Government Contracts: Basic Legal Principles

Government Contracts: Basic Legal Principles

February 23, 2015
Government Contracts: Basic Legal Principles
The term “contract” can describe any written or oral
Regulation (FAR) when acquiring supplies and services.
agreement between two or more parties which creates
There is a common misconception that the FAR governs all
obligations that are enforceable or otherwise recognizable
government contracts. This is untrue. The FAR only applies
at law. See BLACK’S LAW DICTIONARY 365 (9th ed. 2009).
to the procurement contracts of “executive branch
Each year, the federal government enters myriad contracts,
agencies,” as that term is defined by the FAR, when those
as this term is generally understood.
agencies are not expressly exempted from the FAR or
particular provisions thereof. It is also important to note that
Some of these are procurement contracts. However, many
the FAR’s definition of “supplies” expressly excludes “land
others are not and can instead be characterized in other
or interest in land.” See 48 C.F.R. §2.101. This means that
terms, including as concession contracts, public-private
agencies are not subject to the FAR even when they are
partnerships, and intergovernmental agreements.
acquiring leasehold interests in real property (as distinct
Cooperative and grant agreements could potentially also be
from conveying leasehold interests in real property, which
seen as contracts for certain purposes. Regardless of their
would not constitute an “acquisition” in any case).
type, all contracts are generally subject to the same
interpretative conventions, which can differ from those
See generally CRS Report R42826, The Federal
generally applied when construing statutes and regulations.
Acquisition Regulation (FAR): Answers to Frequently
Asked Questions, by Kate M. Manuel et al.; CRS Report
This “In Focus” provides an overview of key types of
R43443, Authorization of General Services Administration
contracts entered into by the federal government, as well as
Real Property Projects: Current Process and Proposed
major canons in contract interpretation.
Legislation, by Garrett Hatch.
Procurement Contracts
Non-Procurement Contracts
“Procurement contracts”—or contracts whereby the
The total extent of the federal government’s non-
government acquires supplies or services for its own “direct
procurement contracts is not known, in part because of the
benefit or use”—are often treated as the prototypical federal
various forms these contracts can take. As previously noted,
contracts. See 31 U.S.C. §6303(1). Procurement contracts
non-procurement contracts are not subject to the FAR.
represented over 15% of reported federal spending in
However, particular types of non-procurement contracts
FY2014, as Figure 1 illustrates.
could be subject to other governing regulations which are
analogous (if not identical) to the FAR. See, e.g., 48 C.F.R.
Figure 1. Spending on Procurement Contracts as a
Part 570. Also, in some cases, particular statutory
Percentage of Total Federal Spending
requirements that are implemented, in part, through the
FAR could be found to apply to non-procurement contracts
because of the provisions of the underlying statute. See,
e.g., The Argos Group, B-406040 (January 24, 2012).
Examples of key types of non-procurement contracts are
noted below.
Other Transactions
So-called “other transactions” are non-procurement
contracts that authorized agencies may use for research
and/or development of prototypes. Several agencies,
including the National Aeronautics and Space
Administration (NASA) and the Department of Defense
(DOD), have the requisite authority to enter into other
Source: Prime Award Spending Data: Federal Spending FY2014,
transactions.
USASpending.gov, available at http://www.usaspending.gov/
index.php?q=node%2F3&fiscal_year=2014&tab=By+Agency.
See generally CRS Report RL34760, Other Transaction
(OT) Authority, by Elaine Halchin.
Most federal procurement spending—including the
spending in Figure 1—is by executive branch agencies,
which are generally subject to the Federal Acquisition
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Government Contracts: Basic Legal Principles
Concession Contracts
Key Principles of Contract Interpretation
Concession contracts are contracts between vendors and
The rights and responsibilities of the parties to a contract
government agencies that give the vendor the right to
are generally determined by the terms of the contract
operate a specific business on government owned or
(although courts have recognized certain implied terms,
controlled property, subject to certain conditions. The
such as a duty of good faith and fair dealing). However,
National Park Service makes use of concession contracts, as
obtaining a copy of the contract does not necessarily suffice
do certain non-appropriated fund instrumentalities (e.g.,
