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Verbal Purchase Orders/Contracts


MileHighAcq

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On 1/19/2023 at 2:58 PM, MileHighAcq said:

Is there such a thing as a verbal [oral] purchase order? Can a CO issue a verbal [an oral] order, and later follow up with a written purchase order? 

Do you guys really think you're done with this topic? Is this just a barroom discussion over some beers? Are we pros or amateurs?

Better check out the GAO Red Book, Chapter 7, Obligation of Appropriations.

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18 minutes ago, Don Mansfield said:

Me, too. I'm glad you asked the question.

Thanks! What I find particularly interesting is all the folklores, customs, legends, and just downright myths that have been passed down from CO to CS over the ages that have no foundation in law, regs, or policy, when your come down to it. It's just "the way we've always done it" and no one has ever questioned it or asked why - or if they did, they didn't get very far. I honestly wish I had more time to spend on this forum for those kinds of topics. But alas, the mountains (of paperwork and redtape) are calling, and I must go.

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42 minutes ago, Vern Edwards said:

Do you guys really think you're done with this topic? Is this just a barroom discussion over some beers? Are we pros or amateurs?

Better check out the GAO Red Book, Chapter 7, Obligation of Appropriations.

Now we're talking!

The Red Book seems to confirm that there's a distinction between cases of an oral or implied-in-fact contract for the purposes of a contractor being able to collect monies for services rendered / products delivered, and the validity of such contracts from a regulatory compliance standpoint. I'm still unclear as to whether a CO acting within their authority but for the fact that the contract was not in writing would be considered an unauthorized commitment by the CO, or a mere administrative error, but I did find the following instructive:

Section 1501(a)(1):

Contracts

b. Contract “in Writing”

While there may be some room for interpretation as to what constitutes a “writing” for purposes of 31 U.S.C. § 1501(a)(1), the writing, in some acceptable form, must exist. Under the plain terms of the statute, an oral agreement may not be recorded as an obligation. In United States v. American Renaissance Lines, Inc., 494 F.2d 1059, 1062 (D.C. Cir.), cert. denied, 419 U.S. 1020 (1974), the court found that 31 U.S.C. § 1501(a)(1) “establishes virtually a statute of frauds” for the government9 and held that neither party can judicially enforce an oral contract in violation of the statute.

However, the Court of Claims and its successors, the Claims Court and United States Court of Federal Claims, have taken the position that 31 U.S.C. § 1501(a)(1) does not bar recovery “outside of the contract” where sufficient additional facts exist for the court to infer the necessary “meeting of minds” (contract implied-in-fact).

In Pacord, Inc. v. United States, 139 F.3d 1320 (9th Cir. 1998), the court relied on Narva Harris Construction Corp. in holding that, even though the Federal Acquisition Regulation (FAR) generally requires contracts to be in writing,10 an oral contract may be enforced if the plaintiff “can establish sufficient facts, beyond a mere oral agreement, for the court to infer the existence of an implied-in-fact contract.” Pacord, 139 F.3d at 1323.

d. Invalid Award/Unauthorized Commitment

Claims against the government resulting from unauthorized commitments raise obligation questions in two general situations. If the circumstances surrounding the unauthorized commitment are sufficient to give rise to a contract implied-in-fact, it may be possible for the agency to ratify the unauthorized act.

If ratification is not available for whatever reason, the only remaining possibility for payment is a quantum meruit recovery under a theory of contract implied-in-law. The quantum meruit theory permits payment in limited circumstances even in cases where there was no valid obligation.

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15 hours ago, MileHighAcq said:

I'm still unclear as to whether a CO acting within their authority but for the fact that the contract was not in writing would be considered an unauthorized commitment by the CO, or a mere administrative error,

I do not believe it would be an unauthorized commitment if both parties agree that a contract exists and that the CO had the authority and by authority I mean all the other stars align for that authority such as funds are available. 

 

 

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10 minutes ago, Vern Edwards said:

If a company is approached by a person with a government ID who says, "I'm a contracting officer and I want to buy $30,000 worth of X. Let's agree on terms, and I'll send the paperwork later. I'll give you a hand-written note confirming the order." What should the company say?

"Ok, but I need to confirm that you have the requisite authority to bind the Government." 

According to FAR 1.602-1(b), this information should be "readily available to the public".

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Bingo!

