CON 216- Legal Issues in Contract Performance

Question 1

Identify the rules applicable to contract interpretation

Answer 1

Plain Meaning: If unambiguous, the Contractor will be held to perform the contract consistent with the “plain meaning” of the contract language.

Contract Ambiguities: A term that has more than one reasonable interpretation is ambiguous. If it is a “Patent Ambiguity”, the contract has to bring it to the Government’s attention. If known and not brought to the Government’s attention, then the interpretation will be held against the contractor.

Common Law Order of Precedence:

• Specific terms control over inconsistent general terms.
• Typewritten terms control over preprinted terms.
• Handwritten terms control over typewritten terms.

Government Contract Order of Precedence:

• Schedule, excluding specifications.
• Representations and certifications.
• Contract clauses.
• Other documents, exhibits and attachments.
• Specifications

Course of Performance Rule: If one party is aware of how the other is interpreting a term incorrectly and acquiesces in that interpretation, then, that interpretation will be held against the acquiescing party.

Course of Dealing Rule: How the parties interpreted a term in a prior contract will control the interpretation in the current contract.

Usage of Trade Rule: Industry practice and terms will control over non industry practice and terms where applicable to the meaning of the contract.

Parol Evidence Rule: You cannot use oral, extrinsic evidence to dispute a written contract term.

Contra Proferentum: The ambiguity is construed against the drafter.

Question 2

What is the meaning of inspection in the Government sense?

Answer 2

Inspection is defined to include “examining and testing
supplies or services, including, when appropriate, raw materials,
components, and intermediate assemblies, to determine
whether they conform to contract requirements.” FAR 46.101

Question 3

Apply the rules of contract interpretation to a given scenario

Answer 3

In a solicitation for product of survival rafts, the Navy provided detailed design specifications for the process by which the contractor was to bond the rubber seams together. During testing, the seams separated at lower pressure levels than the contract specified. The Navy is considering terminating the contract for default. What is the most likely outcome if the contractor challenges that action?

ANSWER: The contractor will prevail if it can show it followed the Navy’s manufacturing process precisely. “Contra Proferentum” and “Plain Meaning” of a design specification.

Question 4

Identify the Government’s inspection and acceptance rights

Answer 4

-The Government has the right to inspect prior to acceptance in order to ensure that the product/service being delivered does, in fact, meet the contract requirements.

Acceptance terms are usually set out in the contract, ie -DD250 but can also be implied by the actions or inactions of the Government, ie, implied acceptance.

• Substantial Compliance Doctrine gives the contractor more time to cure a minor defect rather than a termination for default.
• Inspection and testing MUST relate to the contract requirements.
• Inspection can be made all along the production cycle.
• The “Perfect Tender Rule” applies in Commercial contracts which means the Government will only accept goods that strictly conform to the contract.
• Economic Waste Rule is a contractor remedy to replacing a defective item requiring the Government to accept a price reduction equal to that defective item.
• Title passes to the Government at the moment of acceptance.
• Implied acceptance occurs if the Government fails to reject timely.

-Final Acceptance can be revoked if:
There was a latent defect; or
Fraud; or
Gross mistakes amount to fraud; or
Warranty breach; or
Commercial assurances of performance, ie 52.214-4 – “Commercial Warranties”.

Question 5

Identify the methods used to change contract requirements.

Answer 5

• Bilateral – With signatures of both parties.
• Unilateral – One party (Government) making a change under the “Changes Clause”.
• Cardinal Change – Out of scope change requiring a bilateral agreement.
• Constructive Change – Government interference, failure to cooperate with the contractor, or requiring the contractor to comply with an unreasonable contract interpretation.
• Acceleration Change – Requiring the contractor to deliver or perform early or not giving enough time to complete the contract after an excusable delay occurs, ie force majeure.

Question 6

Can you accidentally accept something?

Answer 6

Yes !
Its called Implied Acceptance

If an item is rejected, notice MUST be given to the
contractor of the reject or an implied acceptance
may be asserted by the contractor.

Also, if the Government consumes or uses part or all
of the defective items – implied acceptance.
If the Government alters an item – implied acceptance.
Any use of an item is implied acceptance.

Inspection based on an AGREED TO TEST that is stated
in the contract is implied acceptance.