Government Contracts – Schwartz – Fall 2011
Contents
I. Basic Legal Considerations When Contracting with Governmental Entities 1
A. Transactions & Agencies Covered By Federal Procurement Law; Exceptions 1
B. The Power to Contract 3
C. Appropriations and the Anti-Deficiency Act 3
D. Authority of Agents 6
E. Aspects and Consequences of Sovereignty 8
F. Federal-State Relations 14
G. The False Claims Act and Qui tam Suits Against Contractors 15
H. Criminal Prosecution 16
I. Free Speech Rights of Government Contracts 16
II. Protests Claims and Disputes: Adjudication for Controversies Concerning Contract Award and Performance 17
A. Contract Award Controversies 17
B. Contract Performance Disputes: The CO and the Contract Disputes Act 26
III. Formation of Government Contracts 28
A. Basic Principles of Government Contract Formation 28
B. Competition Policies 30
C. Alternative Procedures 33
D. Qualification 37
E. Types of Contracts: Allocation of the Risk of Uncertainty 40
F. Collateral Socio-Economic Policies 43
IV. Administration of Government Contracts 43
A. General Approach to Contract Interpretation 43
B. Contractor’s Rights 43
C. Government Prerogatives 45
I. Basic Legal Considerations When Contracting with Governmental Entities
A. Transactions Agencies Covered By Federal Procurement Law; Exceptions
v Introduction to federal government procurement
Ø About $300 billion annually, also a way for the government to regulate the private sector with collateral provisions
§ Ex: affirmative action, minimum wage, reporting requirements, etc.
Ø Federal procurement is a recurring source of dissatisfaction in the law
§ Gore’s National Performance Review
§ Swinging pendulum metaphor—deregulation leads to more discretion to government employees using common sense / making better choices or taking advantage of less oversight and committing fraud;
Ø Goal of government (FAR)—avoid waste, buy cheap, buy quality, avoid fraud and abuse, etc.
Ø Globalization—government contracts is becoming globalized through treaties, NAFTA, GPA (WTO’s government procurement Act)
v Procurement Statutes—same process applies to all federal agencies, the process began with military procurement which leads to some issues with ‘exceptionalism’ since the military has special ‘national security’ type privileges
Ø Armed Services Procurement Act (10 USC § 2303) (ASPA)—Applies to procurement by the following agencies, ‘for its use or otherwise,’ for all property (other than land[procurement of property is covered by other laws]) & all services for which payment is to be made from appropriated funds:
§ Department of Defense (DOD)
§ Army, Navy, Air Force, Coast Guard
§ NASA
Ø Federal Property and Administrative Services Act (41 USC § 252) (FPASA)—Generally the same as the ASPA. They drifted apart at some point and the Competition in Contract Act (CICA 1984) re-harmonized them; 1965 amendments to the FPASA extended its control to most Executive Agencies
§ Civilian counterpart to ASPA
§ Only governs executive agencies (excluding GAO)
§ Motor Coach Industries v. Dole (4th Cir. 1984)—An agency subject to federal procurement guidelines cannot avoid the guideline by creating a trust to execute the procurement b/c the character of the trust is still public
· Facts: MCI (disappointed bidder) claims that FAA didn’t invite enough competition. Federal Aviation Authority argues that the trust they used to fund the project for which they were accepting bids is private and thus not subject to federal procurement law.
· Factors to consider in determining whether an entity is public or private:
¨ Who controls the money and how is the trust funded
¨ Purpose of establishment of the trust or entity
¨ Character of the agency spearheading the entity’s creation
¨ Trust’s beneficiary and administrators
¨ Degree of control exercised over public agency
¨ Injunctive relief granted
· If an agency controls the money and the decisions about how it’s being spent, it’s still federal money. Otherwise everyone could create a ‘private’ trust in order to accomplish their own goals.
Ø Federal Acquisition Regulations (FAR)— Applies to all government acquisition; superimposed on both ASPA FPASA;
§ Required to be followed by executive agencies in the procurement of:
· Property other than real property
· Services, including research and development
· Construction, alteration, repair, or maintenance of real property
Ø The Administrative Procedure Act (APA), 5 USC § 553
Ø The Tucker Act (28 USC § 1491)—waives sovereign immunity of the US with respect to claims against the government based on contracts and governs jurisdiction of Court of Federal Claims
v Comparative Law Note
Ø GATT dispute resolution panel heard dispute between US and EU and held that where procurement is carried out under government control, by a private company with government funds in the interest of the government, it is considered a government procurement.