I once worked for an agency that established emergency purchase teams. Each member was given a small briefcase in which they were to keep a copy of their CO warrant (certificate of appointment), some SF 44s, Purchase order, invoice, voucher, and some other items that I don't recall. The idea was that in case of nuclear war we would be able to go out and buy stuff that our agency would need. (I would say that it was crazy, but given our apparent determination to start a nuclear conflict with Russia it might not be so crazy after all. Why worry about small arm "assault" weapons when you can have mass killing on a nuclear scale?)

Once a month the duty officer would call me at home in the middle of the night to verify that my phone number was valid and ask for confirmation that I had my satchel and my government ID at home.

I think some FEMA teams carry something like that.

In short, I cannot think of a justification for strictly oral purchase orders. But if I had to try to do it for a good reason, I wouldn't worry about getting into trouble. But the seller should worry about getting paid.

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15 hours ago, Vern Edwards said:

@MileHighAcq Is a contracting officer's strictly oral purchase (not a call against a BPA) an unauthorized commitment as defined by FAR 1.602-3(a)?

If so, is it ratifiable in light of FAR 1.602-3(c)(3)?

If not, what then?

I would say it hinges on whether we think there is such a thing as an oral contract - from the standpoint of does any officer of the government have the authority to bind the government orally, not from the standpoint of the contractor getting reimbursed later on - i.e. from the Government's vs. the contractor's perspective. Maybe that's not much of a distinction, but in my mind it's important to this particular questions. 

The FAR defines an unauthorized commitment as follows: Unauthorized commitment, as used in this subsection, means an agreement that is not binding solely because the Government representative who made it lacked the authority to enter into that agreement on behalf of the Government.

Does any representative of the Government have the authority to bind the government orally? If the answer is no, then I would say it's an unauthorized commitment that needs to be ratified. But again, with the COA being silent on written or oral contracts, I think it gives the CO sufficient wiggle room to issue an oral contract in cases of emergency, and the problem if they don't follow up with an oral written contract is more of an administrative failure from the Government's perspective.

FAR 50.103-2(c) is the closest thing I've seen in the FAR that addresses the situation. Thanks for the reference @Don Mansfield!

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57 minutes ago, C Culham said:

I do not believe it would be an unauthorized commitment if both parties agree that a contract exists and that the CO had the authority and by authority I mean all the other stars align for that authority such as funds are available. 

 

 

See above. Does any representative of the Government have the authority to enter into an oral contract? 

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See Weeks v. U.S., 144 Fed. Cl. 34, July 24, 2019 (a decision of the Court of Federal Claims):

Quote

 

Indeed, it is well settled that “agency procedures must be followed before a binding contract can be formed.” Harbert/Lummus Agrifuels Projects v. United States, 142 F.3d 1429, 1433 (Fed. Cir. 1998) (citing New Am. Shipbuilders, Inc. v. United States, 871 F.2d 1077, 1080 (Fed. Cir. 1989); Am. Gen. Leasing, Inc. v. United States, 587 F.2d 54, 57-58 (Ct. Cl. 1978)). In American General Leasing, for instance, the parties allegedly reached an oral agreement that was confirmed in writing but never became a binding contract. 587 F.2d at 57. The United States Court of Claims (“Court of Claims”), the predecessor to the United States Court of Appeals for the Federal Circuit (“Federal Circuit”), observed that (1) a letter confirming the oral agreement included a notation that additional prerequisites needed to be met before the parties could “sign a contract in accordance with the proposal” and (2) applicable regulations required any contracts to be in writing. Id. at 57-58. The Court of Claims explained that “[t]he parties may have completed the negotiations that would have led to a contract, but they had not taken the final and essential step of executing an agreement,” and found that no valid contract existed. Id. at 58.

In Harbert/Lummus, another decision that bears on the instant dispute, the Federal Circuit held that a purported oral contract was invalid because it was not authorized under applicable regulations:

"It appears evident that, if [the plaintiff] had examined the [contracting officer's] delegation of authority, it could not have reasonably believed it had entered into a binding contract with the government in the absence of the required written approval by the [contracting officer]. Because there is no evidence of such prior, written approval by the [contracting officer] ..., we hold that the [contracting officer] lacked the authority to enter into the oral contract and it is therefore not binding upon the government."

