corp. v. United States...... 25
III.Formation of Government Contracts
A.Basic Principles of Government Contract Formation
United States v. Purcell Envelope ...... 25
Torncello v. United States...... 25
Algonac Manufacturing v. United States...... 26
Hercules v. United States...... 26
United States v. American Renaissance Lines...... 27
B.Competition Policies
Matter of Pacific Sky Supply, Inc...... 28
Protest of Memorex Corp...... 28
Matter of Computer Network Corp...... 28
C.Alternative Procedures
1.Sealed Bid Contracting
Refining Associates v. United States...... 29
Prestex v. United States...... 30
2.Competitive Negotiation
Matter of Essex Electro Engineers...... 30
Matter of Racal Corp...... 30
D.Qualification
1.Debarment and Suspension
Gonzales v. Freeman...... 31
2.Responsibility
SAFE Export Co...... 32
J.R. Youngsdale Construction Co...... 33
Keco Industries v. U.S...... 33
Old Dominion Dairy Products v. Sec. of Defense...... 33
3.Pre-Qualification
Dept. of Agricultures Use of Master Agreement...... 34
E.Types of Contracts: Allocation of the Risk of Uncertainty
Urban Data Systems v. United States...... 35
Bowsher v. Merck...... 36
F.Collateral Socio-Economic Policies
IV.Administration of Government Contracts
A.General Approach to Contract Interpretation
United States v. Wegematic Corp...... 38
B.Contractors’ Rights
1.Delay
Fruehauf Corp. v. United States...... 39
Hoel-Steffen Construction Co. v. United States...... 39
2.Changes
W.H. Armstrong & Co. v. United States...... 40
3.Constructive Changes
W.H. Edwards Engineering Co. v. United States...... 40
C.Government Prerogatives
1.Termination for Convenience (TFC) for the Govt.
Torncello v. United States...... 42
Krygoski Construction Co. v. United States...... 42
2.Inspection/Acceptance
C.H. McQuagge v. United States...... 42
3.Strict Compliance
Arrow Lacquer Corp...... 43
4.Default Termination
Devito v. United States...... 44
Appendix A – Bid Protest Jurisdiction
Appendix B – The Life of a Performance Dispute
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Govt. Contracts Outline
Prof. Schwartz – Fall, 2001
I.Basic Legal Considerations Concerning Contracting with Governmental Entities
A.The Subject Matter: Transactions and Agencies Covered by Federal Procurement Law; Exceptions
1.Statutes
a.Armed Services Procurement Act (“ASPA”), 10 USC § 2303 – provides authority for procurement by military departments (Defense, Army, Navy, Air Force, Coast Guard, NASA)
b.Federal Property and Administrative Services Act (“FPASA”), 41 USC § 252, provides authority for procurement by all executive agencies
(1)Note: Because these are the only two statutes authorizing procurement, some agencies are not covered here (e.g. Library of Congress)
2.Motor Coach Industries v. Dole(4th Circuit, 1984) – FAA is trying to increase usage of Dulles to alleviate pressure on National; it doesn’t go to Congress for an appropriation, but rather to the airlines specifically. Airlines agree to contribute funds to a Trust which will purchase buses for the airport, in return for waiver by FAA of airport fees. The Trust then solicits bids from (MCI) and a second firm, Eagle, and awards K to Eagle. thus brings suit under Fed.Admin. Procedure Act (APA)
a.Issue: alleges that the Trust was established w/ public money and thus that FAA violated procurement procedures by not paying funds into U.S. Treasury. Govt. counters that these were not public funds and therefore not subject to FPASA b/c the Trust is not Exec. Agency.
b.Held: for . FAA’s hand was visible in all aspects of the trust – its creation, funding, and administration, such that it was public in character. Moreover, b/c Trust is synonymous w/ FAA, it must follow procurement rules b/c FAA is governed by FPASA under its 1965 amendments.
(1)Policy: Allowing FAA to circumvent the statute opens flood gates for other agencies to ignore it as well, tolling the bell for its worthlessness
3.Forman v. United States(Fed. Cir. 1985) – This is a performance dispute (“claim”). s leased office space to postal service, which then subleases its space to non-postal entities, even though lease said property was to be used for “postal purposes.” s take dispute to Postal BCA (created by the Contracts Disputes Act), seeking termination of the lease.
a.Issues: (a) Under Choice of Law provisions, does federal or state law apply? (b) Does court have proper jurisdiction to hear the case? [Govt. argued it did not b/c it is concerned about precedential value – it claimed that lease was not a contract and thus not covered by CDA.]
b.Held: (a) Fed. Law applies to lease agreements to which the govt. is a party. Since restraints on alienation are construed against the lessor, here the court found the govt.’s use to be proper and accordingly finds for it. (b) Court has no jurisdiction over leases for “real property in being,” which means existing land. However, since the parties here had contracted for construction of the facilities, it was not a lease for real property in being but rather part of a larger construction K, and the CDA explicitly applies to construction Ks.
