INTRODUCTION
In a perfect world, when working on a Government contract, a contractor will always obtain written direction from the Contracting Officer before performing any out-of-scope work. This is something that is almost always required by the contract language and is supported by applicable Federal Acquisition Regulation (FAR) or other regulations.
However, it is not uncommon for contractors to encounter situations where the contractor performs work before receiving formal, written direction from the Contracting Officer, or after being directed to do so by another Government representative. Coincidentally, Excell has been hearing of even greater instances of this happening in recent months due to the disconnection and confusion caused by COVID-19.
BACKGROUND
The requirement to obtain written authorization from the Contracting Officer is a well-established aspect of most Government contracts and is grounded in the simple principles of Government Contracts Law. An essential element of an enforceable contract — as well as modifications to a contract — is that each agent entering into the contract must have the authority to “bind its principal.” In Government contracting, Contracting Officers are typically the only Government personnel with the authority to “bind” the Government, and therefore must be seen as the only source of direction to a Contractor.
Additionally, Contractors are expected to be knowledgeable and cognizant of the “scope of authority” for any Government “representative” they deal with, and the risk of this lack of knowledge is historically placed on the Contractor should it be discovered that a Government representative acted outside the scope of their actual or implied authority.
Because the Contracting Officer is the only one who can authorize scope changes under the Changes Clause (see FAR 52.243-4), the lack of a written directive from the contracting officer can be problematic when the Government refuses to pay for the additional work performed and asserts that the work was not directed by government personnel who had authority to obligate the agency, and therefore the Government is not required to pay for the Change.
This response may seem, on its face, to be difficult to counter, but Contractors who find themselves in this situation should not give up!
As Excell as discussed in previous publications of The Excell Report, a contractor may be able to establish entitlement to compensation for that work by showing that the Government “ratified” the otherwise unauthorized act by its subsequent actions or inactions.
SUCESSFUL LEGAL DEFENSES CONCERNING “RATIFICATION”
For decades, many courts have recognized “ratification” as a means to validate and reimburse otherwise unauthorized changes. Notably, however, some Government agencies have attempted to preclude a Contractor from relying on ratification by including provisions in their Government contracts that impose specific limitations and requirements related to changes and modifications. Such provisions are designed to prevent a Contractor from recovering additional compensation, but valid methods of overcoming these imposed obstacles and recovering valid costs still very much exist.
As indicated in the recent U.S. Court of Appeals for the Federal Circuit decision, BGT Holdings LLC v. U.S., ratification remains an option for contractors seeking to recover additional compensation for unauthorized changes — even when the contract includes provisions that impose additional requirements related to changes.
A Ratification can be either express or implied. Implied ratification occurs when a Contracting Officer has actual or constructive knowledge of an unauthorized commitment and, by their actions, adopts the commitment as their own.
Put another way, if a Government representative without sufficient authority modifies a Contract, and the Contracting Officer is aware of the modification and allows the changed work to continue, the doctrine of implied ratification provides that the modification was approved and authorized by the Contracting Officer.
As noted above, in some cases the Government has argued that Contract provisions that impose additional requirements on how a change is ordered or who may authorize certain types of changes preclude a contractor from invoking ratification. In fact, this is precisely what happened in the BGT Holdings case.
IN THAT CASE, the U.S. Navy awarded BGT a contract that involved using Government Furnished Equipment, or GFE. After performance commenced, the Navy delivered all but two of the GFE items, and the Navy procurement manager advised BGT that the Navy would not deliver the remaining two GFE items unless BGT provided the agency with a credit for the cost of the items.
BGT instead elected to obtain the two GFE items on their own and submitted a Claim for the costs. The Navy denied the request, asserting that the changes to the GFE were not authorized because the Contracting Officer did not issue a written order directing the change, as required by the contract.
Specifically, the Navy took the position that the changes to the GFE were unauthorized because the contract’s changes provision (which differed from the standard changes provisions in the Federal Acquisition Regulation) stated:
“The Contracting Officer is the only person authorized to approve changes in any of the requirements of this contract [and] … any change at the direction of any person other than the Contracting Officer … will be considered to have been made without authority and no adjustment will be made in the contract price to cover any increase in charges incurred as a result thereof.”
BGT appealed the Navy’s decision to the U.S. Court of Federal Claims under the Contract Disputes Act. BGT acknowledged that the Contracting Officer had not issued a written order changing the GFE, but BGT argued the Contracting Officer had subsequently ratified the procurement manager’s direction to decrease the GFE by allowing the decrease to stand and work on the project to continue.
In response, the Navy argued that BGT had contracted away the right to claim ratification because the contract’s changes clause specifically stated that any direction from anyone other than the Contracting Officer was unauthorized. The court initially agreed with the Navy and dismissed BGT’s claim.
Nevertheless, BGT appealed the decision to the Federal Circuit. With respect to the ratification issue, the Federal Circuit recognized that the changes clause in BGT’s contract limited modification authority to the Contracting Officer. However, the Federal Circuit found that the clause DID NOT PRECLUDE BGT’S ARGUMENT that the CONTRACTING OFFICER RATIFIED THE PROCUREMENT MANAGER’S ACTS.
The Federal Circuit reasoned that the changes provision did not address ratification or otherwise preclude the contracting officer from ratifying an unauthorized action. Accordingly, the Federal Circuit vacated the dismissal of BGT’s claim and remanded the case.
BGT will now have the opportunity to present evidence to support its position that the Contracting Officer ratified the changes by simply showing that the Contracting Officer, 1) Had actual or constructive knowledge of that procurement manager’s direction, and 2) Affirmed the procurement manager’s decision by acting in support of that decision (i.e., by reallocating the GFE in question).
CONCLUSION
Meeting minutes, emails, and progress reports can be used to show that the Contracting Officer was aware of the change, and Contractors would be well advised to document any and all changes. However, ratification should still always be seen as a Plan B.
Best practices call for a Contractor to receive written direction from the Contracting Officer before performing work outside the scope of the contract. However, if performance does not proceed as expected, “ratification” may provide an established means to recovery.
If you or your organization is experiencing a similar situation, a seasoned consultant can help you navigate the best path to recovery under ratification scenarios – give us a call today!
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Author’s note: The information contained in this article is for general informational purposes only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. – John G. Balch, CEO, MA, CPCM