142 F.3d at 1433.

In Doe v. United States, another judge of this court relied on Harbert/Lummus when examining whether a valid oral contract existed. See 58 Fed. Cl. 479, 488-89 (2003), aff'd per curiam, 112 F. App'x 54 (Fed. Cir. 2004) (unpublished decision). Under the plaintiff's theory of the case, certain government officials entered into an oral contract with him in violation of agency regulations forbidding such contracts. Id. at 489. Accordingly, the court found that “no contract [could] exist” because those officials “lacked the requisite authority” since “agency procedures were not followed.” Id.

In American General Leasing, Harbert/Lummus, and Doe, the government officials involved all lacked the authority to enter into oral contracts because agency guidelines proscribed such contracts; thus, the purported oral contracts were held invalid. Here, the HUD officials involved in the June 24, 2011 negotiations similarly lacked the authority to enter into a binding oral agreement based on the HUD Litigation Handbook's requirements that HUD approval must be in writing, and include the regional counsel's concurrence, following receipt of a written proposal containing justifications for its adoption. Failure to satisfy any of these three requirements was sufficient to deprive the June 24, 2011 meeting participants of the necessary authority to enter into such an agreement. See Flexfab, LLC v. United States, 424 F.3d 1254, 1263 (Fed. Cir. 2005) (“[A]ssurances from a government agent, having no authority to give them, cannot expose the government to risk of suit for nonperformance of an obligation that it did not intentionally accept.”). Therefore, as in American General Leasing, Harbert/Lummus, and Doe, the purported oral agreement at issue in the instant case is not a valid contract.

 

Footnote omitted.

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13 minutes ago, Vern Edwards said:

See Weeks v. U.S., 144 Fed. Cl. 34, July 24, 2019 (a decision of the Court of Federal Claims):

Footnote omitted.

🤦‍♂️

22 minutes ago, C Culham said:

In the context of this entire discussion NO.   FAR 1.6.

so technically it's an unauthorized commitment...

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In my opinion, a contracting officer's oral purchase order is not an unauthorized commitment, as that term is defined in FAR Part 1, and his formalizing it on paper the next day does not require a ratification.  

50 minutes ago, MileHighAcq said:

The FAR defines an unauthorized commitment as follows: Unauthorized commitment, as used in this subsection, means an agreement that is not binding solely because the Government representative who made it lacked the authority to enter into that agreement on behalf of the Government.

Generally, a contracting officer has the authority to enter into an agreement with the contractor to get some work done.  A minor error in form is far different than authority to enter into the agreement.  A ratification is not needed for a minor error in form.

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6 minutes ago, MileHighAcq said:

so technically it's an unauthorized commitment...

I love acquisition.   It probably just depends... https://www.cbca.gov/files/decisions/2016/KULLBERG_08-11-16_4947__ACADEMY_PARTNERS_INC_DBA_ACADEMY_TECHNOLOGY.pdf

 

"In its claim and complaint, API describes its contract with DOL for continued services after the base period ended as either an “oral contract,” “implied-in-fact contract,” or an “oral, implied-in-fact contract.” It is well established that “[t]he general requirements for a binding contract with the United States are identical for both express and implied contracts.” CBCA 4947 4 Trauma Service Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997). “An implied-in-fact contract is founded upon a meeting of the minds and is ‘inferred, as a fact, from the conduct of the parties showing, in light of the surrounding circumstances, their tacit understanding.’” Southwestern Security Services, Inc. v. Department of Homeland Security, CBCA 1264, 09-2 BCA ¶ 34,139, at 168,778 (quoting Hercules, Inc. v. United States, 516 U.S. 417, 424 (1996) (quoting Baltimore & Ohio Railroad Co. v. United States, 261 U.S. 592, 597 (1923)). An enforceable oral contract requires “documentary evidence show[ing] that ‘a final agreement was reached and what its terms were.’” Guilltone Properties, Inc., HUD BCA 02-C-103-C4, 06-1 BCA ¶ 33,249, at 164,787 (quoting Essex Electro Engineers, Inc., ASBCA 30118, et al., 88-1 BCA ¶ 20,440, at 103,369). An enforceable oral contract is an oral express contract. See Kinzley v. United States, 661 F.2d 187, 190 n.2 (Ct. Cl. 1981).

