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I'm no expert on purchase orders but from the very general info provided, it appears that the government made the offer to the contractor based upon its quote in block 29 of the purchase order, without knowing that the contractor excluded parts from the price. Deaner hasn't clarified the details.

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Don,

Please don't get started.

My use of purchase order and contract are correct. I can quote the FAR, too (my emphasis added):

FAR 13.004 Legal effect of quotations.

(a) A quotation is not an offer and, consequently, cannot be accepted by the Government to form a binding contract. Therefore, issuance by the Government of an order in response to a supplier’s quotation does not establish a contract. The order is an offer by the Government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when the supplier accepts the offer.

Anyone who thinks a contract exists when a purchase order is issued, as you assert, is wrong. Look at the words above: issuance by the Government of a [purchase] order does not establish a contract -- rather, the contract is formed when the supplier accepts the offer. Thus, my statement "a purchase order is not a contract at issuance and only becomes one when the contractor accepts it," which you find offensive, is wholly correct and true. A person adopting your approach, that a contract exists at the moment of issuance of a purchase order, would err.

I have no problem with the FAR 2.101 definition of contract, in the context of definitions. By the way, FAR 2.101 also has a definition of purchase order. Please go look at it.

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ji, in your post 23, you stated "a purchase order is not a contract at issuance and only becomes one when the contractor accepts it (and then having accepted it, must perform it)." I think the phrase "must perform it" is troubling. A purchase order can be accepted by performance. Thus, in this case, the purchase order only becomes a contract after the contractor has performed. You may have clarified this in your post 27.

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To Don's point, FAR 13.003(g)(2) specifies that:

"Authorized individuals shall make purchases in the simplified manner that is most suitable, efficient, and economical based on the circumstances of each acquisition. For acquisitions not expected to exceed... $6.5 million ($12 million for acquisitions as described in 13.500(e)), for commercial items, use any appropriate combination of the procedures in Parts 12, 13, 14, and 15..."

The Contracting Officer could use FAR Part 15 procedures to develop an RFP using FAR 13. The offerors' response to that FAR 13 RFP would be tantamount to an offer that the could be accepted through issuance of a unilateral Purchase Order. Therefore, it is possible to have a unilateral Purchase Order that becomes a contract without performance.

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Retreadfed,

A contractor accepts a purchase order (offer) either by signature or by starting performance. Once it has accepted in either way, a contract exists and the contractor must perform its obligations.

metteec,

A contracting officer can issue a RFP under FAR Part 13 -- if so, it receives offers, not quotations from prospective contractors, as you rightly note -- when I have done this, I accept such an offer by issuing a contract, not a purchase order. It seems that issuing a purchase order would be effectively issuing a counter offer for the contractor's acceptance.

Don,

Please let me refer you to the FAR:

  • FAR 2.101: Purchase order, when issued by the Government, means an offer by the Government to buy supplies or services, including construction and research and development, upon specified terms and conditions, using simplified acquisition procedures.

  • FAR 13.004(a): ...ssuance by the Government of an order in response to a supplier’s quotation does not establish a contract. The order is an offer by the Government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when the supplier accepts the offer.

The term "unilateral contract" is not used in the FAR. Even so, your source for your definition of unilateral contract admits that the distinction between bilateral and unilateral contract is normally only of academic interest. It is of no interest to me, and of no relevance in this posting. For our purposes, a purchase order is an offer from the Government that a contractor may either accept or reject.

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What is "and all" in block 29 and what was identified in block 20 of the SF-1449?

Did the government fill in blocks 23 and 24, based upon the quotation?

Not much in block 20. Number to reference on invoices, POP, and see continunation page for price/cost schedule and SOW.

Nothing in blocks 23 and 24 as there was a price/cost schedule on the following pages.

All referring to all CLINS the contractor priced.

, and comes here for validation,

I didn't come here for validation. Basically i did something stupid and then remedied it the best way i thought possible. I came here to get other people's view and if they would have done it different. Some would have some would not have.

I'm no expert on purchase orders but from the very general info provided, it appears that the government made the offer to the contractor based upon its quote in block 29 of the purchase order, without knowing that the contractor excluded parts from the price. Deaner hasn't clarified the details.

That pretty much sums it up.

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Thanks, Deaner. I agree with your remedy and hey - every one has made a mistake.

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Don,

Please don't get started.

If you keep making questionable assertions, I'm going to continue to challenge you. Get used to it. If you prefer to be anti-intellectual, then don't respond to me. In either case, you really need to stop with the whining.

