Inadvertanly rated a contractor technically acceptable

Not sure if this example is applicable to your situation, but...

I had a requirement once upon a time for a specialized (but commercial) item, and it would be evaluated using LPTA. The estimated value was well below the SAT. The requirement package called for certain specs; in other words, the customer wanted a brand-name item. I explained to them why we can't just buy a brand-name item whenever we want one, and why pursuing that route would extend the lead time. The customer agreed to a brand name or equal solicitation using salient characteristics, and I got a number of offers in reply. The winning offer was of course the lowest-priced offer (which led to significant savings on the IGCE), and they actually offered the exact model the customer wanted in the first place. I sent their offer to the program office/user for technical evaluation, and got an explicit statement that the offer was technically acceptable. My supervisor signed off on the contract, and away we went.

Once the item was delivered, the customer began harassing contacting me on a regular basis, claiming the item I procured was not what they asked for. The customer apparently wanted a "nice-to-have" accessory, but it was not defined anywhere in the salient characteristics. This accessory would have increased the cost of the procurement, but we would have still been under budget and the provided funding. I asked the customer to explain how that could be, since they saw the offer (pricing redacted due to office policy, but otherwise the exact offer the winning vendor sent me), and that (prior to award) they affirmed that the offer was technically acceptable. This went on for months, and it took my supervisor threatening to report the customer to their supervisor for them to stop asking me about it. I must have sent the customer the RFQ I issued (including the customer's salient characteristics), the redacted offer, and their technical evaluation three times during that span!

I guess the moral of the story is: LPTA is great, but you better have your requirements well-defined. If there's a "nice-to-have" addition you want, don't assume the contractor will throw it in gratis. We all know what happens when you assume

Does not sound like a technical acceptability issue.

Was this a purchase order? Was the quote incorporated by reference?

Contract or purchase order? Something else?

Did the contract [or purchase order or something else] say labor only or did it say parts and labor?

Does the contractor think it is entitled, as a matter of right, to an increase in the contract price?

You say your situation is already handled -- what did you do?

How much money are we talkin' about?

We’re talkin ~half a mil using the test program, so yes a purchase order was issued, but accepted by the contractor establishing a contract.

The SOW specifically stated the contractor was to provide parts and labor at their expense.

I don’t know if the contractor thinks they’re entitled as a matter or right or not, but simple concerned they will be operating at a loss if they were to finish performance the way it was written.

The purchase order memorializes the agreement between the parties. If the contractor is unable to articulate a matter of right to an adjustment in the contract price, then the Government almost certainly cannot articulate a matter of right. Do not be persuaded to give the contractor a gift of additional money because you like the contractor -- there is no box in block 13 of the SF-30 to show a gift to the contractor as the authority for the modification.

If the contractor is willing to perform, let it perform. If the contractor intends to abandon the work, let it make its declaration. If the Government erred in issuing the purchase order, you may terminate it for the Government's convenience. If a mutual mistake was made in forming the contract, well, there's a process for that, too.

Anyway, what did you do?

It sounds like you accidentally snookered them into accepting your offer to perform the work and eat the cost of the parts.

Follow-up question: How much money we talkin about *in parts*? (Not the grand total)

We’re talkin ~half a mil using the test program, so yes a purchase order was issued, but accepted by the contractor establishing a contract.

How did they accept the purchase order? Did they sign it?

I don’t think I accidentally snookered anyone into anything. The contractor had a tiny footer on a page the government missed, and the contractor apparently missed parts were to be included in the contract. The requirement didn’t change between the solicitation and the contract. I thought it was pretty well established parts were to be included.

Parts were ~10% of the total price.

Don, yes the contractor signed the purchase order.

What happened was we terminated the contract for convenience and paid the contractor the cost of the scheduled maintenance along with the cost of replacement parts (no unscheduled maintenance or any other work was performed).

Although it may have been an honest mistake (giving the contractor the benefit of the doubt) I determined the contractor should have received an unacceptable rating as their quotation did not adhere to the requirements of the solicitation, so I had the contractor finish the scheduled maintenance (which had already been started) and then terminated the rest of the contract as stated above. Had this been protested, I probably would have had to take corrective action (hard to say though).

Whether or not that was a good decision I don’t know, a couple people above me thought I ought to give the contractor his requested increase. Given the fact patterns (although hard to discuss here in every detail), I think I was right (or most right) and I’d do it again given similar fact patterns.

The question in a more simple form, what do you do when you award a contract to a contractor who should have been rated unacceptable, but they perform as they stated they would, which is unacceptable?

I think the CO should have caught the pricing error more so than the technical panel. If the change in cost was lower than the next lowest bid, I am sure my agency would modify the order and get on with business. I know we have done so before for various reasons.

I think the CO should have caught the pricing error more so than the technical panel.

Fair enough

The question in a more simple form, what do you do when you award a contract to a contractor who should have been rated unacceptable, but they perform as they stated they would, which is unacceptable?

Hi, Deaner,

The circumstances sound unusual, but my guess is that by awarding the PO, the CO overrules the techncial panel and thereby declares them acceptable. By accepting the PO (eigher by signing or beginning work) the contractor has to perform in accordance with it. If they default, then you terminate them.

Sounds like that was a rough one . . . glad it is behind you.