4.The Concepts of Congruence and Exceptionalism
a.Congruence – idea that “when the govt. enters into contractual relations, its rights and duties therein are governed generally by the law applicable to contracts b/w private individuals.”
b.Exceptionalism – emphasizes that b/c of its sovereign status, unique functions and special responsibilities, the govt. as a contracting party is not subject to all of the legal obligations and liabilities of private contracting parties
B.The Power to Contract
1.United States v. Tingey (U.S. Supreme Court, 1831) – Deblois is Navy purser, in charge of disbursing money for salary or supplies; Tingey is surety bondsman. Deblois has to put up a bond to insure he doesn’t steal money from govt., which Tinge\y has secured. Govt. alleges Deblois has not faithfully executed his job and sues him; he splits, so it comes after Tingey.
a.Issue: Did U.S. have authority to have Deblois enter into the bond, which is a K?
b.Held: The United States has the power to enter into contracts, even though there is no express constitutional power for it to do so [rejection of strict constructionism.]
2.United States v. Corliss Steam-Engine Co. (U.S. Supreme Court, 1875) – Post-Civil War, Govt. entered into K to secure military supplies, but later cancels the K b/c the war has ended. The govt. determines that some payment is fair under the K, so it determines to take what has made to date and cancel the rest. Govt. doesn’t pay, and files suit in Court of Claims.
a.Issue: Did govt. have authority to enter into the K?
b.Held: Govt. has right to terminate K for convenience; in doing so, the settlement is binding.
C. Appropriations and the Anti-Deficiency Act
1.Bowsher v. Synar (U.S. Supreme Court, 1986) – Under Gramm-Rudman-Hollings Balanced Budget Act, the Congressional Budget Office and OMB had to annually report the amount of projected budget deficit to the Comp. Gen., who then reported to the Pres. The Pres. would then implement necessary cuts based on CG’s recommendation unless Congress cut the budget through legislation.
a.Issue: Were these functions which were assigned to the Comp. Gen. executive or legislative? (Congress had power to remove him, but since he was performing executive branch roles this might have given Congress power over exec. official, violating separation of powers.)
b. Held: Comp. Gen. is an office that was created by Congress to check upon application of public funds in accordance w/ appropriations. In addition, Congress alone has removal power, b/c it must be done by joint resolution and could thus be passed over Pres. veto. Accordingly, Comp. Gen. is legislative branch official who may not perform exec. functions.
Note: the GAO has become more independent of Congress, and as a result this means it can perform like an independent exec. agency (e.g. FTC) or like a legislative agency.
2.Ameron v. Army Corps of Engineers (3rd Cir. 1986) – loses bid for sewer cleaning w/ the Army, and files bid protest w/ GAO. The Army allows the K it has awarded to proceed, despite the protest – it is supposed to stay the K under GAO rules, but claims the Competition in Contracting Act (CICA) is unconst. Army argued that under CICA Comp. Gen. was executing the law – an exec. function – by having the ability to shorten/lengthen stay period and interfering w/ exec.’s performance of its responsibilities. Two side notes:
(1) non-responsive bid – bid which failed to conform to specs. of the IFB
(2) non-responsible bidder – defect in the bidder (e.g. financially unqualified, convicted felon, etc.)
a.Issue: In the wake of Bowsher, do Comp. Gen.’s actions pursuant to CICA constitute a legitimate exercise of Congressional power, and in any event, does that exercise usurp the President’s power?
b.Held: CICA is constitutional for several reasons:
(1)Congress has authority to permit a legislative agent to investigate potential misconduct in the execution of procurement laws.
(2)Stay provision is okay b/c there is an important objective of preventing agencies from proceeding w/ protested bids (b/c if they proceed it is too late as a practical matter to cancel the K).
3.Statutory and case material re Appropriations Clause
a.Appropriations Clause (U.S. Const., Art. I, Sec. 9, c.l 7) – “No money shall be drawn from the Treasury, but in consequence of Appropriations made by law.” Appropriations are usually made on annual cycle, but this makes it difficult to deal w/ b/c many contracts are for more than one year. There are thus devices to deal w/ that problem:
(1)Funds Available Clause – govt. tells contractor that it will pay when and if it has an appropriation, otherwise it will not pay.
(2)Anti-Deficiency Act (31 U.S.C. § 1341) – forbids paying out money for which there is no appropriation, and makes such payment a crime. Also forbids entering Ks that purport to obligate the govt. to make payments in the absence of necessary appropriations.
b.Comp. Gen. Weitzel to Sec. of Interior (34 Comp. Gen. 239) – Govt. Ks w/ third party to perform exploratory drilling. The govt. is appropriated $105k under the K for the work, but the contract is terminated w/ only $71k spent.
