ASBCA Decision Highlights The Risk Of Non-Performance Under A Purchase Order

The ASBCA’s recent decision in TTF LLC, ASCBA Nos. 58495, 58516 offers an important reminder to contractors working under Purchase Orders (POs): some POs do not become binding contracts until performance is competed thereunder. As highlighted in TTF LLC, this distinction has serious consequences when asserting a claim. In that case, the Government issued a unilateral PO, but the CO cancelled it when the contractor failed to deliver by the deadline established in the PO. After the CO denied the contractor’s delay claim (related to first article approval) and wrongful cancellation claim, it appealed to the ASBCA. In a swift opinion, the ASCBA denied the appeal because it determined that “[the contractor] has no ‘contract’ with the [Government] pursuant to which it can pursue a claim.” The ASBCA explained that, because the contractor was not required to sign the PO to indicate acceptance and there was no signature block for the contractor on the PO, the PO could only became binding after the contractor completed performance thereunder. Essentially, the PO acts like an offer, and “[w]hen the offer lapses by its terms, the offeree (supplier) bears the costs of nonperformance . . . unless [the Government] (through its actions) revived and extended the irrevocability of its PO for some period of time.” (The contractor could not offer any evidence that the Government was “seeking or encouraging continued performance that would constitute an affirmative act.”) As this case demonstrates, contractors must familiarize themselves with nuances of performing under a PO, and understand the associated risks of non-performance. Otherwise, contractors will leave themselves open to potential exposure.
Author: Justin Ganderson
Associate, McKenna Long & Aldridge LLP