to determine who may be at fault for specific problems in
military exchanges), among others. See, e.g., 36 C.F.R. Part
the performance of the contract. This is, in part, because of
51, Army Regulation 215-4.
the canons of contract interpretation, some of which can
differ from the general principles applied in construing
Public-Private Partnerships
statutes and regulations.
As used here, a “public-private partnership” (sometimes
Focus on the Parties’ Intent
referred to as a “PPP” or “P3”) is an agreement whereby a
nonfederal entity acquires the right to use real property
The “plain language” of the agreement serves as the starting
owned or controlled by a federal agency—typically through
point for interpreting a contract. However, a court or other
a long-term lease—in exchange for redeveloping or
tribunal will not give the words of the agreement their
renovating that property (or other property). In many cases,
ordinary meaning when it is clear that the “parties mutually
the agency and the nonfederal entity share the net cash flow
intended and agreed to an alternative meaning.” Harris v.
or savings that result from the agreement.
Dep’t of Veterans Affairs, 142 F.3d 1463, 1467 (Fed. Cir.
1998). For example, a contract that denominated itself a
See generally CRS Report R43337, Public-Private
fixed-price contract could potentially be found to be a cost-
Partnerships for Purposes of Federal Real Property
reimbursement contract because other provisions of the
Management, by Garrett Hatch and Kate M. Manuel.
contract clearly evidence the parties’ intent that the
government should reimburse the contractor for costs
Intergovernmental Agreements
incurred in performing the contract.
Intergovernmental agreements, or intergovernmental
Contracts Construed Against the Drafter
service agreements (IGSAs), govern certain aspects of the
relationship between two governmental entities, often a
Any ambiguities in contracts are generally construed
federal agency and a state, local, or other government.
against the contract’s drafter under an interpretative
Perhaps the best known federal intergovernmental
principle sometimes referred to as contra proferentem rule.
agreements are those providing for state or local entities to
See, e.g., HPI/GSA-3C, LLC v. Perry, 364 F.3d 1327, 1334
detain persons charged or convicted of federal offenses,
(Fed. Cir. 2004). The federal government is typically
including violations of federal immigration law. However,
viewed as the drafter when it is a party to a contract, and
such agreements also address a range of other topics.
certain ambiguous provisions in its contracts could thus be
resolved in the contractor’s favor/against the government.
Certain Cooperative and Grant Agreements
Course of Dealings, Course of Performance
Cooperative agreements are used when the “principal
purpose” of the relationship between a federal agency and a
Interpretation of a contract can also be shaped by the
non-federal entity is to “transfer a thing of value” to the
“course of dealings” of the parties, or how they have
non-federal entity “to carry out a public purpose of support
previously conducted themselves under the terms of the
or stimulation authorized by a law,” and “substantial
contract. The “course of performance”—or the parties’
involvement is expected” between the agency and the non-
behaviors over the entirety of their business relationship,
federal entity in carrying out the activity contemplated by
not just the contract in question—could also play a role.
the agreement. See 31 U.S.C. §6305. Such agreements are
sometimes seen to constitute contracts, in the broadest
Waivers and Modifications
sense, for at least certain purposes of federal law.
In addition, a party to a contract could potentially be seen to
Some grant agreements could be similarly seen to constitute
have “waived” certain requirements by expressly
contracts, as broadly defined, for certain purposes. Grant
relinquishing particular rights, or by engaging in conduct
agreements are akin to cooperative agreements, in that their
that warrants an inference that the right has been
“principal purpose” is also to “transfer a thing of value” to a
relinquished. The contract could similarly have been subject
non-federal entity to carry out an authorized “public
to oral modifications (either express or implied) so that its
purpose of support or stimulation.” However, grant
actual terms are different from those of the written text.
agreements may be used only when “substantial
involvement” between the federal agency and non-federal
Kate M. Manuel, kmanuel@crs.loc.gov, 7-4477
entity is not expected. 31 U.S.C. §6304. It is important to

note, though, that grant agreements that are seen to involve
“gifts or gratuities” are generally not treated as contracts.
IF10135
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