By Kennedy How on Wednesday, March 14, 2001 - 12:37 pm:

The earlier thread regarding quotes and offers with this FAR part, and it's ramifications regarding acceptance of a Purchase Order, reminded me of something I had thought of in the past, but never got a satisfactory answer.

FAR 13.004 Legal effect of quotations, says"

(a) A quotation is not an offer and, consequently, cannot be accepted by the Government to form a binding contract. Therefore, issuance by the Government of an order in response to a supplier's quotation does not establish a contract. The order is an offer by the Government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when the supplier accepts the offer.

(b) When appropriate, the contracting officer may ask the supplier to indicate acceptance of an order by notification to the Government, preferably in writing, as defined at 2.101. In other circumstances, the supplier may indicate acceptance by furnishing the supplies or services ordered or by proceeding with the work to the point where substantial performance has occurred.

OK, a contractor starts work, gets about 1/3 to 1/2 the way through, then decides he doesn't want to complete performance. Now, I wanted to terminate this Purchase Order for Default. My reasoning is this: According to the above, a PO is not a binding contract until the contractor either formally accepts in writing, or does substantial performance. The Christian Doctrine says that the Default clause is in all contracts, because it's a requirement of law. Therefore, all contracts have the default clause in it. If I have a binding contract, as a result of acceptance on the part of the contractor's substantial performance, why can't I T4D?

I've asked this question around my activity, to include Procurement Law. All I've ever gotten was a condescending smile and a "That's nice, now go back to work." type of reply. Nobody has ever really given me a good answer as to why I can't T4D a $90K Purchase Order. Maybe somebody here can reply to that.

Kennedy

By formerfed on Wednesday, March 14, 2001 - 01:18 pm:

Kennedy,

I didn't look this up first (so I may be wrong), but I don't think the Tf/D clause is normally applicable to PO's. If I remember correctly, the CO may incorporate it in special circumstances, but normally it's not a PO clause. Therefore, the Christian Doctrine won't apply.

By Linda Koone on Wednesday, March 14, 2001 - 02:16 pm:

Kennedy:

The T4D clause, based on the Christian Doctrine, would only apply when mandatory. It's not mandatory for acquisitions below the SAT.

Partial performance of a unilateral purchase order does not bind the contractor to complete performance but binds the Government to keep its offer open until the time stated in the offer (i.e., the delivery date on the PO). (Klass Engineering, Inc., ASBCA No. 22052, 78-2 BCA 13,236 at 64,717; mod. and aff'd, 78-2 BCA 13,463.)

So if the contractor has only performed a portion of the work under a purchase order, and the PO delivery date passes, you can unilaterally withdraw the order. But you won't get the benefits of the T4D provisions (excess repurchase costs...).

Is this the same advice given to you in Procurement Law?

By Kennedy How on Thursday, March 15, 2001 - 12:54 pm:

Linda,

Not in so many words, no. It was usually something along the lines of "We don't put T4Ds in POs.". OK, I can accept that.

But, I then move towards the definition of "Contract". If, in fact, there is a legal shift from "PO" to "Contract" based on either a formal acceptance, or performance on the PO, then I posit that the T4D IS now a mandatory clause, because it's stated that the T4D is REQUIRED in all contracts. What I was attempting to do was tie in a FAR definition to a "Legal" one. If a contracts person (and/or legal person) keeps referring to a partial/delinquent performance as a "Contract", then there needs to be a legal clarification.

The definition of "Contract" in FAR Part 2 is: "Contract" means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see Part 16.

Note that it includes Purchase Orders within the definition. Now, if that's so, and it's lumped in with all the other "contracts", then I say again, why doesn't the T4D clause apply? Because you now have a "contract" within the definition of FAR Part 2. Unless the applicable T4D regulation provides specific guidance that says "Contracts resulting from the issuance of a PO is specifically exempt from the provisions of T4D", or something like that, then I say the T4D is applicable.

I haven't read Klass yet, I'll do so when I can. Maybe it has clearer guidance on this.

Kennedy

By dlm on Thursday, March 15, 2001 - 01:27 pm:

So what about the fact that a PO isn't a contract until acceptance, but, it is a contract if the contractor wants it to be because the contractor has incurred some initial cost in starting to perform. So, we don't have substantial performance which means "no contract", but we do have cost incurred, still no substantial performance, no acceptance by contractor, but we obviously have a contract because the government no longer has the right to just cancel. It becomes a termination. Did the government get confused when they wrote this stuff.

By formerfed on Thursday, March 15, 2001 - 01:47 pm:

Kennedy,

Take a look at the FAR prescription on use of the Tf/D clause. For example, FAR 49.504(a) on the fixed-price versions says it's used when the expected contract price exceeds the simplified acquisition threshold. However, the CO can use it for POs in special circumstances.

The clause you want to focus on is 52.213-4(g), Termination for Cause, that is part of POs. It seems to give you the right to cancel under the situation you describe, but doesn't go as far as the Tf/D clause.

By Linda Koone on Thursday, March 15, 2001 - 03:57 pm:

Kennedy:

Personally, I don't think the word offer appears in FAR Part 13 to cover the circumstances you described (quote comes in over SAT). Just because the quote exceeds the SAT, it doesn't automatically make it an offer.

