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Contractors that require their commercial contract to be signed by the government


prodigalko

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What would you do if you came across a large contractor that refused - at the highest level - to accept a government purchase order without having the government sign a contradictory and dubious commercial form("services agreement")? Specifically the commercial form was written to the UCC and references state law/venue (different than the performance location and state), payment terms, performance terms, and other terms that differ from federal practice and the issued federal purchase order.

How have others solved this problem? I can see a few ways to do this, but am thinking that I might be missing something.

1. Tailor the contractor form until all conflicting terms are removed. This seems like the most difficult to get completed on the contractor side and is hampered by the government's inability to compromise.

2. Use non-appropriated funds so that less terms conflict and tailor as necessary.

3. Use a concessionaire contract so that the contractor is in charge of payment, fees and some of the conflicting terms.

If the contractor does not capitulate despite the clearly contradictory terms and the fact that the federal law in the government purchase order supersedes the UCC in the contractor form I am at a loss.

Thanks in advance.

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You use harsh words. The contractor is not doing anything wrong. A contract (or a purchase order) should make both parties happy. Have you tried to negotiate with the contractor for a win-win situation?

If you do try to negotiate, please be careful with words like contradictory, dubious, and capitulate.

Where does the notion of "the Government's inability to compromise" come from? If needed, FAR Subpart 1.4 will give you whatever flexibility you might need.

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Oh, let me tell you what I did in a similar situation. The purchase order was with a major record label for a synchronization license to use a song by a very famous artist in an agency video. Of course, the producing company had no time for the FAR, and they had their own standard terms and conditions. We ended up agreeing that the contractor's standard terms and conditions applied except where specifically contradicted by a purchase order clause, and also agreeing that the indemnification and hold-harmless provisions included in the contractor's terms and conditions did not apply. But we didn't edit or mark-up the contractor's terms and conditions -- we incorporated them as written.

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GSA recently modified its Federal Supply Schedule contracts to account for this very issue. Now, the contracts include GSAM 552.212-4 which deviates from the commercial item clause concerning issues related to:

1. Definition of contracting parties

2. Contract formation

3. Vendor indemnity (vendor assumes control of proceedings)

4. Automatic renewals of term-limited agreements

5. Future fees or penalties

6. Taxes

7. Payment terms or invoicing (late payment)

8. Automatic incorporation/deemed acceptance of third party terms

9. State/foreign law governed contracts

10. Equitable remedies, injunctions, binding arbitration

11. Unilateral termination of supplier agreement by supplier

12. Unilateral modification of supplier agreement by supplier

13. Assignment of supplier agreement or Government contract by supplier

14. Confidentiality of supplier agreement terms and conditions

15. Audits (automatic liability for payment)

See more at: https://interact.gsa.gov/document/how-gsa-intends-address-commercial-supplier-agreements#sthash.mLmmhoO2.dpuf

Since you are issuing an open market purchase order, you have three options: 1) award the contract to someone else; 2) negotiate a better deal; 3) accept the terms and conditions. Which option you select is based upon your negotiating position and how much you need to purchase the supplies/services from this particular contractor.

In situations where option #3 is necessary, and you have a commercial item contract, you could include the "dubious" document and rely on FAR Clause 52.212-4(s), Order of Precedence, provided all terms in the document were covered under the commercial item clause.

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Guest Vern Edwards

ji20874:

With respect to Post #3, did you seek legal review to determine whether any of the contractor's clauses were inconsistent with anything in FAR? If not, did the contracting officer make and document such a review and determination?

Did you include a contract clause in the PO to implement the agreement about conflicts between the contractor's clauses and the FAR clauses?

The acceptance of a contractor's terms is not as simple a matter as it's being made out to be in this thread. I think that COs had better be cautious about accepting a contractor's terms and conditions, especially COs who don't know the content and interpretations of government clauses.

As for the commercial item and noncommercial item order of precedence clauses, the resolution of any inconsistency will depend in part on where the CO puts the contractor's clauses in the contract document.

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ji0874,

The example I had in mind when framing the issue had clearly contradictory terms to the purchase order. If the form was not contradictory or they were amendable to making it compliant I have no issue.

Where the clauses contradict it is my understanding that federal law is limited, but supreme (McCullough v. Maryland). While the FAR does offer deviation from some requirements, such as a BAA waiver, the sections I had issue with have no waiver provision that I am aware of.

Some examples include the following:

1. Term - the PO was for base + four years, but the terms of the Service Agreement (SA) was base + 2 years and then automatically renewing every 60 days unless terminated.

2. Payment - The payment terms differed from the payment terms in the PO with regard to invoicing, fees, payment terms, and claims.

3. Venue - it was identified as a specific state.

4. Applicable Law - identified as the laws of the state in #3.

5. Indemnification - Gov indemnifies ktr in an unlimited manner.

In the hypothetical I would see any contracting officer modifying these terms to be improper, and exceeding their authority, if they did not follow a waiver process defined in the FAR.

I find acceptance of such clauses to be dubious because the federal law will be the applicable law - after probably some back and forth at the district court over standing and venue. For example, I can sign an agreement with a company stating that the venue and applicable law will be the fictional state of "Madison", but in a claim the Contract Disputes Act of 1978 will govern - not the claim terms in the agreement, and so on with regard to the parts of the FAR as applicable. I found a different example the other day, but advance payment works as contractors like to change payment terms to advance payment; however, contracting officers lack the authority to make this change without hca approval. Johnson Mgmt. Group CFC, Inc. v. Martinez, 308 F.3d 1245.

I am hesitant to accept/incorporate their document because it will become part of the complete integration of the agreement, and while the federal law is supreme, it would definitely create some issues when a dispute arises (the contractor could argue that I clearly meant to go with their terms, or I would not have included them). Adding it and knowing that it does not apply (or that they would lose in court) is not an argument I think any attorney would encourage because it could be used to make an argument that the government signed the agreement acting in "bad faith", or at least not in a manner "above reproach".

Update: Apparently I was wrong about the court following the government clauses exclusively. If you are going to COFC the contractor may be successful enforcing their clauses. See DMS Imaging Inc. v. United States, U.S. Court of Federal Claims No. 12–204C, April 30, 2014 available at https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2012cv0204-46-0.

This article is outside counsel encouraging contractors to include their terms because they may be used as evidence of the complete integration and therefore could be enforced in a dispute.

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