What does FAR 1.602-3(c)(3) actually mean?? (The resulting contract would otherwise have been proper if made by an appropriate contracting officer;)

[MileHighAcq]

43 minutes ago, Jacques said:

I guess I need to better understand what folks think the phrase "resulting contract" means under your second interpretation.

to me it means the contract that resulted from the action - in this case, the unauthorized commitment. but for a resulting contract to be proper, it must have followed required laws and regulations in how it was put in place. it isn't just the contract itself. indeed, as I indicated above, most of the ratifications I see don't even have a contract in place until the HCA ratifies the action, and then we put a bilateral contract in place as part of the ratification process. so obviously the contract vehicle that results from the ratification is "proper", and prior to that, there was no contract in place. which again makes me think that FAR 1.602-3 really only applies (from a practical standpoint) to a narrow set of unauthorized commitments committed by acquisition personnel and they actually follow the FAR requirements and put a contract in place and the only issue is that they did not have the proper authority to sign the contract. but when the unauthorized commitment is done by a COR or an end user, they will not have followed the process for putting a contract in place, and indeed, there's not a contract in place until the ratification is approved.

[Jacques]

36 minutes ago, MileHighAcq said:

to me it means the contract that resulted from the action - in this case, the unauthorized commitment. but for a resulting contract to be proper, it must have followed required laws and regulations in how it was put in place. it isn't just the contract itself. indeed, as I indicated above, most of the ratifications I see don't even have a contract in place until the HCA ratifies the action, and then we put a bilateral contract in place as part of the ratification process. so obviously the contract vehicle that results from the ratification is "proper", and prior to that, there was no contract in place. which again makes me think that FAR 1.602-3 really only applies (from a practical standpoint) to a narrow set of unauthorized commitments committed by acquisition personnel and they actually follow the FAR requirements and put a contract in place and the only issue is that they did not have the proper authority to sign the contract. but when the unauthorized commitment is done by a COR or an end user, they will not have followed the process for putting a contract in place, and indeed, there's not a contract in place until the ratification is approved.

I appreciate that the conditional nature of the language at FAR 1.602-3(c)(3)--"would otherwise have been proper"--could lead to that interpretation, but I don't think it is the right one.  Again, the FAR reads, "The authority in paragraph (b)(2) of this subsection [which is the authority of the head of the contracting activity (as delegated under (b)(3)) to ratify an unauthorized commitment] may be exercised only when...[t]he resulting contract would otherwise have been proper if made by an appropriate contracting officer."  The unauthorized commitment is not a contract.  I think the "resulting contract" is the one awarded in conjunction with the ratification.  Nash & Cibinic, Formation of Government Contracts (4th Ed. 2011), at 102 notes, "They [courts and boards] have recommended, however, that ratification authority be liberally exercised in cases where an injustice would result if the government did not become bound.  See Globe Indem. Co. v. United States, 102 Ct. Cl. 21 (1944), cert. denied, 324 U.S. 825 (1945)..."

[MileHighAcq]

14 minutes ago, Jacques said:

I appreciate that the conditional nature of the language at FAR 1.602-3(c)(3)--"would otherwise have been proper"--could lead to that interpretation, but I don't think it is the right one.  Again, the FAR reads, "The authority in paragraph (b)(2) of this subsection [which is the authority of the head of the contracting activity (as delegated under (b)(3)) to ratify an unauthorized commitment] may be exercised only when...[t]he resulting contract would otherwise have been proper if made by an appropriate contracting officer."  The unauthorized commitment is not a contract.  I think the "resulting contract" is the one awarded in conjunction with the ratification.  Nash & Cibinic, Formation of Government Contracts (4th Ed. 2011), at 102 notes, "They [courts and boards] have recommended, however, that ratification authority be liberally exercised in cases where an injustice would result if the government did not become bound.  See Globe Indem. Co. v. United States, 102 Ct. Cl. 21 (1944), cert. denied, 324 U.S. 825 (1945)..."

