• The Concept of "Authority" in Government Procurement - Revisited
  • July 16, 2003
  • Law Firm: Blank Rome LLP - Philadelphia Office
  • In prior Updates, we have discussed what we consider as one of the significant differences between government contracting and contracting in the commercial marketplace. This difference involves the concept of "authority". The authority to enter into an agreement or to bind a principal derives from the "power of an agent to affect legal relations of a principal by acts done in accordance with the principal's manifestation of consent to the agent", Blacks Law Dictionary. In the commercial marketplace, generally there are three kinds of authority. "Apparent authority" deals with the status and job title of the actor. For example, someone with a title of Vice President of Purchasing would likely have apparent authority to bind his principal for the procurement of necessary supplies. Blacks Law Dictionary defines apparent authority as that which, though not actually granted, the principal knowingly permits the agent to act and which he holds himself out as possessing. "Implied authority" has actual authority, circumstantially proved. Id. For example, if the president of a company told its subcontractor that he was sending a manager out to negotiate and an individual showed up at the subcontractor's facility and identified himself as that negotiator, he would impliedly have the authority to negotiate. "Actual authority" is the authority as actually given an individual by, for example, a corporate board resolution.

    In dealing with the Federal government, only actual authority applies. No matter what the person's title is or what words are stated, unless the government individual has actual authority to bind the government (usually in the form of a warrant), accepting direction or guidance from a government employee is done only at the contractor's risk. This sometimes leads to unfair and inequitable results, but courts uphold this concept as a matter of public policy to protect the public fisc. Over the years, many instances have arisen where unauthorized actions requested by government personnel have been subsequently ratified by a government official who is authorized to do so (government personnel can also delegate authority as they often do in pre-performance letters to the contractor). Virtually every government contractor, from time to time, has taken direction from a QAR, government engineer, government auditor, or other government contracting person who only later has received the contracting officer's approval of the action taken. As we stated above, although the unauthorized act was later approved, the risks are obvious. After many years with the concept of ratification not being addressed in the Federal Acquisition Regulation (FAR), in the mid 1990's a section was included in FAR Subpart 1.6 that addresses the procedures needed to seek ratification of unauthorized actions.

    Now, there is another possible source of redress to contractors in such a situation. In an opinion filed by Senior Judge Smith for the United States Court of Federal Claims, the Court discussed another method of approval of unauthorized contractual action. In Digicon Corporation v. U.S., No. 02-604C (April 11, 2003), the government sought Summary Judgment because the contracting officer lacked the actual authority to enter into the contract with Digicon. The government also alleged that no ratification by an appropriate authority ever occurred. The Court, in denying the government's Motion, stated that it was well established that an agency can "institutionally ratify a contract" even in the absence of specific ratification by an authorized official. The Court found that institutional ratification occurred when the government seeks and receives the benefits from an otherwise unauthorized contract. In Digicon, the Court found the Air Force had recognized the existence of a contract, which it now sought to deny, for a period of 16 months by making over $16 million in payments to the contractor for delivery of the requested product. According to the Court, these acts by the government demonstrated to the Court's satisfaction the government's "institutional ratification" of the contract.

    Although the Court of Federal Claims' decision is encouraging it's application may be limited to where the government not only received benefit, but pays for it. In most instances of this type, the government refuses to pay after receiving the benefit. As we have advised in prior Updates, companies should know with whom they deal when they perform government contracts. They must ensure that the government representatives who give them direction have authority to do so. Asking government personnel if they have the necessary authority and requesting they put it in writing, if there are any questions, should become company policy. Instead of "show me the money", in this case it's "show me the warrant".