February 23, 2015
Government Contracts: Basic Legal Principles
The term “contract” can describe any written or oral
agreement between two or more parties which creates
obligations that are enforceable or otherwise recognizable
at law. See BLACK’S LAW DICTIONARY 365 (9th ed. 2009).
Each year, the federal government enters myriad contracts,
as this term is generally understood.
Some of these are procurement contracts. However, many
others are not and can instead be characterized in other
terms, including as concession contracts, public-private
partnerships, and intergovernmental agreements.
Cooperative and grant agreements could potentially also be
seen as contracts for certain purposes. Regardless of their
type, all contracts are generally subject to the same
interpretative conventions, which can differ from those
generally applied when construing statutes and regulations.
Regulation (FAR) when acquiring supplies and services.
There is a common misconception that the FAR governs all
government contracts. This is untrue. The FAR only applies
to the procurement contracts of “executive branch
agencies,” as that term is defined by the FAR, when those
agencies are not expressly exempted from the FAR or
particular provisions thereof. It is also important to note that
the FAR’s definition of “supplies” expressly excludes “land
or interest in land.” See 48 C.F.R. §2.101. This means that
agencies are not subject to the FAR even when they are
acquiring leasehold interests in real property (as distinct
from conveying leasehold interests in real property, which
would not constitute an “acquisition” in any case).
This “In Focus” provides an overview of key types of
contracts entered into by the federal government, as well as
major canons in contract interpretation.
See generally CRS Report R42826, The Federal
Acquisition Regulation (FAR): Answers to Frequently
Asked Questions, by Kate M. Manuel et al.; CRS Report
R43443, Authorization of General Services Administration
Real Property Projects: Current Process and Proposed
Legislation, by Garrett Hatch.
“Procurement contracts”—or contracts whereby the
government acquires supplies or services for its own “direct
benefit or use”—are often treated as the prototypical federal
contracts. See 31 U.S.C. §6303(1). Procurement contracts
represented over 15% of reported federal spending in
FY2014, as Figure 1 illustrates.
The total extent of the federal government’s nonprocurement contracts is not known, in part because of the
various forms these contracts can take. As previously noted,
non-procurement contracts are not subject to the FAR.
However, particular types of non-procurement contracts
could be subject to other governing regulations which are
analogous (if not identical) to the FAR. See, e.g., 48 C.F.R.
Part 570. Also, in some cases, particular statutory
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).
Figure 1. Spending on Procurement Contracts as a
Percentage of Total Federal Spending
Examples of key types of non-procurement contracts are
Source: Prime Award Spending Data: Federal Spending FY2014,
USASpending.gov, available at http://www.usaspending.gov/
Most federal procurement spending—including the
spending in Figure 1—is by executive branch agencies,
which are generally subject to the Federal Acquisition
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
See generally CRS Report RL34760, Other Transaction
(OT) Authority, by Elaine Halchin.
www.crs.gov | 7-5700
Government Contracts: Basic Legal Principles
Key Principles of Contract Interpretation
Concession contracts are contracts between vendors and
government agencies that give the vendor the right to
operate a specific business on government owned or
controlled property, subject to certain conditions. The
National Park Service makes use of concession contracts, as
do certain non-appropriated fund instrumentalities (e.g.,
military exchanges), among others. See, e.g., 36 C.F.R. Part
51, Army Regulation 215-4.
The rights and responsibilities of the parties to a contract
are generally determined by the terms of the contract
(although courts have recognized certain implied terms,
such as a duty of good faith and fair dealing). However,
obtaining a copy of the contract does not necessarily suffice
to determine who may be at fault for specific problems in
the performance of the contract. This is, in part, because of
the canons of contract interpretation, some of which can
differ from the general principles applied in construing
statutes and regulations.
As used here, a “public-private partnership” (sometimes
referred to as a “PPP” or “P3”) is an agreement whereby a
nonfederal entity acquires the right to use real property
owned or controlled by a federal agency—typically through
a long-term lease—in exchange for redeveloping or
renovating that property (or other property). In many cases,
the agency and the nonfederal entity share the net cash flow
or savings that result from the agreement.
See generally CRS Report R43337, Public-Private
Partnerships for Purposes of Federal Real Property
Management, by Garrett Hatch and Kate M. Manuel.
Intergovernmental agreements, or intergovernmental
service agreements (IGSAs), govern certain aspects of the
relationship between two governmental entities, often a
federal agency and a state, local, or other government.
Perhaps the best known federal intergovernmental
agreements are those providing for state or local entities to
detain persons charged or convicted of federal offenses,
including violations of federal immigration law. However,
such agreements also address a range of other topics.
Certain Cooperative and Grant Agreements
Cooperative agreements are used when the “principal
purpose” of the relationship between a federal agency and a
non-federal entity is to “transfer a thing of value” to the
non-federal entity “to carry out a public purpose of support
or stimulation authorized by a law,” and “substantial
involvement is expected” between the agency and the nonfederal entity in carrying out the activity contemplated by
the agreement. See 31 U.S.C. §6305. Such agreements are
sometimes seen to constitute contracts, in the broadest
sense, for at least certain purposes of federal law.
Some grant agreements could be similarly seen to constitute
contracts, as broadly defined, for certain purposes. Grant
agreements are akin to cooperative agreements, in that their
“principal purpose” is also to “transfer a thing of value” to a
non-federal entity to carry out an authorized “public
purpose of support or stimulation.” However, grant
agreements may be used only when “substantial
involvement” between the federal agency and non-federal
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.
Focus on the Parties’ Intent
The “plain language” of the agreement serves as the starting
point for interpreting a contract. However, a court or other
tribunal will not give the words of the agreement their
ordinary meaning when it is clear that the “parties mutually
intended and agreed to an alternative meaning.” Harris v.
Dep’t of Veterans Affairs, 142 F.3d 1463, 1467 (Fed. Cir.
1998). For example, a contract that denominated itself a
fixed-price contract could potentially be found to be a costreimbursement contract because other provisions of the
contract clearly evidence the parties’ intent that the
government should reimburse the contractor for costs
incurred in performing the contract.
Contracts Construed Against the Drafter
Any ambiguities in contracts are generally construed
against the contract’s drafter under an interpretative
principle sometimes referred to as contra proferentem rule.
See, e.g., HPI/GSA-3C, LLC v. Perry, 364 F.3d 1327, 1334
(Fed. Cir. 2004). The federal government is typically
viewed as the drafter when it is a party to a contract, and
certain ambiguous provisions in its contracts could thus be
resolved in the contractor’s favor/against the government.
Course of Dealings, Course of Performance
Interpretation of a contract can also be shaped by the
“course of dealings” of the parties, or how they have
previously conducted themselves under the terms of the
contract. The “course of performance”—or the parties’
behaviors over the entirety of their business relationship,
not just the contract in question—could also play a role.
Waivers and Modifications
In addition, a party to a contract could potentially be seen to
have “waived” certain requirements by expressly
relinquishing particular rights, or by engaging in conduct
that warrants an inference that the right has been
relinquished. The contract could similarly have been subject
to oral modifications (either express or implied) so that its
actual terms are different from those of the written text.
Kate M. Manuel, firstname.lastname@example.org, 7-4477
www.crs.gov | 7-5700