I like your thinking, because that's how we've been interpreting it - perhaps subconsciously. I've seen responses in the D&F to this requirement along the lines of "if the action had been done by a contracting officer the required regulations would have been followed" and I was like sure, works for me! I've never given that sentence much thought before and maybe because I saw one response that didn't quite make sense to me I started thinking about what that statement actually meant and I think I was getting wrapped around the axle in my head about it.

[formerfed]

Quote

The unauthorizedcommitment is not a contract.  I think the "resulting contract" is the one awarded in conjunction with the ratification

I’ve seen quite a few contract files across agencies involving ratifications.  In many instances, the contracts include a statement similar to “this contract results from an authorized commitment ratified by (title of official) on (date).”  The contract contains appropriate clauses and narrative to cover necessary details of the transaction.  I feel this is the best way to handle the matter.  

[Vern Edwards]

Confusion reigns.

There is no reason to be confused about FAR 1.602-3(c)(3).

There are two problems:

1. lack of authority to contract; and
2. noncompliance with law and regulation.

Cibinic and Nash discuss these matters in Formation of Government Contracts, 4th ed., Chapter 1., Basic principles of Federal Procurement. They discuss the authority problem in Section III, Authority of Government and Contractor Personnel, Subsection A, Government Personnel. They discuss the noncompliance problem in Chapter 1, Section II, Contracting Powers, Subsection C, Contracts Varying from Statutory or Regulatory Requirements.

Ratification (see the definition at FAR 1.602-3(a)) can solve the first problem. It cannot solve the second, which explains FAR 1.602-3(c)(3). The authority to contract does not include the authority to enter into a contract in violation of law or regulation. See FAR 1.602-1. That includes ratifying officials. They cannot ratify an unauthorized commitment that, in addition to being made by a person without authority, did not conform to law or regulation. See FAR 1.602-3(c)(2). See also Cibinic and Nash, pages 102-103, under the heading, Authority to Perform or Authorize Acts Being  Ratified: "[I]legal actions cannot be ratified because officials lack the authority to enter into illegal agreements."

As for quantum meruit recovery, that's too complicated a matter to address here, but there is a huge literature about it.

 

 

[MileHighAcq]

3 minutes ago, Vern Edwards said:

Confusion reigns.

There are two problems:

1. lack of authority to contract; and
2. noncompliance with law and regulation.

Cibinic and Nash discuss these matters in Formation of Government Contracts, 4th ed., Chapter 1., Basic principles of Federal Procurement. They discuss the authority problem in Section III, Authority of Government and Contractor Personnel, Subsection A, Government Personnel. They discuss the noncompliance problem in Chapter 1, Section II, Contracting Powers, Subsection C, Contracts Varying from Statutory or Regulatory Requirements.

Ratification (see the definition at FAR 1.602-3(a)) can solve the first problem. It cannot solve the second, which explains FAR 1.602-3(c)(3). The authority to contract does not include the authority to enter into a contract in violation of law or regulation. See FAR 1.602-1. That includes ratifying officials. See FAR 1.602-3(c)(2). See also Cibinic and Nash, pages 102-103, under the heading, Authority to Perform or Authorize Acts Being  Ratified: "[I]legal actions cannot be ratified because officials lack the authority to enter into illegal agreements."

As for quantum meruit recovery, that's too complicated a matter to address here, but there is a huge literature about it.

 

 

yeah, confusing for sure. and I think the crux of the matter keeps coming down to whether we are talking only about the resulting contract being legal (terms and conditions compliant with laws and regulations, non-fraudulent purpose, etc.) or about following laws and regulations throughout the process of putting the contract in place. I'm not sure I'm any the wiser about it at this point than I was when I posed the question, but we sure have ratified a lot of unauthorized commitments where the process for putting a contract in place was not followed.

