3.6 Contract Interpretation and Disputes

1. 3.6 Contract Interpretation and Disputes

2. Contracting professionals should always seek to resolve differences in the least formal and most collaborative manner possible. • It is important for contract managers to understand contract interpretation principles in order to avoid and/or settle disputes. • Judicial and administrative bodies interpret the contract language to determine the outcome of any dispute if it cannot be settled at a lower level.

3. Contract Interpretation • Main point of contract interpretation is to determine a single interpretation of the contract that reflects the parties' intent. 1) Know/Read your Contract 2) Understand Key Terms 3) Extrinsic Evidence

4. Know your Contract • Before signing contract make sure that all parts work together and that there is no ambiguity. If one section of the contract may conflict with another, the parties should use an "order of precedence" clause to determine which section takes priority. According to the FAR, any inconsistency shall be resolved by giving precedence in the following order: • The schedule (excluding the specification); • Representations and other instructions; • Contract clauses; • Other documents, exhibits, and attachments; and • The specifications. (Derived from FAR 52.214-29 and 52.215-8.)

5. Understand Key Terms • key term is not defined in the contract, then technical terms are given their technical meaning in that field. • Negotiated terms take precedence over standard terms. • “Boiler plate“ = Standard terms that may be pre-printed on a form. • Specific terms take precedence over general terms. • If a term has several different meanings, it is interpreted against the party who wrote the ambiguous term.

6. Extrinsic Evidence • Extrinsic evidence consists of: • Discussions and concurrent actions, For example, discussions, meetings, teleconferences, e-m ails, or conduct submitting bids, quotes, or proposals may establish the intent of the parties about the disputed terms. In addition, the parties' behavior after contract award, but before the controversy, may also provide insight how to interpret the disputed terms. • Prior course of dealing between the parties, and A prior course of dealing can establish precedence based on past actions; thus, it can be used to establish the intent of the parties. • Custom and trade usage.

7. Commercial Contracts • Questions involving the legality or interpretation of a commercial contract are generally governed by the law of the state where the contract was made. • Questions related to contract performance are generally governed by the law of the state where such performance occurs.

8. Uniform Commercial Code • The Uniform Commercial Code provides several remedies that may result after a dispute (these remedies typically occur for breach of contract): • Expectation damages - Monetary damages to place the aggrieved party in the same place as if the contract had been performed. • Reliance damages - Monetary damages that place the aggrieved party in the same position it was in before signing the contract, such as compensation for expenses or losses. • Restitution - The defendant must pay the monetary value that received from the aggrieved party for partial contract performance. • Stipulated damages - This is a fixed sum or formula that the contract provides as a remedy for breach of contract. Stipulated damages are also called "liquidated damages." • Interest - May be calculated in addition to any damages awarded. • Punitive damages - These are designed to punish the guilty party and are applicable only if the defendant is guilty of fraud, malice, or oppression. Punitive damages may not be applicable in breach of contract cases. • Specific enforcement - Also called "specific performance," the court requires the party that breached the contract to complete contract performance.

9. Government Contracts • The disputes process in federal government contracts is governed by the Contract Disputes Act and is set forth in FAR Part 33.2, "Disputes and Appeals.“ • A contract dispute is a post-award disagreement when it is first recognized that the government and a contractor have conflicting points of view. • A dispute becomes a claim when a written demand is made, as a matter of right, to pay a specific amount of money or other relief. • An appeal occurs when the contractor files for consideration with a court or board of contract appeals after the contracting officer denies its claim.

10. Claim Requirements and Submissions Process In order to be valid, a claim must: •Be in writing, • Be addressed to the contracting officer, • Specify a specific sum of money if a monetary compensation is demanded, and • Be certified (if the claim is over a certain dollar threshold). Government contracting allows the filing of claims and appeals to the boards and courts when less formal methods do not produce satisfactory results. Process: • submit a claim with the government contracting officer who issued the contract. • The government contracting officer is required to formally accept or reject the claim, in writing, within a specified period of time. • When a government contracting officer denies a claim, the contractor may appeal that decision to the appropriate agency board of contract appeals or to the U.S. Court of Federal Claims.

11. Remedies for Defective Performance Remedies for defective performanceinclude: • Stopping contract performance temporarily through a stop work order; • Issuing preliminary notices before default actions, such as cure or show-cause notices; • Rejecting work and demanding rework; • Accepting work with minor defects for a reduced contract price or other consideration; • Seeking post-acceptance relief from: • Latent defects, • Fraud, or • Gross mistakes.

12. Alternative Dispute Resolution (ADR) • ADR is a procedure or combination of procedures voluntarily used to resolve "issues in controversy" without the need to resort to litigation. • ADR encompasses practices for managing and quickly resolving disputes at modest cost and with minimal adverse impact on the relationship between the contracting parties. Some examples of ADR techniques include: • Interest-based negotiation, • Mediation, • Mini-trial, • Nonbinding arbitration, and • Binding arbitration.

13. Prompt and efficient resolution of all disputes, at the lowest organizational level possible, should always be the goal. • Formal legal proceedings are often costly, lengthy, and may have a negative effect on the relationship between the parties. This negative effect can prevent the parties from engaging in mutually beneficial business relationships in the future.