My use of purchase order and contract are correct. I can quote the FAR, too (my emphasis added):

FAR 13.004 Legal effect of quotations.

(a) A quotation is not an offer and, consequently, cannot be accepted by the Government to form a binding contract. Therefore, issuance by the Government of an order in response to a supplier’s quotation does not establish a contract. The order is an offer by the Government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when the supplier accepts the offer.

Anyone who thinks a contract exists when a purchase order is issued, as you assert, is wrong. Look at the words above: issuance by the Government of a [purchase] order does not establish a contract -- rather, the contract is formed when the supplier accepts the offer. Thus, my statement "a purchase order is not a contract at issuance and only becomes one when the contractor accepts it," which you find offensive, is wholly correct and true. A person adopting your approach, that a contract exists at the moment of issuance of a purchase order, would err.

There you go with your straw man fallacy again. I did not assert that a contract exists when a purchase order is issued. I showed that the a purchase order was a "contract" as defined by the FAR. I don't have a problem with FAR 13.004( a ), just your bastardization of it. You wrote that a purchase order "becomes" a contract when it is accepted. FAR 13.004( a ) doesn't say that. It says a contract is established when the supplier accepts the offer. I don't think it's accurate to say that an offer "becomes" a contract. An offer is a necessary element to contract formation, but I wouldn't say that an offer "becomes" a contract. I would expect more from someone who thinks the nuance between "consistent" and "not inconsistent" is significant.

A contractor accepts a purchase order (offer) either by signature or by starting performance. Once it has accepted in either way, a contract exists and the contractor must perform its obligations.

That's wrong and it contradicts FAR 13.004( b ), which states:

When appropriate, the contracting officer may ask the supplier to indicate acceptance of an order by notification to the Government, preferably in writing, as defined at 2.101. In other circumstances, the supplier may indicate acceptance by furnishing the supplies or services ordered or by proceeding with the work to the point where substantial performance has occurred.

"Starting performance" does not constitute "substantial performance", nor would "starting performance" impose an obligation on the offeree to perform. Partial performance would be deemed to create an "option contract", which would limit the Government's ability to revoke its offer (purchase order). However, the offeree would still have the right to accept or reject the offer. From Comptech Corp., ASBCA 55526, 2008 WL 4628786 (Oct. 1, 2008):

Ordinarily, an offer is revocable prior to acceptance, and its revocation precludes the acceptance of that offer. See RESTATEMENT (SECOND) OF CONTRACTS §§ 35, 36(1)©, 42 cmt. a (1981); JOSEPH M. PERILLO, CORBIN ON CONTRACTS § 2.18 (rev. ed. 2007); JOHN EDWARD MURRAY, JR., MURRAY ON CONTRACTS § 43 (2001); FAR 13.004©. Because the law deems it unjust, however, to allow revocation of an offer where an offer can only be accepted by performance and the offeree has begun performing, a subsidiary promise — that the offeror will not revoke its offer if part performance is given — is implied as included in the offer and an offeree’s rendering of partial performance is deemed to create an “option contract.” RESTATEMENT (SECOND) OF CONTRACTS §§ 45(1), 87(2); MURRAY ON CONTRACTS § 43(D); PERILLO, CORBIN ON CONTRACTS § 2.29; see FAR 13.004( b ). When the offeree undertakes a substantial part of the performance requested, its actions form an “option contract” binding the offeror to keep its “offer” open until the time stated in the offer or, if no time is stated, for a reasonable time. Amplitronics, supra, 87-2 BCA ¶ 19,906 at 100,704; Klass I, supra, 78-2 BCA ¶ 13,236 at 64,717; P.E.C. Corp., ASBCA No. 13709, 69-1 BCA ¶ 7559 at 34,996; ITT Defense Communications Division Defense-Space Group, ASBCA No. 13420, 69-1 BCA ¶ 7548 at 34,953; RESTATEMENT (SECOND) OF CONTRACTS § 45(1); see FAR 13.004( b ), ©.
The principal legal consequence of an “option contract” is that it limits an offeror’s power to revoke its offer. RESTATEMENT (SECOND) OF CONTRACTS § 25; see FAR 13.004( b ), ©, 13.302-4. Under an option contract, the offeree is not bound to complete its performance. RESTATEMENT (SECOND) OF CONTRACTS §§ 37 cmt. a, 45 cmt. e. The offeror alone is bound, but its duty of performance is “conditional” on the offeree’s “acceptance,” i.e, completion or tender of the invited performance in accordance with the terms of the offer. Id. §§ 37 cmt. b, 45(2), 224, 225; see FAR 13.004 (when supplier accepts offer, contract established). The major element differentiating an option contract from all other contracts is that the optionee (option holder) has both the legal power to accept a second contract for the contemplated exchange and the legal privilege of not exercising that power. The optionor (option giver), on the other hand, has liability to become bound to execute the exchange and also a disability to avoid it. ERIC MILLS HOLMES, CORBIN ON CONTRACTS § 11.1 (rev. ed. 2007).