Ø Similar to criteria used in Motor Coach.
v Exceptionalism v. Congruence
Ø Exceptionalism—because of the government’s sovereign status, unique functions, and special responsibilities, the government as a contracting party is not subject to all of the legal obligations and liabilities of private contracting parties
§ Tends to apply in contract performance cases (Foreman)
§ Termination for Convenience (Corliss)
§ Government cannot be equitably estopped (Merrill; Richmond)
§ Come back here and fill this part in with examples
Ø Congruence—government is treated like a private party when entering into contracts with private parties
§ Offer and acceptance
§ Authority (?)
§ Consideration
§ Come back here and fill this part in with examples
Ø Reverse Exceptionalism—where the government has additional duties that a private individual does not have; creates extra rights for contractors and bidders.
§ Requirement for competitive bidding and advertising
§ Being sued for non-competitive bidding
v Two Types of Procurement Disputes
Ø Bid Protests/Award Disputes
§ Types:
· Procedural—wrong bid process was used
· Substantive—wrong party was awarded the bid
§ 3 Party Dispute between (1) government, (2) winning bidder, and (3) losing bidder; can be heard:
· General Accounting Office (GAO)
· Court of Federal Claims (CoFC)
Ø Performance Disputes
§ Can be heard by Board of Contracts Appeals or the Court of Federal Claims
§ Governed by the Contracts Disputes Act of 1978 (CDA)
· Provides choice of forum
· Does not apply to procurement of real property, including acquiring a lease (as opposed to entering a lease, which is covered by the CDA, see Foreman)
§ Foreman v. United States (Fed. Cir. 1985)—the Contracts Dispute Act includes entering into leases as it involves procurement of property other than real property. In contrast, it doesn’t include acquisition/assignment of a lease is the procurement of real property, and in that case the CDA would not apply
· Facts: Forman entered into a lease with the government to build a post office and then sued when the government started subletting against the contract. Forman wanted FL law to apply, but the Board held that federal law applied. Thus, the contract was construed against Foreman, and they lost.
· Board of Contract Appeals had jurisdiction because the ‘real property in being’ exception does not apply since the contract was to build a post office (nothing in being at the time) and create a lease (not acquire one)
· EXCEPTIONALISM—federal law controls interpretation of federal contract
· Other notes: Forman wanted contra proferentum (construing ambiguous contract against drafter, govt. in this case), but Court usually declines this. Restraints on alienation are narrowly interpreted for policy reasons.
(PS)BCA (agency’s BCA)
à contracting officer Fed. Circuit SCOTUS
US Ct. of Federal Claims
B. The Power to Contract
v A-76 Contracting Process—when should the government do it itself, and when should it contract out to private sector?
Ø Government typically contracts out for goods
Ø Creates a procedure to determine when to contract out
Ø There are protest options available to contractor based on the decision to go in-house, but not for government employees if the government decides to contract out.
v The government has the authority to enter into voluntary procurement contracts (Tingey) and terminate for convenience (Corliss) and to enter settlement contracts.
Ø The government needs to be able to enter into contracts (satisfies federalism) and voluntary contracts don’t have to be authorized by Congress or by statute (satisfies separation of powers).
Ø Agencies are also, by extension, able to contract as long as it is relevant to their duties.
Ø United States v. Tingey (US 1831)—US, a sovereign, has the power to enter into voluntary contracts even though the Constitution does not explicitly authorize that power.
§ Necessary & Proper Clause—power to contract is a reasonable way to carry out enumerated powers
§ Authority to contract is limited by the standards placed on government by the authorization of Congress through an appropriation.
Ø United States v. Corliss Steam-Engine Corp. (1875)—government has the authority to terminate for convenience because the government deals with issues that arise unexpectedly more often than a private party (ex: war) and its needs change. An agreement to settle payment is an extension
§ Government enters into a Termination Settlement Proposal
§ One of the biggest examples of EXCEPTIONALISM.