[Vern Edwards]

@MileHighAcq 

43 minutes ago, MileHighAcq said:

the process of putting the contract in place

Give us some examples of such a "process." I say that an unauthorized commitment made on a sole source basis without first preparing and obtaining a J&A cannot be ratified. Is preparing and obtaining a J&A such a "process"?

Could the agency refuse to ratify such a commitment, but then prepare a J&A and award a contract properly to the same company? Yes. But that would not be a ratification of the unauthorized commitment. It would be a proper award.

Do you understand?

[MileHighAcq]

16 minutes ago, Vern Edwards said:

@MileHighAcq 

Give us some examples of such a "process." I say that an unauthorized commitment made on a sole source basis without first preparing and obtaining a J&A cannot be ratified. Is preparing and obtaining a J&A such a "process"?

Could the agency refuse to ratify such a commitment, but then prepare a J&A and award a contract properly to the same company? Yes. But that would not be a ratification of the unauthorized commitment. It would be a proper award.

Do you understand?

yeah, by process I mean things like obtaining a funded PR, conducting and documenting market research and acquisition planning, completing the small business screening form (i.e. set-aside considerations), publicizing to the GPE, soliciting, evaluating, determining price reasonableness, determining contractor responsibility, and awarding. completing a J&A after the fact is one thing (and that's assuming that the sole source can actually be justified), but can you complete all these steps in the process after the fact to make an unauthorized commitment into a proper award? I have a hard time seeing that.

[Jacques]

49 minutes ago, Vern Edwards said:

@MileHighAcq 

I say that an unauthorized commitment made on a sole source basis without first preparing and obtaining a J&A cannot be ratified.

McGraw-Hill Info. Sys. Co, B-210808, May 24, 1984, dealt with a ratification issue under the Federal Procurement Regulation, 41 CFR 1-1.405.  That regulation contains the same "otherwise proper" language contained in the current FAR.  The decision includes the following:

Quote

 

In applying this provision, there has been some variation in how agencies have interpreted "otherwise proper contracts."

In our view "otherwise proper" does not necessarily connote "otherwise perfect." Where the ratification is of a contract made by an unauthorized, and presumably inexperienced, individual, procedural defects (in addition to the lack of authority) are not unlikely. Therefore, if § 1-1.405 is to have any practical application, ratification of an unauthorized contract which also contains other minor deviations must be considered within the scope of agency discretion. On the other hand, if the defects are such that the contract could not have been properly made at the time, § 1-1.405 ratification is inappropriate.

 

The test is not whether the contract WAS properly made at the time of the unauthorized commitment, the question is whether it could have been properly made had proper procedures been followed.
 

[Vern Edwards]

27 minutes ago, MileHighAcq said:

I mean things like obtaining a funded PR, conducting and documenting market research and acquisition planning, completing the small business screening form (i.e. set-aside considerations), publicizing to the GPE, soliciting, evaluating, determining price reasonableness, determining contractor responsibility...

There is no blanket answer that covers all processes. The processes you listed are not all alike.

Failure to carry out a purely administrative process like obtaining a funded PR or conducting and conducting acquisition planning should preclude ratification.

But I do not think ratification can be based on after-the-fact conduct of processes like determining price reasonableness, determining contractor responsibility, publicizing at the GPE, making a set-aside decision, and preparing and obtaining a J&A. Those are statutory and regulatory requirements that must be met before an award can be made. To ratify it would be to authorize a commitment that was made in violation of the law. A ratifying official has no authority to do that. See FAR 1.602-1(c)(3).

What can be done is to refuse to ratify and then conduct those processes and make an award in accordance with the law. If the company to whom the unauthorized commitment was made wins the contract, it can use any work it did pursuant to the unauthorized commitment If it does not win it can seek compensation on a quantum meruit basis or accept it loss and move on.

[Vern Edwards]

13 minutes ago, Jacques said:

The test is not whether the contract WAS properly made at the time of the unauthorized commitment, the question is whether it could have been properly made had proper procedures been followed.
 