The documentary evidence necessary to prove the existence of an oral express contract need not include a formal contract. Id. at 191. At issue is whether API has sufficiently alleged the existence of a contract with DOL for continued service under the order after the base period had ended. In Engage Learning, Inc. v. Salazar, 660 F.3d 1346 (Fed. Cir. 2011), the Court of Appeals for the Federal Circuit (CAFC) held that “a plaintiff need only allege the existence of a contract to establish the Board’s jurisdiction under the CDA ‘relative to’ an express or implied contract with an executive agency.” Id. at 1353. “[T]he determination of whether or not a contract in fact exists is not jurisdictional; it is a decision on the merits.” Id. at 1355. The CAFC held that there was subject matter jurisdiction to hear an appeal in which the appellant alleged that it performed additional work under amendments to a requisition and the question of whether the requisition had been properly amended to pay appellant for that additional work was not jurisdictional, but rather, an issue to be decided on the merits. Id."

 

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Just now, ji20874 said:

In my opinion, a contracting officer's oral purchase order is not an unauthorized commitment, as that term is defined in FAR Part 1, and his formalizing it on paper the next day does not require a ratification.  

Pursuant to FAR 1.602-3, if a contracting officer places an oral order without authorization to place oral orders, and the contractor ships immediately, has the CO made an unauthorized commitment?

If so, would the CO's written formalization of the oral order the next day constitute a ratification of his oral order?

If so, would the ratification be within the CO's authority?

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59 minutes ago, ji20874 said:

In my opinion, a contracting officer's oral purchase order is not an unauthorized commitment, as that term is defined in FAR Part 1, and his formalizing it on paper the next day does not require a ratification.  

Generally, a contracting officer has the authority to enter into an agreement with the contractor to get some work done.  A minor error in form is far different than authority to enter into the agreement.  A ratification is not needed for a minor error in form.

Yes, that's what I'm leaning toward. That a reviewer can write a CO up for not following procedures in issuing a written order, but the CO still had the authority to enter the binding agreement. The failure was in not following the proper procedures.

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38 minutes ago, Vern Edwards said:

Pursuant to FAR 1.602-3, if a contracting officer places an oral order without authorization to place oral orders, and the contractor ships immediately, has the CO made an unauthorized commitment?

If so, would the CO's written formalization of the oral order the next day constitute a ratification of his oral order?

If so, would the ratification be within the CO's authority?

In my mind, a CO following up an oral order with a written order is more the CO correcting/remedying a procedural failure (not following procedures) than an unauthorized commitment. 

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1 hour ago, Vern Edwards said:

😆 You must be a lawyer! Good comeback! So procedure doesn't matter.

I try :) 

As a reviewer (I'm a PA), I'm not going invalidate an entire contract just because the CO missed a step or two in the process (e.g., failed to synopsize, did not document market research, missed a required D&F, etc.). Those become findings on the file, and while some are more serious than others, they're all procedural in nature. There are few things in our world that are "fatal flaws". It's a good reminder for acquisition staff.

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😊

5 hours ago, MileHighAcq said:

As a reviewer (I'm a PA), I'm not going invalidate an entire contract just because the CO missed a step or two in the process (e.g., failed to synopsize, did not document market research, missed a required D&F, etc.).

@MileHighAcqYou "youngsters" crack me up. I'm an old (you're all youngsters to me) and battered contracts warrior, and I've learned many things at my own foolish expense. One of the things I've learned is that the contracting bureaucracy doesn't always have as much say as they think they do.

Who says that you, a procurement analyst, as a reviewer, has the final say? All it takes is one higher staff review, legal review, or (God forbid) IG report to put you off your feed.

See the decision of the Federal Circuit Court of Appeals, one step below the Supreme Court, in HARBERT/LUMMUS AGRIFUELS PROJECTS, Harbert International, Inc., Abb Lummus Crest, Inc. and Lummus Crest, Inc., 142 F. 3d 1429, April 21, 1998:

Quote

As we have held before, agency procedures must be followed before a binding contract can be formed. See American Gen. Leasing, Inc. v. United States, 218 Ct.Cl. 367, 587 F.2d 54, 57–58 (1978) (holding that express oral agreement with government agent was not binding because, among other factors, applicable regulations required contract to be in writing); New Am. Shipbuilders, Inc. v. United States, 871 F.2d 1077, 1080 (Fed.Cir.1989) (“Oral assurances do not produce a contract implied-in-fact until all the steps have been taken that the agency procedure requires; until then, there is no intent to be bound. Thus, it is irrelevant if the oral assurances emanate from the very official who will have authority at the proper time, to sign the contract or grant.”). 