C. Appropriations and the Anti-Deficiency Act
v Comptroller General
Ø Separation of Powers and the Government Accounting Office (GAO)
§ Comptroller General is the head of the GAO. Because she is subject to the control of the legislature, she cannot perform executive functions. (Bowsher v. Synar)
· Part of legislature—president nominates from a list of 3 candidates compiled by Congress, Congress can veto the president’s vote by a certain %, a joint resolution from Congress can remove her = cannot perform executive duties
· Comptroller General plays important roles in government contracts law:
¨ Bid protest role and budgetary advice role
§ Bowsher v. Synar (US 1986)—comptroller general is part of legislature and her functions under the Act are executive, which cannot be done. Congress has sufficient control over the CG that you cannot vest her with executive functions
· Stevens dissent: removal is not enough to say CG is part of legislature
Ø Competition in Contract Act (CICA) Enacted in 1984
§ Formerly codified recommendation structure discussed in Ameron. Gave GAO formal authority.
§ CICA gives the comptroller general the power to:
· Issue recommendations to procuring agencies brought by disappointed bidders,
· Stop execution of a contract while it investigates the protest using the ‘automatic stay’ provision
¨ Stay can be lengthened or shortened by GAO as needed, though agency doesn’t need to obey the extension
¨ If the agency wants to override the GAO, they must send a report to Congress. Technically, the GAO can only recommend, but practically, this requirement compels the agency
§ Ameron v. Army Corps of Engineers (3rd Cir. 1986)—CICA provisions are constitutional, including an automatic stay provision issued by the GAO.
· Facts: Ameron was the lowest bidder, but were found unresponsive, so Corps gave the contract to another group. Ameron complained to GAO and the GAO issued a stay provision. Corps continued with their contract award because they claimed the CICA was unconstitutional.
· Two-part test:
¨ Inquire as to the extent to which the legislative act prevents the executive from accomplishing its constitutionally assigned function Q1: Not really sure about this 2-part test thing here.
¨ If the potential for disruption is great, Court must determine whether justified by an overriding need to promote objectives within the scope of constitutional authority of congress.
§ Comparative Law note—similar approach to GAO is taken in US-Canada Free Trade Agreement. Agencies are encouraged to comply with recommendations and are then obligated to report to Parliament when they don’t
v Fiscal Law
Ø Appropriations Clause of the Constitution (Art I, § 9, cl. 7)—money cannot be drawn from the treasury unless express statutory appropriations have been made
§ In contrast to the idea that the government does not need express statutory authorization to enter into contracts
§ Theory: Can enter into contracts but must not pay the money
§ Policy:
· Separation of powers—gives executive the power to obligate payment from treasury—a congressional power
· Prevents fraud and corruption
· Protects public money
· Makes sure that public money is used according to judgments reached by Congress.
Ø Anti-Deficiency Act (31 U.S.C. § 1341)—forbids government from entering contracts for which there isn’t an appropriation already existing unless there is a funds availability clause is included,
§ Criminal penalties for knowing/willful violations by a CO, though not often enforced; more a scare tactic
· People go to the GAO because the advice is influential. The agency has no reason to question the ruling and no one has standing to question an expenditure if the GAO says it’s ok
§ Creates government defense—does not restrict agencies from contracting, but it creates a defense if the government breaches an obligation to pay money for which there is no appropriated fund
Ø Appropriations have to be available with respect to time, purpose, and amount.
§ Time of Appropriation
· Supplemental Appropriations Act of 1955, § 1311
¨ Money must be spent within the time for which it was available.
¨ To the Secretary of State (Comp. Gen 1955)—the government doesn’t have to pay expenses unless there has been a binding agreement made during that contract year.
Ø Tax money that wasn’t certain to be levied is not sufficient to support a valid obligation under § 1311
Ø In order for a contract to be signed in one fiscal year but not performed until the next, there must be a showing that the service/product was actually needed for the fiscal year in which the contract was signed; otherwise, the contract must be from the fiscal year in which the services are rendered.
§ Common law contract rules determine when a contract was executed—offer/acceptance, changing terms, counteroffer, etc.
· Bona Fide Needs Rule—to legally obligate a fiscal year appropriation, the supplies/services are required to serve a bona fide need in the fiscal year in which the need arises
¨ Replacement Contracts Doctrine—Acting CG Weitzel to Secretary of Interior (CG 1954) carves out an exception for cases where contract is a replacement contract; Requirements for using a lapsed year: