by: Nina N. Rodriguez, Contributing Writer

Understanding the contract appeals process in government contracts is one pertinent difference that must be understood by companies, whom are familiar with doing business under Uniform Commercial Code regulations.  This is true especially when expanding their markets through conducting business with the government.

This post focuses on raising awareness of the mitigation of risks to be considered between commercial contracts and government contracts.

OVERVIEW

When two commercial firms enter into a contractual relationship, their contract is governed by the Uniform Commercial Code (if applicable) as well as by relevant state common laws that apply to contracts.

As long as a contract does not violate public policy and is in accordance with these and other laws (i.e., protecting shareholder interests in public companies), private parties are permitted to make any contractual arrangements they wish.

However, when the federal government enters into a contract, the same rules don’t apply as commercial contracts.  Government contracts require an assortment of regulatory requirements and statutes that determine the parameters on that contractual relationship.

Why are Government Contracts Different?

When two private entities create a contract, they are investing their own money or shareholder’s money. Certain laws protect shareholders, such as the requirements that executives and board members act in the best interests of the company.

However, private contracts between commercial entities, however, are made based on business decisions influenced by free market principles.

Even if the contract turns out to be a bad one and the business or the shareholders lose money on the deal, this loss is a risk they took as part of investing or operating a business.

Additionally, when the federal government enters into a contract, taxpayer money is at stake.

Unlike investors in a public company, taxpayers don’t possess the ability to decide not to “invest” their tax dollars if they believe the government is making bad contractual choices.  Taxpayers also do not have the opportunity to file law suits against the shareholder if the government entered into a bad deal.

Therefore, without free market forces holding governments accountable for the contracts they enter into, other forces or regulations have to protect the taxpayer’s money.  Particularly since the government acts on behalf of the people and the contracts they enter into are ideally for the public good.

Therefore, laws on government contracts ensure that the federal government enters into contracts that serve their citizens and make the best use of tax dollars.

How are Government Contracts Different?

Government contracts are subject to several different laws in contrast to private contracts.  Here are examples of a few laws:

  1. The Federal Property and Administrative Services Act of 1949 (governs the acquisition of non-land property and construction companies by civilian government agencies);
  2. The Armed Services Procurement Act of 1947 (governs the acquisition of non-land property and construction services by defense agencies); and
  3. the Competition in Contracting Act (requires open competition before a contract is awarded except in limited circumstances).

While Federal government contracts have many similarities to private commercial firm contracts, there are distinct differences and those differences need to be examined and evaluated closely.

Some examples of these distinct differences are as follows:

  1. Contracts for federal government organizations contain several highly-specialized regulations and requirements that are stricter and more precise than any language found in a typical commercial contract. This is because, quite simply, a government group is acting not on its own behalf, but on behalf of the public (with public funds and public interest at stake), and thus its actions must be held to a higher standard so that they can stand up to possible scrutiny.
  2. Commercial firms, by definition, are in business for profit, and contracts between these firms can be dictated by their own wants.   The terms of commercial contracts, as long as they aren’t illegal or against public policy, needs only to satisfy the parties engaging in the contract. The federal government, on the other hand, answers to a larger and less personal audience.
  3. Government contracts are also designed to create transparency, meaning they attempt to make actions–and the reasoning behind those actions–blatant and clear to anyone who is familiar with the agreed upon terms. This is to discourage suspicion of other motives, to show the public who is funding the government’s actions, how their money is being spent.
  4. The special rules for government contracts prevent government personnel from engaging in wasteful or inefficient practices, while also directing private firms to be fair in their dealings with the government.
  5. Government contracts are complex, so if you are entering into a government contract, it’s imperative that you follow guidelines closely to protect your interests. Consequently, parties may wish to consult with a lawyer before signing any government contract,
  6. The Government may make unilateral changes to the contract without breaching the contract,
  7. The private firm must continue to perform the contract while a dispute is pending,
  8. The “termination for convenience” clause prevents contractors from recovering anticipatory profit in situations which would normally constitute breach of contract in the private sector,
  9. The “bona fide needs” rule and the anti-deficiency and advanced payment statutes limit the Government’s ability to enter into binding contracts that extend past the current fiscal year,
  10. The Government may audit the books of the private firm, and the Government may prosecute for fraud under the false claims and false statements statutes.

How to Appeal a Contract

Courtesy of 2malyszek.com

Courtesy of 2malyszek.com

The contract appeals process as part of a resolution effort between disputing parties in government contracts clearly points out how unique the rules are for private sector companies contracting with the Federal Government. These unique rules – mentioned above — are but a small part of the risk management challenges unique to government contracts.

Additionally, changing government regulations implemented on government contractors can result in costly and expensive complex issues. Contractors more than ever need to ensure they are remaining compliant with the new regulations.  Contracts that fail to meet the necessary government regulations can find themselves in litigation through filing appeals to U.S. Court of Federal Claims. If the U.S. Court of Federal Claims issues an unfavorable decision for the contractor, an appeal can be filed in either the Civilian Board of Contract Appeals (CBCA) or The Armed Services Board of Contract appeals

The Civilian Board of Contract Appeals (CBCA) created on January 6, 2007 following section 847 of the National Defense Authorization Act of 2006, hears and makes decisions on contract disputes between government contractors and civilian executive agencies, which is governed under the Contract Disputes Act .  The CBCA allows quick, low cost, and efficient decisions through alternative dispute resolution (ADR). The CBCA, handles appeals from most civilian agencies

The Armed Services Board of Contract Appeals (ASBCA) is a neutral, independent forum, which hears and decides on contract disputes between government contractors and The Department of Defense, The Department of the Army, The Department of the Navy, The Department of The Air Force, or the National Aeronautics and Space Administration (NASA).

The ASBCA mostly processes matters on appeals by contractors from government contracting officer’s final decisions or failures to issue decision

Hopefully, this posting has opened the scope of due diligence needed for those areas of risk associated with a decision to pursue doing business with the government.

For more information on the many laws that apply to government contracts and the differences between government and private entity contracts, speak with an experienced attorney who specializes in the field.

If your company is seeking to pursue sales of its products and services to the federal government, and you find the information in this posting relevant, then please pass this information along to the appropriate parties within your organization or the members of your organization’s risk management team.

For further reading on this topic, you may also want to read some of the following sources used and as reference for this particular posting, but, remain good reading resources on this timely topic:

CBCA

DFARS / The Contracting Education Academy

Defense Federal Acquisition Regulation Supplement

Contract Disputes Act (1978)

ASBCA

 

 

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