An Apparent Problem For Government Contractors

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A recent decision out of the Armed Services Board of Contract Appeals serves as a useful reminder that the rules regarding apparent authority in contracting apply differently to government employees than to government contractors.

In 2013, Aspen Consulting, LLC entered into a contract with the government.  Aspen Consulting, LLC, ASBCA No. 6112, 20-1 BCA ¶ 37,715. Benjamin French, Aspen Consulting’s vice-president and chief operating officer, was designated as the project manager and day-to-day point of contact for that contract. Mr. French did not have any authority to enter into contracts on his own, independently investigate or propose change orders, or execute contract modifications without approval. Despite this, Mr. French signed contract documents on behalf of Aspen Consulting, and Aspen Consulting never told the government that Mr. French only had limited contractual authority.

Because the contract provided for payment by electronic funds transfer (“EFT”), Aspen Consulting designated a specific bank as the institution authorized to receive payments. In 2015, however, Mr. French directed the government to pay two invoices to an account at a German bank that he had previously opened on behalf of Aspen Consulting with the knowledge of Aspen Consulting’s president.  Aspen Consulting argued that the government breached the contract by directing the payments to the German bank because Mr. French did not have the authority to change the authorized institution for EFTs. The Armed Services Board of Contract Appeals denied the appeal because Mr. French’s role on the contract and signature on at least one contract modification “creat[ed] a reasonable belief that Aspen Consulting had authorized Mr. French to change Aspen Consulting’s EFT information.” Mr. French, therefore, had the apparent authority to modify the contract.

As this decision makes clear, a government contractor may be bound by the actions of its employees if the employees have the apparent authority to bind the contractor. But contractors must also remember that the same rules do not apply to government employees. Indeed, other decisions acknowledge “that the doctrine of apparent authority  [is] not applicable to the government.” Horton Constr. Co., ASBCA No. 61085, 20-1 BCA ¶ 37,622  (internal citations omitted). Instead, a government employee may only bind the government in contract if he or she has the actual authority—delegated through agency rulemaking or by Congress—to do so. See Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1957); Crowley Logistics, Inc. v. Dep’t of Homeland Sec., CBCA Nos. 6188, 6312, 20-1 BCA ¶ 37,579. Thus, had Mr. French been a government employee who had directed a contract modification or otherwise changed the terms of the contract with Aspen Consulting, the parties would not have been bound by Mr. French’s actions.

When dealing with the government, therefore, government contractors should keep a few things in mind. First, they should ensure that they get all direction regarding contract changes or modifications from the contracting officer. If they get direction from a contracting officer’s technical representative or another government employee, the government contractor should ask the contracting officer to ratify the direction. At a minimum, a government contractor should copy the contracting officer on email communications from government employees purporting to direct the contractor about contract changes or modifications.

Additionally, government contractors should carefully manage their own employees through efforts such as:

  • Not giving employees titles that imply that the employees have the authority to bind the contractor;
  • Prohibiting employees from printing their own business cards; and
  • Reviewing employees’ business cards, website biographies, and LinkedIn profiles to ensure that the employees are not holding themselves out to have more authority than the employer has given them.

Effectively managing employees will help government contractors avoid situations like the one presented in Aspen Consulting.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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