FAR 2.101:  Definitions - Contract

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Plaintiff’s remaining claim is that the Army unreasonably cancelled the contract it awarded to plaintiff. Plaintiff cannot pursue this claim unless it first establishes the existence of a contract with the Army. Generally, a contract with the federal government must meet the following requirements: “mutual intent to contract including an offer and acceptance, consideration, and a Government representative who had actual authority to bind the Government.” Trauma Serv. Grp. v. United States, 104 F.3d 1321, 1326 (Fed. Cir. 1997). Here, plaintiff argues that there was a written offer and an unambiguous oral acceptance, and that the contracting officer–Ms. Edwards–was authorized to bind the Army.11 Defendant responds that there was no binding contract between plaintiff and the Army because the contract for this procurement was required to be in writing, and the parties had, at most, an oral agreement. Defendant is correct.

The circumstances in this case are remarkably similar to those presented in American General Leasing, Inc. v. United States, 587 F.2d 54 (Ct. Cl. 1978), a decision cited by neither party. In American General Leasing, the procuring agency determined that one proposal, submitted by Infodyne Systems Corp. (“Infodyne”), was technically superior to the other submitted proposals. Id. at 56. It subsequently met with Infodyne to negotiate certain changes to Infodyne’s proposal. Id. Immediately after the parties agreed to various changes (which were memorialized by Infodyne in a letter that it sent to the procuring agency), the contracting officer advised Infodyne that he would issue “a letter of intent evidencing [the procuring agency’s] commitment to the agreement” three days later. Id. However, the contracting officer did not issue the letter of intent, and the procuring agency formally cancelled the solicitation. Id. In its bid protest complaint, Infodyne argued that “the parties had entered into a binding express oral contract that was enforceable against the Government.” Id. Defendant disagreed, arguing that no binding contract existed because “the parties contemplated a formal written agreement that was never executed.” Id. at 56-57.

In its decision, the United States Court of Claims (“Court of Claims”), the Federal Circuit’s predecessor, noted that the solicitation at issue contained the following provision: “A written award (or Acceptance of Offer) mailed (or otherwise furnished) to the successful offeror within the time for acceptance specified in the offer shall be deemed to result in a binding contract without further action by either party.” Id. at 57. It further remarked that the relevant procurement regulations contained the following definition: “‘Contract’ means establishment of a binding legal relation . . . . It includes all types of commitments which obligate the Government to an expenditure of funds and which except as otherwise authorized are in writing.” Id. Finally, the Court of Claims indicated that the letter that Infodyne sent to the government reflected that there were “two prerequisites necessary in order to bind the parties contractually . . . , neither of which occurred.” Id. Based on these facts, the Court of Claims held that the parties intended, and the procurement regulations required, the contract to be in writing. See id. at 58 (“[I]t is clear, in addition to other manifestations of the parties’ intent, that applicable procurement regulations . . . require Government contracts to be in writing in order to be binding upon the parties.”); accord id. (“[T]he parties envisioned a formal writing as the only document which could establish a binding contractual relationship between them. A written award pursuant to the solicitation was never furnished to the plaintiffs. Unless such award was issued, no contract existed.” (citation omitted)).

In this case, the solicitation contains two provisions relevant to the nature of the contract contemplated by the parties. One provision–nearly identical to the one quoted by the Court of Claims in American General Leasing–stated: “A written award or acceptance of proposal mailed or otherwise furnished to the successful offeror within the time specified in the proposal shall result in a binding contract without further action by either party.” AR 127 (incorporating FAR 52.215-1(f)(10)). The other provision sets forth a prerequisite to the existence of a binding contract: “This contract is subject to the written approval of U.S. Army Contracting Command–Aberdeen Proving Ground (ACC-APG) and shall not be binding until so approved.” Id. at 142 (incorporating FAR 52.204-1). These two solicitation provisions demonstrate that a written agreement was necessary to have a binding contract. In addition, various statutes and regulations pertaining to government procurements indicate that a procurement contract must be in writing to bind the parties. See 10 U.S.C. § 2305(b)(4)(C) (2012) (“The head of the agency shall award the contract by transmitting, in writing or by electronic means, notice of the award to such source . . . .”); FAR 2.101 (“‘Contract’ means a mutually binding legal relationship . . . . It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing.”); FAR 15.504 (“The contracting officer shall award a contract to the successful offeror by furnishing the executed contract or other notice of the award to that offeror.”); see also 31 U.S.C. § 1501(a)(1)(A) (2012) (“An amount shall be recorded as an obligation of the United States Government only when supported by documentary evidence of a binding agreement between an agency and another person . . . that is in writing, in a way and form, and for a purpose authorized by law[.]”).

Thus, like the parties in American General Leasing, plaintiff and the Army contemplated that in the event that plaintiff was the successful offeror, the contract would need to be reduced to writing to be binding. The terms of the solicitation, which plaintiff incorporated into its proposal, unambiguously require a written agreement as the final step to the creation of an enforceable contract. And, federal procurement law also requires a written agreement–a requirement that plaintiff, as a company that contracts with the federal government, is charged with knowing. See Am. Gen. Leasing, 587 F.2d at 58 (“[P]arties contracting with the Government are charged with having knowledge of the law governing the formation of such contracts.”).

It appears from the administrative record that the only step remaining for the consummation of the contractual relationship between plaintiff and the Army was for the Army to provide plaintiff with an executed agreement. The Army never took this final step to formalize its acceptance of plaintiff’s proposal, preventing the creation of a binding contract. See id. (“The parties may have completed the negotiations that would have led to a contract, but they had not taken the final and essential step of actually executing an agreement.”); see also Harbert/Lummus Agrifuels Projects v. United States, 142 F.3d 1429, 1433 (Fed. Cir. 1998) (“[A]gency procedures must be followed before a binding contract can be formed.”); New Am. Shipbuilders 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.”). The lack of a binding contract between plaintiff and the Army is fatal to plaintiff’s claim that the Army cancelled the contract it awarded to plaintiff–a contract that does not exist cannot be cancelled. Consequently, plaintiff cannot prevail on its first claim for relief.  (Northeast Construction, Inc. v. U. S. No. 14-1076, February 27, 2015)  (pdf)

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Northeast Construction, Inc. v. U. S. No. 14-1076, February 27, 2015  (pdf)  


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