In the Klass decision, the ASBCA makes it clear that once an offeree (contractor) 'accepts' an offer (purchase order), the offeror (Govt) cannot withdraw its offer unless the period for the offer expires and the offeree has not performed IAW the offer. Acceptance occurs through initiation of performance.

In the scenario you suggested, if a company only performs a part of the offer, whether it is 10%, 50% or 95%, if the delivery date passes, then the offer may be revoked and no payments need to be made for the partial performance (unless there were provisions for partial delivery/payment). In Klass, it was the Govt's actions after the delivery date passed that brought about an extended offer, so to speak.

Read Klass Engineering when you have an opportunity. Also, read the ASBCA's decision based on the Government's appeal of the original decision. I think it will answer some of your questions.

As for the Default issue, I agree with formerfed, and as I stated before, believe that inclusion of a default provision is discretionary in acquisitions below the SAT. At least it is by prescription in the FAR (see 49.504).

Paragraph (g) of Clause 52.213-4, when used with a unilateral purchase order, seems to muddy the issue.

Anybody have a good explanation for the words in this clause as it relates to a unilateral purchase order?

By C Mercy on Friday, March 16, 2001 - 03:49 pm:

Well for one thing the words at (g) of 52-213-4 are identical to those in 52.212-4 on the same issue As for a T4D clause note the FAR matrix indicates optional for SAP but the clause you mention allows you to include it as long as you delete (g). In my opinion if performance begins a contract exists and all remedies are available if termination, other than T4C, occurs.

By Kennedy How on Tuesday, March 20, 2001 - 12:05 pm:

I've been mulling over the replies to date, and I think we need to focus away from the premise that including the T4D clause is optional (which it is) and look at it from the standpoint that I've issued an "offer (PO)" in good faith to somebody I thought was interested in filling our requirement (submitted a reply to our solicitation). At our activity, unless we have some compelling need, we routinely do not include T4D in any PO we issue. So, the vast majority of POs issued here do not have it.

Fast forward to the due date. The contractor has completed about 60% of the work, but decides it's not worth it to go further, and decides to walk away. The next day, the contractor is officially delinquent.

Now, given the definitions in the FAR I cited above (offer to contractor, acceptance of same by virtue of 60% performance, therefore, a contract is in place), and adjusting the timeframe (contractor is now delinquent), I feel that invoking the T4D is within my purview. Even though it wasn't included in the original PO, by virtue of the fact that under the FAR definitions, 1) I have a contract; 2) all contracts must include the T4D clause; 3) I have an actual delinquency.

Kennedy

By formerfed on Tuesday, March 20, 2001 - 12:16 pm:

Kennedy,

I followed you all the way up to the next to last line, starting with "2) all contracts must include the T4D clause". As you stated above, incorporation in a PO is optional. I don't see how you can try and enforce a provision after the fact when the contractor hasn't consented to it's use. As Linda mentioned earlier, a clause that's optional below $100,000 in value doesn't become required later on.

Maybe you can explain further.

By Linda Koone on Wednesday, March 21, 2001 - 07:53 am:

Kennedy:

In the scenario you suggested, you actually have an expired offer, not a delinquent contractor.

Here's a direct quote from the Reconsideration in the Klass Engineering appeal:

'When the date specified for performance of an offer to enter into a unilateral contract arrives, and complete performance in accordance with the terms of that offer has not been tendered, the offer lapses and terminates by virtue of the conditions stated in the offer.'

Under a unilateral contract, you may not revoke your offer (PO) once the contractor has commenced performance (acceptance). However, technically, the offer expires once the due date passes and performance in accordance with the terms of the offer has not been accomplished.

You can only terminate a contract for default if indeed there is a contract. Once the offer expires and performance hasn't been accomplished (i.e., the delivery date on a unilateral PO passes without delivery by the contractor) there is no contract to terminate. You have an expired offer, not a delinquent contract.

By Kennedy How on Friday, March 23, 2001 - 01:05 pm:

Formerfed - yes, even though I've issued a PO without the T4D clause in it, the PO is now considered a "contract" per the definition I stated. If it is indeed a "contract", and "contracts" must have the T4D clause in it, then it's there, irrespective of whether it's there in text or not.

If I wrote, and the parties signed a bonafide contract WITHOUT the T4D provision, the Christian Doctrine says it's there anyway, based on the force of law. I'm saying if the PO is now considered a "contract", then why isn't the T4D clause there? Maybe it's a matter of semantics, maybe the definitions are confusing, but the definitions don't say "a contract is a contract except when a PO becomes a contract".

Linda - Now we're getting somewhere! Nobody has stated what you've stated per the Klass reconsideration. What's said there makes a bit more sense. So, if there was a T4D to be done, it would have to be done prior to the due date, but after significant performance has begun. From a practical perspective, I don't know anybody who'd T4D prior to the due date passing.

I'm going to have to mull this over further; I don't know if my original question was answered....

