Breakout Session # 205 Patrick Malyszek, President M3 Federal Contract Practice Group, LLC

2. Basic Contract Law Breakout Session #205 Patrick Malyszek, President M3 Federal Contract Practice Group, LLC Phone: (607) 754-8100 Website: www.m3federal.com Date: April 24, 2007 Time: 1:40 pm -2:40 pm

3. Topic Index • Contract Formation • Contract Defenses • Contract Remedies • Contract Interpretation • Contract Performance • Contract Change Management • Glossary of Terms

4. Uniform Commercial Code (U.C.C.) • Governs the sale of goods, secured transactions, commercial paper, etc. • Commercial transactions ONLY • Will be used to regulate your subcontracts • Some FAR and U.C.C. correlation • Will impact all transactions • Remedies are different than FARs • Proprietary data protection

5. 1.) Contract Formation In order to have a binding contract there must be the following: • Mutual manifestation of a willingness to enter into a contract • Objective v. subjective intent • Offer and acceptance • Valuable consideration • Legal detriment • U.C.C. statute of frauds • Types of conditions – present intent

6. 2.) Contract Defenses • Lack of Capacity • Intoxication – not of a sound mind • Agency law – no grant of authority to contract • Impossibility of Performance • Impossibility • Economic • Frustration of purpose • Mistake • Mutual • Unilateral • Knew or should have known

7. Contract Defenses • Duress • Negated intent • Economic duress • Undue Influence • Bad faith dealing • Lack of equality • Misrepresentation • Defective contract documents • Defective specifications • Inappropriate funding for contract and modifications

8. 3.) Contract Remedies • Breach of contract • Money damages • Rescission • Reformation • Restitution • Reliance • Specific performance • Failure to perform your obligations • Anticipatory repudiation

9. Common Law Contracts: Executory contract Unilateral contract Bilateral contract Express contract Contracting implied-in-fact Quasi contract (implied-in-law) FAR Part 13-18 Federal Contract Types: Fixed price contract Cost reimbursement contract Fixed price incentive contract R & D contract Performance based contracting Cost plus incentive fee Cost plus fixed fee Contract Types

10. 4.) Contract Interpretation Restatement, Second, Contracts § 200 • Interpretation is the process of what the parties agreed to in their bargain • Meaning of words • Resolving ambiguities • Intent The court will make a determination based upon: • Contract documents • Extrinsic evidence/circumstantial evidence

11. Contract Interpretation Who holds the sole right of contract interpretation after award? Big Claims Area • Liability is with the drafter of the contract • Liability is with the drafter of the contract specifications and drawings • There is a duty to provide the contractor with accurate and precise information • There is generally no duty of the contractor to validate the drawings or specifications • Objective test at time of contract formation • What is the intent of the contract

12. Federal Contracting To be successful in the federal contracting environment every contract professional must completely comprehend: • Common law contracts • Federal acquisition contracting • The Federal Government’s sovereign contract rights • The application of these principles as a prime and subcontractor • The inherent application to every contract action • Risk mitigation strategies within the FAR • Dispute resolution methods This is the most complex form of contracting!

13. Commercial U.C.C./contract requirements State regulations Federal guidelines FAA FCC Unique terms and conditions Prime contractor Local agencies Political interrogation Dept. of Defense FARs DFARS ASBCA/BCA Dept. of State Dept. of Commerce ITAR Import/Export Political positioning International trade Federal Contracting

14. Federal Acquisition Regulations(FAR) • Federal Acquisition Regulations: • Has 53 parts, and 8 subparts • Acquisition planning • Contracting methods and types • Socioeconomic programs • General contracting requirements • Special categories • Contract management • Contract pricing • Contract negotiations Applicable to all aspects of federal contracting.

15. Federal Acquisition Regulations(FAR) • The primary purpose is to provide uniform policies for all federal agencies • Maintained by the Secretary of Defense • The contractor is NOT obligated to follow all Federal Acquisition Regulations, ONLY those in the contract • FAR supplements • DOD (DFAR) • Applies to procurements involving the Office of the Secretary of Defense, Department of the Navy, Army, Air Force, and the Defense Logistics Agency • NASA • Other agencies have supplements to the FARs

16. Contract Manager U.C.C./FARThe Complex Mix Contracts Personnel – Civilly and Criminally Liable!

17. Federal ContractFormation Considerations

18. Privity will decide the application of Common Law v. FAR Contract liability Limit communications/directives Privity of ContractFAR Application Government Privity of Contract FAR APPLIES Prime Privity of Contract Common Law Applies Subcontractor

19. Subchapter A: General Subchapter B: Competition Subchapter C: Contracting Methods Subchapter D: Socioeconomic Programs Subchapter E: Contracting Requirements Subchapter F: Special Categories of Contracting Subchapter G: Contract Management Subchapter H: Clauses & Forms Part 1 – 4 Part 5 – 12 Part 13 – 18 Part 19 – 26 Part 27 – 33 Part 34 – 41 Part 42 – 51 Part 52 - 53 FAR Contracting Requirements Have you read the FARs?