I state the test this way:

1.602-3(c)(3): "The resulting contract would otherwise have been proper if made by an appropriate contracting officer[.]"

In other words, would it have been legal for an appropriate contracting officer to have made the same contract in the same way?

In other words, ratification may be done only if the only defect in the contracting process was lack of authority.

Ratification cures lack of authority, but not other legal defects. A ratifying official cannot waive illegality.

[MileHighAcq]

10 minutes ago, Jacques said:

The test is not whether the contract WAS properly made at the time of the unauthorized commitment, the question is whether it could have been properly made had proper procedures been followed.
 

well that's confusing as hell because what contract COULD not have been made properly if the proper procedures were followed? seems to me like that would apply to just about any unauthorized commitment other than just plain illegal ones (i.e., those involving fraud or some other illegal purpose). am I missing something here?

The discussion in McGraw-Hill Info. Sys. Co, B-210808 does remind me of the earlier discussion about substantive laws vs procedural ones though.

[MileHighAcq]

14 minutes ago, Vern Edwards said:

There is no blanket answer that covers all processes. The processes you listed are not all alike.

Failure to carry out a purely administrative process like obtaining a funded PR or conducting and conducting acquisition planning should preclude ratification.

But I do not think ratification can be based on after-the-fact conduct of processes like determining price reasonableness, determining contractor responsibility, publicizing at the GPE, making a set-aside decision, and preparing and obtaining a J&A. Those are statutory and regulatory requirements that must be met before an award can be made. To ratify it would be to authorize a commitment that was made in violation of the law. A ratifying official has no authority to do that. See FAR 1.602-1(c)(3).

Reminds me of the earlier discussion about "substantive" vs "procedural" laws. I agree with you - there is a difference in not adhering to some fundamental laws vs not adhering to more procedural regulations like conducting and documenting market research and acquisition planning, solicitation and evaluation, etc.

[MileHighAcq]

11 minutes ago, Vern Edwards said:

I state the test this way:

1.602-3(c)(3): "The resulting contract would otherwise have been proper if made by an appropriate contracting officer[.]"

In other words, would it have been legal for an appropriate contracting officer to have made the same contract in the same way?

which then takes the focus off the "resulting contract" and on to the process itself. did the process itself follow appropriate laws and regulations. and then we need to distinguish between which ones are deal breakers and which ones can be remedied or ignored, because as GAO said, we're not looking for "otherwise perfect".

[Vern Edwards]

23 minutes ago, MileHighAcq said:

Reminds me of the earlier discussion about "substantive" vs "procedural" laws. I agree with you - there is a difference in not adhering to some fundamental laws vs not adhering to more procedural regulations like conducting and documenting market research and acquisition planning, solicitation and evaluation, etc.

The decision cited and quoted by Jacques indicates the distinction:

Quote

In our view ‘otherwise proper’ does not necessarily connote ‘otherwise perfect.’ Where the ratification is of a contract made by an unauthorized, and presumably inexperienced, individual, procedural defects (in addition to the lack of authority) are not unlikely. Therefore, if § 1–1.405 is to have any practical application, ratification of an unauthorized contract which also contains other minor deviations must be considered within the scope of agency discretion. On the other hand, if the defects are such that the contract could not have been properly made at the time, § 1–1.405 ratification is inappropriate.

Emphasis added.

In my view, failure to execute a procedure required by law or regulation and concerning which no discretion is afforded to contracting officials, would preclude ratification.

[Vern Edwards]

20 minutes ago, MileHighAcq said:

which then takes the focus off the "resulting contract" and on to the process itself.

No. Contracting process, contract form, and contract content all matter.

[MileHighAcq]

16 minutes ago, Vern Edwards said:

In my view, failure to execute a procedure required by law or regulation and concerning which no discretion is afforded to contracting officials, would preclude ratification.

that's a pretty strict standard! if something is open to the discretion of contracting officials, then it wouldn't be a "minor deviation" from regulatory requirements. it seems to me that the GAO is opening a the door a bit that an action that didn't strictly follow regulatory requirements may still be ratifiable as long as the deviations from regulations can be considered minor. no?

