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TippHill

Rescinding Acceptance

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Our customer recently accepted an item (CLIN 1) and the contractor is now telling us that it cannot install the item (CLIN 2) because the item will not fit into the designated install space due to its dimensions.  While both the item and the install space were specified in the contract, the contractor performed a survey before submitting its proposal.  Our customer believes the contractor should have known that the item could not be installed into the space and is now asking us to rescind acceptance of the item.   I’d appreciate any guidance.       

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You need to read your contract.  No one here knows what inspection and acceptance clauses are in your contract.  Even so, I'm not sure you can rescind acceptance -- if acceptance occurred, it occurred.  After acceptance, the Government may still have rights (see your contract's inspection and acceptance clauses) -- for example, you may be able to require the contractor to correct the deficiency, or you might be able to hire a third-party to correct the deficiency and charge the cost to the contractor.  Or, you might have warranty rights.

Have you made payment for the item yet?

Is your customer wrong?  Maybe the contractor is right, and provided exactly what was ordered -- maybe your customer made a mistake, and wants to blame it on the contractor.  Do you agree with the customer or the contractor?

My guidance?  Read the contract, and gather the facts.

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Read Cibinic, Nash, and Nagle, Administration of Government Contracts, 4th Edition, if you are interested in understanding 'post-acceptance rights' and the general circumstances under which you can 'revoke acceptance'.

Googling the terms above will get you started, but as previously stated by ji20874, you haven't provided the right information.

Does your customer's acceptance equal government acceptance per the contract? 

How was the contract written - who has responsibility for specifications and drawings or design? You said the solicitation provided the item and dimensions of the install space, but was that a requirement, or informational/planning?

Do you even have a dispute or will the contractor agree to fix the issues (modify the space to fit or reorder a new item that will fit)?

If you feel your office messed up, don't try to excuse yourselves. Own it.

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4 hours ago, TippHill said:

...While both the item and the install space were specified in the contract, the contractor performed a survey before submitting its proposal...       

TippHill,  You need to be much more specific than the tidbits that you tossed out and want answers to.  What are the specific FACTS?

Apparently somebody couldn't measure the install space correctly, right?  Are you saying that BOTH the gov't and the contractor measured the installation space and both screwed up? 

How do you know that "the contractor performed a survey before submitting its proposal"?  Specifically, did the solicitation require the contractor to measure and to verify the space before submitting its proposal?

Do you KNOW that the contractor KNEW or SHOULD HAVE KNOWN that the device wouldn't fit in the space?

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Quote

Our customer believes the contractor should have known that the item could not be installed into the space and is now asking us to rescind acceptance of the item.   I’d appreciate any guidance.     

Assuming that the government wrote the specification, it is my opinion that if the item that was delivered conformed to the spec, then the government must accept the item and pay for it, whether the item that it specified meets the government's need or doesn't meet it, and whether the contractor knew that it wouldn't meet the government's need or didn't know.

I do not know of any standard contract clause that allows the government to refuse or to rescind acceptance of an acceptable item on the ground that the item won't meet the government's need and that the contractor knew or should have known that it wouldn't meet the need. The government warrants suitability of its specification. I know of no board or court decision to the effect that contractor knowledge that the item woildn't meet the government's need has any bearing on the acceptability of the item or on the government's obligation to pay for it.

The way to avoid a demand for payment for the installation CLIN is to terminate that CLIN for convenience.

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My questions related to what level of responsibility the solicitation and contract placed or attempted to place upon the offeror/contractor, if any, to ensure that the specified item would fit in the specified location.  

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I think the issue is one of duty. Was the contractor contractually obligated to ensure that the spec was good? Was that a duty that it owed to the government and for which is what to be paid?

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Correct.  

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1 hour ago, Vern Edwards said:

I think the issue is one of duty. Was the contractor contractually obligated to ensure that the spec was good? Was that a duty that it owed to the government and for which is what to be paid?

I agree that the issue is one of duty. Does the solicitation and subsequent contract place a duty on the proposer/contractor to verify that the specified equipment would fit in the space provided?  The original post did not say. 

The OP ask for guidance. JI suggested that he/she read the contract and gather the facts. 

 Good advice. 

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Regardless of the following half-baked thoughts,* good questions to ask are "was the problem in the specifications a patent (obvious) defect?" and "was there any related ambiguity in the solicitation or specifications?" The Government asserts that the contractor should have known of the problem, which sounds to me like the Government considers it a patent (obvious) problem.

