Legal Rights and Responsibilities of Parties to Federal Procurement Contracts

Legal Rights and Responsibilities of Parties to Federal Procurement Contracts

February 23, 2015
Legal Rights and Responsibilities of Parties to Federal
Procurement Contracts
As a general rule, the rights and responsibilities of the
Government’s Obligation to Pay
parties to a contract are governed by the terms of the
contract. In the case of federal procurement contracts (i.e.,
Standard terms also generally govern the government’s
contracts whereby an agency obtains supplies and services
obligation to pay the contractor for performance under the
for its own direct benefit or use), some of these terms are
contract. The specific date or time frame within which
unique to the contract and the circumstances of its
payment is due can vary depending upon the circumstances
performance. Such terms may, for example, specify the
of the contract (e.g., architect-engineer contracts,
work the contractor is to perform, the time period(s) within
construction contracts). However, one frequently used
which it is to perform, and how the contractor is to be
contract clause requires that invoice payments be made
compensated for performance. Other terms, however, are
within 30 days after receipt of a “proper invoice” or after
standard ones that appear, in some form, in all or most
the government “accepts” the supplies or services,
federal procurement contracts. These standard terms may be
whichever is later. 48 C.F.R. §52.232-25. If the government
required by statute, and their use and language is often
fails to make the required payment within this time frame, it
prescribed by regulation, typically the Federal Acquisition
is obligated to pay the contractor interest on the late
Regulation (FAR).
payment. Id.
See generally CRS Report R42826, The Federal
Since 2011, the Obama Administration has developed some
Acquisition Regulation (FAR): Answers to Frequently
additional standard clauses that call for “accelerated
Asked Questions, by Kate M. Manuel et al.
payments,” with the intent of getting payments to small
business contractors and subcontractors more quickly. See,
This “In Focus” provides a brief overview of the standard
e.g., 48 C.F.R. §52.232-40(a). However, these clauses do
types of terms that appear in federal procurement contracts.
not call for the payment of interest on any payments that are
It also notes key CRS reports on the topics discussed here. not made within the “accelerated” time frame, and the FAR
otherwise generally continues to limit agencies’ ability to
Contractors’ Obligation to Provide
make certain payments earlier than seven days prior to the
Supplies and Services
date specified in the contract. 48 C.F.R. §32.906(a).
While the details of what the contractor is to do, and how
See CRS Report R41230, Legal Protections for
and when the contractor is to do this work, vary by contract,
Subcontractors on Federal Prime Contracts, by Kate M.
certain standard clauses address the use of specific
Manuel.
materials in the contract (e.g., 48 C.F.R. §52.211-5,
requiring the use of supplies that are “new, reconditioned,
Modifying the Contract
or remanufactured,” as defined in the clause). Other
standard clauses prescribe the time of delivery for supply
The contracting parties generally have wide latitude to
and service contracts (other than construction and architect-
make “bilateral modifications”—or mutually agreed upon
engineering contracts) (e.g., 48 C.F.R. §52.211-8), as well
changes—to the contract, provided that the modification is
as address how any extensions of the time in which the
within the scope of the contract. 48 C.F.R. §43.103(a).
contractor is to perform are to be handled (48 C.F.R.
§52.211-13).
However, “unilateral modifications”—or changes directed
by the agency, potentially without the contractor’s
Executive agencies are also generally required to ensure,
consent—are also possible under contracts that include one
among other things, that (1) their contracts incorporate
of the standard Changes Clauses. Different versions of the
inspection and other quality requirements, including any
Changes Clause are used in different types of contracts
appropriate warranties, necessary to protect the
(e.g., fixed-price, construction, etc.). However, all variants
government’s interest; (2) the supplies and services
of the Changes Clause provide that “[t]he Contracting
“tendered” by the contractor meet contract requirements;
Officer may, at any time, by written order, … make
and (3) non-conforming supplies or services are rejected.
changes within the general scope of this contract” to certain
See, e.g., 48 C.F.R. §46.102; 48 C.F.R. §46.407 (rejection
terms of the contract, such as (1) the contract specifications;
of non-conforming supplies or services).
(2) the method or manner of performing the work; (3) any
government-furnished property or services to be used in
performing the contract; (4) the method of shipping or
packing; (5) the place of delivery for supplies; and (6) the
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Legal Rights and Responsibilities of Parties to Federal Procurement Contracts
time and place of performance for services. See 48 C.F.R.
distinguished from “bid protests,” because they are limited
§§52.243-1 to 52.243-5.