Kennedy

By Cthulu on Friday, March 23, 2001 - 02:06 pm:

Kennedy How:

Your original question described a situation in which a company begins to perform upon receipt of a purchase order (an offer to buy), but then backs off before it completes the work. You asked whether you could terminate for default ("T4D").

The answer is yes, you could T4D if (a) you became aware that the firm had commenced performance and had relied on that fact to your detriment and (b) you had included a termination for default clause in your contract. (The Christian Doctrine does not apply to the default clause in a simplified acquisition, because FAR Part 49 says that the inclusion of a default clause is optional in a simplified acquisition. See FAR 49.504(a)(1). The Christian Doctrine applies only to mandatory clauses; it does not apply to optional clauses.)

If you had become aware that the company had commenced performance and had relied on that fact to your detriment (e.g., by discontinuing your search for a contractor), the company's failure to complete the work would be a breach of contract. See the Restatement of Contracts, Section 45, which says: "Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it." Also see the discussion of the "Brooklyn Bridge hypothetical" in the textbook entitled, Contracts, by E. Allan Farnsworth, 3d ed., pp. 185-188.

But even if you don't have a T4D clause in the contract you are still entitled to compensatory damages for breach, such as the excess cost of reprocurement. You should check with your lawyer about how to notify the contractor and demand and collect payment. The Disputes clause is mandatory in all Government contracts except those with foreign governments and international organizations, regardless of dollar value (see FAR 33.215), so if you left that clause out, too, the Christian Doctrine would still make the disputes procedure in FAR 33.2 applicable. So demand payment of breach damages. Initiate collection action as appropriate. If the contractor disputes your claim then make a final decision, etc.

P.S. If you're wondering about the term "option contract" in the quote from Restatement Section 45, I'll let you do the research on that. Look it up. I'm out of time.

By HP Lovecraft on Friday, March 23, 2001 - 03:47 pm:

Cthulu is mixed up. You can't terminate a Ktor for partial performance of a purchase order unless the Ktor accepted the order by signing it. Partial performance by the Ktor binds the Govt but not the Ktor. That's what option contract means. Cthulu misread Restatement 45.

The rule is designed to protect the Ktor from a premature cancellation of the PO by the Govt after it has started performance.

Cthulu's right about the Christian Doctrine and the default clause in a contract below the SAP.

By Loki on Wednesday, April 11, 2001 - 10:45 am:

What is the crux of not considering a purchase order tendered by the Govt. as an offer to be fully accepted based upon initiation (not necessarily substantial) of work by the Ktor? Does the Govt. not have an expectation (coupled w/ detrimental reliance if the work is not completed) that the Ktor will fulfill the work?

To consider a bi-lateral contract (which the p.o./offer has become through the initiation of performance...) to only be a continued offer flys in the face of reason.

By Anonymous on Monday, April 23, 2001 - 01:45 pm:

The detrimental reliance claim is essentially one of promissory estoppel, wherein the argument would be that a contractor could not, without repercussions, cease to perform....and that such a cessation would place them in default of a contract.

Is such a thing a contract?

By Loki on Monday, April 23, 2001 - 02:40 pm:

A contract implied in fact requires a showing of the same mutual intent to contract as that required for an express contract. The fact that an instrument was not executed is not essential to consummation of the agreement. It is essential, however, that the acceptance of the offer be manifested by conduct that indicates assent to the proposed bargain. The requirements of mutuality of intent and the lack of ambiguity in offer and acceptance are the same for an implied-in-fact contract as for an express contract; only the nature of the evidence differs.


Russell Corp. v. United States, 210 Ct. Cl. 596, 609, 537 F.2d 474, 482 (1976) (footnotes omitted). "Mutuality is inferred 'from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding.'" Sperry Corp. v. United States, 13 Cl. Ct. 453, 458 (1987) (quoting Baltimore & Ohio R.R. v. United States, 261 U.S. 592, 597 (1923)).

By Anonymous on Tuesday, April 24, 2001 - 09:41 am:

Here's stuff from a GSBCA case.

"The actions of both parties created a contract. So long as the contractor does not ask to change the terms of the contract
after issuance of a purchase order, acceptance of an offer occurs once the contractor commences "substantial performance" of the order, which in turn creates a binding contract. Sunshine Cordage Corp., ASBCA 38904, 90-1 BCA 22,382, at 112,471 (1989) (citing Klass Engineering, Inc., ASBCA 22052, 78-2 BCA 13,236, at 64,716, modified and aff'd on recon., 78-2 BCA 13,463).  Here, Mr. Giancola accepted the Government's offer by beginning his review of the course materials and thereby created a binding contract. See also Tefft, Kelly and Motley, Inc., GSBCA 6562, 83-1 BCA 16,177, at 80,388 (1982) (teaching contractor entitled to compensation for preparation expense incurred before
Government terminated contract)."

By ji on Tuesday, May 15, 2001 - 02:38 pm:

In the purchase order world, a contractor has not started performance until he says he has started performance -- he can receive a purchase order and produce the item, and then sell it at the last minute to someone else for a higher price -- and the issuer of the original purchase order has no claim (or right to T4D). That's the nature of a purchase order.
If we issue a purchase order and then cancel it, however, the contractor might allege he had started performance and the cancellation is treated as a T4C.