Get it, ji? Starting performance does not obligate the offeree, as you have asserted. Further, the issuance of a purchase order can result in a contract before acceptance. Try not to get upset.

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Thanks, Deaner. I agree with your remedy and hey - every one has made a mistake.

Agreed. Thanks for posting the scenario, Deaner. It is an important subject and hopefully others that read the forums can use discussion to make the best decision possible.

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Don,

I yield to your overwhelming quantity of words. I can't keep up with your ever-changing logic.

I will let my last words be these quotations from the FAR -- I wish you could find a way to agree with them...

  • FAR 2.101: Purchase order, when issued by the Government, means an offer by the Government to buy supplies or services, including construction and research and development, upon specified terms and conditions, using simplified acquisition procedures.
  • FAR 13.004(a): ...ssuance by the Government of an order in response to a supplier’s quotation does not establish a contract. The order is an offer by the Government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when the supplier accepts the offer.

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Considering the title of FAR 13.004 referring specifically to quotations, is it possible that this section does not apply to simplified acquisitions involving RFPs and receipt of offers?

If it is not applicable, couldn't a unilateral purchase order be synonymous with a contract issued unilaterally (unilateral contract is the term that Don used)?

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metteec,

A unilateral purchase order is an offer to enter into a unilateral contract. When the offeree takes "substantial and definite action" in reliance on the offer, the law limits the offeror's ability to revoke its offer. The Board refers to this contractual relationship as an "option contract". Similar to options you may see in Government contracts, there is no obligation on the part of the offeree to perform. The offeree still has the right to accept or reject the offer. ji20874's response to Retreadfed demonstrated his ignorance of this fact (although he would claim that he knew it but it wasn't relevant or too academic, etc.).

An "option contract" becomes a contract for "purchase and sale" when the offeree accepts the offer. In the case of a unilateral purchase order, the offeree indicates acceptance by furnishing the supplies or services ordered or by proceeding with the work to the point where substantial performance has occurred. From the Comptech decision:

In sum, an option contract or “binding option is a standing offer as well as a contract.” It involves both a binding promise to keep an offer open, which is a contract (usually unilateral in character), and making of an offer of some exchange, i.e., giving of an “option,” which creates a “power of acceptance” in the holder of the option, just as in the case of a revocable offer. The offeree’s “acceptance” exercising the option is an event qualifying the offeror’s duty under the contract, i.e., a condition. “Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.” RESTATEMENT (SECOND) OF CONTRACTS § 225(1). Accordingly, an optionor’s “binding” promise (to not revoke its offer) is a contract, but not yet a contract of “purchase and sale.” There is no completed contract for “purchase and sale” until the occurrence of the condition, i.e., the optionee accepts the option/offer.

Note that "substantial performance" does not mean that the offeree merely started work. It means that they fulfilled the contract, for the most part. It's an alternative to the perfect tender rule. Here's a decent explanation of the term:

substantial performance

n. in the law of contracts, fulfillment of the obligations agreed to in a contract, with only slight variances from the

exact terms and/or unimportant omissions or minor defects. A simple test is whether the omission, variance, or

defect can be easily compensated for with money. Examples: a)the contract is for supplying 144 pumps for

$14,400, and only 140 were delivered; b. the real property was supposed to be 80 acres and only contained 78 acres. This constitutes substantial performance unless the loss of two acres is crucial to the value of the property

(e.g. reduced the number of lots able to be subdivided); c) the product was to be delivered on October 25 and did not arrive until November 5. This constitutes substantial performance unless the product was required for a

Halloween sale.

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For a discussion of the ASBCA's view of this issue, see, Amplitronics, Inc. ASBCA No. 33732 87-2 B.C.A. P19,906

May 27, 1987, and the cases listed there.

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Ralph Nash discussed this at length in "Unilateral Purchase Orders: When Are They Binding," The Nash & Cibinic Report, March 2007. The leading case at that time was Davis Precision Machining, Inc., 35 Fed. Cl. 651 (1996). According to the court, acceptance by the contractor occurs upon completion of substantial performance, and the contractor is not bound until then, but the government is bound when the contractor begins performance.