15 minutes ago, Vern Edwards said:

No. Contracting process and contract form and content all matter.

agree. what I should have said (and meant in my mind) was that it broadens the focus to include the process as well, not just the resulting contract. my bad.

[Jamaal Valentine]

5 hours ago, MileHighAcq said:

that's a pretty strict standard!

Consider the behavior it aims prevent.

In contrast, generally, recovery may be implied in law under quantum meruit or quantum valebant when the government would be unjustly enriched if it were allowed to keep goods or services without paying for them.

Two separate processes and standards for different mischiefs.

[Jacques]

14 hours ago, Jamaal Valentine said:

Consider the behavior it aims prevent.

By "it," I assume you mean not being liberal in ratifying unauthorized commitments.  I'm curious, @Jamaal Valentine, why you think, in the face of a valid post-hoc rationalization for a sole source award, the contractor should NOT receive the benefit of the bargain (assuming the only thing preventing the ratification is (presumably Vern's interpretation of) FAR 1.602-3(b)(3))?

I know most of this conversation has focused on competition requirements, but what if the illegality at the time of the unauthorized commitment was, for a DoD contract, failing to include the "Restrictions on the Use of Mandatory Arbitration Agreements" clause at DFARS 252.222-7006 in the agreement between the contractor and the person without authority to bind the Government?  I hope we can all agree that the ratifying official doesn't have authority to award the resulting contract without that clause (in the case of a DoD contracting activity).  Should the contractor not get the benefit of his bargain, even if the contractor was continuously in compliance with the clause between the unauthorized commitment and the potential ratification, and the other requirements for a ratification were present, like a fair and reasonable price (FAR 1.602-3(c)(4))?

I don't see how the interpretation of "proper" for which I've been advocating is unfair to the Government.  I certainly can see the potential for a strict interpretation to be unfair to vendors.  In my experience, the vendors that perform in the absence of a valid contract are not sophisticated.  If they don't know enough to avoid working under an unauthorized commitment, are they going to educate themselves to know about FAR Subpart 50.1?  Is the Government working these ratification packages quickly enough to not prejudice the contractor's potential remedies under FAR Subpart 50.1?  See, e.g., the 6 month limit at FAR 50.102-3(d)(1).

EDIT:  I don't normally engage in policy discussions.  The reasons I interpret FAR 1.602-3(c)(3) the way I do is because of the various decisions, memoranda, and commentary I've read, not for the policy reasons discussed in this post.  I think the heart of @Jamaal Valentine's post is a policy argument, so I (perhaps foolishly) responded. 

[Jacques]

Assume for sake of argument the disagreement in this thread is one where reasonable minds differ, and that I'm not just being a mule.  Assume a ratifying official thinks I might be right but isn't convinced.  (It's my hypothetical, it doesn't have to be realistic.)  How would a ratifying official go about coming to an authoritative resolution?

I personally don't think it is within the contracting chain.  As a practical matter, I think if the ratifying official decided to ratify based on my interpretation, that decision is not really reviewable within the contracting chain.  (Assume some competitor of the vendor learned of the Government post-hoc rationalization for the sole source award and protested to the GAO.  My reading of the decisions related to protests of sole source awards is that the GAO would consider the post-hoc justification, so the GAO likely wouldn't render some authoritative interpretation of FAR 6.302-3(c)(3) in the decision denying the protest (assuming the justification withstood scrutiny).)

I think the better way to get a direct answer to the issue would involving getting a financial manager (FM) to push back on implementing the ratification, perhaps at the encouragement of the ratifying official.  I think the FM could request an advance decision on whether the obligation of funds in connection with the ratification was proper.

(I point this out not in invite "lawlessness" on the part of ratifying officials.)