(1)Issue: Can govt. use the remaining $34k – which has been appropriated and will otherwise go to waste – to K w/ another party to finish the job?
(2)Held: Yes, b/c of the Replacement Contract Exception – if there was a valid K made w/in the fiscal year which is terminated and thus must be replaced, the leftover funds can be used for the replacement provided that the new K serves the same need as the original and is not episodic.
c.Request to Sec. of State (35 Comp. Gen. 319 (1955))- State Dept. wanted to build pneumatic tube system for easier communication w/ the White House; it had leftover funds from the appropriations for remodeling of its building, and wants to apply these to build the system.
(1)Issue: Is the tube system part of the remodeling program such that the appropriations can be used to construct it?
(2)Held: No. The appropriation was not made for general purposes but rather for a specific purpose of remodeling. Because the governing statute says that the govt. cannot enter into a binding contract for anything other than the specific purpose of the appropriation, it cannot enter this K.
d.Generally patterns of appropriations spending on which the Comp. Gen. may have to rule:
(1)money spent too late – FY has ended and there are leftover funds
(2)money spent too early – govt. wants to use funds to cover expenditures which are not yet due in order to help save funds from the next FY’s appropriations
i.one exception to this is the bona fide need rule – govt. can use old appropriations from the current FY to enter into contracts which call for performance in a future FY only if there is a bona fide need to do so.
4.Solar Turbines International v. United States (Claims Court 1983) – enters into 5 year K w/ govt. for power plants and generators. Under the K, the govt. indicated “best estimated quantities” which it would purchase from . When the govt. purchases less than these quantities, sought more money under the K. In defense, govt. claims that that it could order below the estimates b/c they were, in fact, estimates, rather than minimum quantities. argues that under contra proferentum govt. is bound by ’s reasonable interpretation of the K.
a.Issue: Were the terms of the agreement such that this a requirements K or minimum quantities K?
b.Held: Because the K specifically stated that it was a requirements K and that govt. didn’t identify minimum quantities but rather estimated quantities, no min. quantity was required of the govt. and ’s interpretation was not reasonable; moreover, govt.’s failure to purchase estimates in the K did not constitute improper partial termination.
5.Goodyear Tire and Rubber Co. v. United States (U.S. Supreme Court, 1928) – leased premises to the govt., but govt. at the time didn’t have an appropriation for rent after first fiscal year; lease provided that if there was no appropriation the lease would terminate. K has funds availability clause, which suggests that govt. would pay if it got more funds. Lease is renewed for a couple terms, and then govt. gives notice to that it would vacate. At time to vacate govt. desires to stay longer and goes into next fiscal year; govt. pays for the time it stayed, but claims that b/c govt. held over on the lease it must pay for the whole year. This is a state law doctrine, but govt. Ks are governed by fed. law.
a.Issue: Under governing law, was govt. bound to pay for the entire year of the lease, even though there was no appropriation to that affect?
b. Held: Govt. didn’t have to pay for longer than it stayed. Notice given by govt. that it would only pay for the time it stayed negatived any intention to stay for the entire year, and there was no implied K that said it would pay beyond that. Govt. must make affirmative lease for the new appropriation.
6.C.H. Leavell & Co. v. United States (Ct. Claims, 1976) – Army awarded long-term construction K even though it didn’t have funds for the whole amount; as a result, work has to be suspended during performance. sought equitable adjustment under “suspension of work” clause, but Army denied liability under “funds available” clause. argued that while the funds available clause precludes claim for common law damages, it does not bar an equitable adjustment.
Note: this was a “continuing contract” which basically allows Congress to authorize a multi-year project and each year appropriate the funds needed for that year’s work – this prevents govt. from bumping up against ADA.
a.Issue: Is equitable adjustment available for unreasonable suspension even though the cause is an appropriation cut-off, whose possibility the parties contemplated in the K?
b.Held: Yes. Funds Avail. Clause only says that exhaustion of funds is not a breach of K, and that contractor must either finance the work itself or suspend activities and stand by to recommence work when funding is resumed. The issue is whether govt. has delayed ’s access to worksites for unreasonable amount of time and caused expenses that were not due to ’s negligence; if so, is entitled to equitable adjustment. B/c the govt. benefits from keeping the contractor on standby so it doesn’t need to find a contractor again when funds recommence, the equitable adjustment compensates the contractor for this benefit conferred on govt.
D.Authority of Agents
1.G.L. Christian and Associates v. United States (Ct. Claims, 1963) – contracted to build 2000 housing at Ft. Polk, La.; when govt. deactivates the Fort, it terminates the K.