20. Profit margins Profit margin is usually capped at 15% Disclosure requirements Written description of a contractor’s cost accounting practices Filed with the Contracting Officer, and recognized auditor Generally required for CAS covered contracts or subcontracts over $25 million Form CASB-DS-1 and 5 FAR 30.202-1 Must be followed after submission Complex contract requirements Walsh Healy Act Competition in Contracting Act Need to know the regulations FARs, etc. Payments Prompt Payment Act 31 U.S.C. § 3901 Contract must specify payment terms Late payment, without excuse entitle contractor to interest charges Progress payments/financing Payments made as costs are incurred Paid based on a percentage of completion Good for financing the project Change orders Changes allow for additional performance Bill for additional costs and profits Contractual right to capture added scope costs Every Element of Government Contracting is Regulated

21. Federal Contract Formation Essentials INTENT – INTENT - INTENT

22. Common Law Contracts v. FAR • Does not regulate the proposal process! • Does not control profit rates! • Does not require mandatory audits by the DCAA! • No contract oversight! • No controlled dispute process! • No right of unilateral contract terminations! • No management controls! • No specific quality standards! • No competition requirements! • No congressional appropriations!

23. Government: Prevent fraud Best price State-of-the-Art products Complete control Act in public interest Multiple levels of oversight Maintain constitutional safeguards Contractor: Specific contract guidelines Price controls Guaranteed equity Inherent dispute resolution Business development Contract performance controls Competition guarantee Benefits of the FAR

24. Risk Mitigation by Defining Contract Intent • Discuss the scope of work • Obtain complete specifications • Incorporate into contract • Drafter is liable • Never go beyond contract requirements

25. 5.) Contract Performance • Program management/officers • Project Management Institute (PMI) • Federal Publications Seminars • George Washington University • National Contract Management Association (NCMA) • Keep a log of all correspondence whether written or oral • Schedule slippage leads to problems • Justify every action • Keep track of change orders and defective specifications • Do not exceed contract requirements

26. Contract Performance Controls • Set up a database to track all aspects of contract performance • Track technical plan • Control communications between the parties • No oral changes • Identify problems early and resolve • Program meetings and status reports • No such thing as good will!

27. Comply with terms and conditions Manage invoicing Specification compliance Ensure quality Correction action plans Develop in the proposal, a work breakdown structure Monthly performance reviews Maintain contract files Understand the regulations Act professionally, not personally Ethics, ethics, ethics Comply with industry standards Look to the future for new business Contract Performance Checklist

28. 6.) Contract Change Management • Communication between authorized personnel • Document and report to Program Manager and log • Seek compensation for changes promptly • Clear acceptance/rejection criteria • Submit a claim if necessary • Follow dispute clauses

29. 7.) Glossary of Terms Anticipatory Repudiation: Statements or acts of a contractor before an actual breach of contract that indicates that the contractor is unable to complete, or does not intend to continue to perform under the contract. Change Order: A written order signed by the Contracting Officer directing the contractor to make a change without the contractor’s consent, as authorized by the changes clause in FAR 52.243-1 through 6. This change may be unilateral, within the scope of the contract.

30. Glossary of Terms Duress: A condition that occurs when one party is induced by a wrongful act or threat of another party to enter into a contract which would deprive the first party from exercising their free will in order to force performance of an act that would not have otherwise been performed. Examples of duress conditions in government contracting are: (a) threat of economic harm through the contracting officer’s violation of its duty of good faith and fair dealing; and (b) showing that the contractor acted against its will because the circumstances permitted no alternative. Implied in Fact Contract: A contract not created or evidenced by an explicit agreement of the parties, but reasonably inferred from the parties acts or conduct.

31. Glossary of Terms Implied Warranty of Specifications: A warranty that implies that the Government’s design specifications can be successfully used to perform the contract. Mutual Mistake: A mistake that is common to both parties to a contract. Mutual mistakes can occur when the parties include contract terms that don’t conform to or express their actual intent or agreement. They can also occur when both parties labor under the same misconception in relation to a fundamental fact on which the contract was based.

32. Glossary of Terms Proprietary Data: Technical data submitted to the Government under a contract and subject to protection by the contractor. Such data is subject to limited rights if they are developed at private expense. Proprietary Information: Information contained within a bid or proposal, cost or pricing data, or any other information submitted to the Government by a contractor and designated as proprietary.

33. Glossary of Terms Quasi-Contracts: Implied in law, obligations imposed on a person by law, not pursuant to the person’s expressed or implied intentions and even against that person’s will and design, because circumstances between the parties render justification that one party should have a right and the other party a liability, similar to what would arise if their was an actual contract between them. Unilateral Mistake: A mistake made by only one party, usually the contractor. If they are not mistakes in business judgment, relief for such mistakes may be given if they are alleged by the offeror before award. No relief will be given for such mistakes alleged by the contractor after award unless the contracting officer knew or should have known of the mistake before award or failed to request verification.

34. Questions?