So, the Government asserts they were so out to lunch on these specifications that someone, anyone should have notified them of the errors or incompatibility. That's funny. In the absence of an additional, special duty in this contract to verify the specifications (as Joel Hoffman queries), I think the Government is stuck with their mistake and acceptance of CLIN0001. It also sounds like the contractor can claim impossibility of performance of CLIN0002.

 

*Possibly irrelevant tangent: This discussion and its underlying policy interests remind PepeTheFrog of contra proferentem (or "against the drafter") and the duty to seek clarification. Both of these exist in case law as contract interpretation principles in the face of ambiguity. Contra proferentem means that facing two reasonable, conflicting interpretations (creating an ambiguity), favor the interpretation of the non-drafting party. (Penalize the contract drafter for ambiguity, to deter future ambiguity.)

The duty to seek clarification negates contra proferentem if the non-drafting party failed to seek clarification of a patent (obvious) ambiguity. (Don't let the non-drafting party benefit from mistakes it should've identified, but instead chose to exploit.) The key is that the non-drafting party had to actually know, or should have known, about the patent ambiguity.

Contra proferentem and the duty to seek clarification are tools to interpret contracts when there is ambiguity. Could these doctrines (or their underlying policy justifications) be applied to this problem of faulty specifications?

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TippHill,

Do you have any further questions?  Can you answer some of the questions raised here?  It will make for a better discussion.

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On April 1, 2016 at 11:25 AM, TippHill said:

Our customer recently accepted an item (CLIN 1) and the contractor is now telling us that it cannot install the item (CLIN 2) because the item will not fit into the designated install space due to its dimensions.  While both the item and the install space were specified in the contract, the contractor performed a survey before submitting its proposal.  Our customer believes the contractor should have known that the item could not be installed into the space and is now asking us to rescind acceptance of the item.   I’d appreciate any guidance.       

Emphasis added. The contractor is not asserting a claim. If anything, the "customer" is asking the CO to assert a claim. There is no indication in the original post that the contractor has committed an act or omission that would support a government claim arising under or relating to the contract. The performance of a "survey" by the contractor prior to award would hardly seem grounds for a government claim. If you assume that the contractor submitted a proposal that assented to the terms of the contract, and that the contractor performed in accordance with those terms, then what conceivable ground would the government have for rescinding a legal acceptance and refusing to pay. Forget about TippHill. Speculate.

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Was reading the “Post Acceptance Rights” section of Administration of Government Contracts (4th Ed) by Cibinic, Nash, and Nagle.

 

The three exceptions to the finality of acceptance are 1) latent defects, 2) fraud, and 3) gross mistakes amounting to fraud.

 

Latent Defect

The Government would have to prove that-

1) a defect existed in the contractor’s work based on the specification;

2) a defect existed at the time of acceptance;

3) it was hidden from knowledge and sight and could not be discovered by the exercise of reasonable care; and

4) the government was injured as a result of the defect.

 

Fraud

The Government would have to prove that-

1) its acceptance was induced by reliance on;

2) a material misrepresentation of fact, actual or implied, or the concealment of a material fact;

3) made with knowledge or falsity or in reckless or wanton disregard for the facts;

4) with intent to mislead the government; and

5) as a consequence of which the Government has suffered injury

 

Gross Mistakes Amounting to Fraud

Elements are the same as is for fraud, but there is no requirement to prove intent to mislead.

 

I’m not suggesting any of these situations exist in the scenario presented by TippHill, but if the Government were to rescind acceptance, it would have to be on the basis one of the situations.  For example, the government would have to prove the contractor knew of the problem based on their survey and prior to submitting their quote, but chose to conceal it from the Government

 

One way to help preclude or reduce the likelihood of this type of situation from occurring is for the Government to stop trying to spec everything out (space and system). Rather they should provide accurate details of the space, state in the solicitation the quoters are required to validate the representation made by the government in the specification, and put the burden of selecting the system to install on the contractor.  The Government could also go a step further and not measure the space and site conditions and put that responsibility on the contractor as well.  The government should also provide salient characteristics of the system needed, but stay away from specifying a specific system unless absolutely needed.  Let the contractor take responsibility for delivering a system that works, they should be the experts in their respective fields.

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The coverage in Cibinic, Nash and Nagle pertains to defects in the delivered item. The problem in this case is not that there is a defect in the delivered item, but that there is a defect in the government's specification of the item. The government "customer" wants to say that it was the contractor's responsibility to notify the government of the defect prior to contract formation, because the contractor knew or should have known about it.

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