To be fair, (1) FAR departs from the common law somewhat, (2) FAR does not explain the rules as clearly as it might, (3) the language used is confusing (unilateral contract, option contract), and (4) the underlying concepts are not widely understood by COs, contract specialists, or contractors, and are not properly taught. Prof. Nash's article is required reading.

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Don, could you answer these two questions:

1. If a FFP purchase order for (non-commercial) supplies was issued, the contractor completed substantial performance of the first half the order on the delivery date, except final paperwork review of the half-order was underway. The Government COR came in to source inspect the completed half of the order two weeks later, but rejected the half for minor paperwork issues. The contractor stated these issues were correctable within two weeks, what do you do? The purchase order (contract?) was withdrawn one week after Government rejection of the paperwork. Is the Government on the hook, in your opinion?

2.Do you have a link to the definition of substantial performance in the law of contracts? seems useful...

Thx!

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Ibrob1, concerning your first question to Don, please clarify what you mean by "the first half of the order". Was full delivery of all supplies required by the same delivery date? Also, what do you mean by "final paperwork review" and by whom?

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Do you have a link to the definition of substantial performance in the law of contracts? seems useful...

Black's Law Dictionary 9th ed. defines "substantial performance" as follows: "Performance of the primary, necessary terms of an agreement." Under "substantial performance doctrine" it says: "The rule that if a good-faith attempt to perform does not precisely meet the terms of an agreement or statutory requirements, the performance will still be considered complete if the essential purpose is accomplished, subject to a claim for damages for the shortfall."

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Joel,

To clarify, 7ea of the same item were ordered, all due on the same date. 4ea were presented two weeks after the final due date. The remaining 3 were never presented for inspection. Final paperwork review is the process a Government QAR (COR) performs to ensure the item meets contract requirements. This usually requires a check of all inspection paperwork and material certifications. When this is complete, the contractor is authorized to deliver parts to the Government. In this case the Government inspector didn't like the paperwork for a rivt on the item and the contractor said new rivets could be installed in two weeks.

Vern, Do you know where Don got the info below...it looks like case law or something from a DAU textbook...I'd like to qualify this

Thanks guys.

Quote

substantial performance

n. in the law of contracts, fulfillment of the obligations agreed to in a contract, with only slight variances from the

exact terms and/or unimportant omissions or minor defects. A simple test is whether the omission, variance, or

defect can be easily compensated for with money. Examples: a)the contract is for supplying 144 pumps for

$14,400, and only 140 were delivered; b. the real property was supposed to be 80 acres and only contained 78 acres. This constitutes substantial performance unless the loss of two acres is crucial to the value of the property

(e.g. reduced the number of lots able to be subdivided); c) the product was to be delivered on October 25 and did not arrive until November 5. This constitutes substantial performance unless the product was required for a

Halloween sale.

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lbrob1,

1. If a FFP purchase order for (non-commercial) supplies was issued, the contractor completed substantial performance of the first half the order on the delivery date, except final paperwork review of the half-order was underway. The Government COR came in to source inspect the completed half of the order two weeks later, but rejected the half for minor paperwork issues. The contractor stated these issues were correctable within two weeks, what do you do? The purchase order (contract?) was withdrawn one week after Government rejection of the paperwork. Is the Government on the hook, in your opinion?

If you issued a unilateral purchase order that required delivery of seven items by a certain date, the date has passed, and the vendor has yet to deliver an acceptable item, then I would say that the vendor did not accept your offer by way of substantial performance. Based on the facts provided, I would say the Government is not on the hook.

2.Do you have a link to the definition of substantial performance in the law of contracts? seems useful...

I got my definition from an online legal dictionary. The definition is helpful because it provides examples. However, the definition that Vern provided would more likely be used by a court or board.

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lbrob1,

If you issued a unilateral purchase order that required delivery of seven items by a certain date, the date has passed, and the vendor has yet to deliver an acceptable item, then I would say that the vendor did not accept your offer by way of substantial performance. Based on the facts provided, I would say the Government is not on the hook.

I got my definition from an online legal dictionary. The definition is helpful because it provides examples. However, the definition that Vern provided would more likely be used by a court or board.

Ibrob1 might be the contractor or the gov't. Either way, I would disagree with Ibrob that substantial performance was achieved, if the government required delivery of seven items , only four were provided by the required date and the remaining three were still not delivered at least three weeks later, when the government "withdrew" the order.

Of course, we might have to wait for ...the rest of the story...

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