Builders and Contractors Exchange
Weekly Bulletin: 29 FEB 2008
Another Lesson In Making Sure To Read The Contract - Part II
The United States Court of Appeals for the Federal Circuit recently held that a Navy construction contractor is not entitled to equitable adjustments for contract modifications agreed upon by the project manger, because the contract explicitly stated that only the contracting officer had the authority to modify the contract. (Secretary of the Navy v. Cath-Dr./Balti Joint Venture, Fed. Cir., No. 2006-1359, 8/17/07).
The Court found that the contract incorporated by reference various clauses from the Federal Acquisition Regulation which made it clear that only the contracting officer had the authority to make any changes to the contract. Moreover the contract also incorporated Naval Facilities Engineering Command clauses which also reserved the authority to the contracting officer relating to any changes to the contract. The Court pointed out that the contractor had to "demonstrate entitlement to an equitable adjustment…[and] must prove that the contract was modified by someone with actual authority." The Court held that apparent authority of the government's agent is not sufficient when it comes to modifying a government contract. Rather, an agent must have actual authority to bind the government. Such authority may be express or implied.
The Court stated that, "[w]ith respect to contracts for supplies and services, the federal government has given authority to enter and modify contracts to only a limited class of government employees" namely the contracting officers. The contracting officer may delegate some of the authority. The contract in question provided for a limited delegation of authority and provided that the contracting officer may designate a "contracting officer's representative"…to perform "specific technical or administrative functions." Based on the language in the contract and the references to various regulations, the Court held that "it is very clear" that the contracting officer was the "only person with the authority to make changes to the contract" and that there was no express authority for anyone else to bind the government to the contract modifications in question.
The Court went on to analyze whether implied authority existed. The Court found that the "issue of implied authority is a much closer case." The Court pointed out that the government was not without blame for the confusion surrounding the contract. The contracting officer was, for example, required by the contract to attend a preconstruction conference but failed to do so. During this conference certain administrative procedures were explained, however, these directives the Court held, "contradicted the clear language of the contract and it is the contract which governs."
Ultimately, the Court ruled that the contractor could not recover on most of the claims relating to changes requested by the project manger, and, it remanded several claims to the Armed Services Board of Contract Appeals for a determination of whether the modifications made were subsequently ratified by the government. Judge Sharon Prost dissented from that remand.
Therefore, be aware of the language in the contract. This case shows that even though the contractor followed the directives given by the government during the preconstruction conference, ultimately the contractor was held to the language in the contract - as the Court held - "it is the contract which governs."
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.