[C Culham]

29 minutes ago, Jacques said:

EDIT:  I don't normally engage in policy discussions. 

Your question is a good one in my estimation.   Discretion comes in when the decision is made to not ratify does it not?  Consider the once under $2500 service that extends to $3,000 or Option not extended that would have been anyway.   And considering your immediate post afterwards why fiscal why not a CO (inclusive of the HCA's delegate)?   Afterall all conflicts are to be resolved at the lowest level (my words) are they not?  Even though not ratified I still see it in the lane of the guiding principles of the  FAR, was it a contract or not?  

In the end it all depends on every single fact of the instant unauthorized commitment but if all the other considerations of FAR 1.602-3(c) except (3) why wouldn't the agency exercise their discretion provided by the guiding principles of the FAR with regard to whether a contractor should be paid or not?   References FAR 1.602-3(4) along with FAR 33.102(b) or 1.602-3(5) along with FAR 33.204.

[Jamaal Valentine]

3 hours ago, Jacques said:

I'm curious, @Jamaal Valentine, why you think, in the face of a valid post-hoc rationalization for a sole source award, the contractor should NOT receive the benefit of the bargain (assuming the only thing preventing the ratification is (presumably Vern's interpretation of) FAR 1.602-3(b)(3))?

Can you identify where I said this? I don’t think I did because it wouldn’t make sense since the seller could seek quasi-contractual relief under quantum meruit or quantum valebant.

3 hours ago, Jacques said:

I know most of this conversation has focused on competition requirements, but what if the illegality at the time of the unauthorized commitment was, for a DoD contract, failing to include the "Restrictions on the Use of Mandatory Arbitration Agreements" clause at DFARS 252.222-7006 in the agreement between the contractor and the person without authority to bind the Government? 

Under FAR 1.401(b), “[t]he omission of any solicitation provision or contract clause when its prescription requires its use” is a deviation from FAR. This is the kind of thing a ratifying official can ratify, assuming the deviation is within their authority/discretion.

DFARS 252.222-7006 is not required in all contracts and applicability to a particular contract or subcontract is waiverable.

Maybe ratifying officials are better suited for these types of actions and administrative law judges [types] are better suited for the other.

[Jamaal Valentine]

1 hour ago, Jacques said:

Assume for sake of argument the disagreement in this thread is one where reasonable minds differ, and that I'm not just being a mule.  Assume a ratifying official thinks I might be right but isn't convinced.  (It's my hypothetical, it doesn't have to be realistic.)  How would a ratifying official go about coming to an authoritative resolution?

The plain language is clear and unambiguous and does not lead to an absurd result. Thus, apply the plain meaning rule.

Moreover, we have to give meaning to the rest of FAR, which provides a mechanism for resolving actions that cannot be ratified under the subpart.

 Finally, we have case law that supports this interpretation.

[Jacques]

Sorry.  When I say, "benefit of the bargain," I mean the price agreed to between the vendor and the individual lacking authority who attempted to enter into the contract.  That number isn't always the same as "as much as he deserves" or "as much as they were worth."

I'm really super curious about the significance of your discussion of deviations.  Please help me connect the dots as to why it is relevant to this discussion.  If the ratifying official and the vendor cannot reform the agreement to make it legal, then you would never get to whether or not a deviation is possible.  (By the way, not to complicate matters, but I think a deviation from including the clause at FAR 252.222-7006 is "precluded by law," to quote FAR 1.402.)

[Jacques]

2 minutes ago, Jamaal Valentine said:

The plain language is clear and unambiguous and does snot lead to an absurd result. Thus, apply the plain meaning rule.

The point of my post wasn't to force an unwilling ratifying official to look elsewhere for help.  If the ratifying official wants to deny ratification, that decision isn't really subject to review.  For some folks, the fact it isn't subject to review is proof enough that the decision is entrusted to the discretion of the decision maker.  Others might want to dig a little deeper.