to the parties to an existing contract, while bid protests can
involve any “interested party” affected by the award or
Options “Extending” the Contract
proposed award of a government contract.
The contract could also include standard terms granting the
The standard Dispute Clause (48 C.F.R. §52.233-1)
agency the “unilateral right ... to purchase additional
addresses the content and form of “claims” between
supplies or services called for by the contract, or ... to elect
contracting parties. It also prescribes time frames for
to extend the term of the contract.” Such terms are
bringing claims (generally six years after they accrue), and
commonly known as “options.” 48 C.F.R. §2.101. Agencies
for their resolution by the contracting officer. Claims that
may generally incorporate options in contracts whenever it
are not resolved within the requisite time frame are deemed
is “in the Government’s best interest” to do so, and the FAR
to have been denied. If the contracting officer’s decision is
provides several standard Option Clauses for agencies to
unfavorable to the contractor, the contractor may generally
use in specific circumstances. 48 C.F.R. §17.202(a).
appeal that decision to an agency board of contract appeals
(within 90 days of the decision), or the U.S. Court of
However, it is important to note that the agency’s right to
Federal Claims (within 12 months of the decision).
exercise any option is limited by the time frames and
procedures prescribed in the clause(s) establishing the
See CRS Report R43460, Contractor Fraud Against the
option. Also, the contractor generally has no legal
Federal Government: Selected Federal Civil Remedies, by
entitlement to have the agency exercise any options under
Brandon J. Murrill(discussing the Contract Disputes Act).
the contract. Determining whether to exercise an option is a
“unilateral right” of the government.
Contractual Remedies
Termination of the Contract for Default
The contract can also include a number of other standard
or Convenience
terms giving the agency certain recourse if the contractor
fails to perform as required under the contract. In addition
The FAR requires that procurement contracts include
to the rejection of non-conforming goods and termination,
standard terms granting the agency broad discretion to
such terms could, depending upon the circumstances,
terminate the contract prior to the completion of
provide for (1) the contractor re-doing the work at no cost
performance. See 48 C.F.R. Part 49. Some terminations are
to the government; (2) “liquidated damages,” or damages
for default, or based on the contractor’s anticipated or
whose amount the parties agree upon when the contract is
actual failure to perform substantially as required by the
formed as compensation for a specific breach whose
contract. 48 C.F.R. §§52.249-8 to 52.249-10. Other
damages would otherwise be hard to determine; (3)
terminations are based on the “Government’s interest.” The
equitable price reductions or other consideration; (4) re-
“Government’s interest” has been construed to permit
procurement at the contractor’s expense; (5) performance
termination for convenience when, among other things, (1)
and other bonds; (6) insurance against loss or damage; and
the government no longer needs the supplies or services
(7) reduction or withholding of contractor fees.
provided for in the contract; (2) questions have been raised
about the propriety of the award, or about continued
Non-Contractual Remedies
performance of the contract; (3) the business relationship
between the agency and the contractor has deteriorated; or
It should also be noted that the government and, in some
(4) the agency decides to restructure its contractual
cases, third parties have other recourse—not provided under
arrangements or perform work in-house.
the terms of the contract—if the contractor fails to perform
as required, or causes harm by its performance or failure to
The contractor may be entitled to certain compensation—
perform. Such means of recourse include, but are not
more limited in the case of a default termination than a
limited to, debarment and suspension; suits for fraud under
convenience one—if the government exercises its right to
the civil False Claims Act; and tort suits.
terminate. However, it is generally not entitled to damages
for breach of contract because the government is exercising
See generally CRS Report RL34753, Debarment and
a right given to it by the contract when it terminates.
Suspension of Government Contractors: Legal Overview,
by Kate M. Manuel; CRS Report R43460, Contractor
See CRS Report R43055, Terminating Contracts for the
Fraud Against the Federal Government: Selected Federal
Government’s Convenience: Answers to Frequently Asked
Civil Remedies, by Brandon J. Murrill; CRS Report
Questions, by Kate M. Manuel, Erika K. Lunder, and
R43462, Tort Suits Against Federal Contractors: Selected
Edward C. Liu.
Legal Issues, by Rodney M. Perry.
Resolution of Disputes
Kate M. Manuel, kmanuel@crs.loc.gov, 7-4477

Standard contract terms provide for the resolution of
disputes that arise during contract performance between the
IF10137
parties regarding their rights and responsibilities under or
relating to the contract. Such “contract disputes” are to be
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