Emphasis added. Now, there are contrary decisions. But my advice is: Don't be too sure of yourself. 

Look, I think that 999/1,000 times CO's oral agreements will stand, especially if they make sense and the agency wants them to stand. But the notion that such an agreement will always stand, or that you can blithely waive the rules, is not supported by experience.

I would make an oral deal if I thought that it was essential and unavoidable. But I would be ready for trouble if the deal were questioned.

Also see Cibinic, Nash & Yukins, Formation of Government Contracts, 4th ed., Contracts Varying from Statutory and Regulatory Requirements, pp. 69 - 81.

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I know that there is a difference between compliance with specified procedures and what is sometimes done for the sake of expediency. I've taken the expedient course myself, several times.

I also know that while the expedient course is sometimes, perhaps usually, approved, it is sometimes not. Everyone reading this thread should know that, keep it in mind, and make good decisions.

Contractors should be especially wary. Government personnel who would break their own rules might not be reliable promisors. It's one thing to ship based on an oral order from someone with whom you've done business many times and found to be reliable; it may be another thing entirely to do that for someone you do not know, who works for a boss you do not know, who works in an agency office you do not know.

Weeks v. U.S., 144 Fed. Cl. 34 at 48 July 24, 2019:

Quote

Indeed, it is well settled that “agency procedures must be followed before a binding contract can be formed.” Harbert/Lummus Agrifuels Projects v. United States, 142 F.3d 1429, 1433 (Fed. Cir. 1998) (citing New Am. Shipbuilders, Inc. v. United States, 871 F.2d 1077, 1080 (Fed. Cir. 1989); Am. Gen. Leasing, Inc. v. United States, 587 F.2d 54, 57-58 (Ct. Cl. 1978)). In American General Leasing, for instance, the parties allegedly reached an oral agreement that was confirmed in writing but never became a binding contract. 587 F.2d at 57. The United States Court of Claims (“Court of Claims”), the predecessor to the United States Court of Appeals for the Federal Circuit (“Federal Circuit”), observed that (1) a letter confirming the oral agreement included a notation that additional prerequisites needed to be met before the parties could “sign a contract in accordance with the proposal” and (2) applicable regulations required any contracts to be in writing. Id. at 57-58. The Court of Claims explained that “[t]he parties may have completed the negotiations that would have led to a contract, but they had not taken the final and essential step of executing an agreement,” and found that no valid contract existed. Id. at 58.

***

In Doe v. United States, another judge of this court relied on Harbert/Lummus when examining whether a valid oral contract existed. See 58 Fed. Cl. 479, 488-89 (2003), aff'd per curiam, 112 F. App'x 54 (Fed. Cir. 2004) (unpublished decision). Under the plaintiff's theory of the case, certain government officials entered into an oral contract with him in violation of agency regulations forbidding such contracts. Id. at 489. Accordingly, the court found that “no contract [could] exist” because those officials “lacked the requisite authority” since “agency procedures were not followed.” Id.

In American General LeasingHarbert/Lummus, and Doe, the government officials involved all lacked the authority to enter into oral contracts because agency guidelines proscribed such contracts; thus, the purported oral contracts were held invalid. Here, the HUD officials involved in the June 24, 2011 negotiations similarly lacked the authority to enter into a binding oral agreement based on the HUD Litigation Handbook's requirements that HUD approval must be in writing, and include the regional counsel's concurrence, following receipt of a written proposal containing justifications for its adoption. Failure to satisfy any of these three requirements was sufficient to deprive the June 24, 2011 meeting participants of the necessary authority to enter into such an agreement. See Flexfab, LLC v. United States, 424 F.3d 1254, 1263 (Fed. Cir. 2005) (“[A]ssurances from a government agent, having no authority to give them, cannot expose the government to risk of suit for nonperformance of an obligation that it did not intentionally accept.”). Therefore, as in American General LeasingHarbert/Lummus, and Doe, the purported oral agreement at issue in the instant case is not a valid contract.

Why make an oral "agreement" today that is not binding, if you are going to issue a written contract tomorrow? Talk it over with a prospective contractor, yes. And let the contractor proceed at its own risk if they choose to do so. But wait until tomorrow to call it and think of it a contract.

I was confronted with that question, and I made up some answers. They were likely a lot of hooey.

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