*This post is the third in the ten part series, “Ten Myths of Government Contracting” and will be released weekly. Each week will introduce a new myth and run for ten weeks.
One of the most significant differences between commercial contracting and Government contracting is the presence and importance of a person called the “Contracting Officer.” There is really no commercial equivalent of the C.O., and it is critical that a Government contractor understand the role that the C.O. plays. In a nutshell, nothing happens in Government contracting unless the C.O. says it does.
Imagine if every single Government employee, from the president down to a buck private, had the unlimited ability to commit the Government contractually. That’s ridiculous, of course. If that were the case, the Government would be even more in debt than it currently is. Well then, how do we go about deciding what Government officials should have the ability to commit Uncle Sam? Perhaps we could authorize every military officer or civilian employee above a certain grade to bind the Government, but even that poses risk. The problem is addressed by delegating contractual authority from the president on down through the agencies by means of a written delegation called a “certificate of appointment,” or a “warrant.” Most warrants contain a specific monetary ceiling, although unlimited warrants do exist. A contracting officer is then able to bind the Government up to the limits of her warrant.
In the commercial arena, if I conclude after dealing with someone that he has the ability to bind his company contractually, there is a strong possibility that his company will be bound. That stems from a common law concept called “apparent authority.” Unfortunately, that concept does not apply when dealing with U.S. Government officials. Under a doctrine called “actual authority,” a contractor bears the risk (and thus the consequences) if the Government official that has requested, demanded, bullied or urged the contractor to do something, and to incur costs in the process, is not an authorized contracting officer. There are legions of cases demonstrating this principle, but many contractors still continue to act as if they don’t exist.
“The customer is always right” is a mantra in the commercial sector. Prudent Government contractors share this philosophy, but they have learned that while the maxim may be true, the “customer” really has not authorized a particular course of action until the C.O. has blessed it in writing. This can pose difficulties in the performance of a Government contract because the contractor may be performing its work hundreds or thousands of miles away from a C.O.’s office, and the contractor’s only contact is with a Government employee known as the “COTR,” i.e., the Contracting Officer’s Technical Representative.” COTRs can run the gamut from ones who play everything by the book to others who are control freaks and bullies. Regardless of how a COTR behaves, the fact is that he or she usually has little or no ability to bind the Government, but that will not prevent them from trying to get a contractor to do things that are not called for under the contract. As a result, experienced Government contractors are well versed in documenting anything that might come back to have a cost impact on their performance. In the course of developing that documentation, they are careful to include the C.O. on any material correspondence and they preserve anything that reflects the C.O.’s knowledge and approval of particular events.
One of the reasons that doing business with the Government is different in so many ways from doing business in the commercial sector is that the Government is a sovereign, and sovereigns possess different powers and characteristics than commercial entities do. U.S. Government contracts are notorious for their burdensome statutory and regulatory framework, and it is impossible for a business to succeed unless its personnel study and understand that framework. One of the key statutes underlying the business is called the Administrative Procedure Act, 5 U.S.C. 552 et seq. The APA is the basis for resolving most disputes with the Government, and it is only fair to warn a newcomer that the APA process alone provides the Government with an upper hand.
One of the key concepts flowing from the APA is the “discretion” that a contracting officer is accorded in her day-to-day dealings with contractors. In disputes with the Government, a contractor challenging a C.O.’s decision must not merely prevail by a preponderance of the evidence, but must demonstrate that the C.O.’s actions were arbitrary, capricious or unreasonable, a higher standard of proof. As a result, courts, boards and the GAO will frequently issue decisions in which they “defer” to a C.O.’s judgment, or they refuse to substitute their judgment for the C.O.’s where the question is within the C.O.’s discretion. Thus, experienced counsel can assist a contractor in determining whether a particular decision or action can be challenged—some are simply destined for failure. Why waste your money on that kind of fight?
You will meet a lot of different people in the course of working as a Government contractor. Many will outrank the C.O. that has been assigned to you. You must clearly treat everyone professionally, but you must never forget that nothing happens without the C.O.’s approval. While it is not always easy to do, you should try to meet the C.O. personally as soon as you can after a contract has been awarded, and you should work to keep an open line of communication with the C.O. throughout contract performance. This sometimes means having to go to the C.O. with bad news, but that is far better than sitting on that news and having the C.O. find out about it by surprise. They hate surprises.