Looks to me like there was negligence on the part of the government - here I am assuming the KO or their staff had access to the price information. The government team, led by the KO, didn't carefully read the price quote. There is no excuse for that. Seems like somebody should have compared the prices and their bases. Also, I may be wrong but for commercial acquisitions, I thought that firms are encouraged to negotiate or offer terms consistent with commercial practice.

The firm also appears to be naive or ignorant by not understanding the details of the government's purchase order which varied from their quote.

I'd venture to say that there was mutual mistake and that the best solution would be to terminate the contract for convenience.

You said that you did but added that you would favor a poor performance rating. Inasmuch as you didn't know the basis of their quotation, I would say that that is unfair and unwarranted. You said that even adding for parts, the firm still had the lowest price and satisfactorily completed what they were assigned...

I'd venture to say that there was mutual mistake and that the best solution would be to terminate the contract for convenience.

You said that you did but added that you would favor a poor performance rating.

I didn’t intend to mean I favor the contractor receive a bad rating. I was trying to state that if the government caught the price details in the quotation, they probably would have been rated unacceptable or unresponsive and never received the award to begin with.

In this situation, The quotation number, date, and all were included in block 29.

Dont know if it matters, but the page where the contractor added the footer indicating his quotation only included labor was one of 15 pages of unsolicited information, but the solicitation didn't put any page max for quotations.

Some people indicated the Contractor would be obligated to perform based upon the contract terms and conditions and that a modification providing an adjustment would be tantamount to a gift. Commercial items exceeding the SAT shall be issued using the SF-1449 except in certain instances (FAR 12.204). Block 29 on the SF-1449 states:

AWARD OF CONTRACT: REF. OFFER ____________

DATED ____________. YOUR OFFER ON SOLICITATION (BLOCK 5), INCLUDING ANY ADDITIONS OR CHANGES WHICH ARE SET FORTH HEREIN, IS ACCEPTED AS TO ITEMS: ___________

Would it change anyone opinion for whether the agency could force the Contractor to perform without any consideration of the quotation if the CO included the Contractor's quotation number in Block 29 and indicated acceptance of all items? Would it make a difference if the statement identifying allowability of cost was an attachment?

I didn’t intend to mean I favor the contractor receive a bad rating. I was trying to state that if the government caught the price details in the quotation, they probably would have been rated unacceptable or unresponsive and never received the award to begin with.

"Fair enough" - sorry I misunderstood you.

Had a commercial RFQ . The requirement was for scheduled and unscheduled maintenance of equipment for one year. Contract was a FFP and was to include all parts and labor at the contractor’s expense. Received three quotations. The technical team rated each contractor technically acceptable. The contractor who received the award submitted their quote but added small writing at the bottom of their price volume that stated the price only includes labor and they would invoice additionally for parts. This was not the intent of the requirement and the contractor has partially started the work.

The above, from the original post, is most irrelevant to the issue. The part in red, which might be relevant, is unclear.

What happened during the contract formation process? What does the contract say? "Requirements" don't have intent, for goodness sake. Contracting parties do.

A quote is not an offer and could not have been accepted to form a contract. It could not have bound the parties unless incorporated into the contract. The government sent a purchase order, which was an offer. The contractor signed it, which was an acceptance. Whatever the parties signed is what now binds them. What, if anything, does the contract say about the cost of parts? It sounds to me like the contractor is saying it should not have signed the contract. Well, if the contract doesn't say that parts are extra, and if the contract is not legally insufficient for some reason, then the contractor is stuck.

In this situation, The quotation number, date, and all were included in block 29.

What is "and all" in block 29 and what was identified in block 20 of the SF-1449?

Did the government fill in blocks 23 and 24, based upon the quotation?

"Well, if the contract doesn't say that parts are extra, and if the contract is not legally insufficient for some reason, then the contractor is stuck."

I agree.

How about a real case? See http://www.cbca.gsa.gov/files/decisions/2012/WALTERS_12-19-12_2782__LACEY_NEWDAY_CONSULTING,_LLC.pdf

Here, the contracting officer sent out a RFQ asking for quotations for beef. Several quotations came in, with the lowest at $0.60 per pound and the remaining all between $1.66 and $2.40 per pound. The contracting officer issued a purchase order to the lowest-price quoter.

The contractor alleges in the appeal that it made a mistake and that the intended price was $2.05 per pound. It says it raised this matter with the contracting officer before the purchase order was issued. Nonetheless, the contractor accepted the purchase order and delivered the beef. Then, it submitted an invoice at $2.05 per pound. The contracting officer rejected the invoice, and a claim and appeal followed.

Here are the pertinent extracts from the appeal decision (my emphasis added):

The instant contract between BOP and Lacey Newday came about as a result of BOP’s issuance of an RFQ. Under the Federal Acquisition Regulation (FAR), RFQs are treated differently than either invitations for bids (IFBs) or requests for proposals (RFPs), in that the submission of a quotation in response to an RFQ is not considered an offer that is subject to acceptance by means of a Government purchase order or award. . . .

When the contracting officer ultimately transmitted a written purchase order on January 11, 2012, that was the Government’s offer. Although, in accordance with the FAR, the contracting officer might have sought written acceptance of the offer from Lacey Newday, by its signature of the purchase order or by some separate writing, she did not do so. Instead, acceptance in this case was properly effected by delivery of the ordered meat items on January 17, 2012. The purchase order clearly called for delivery of 10,000 lbs. of ground beef at $0.60/lb., and there is no evidence that Lacey Newday attempted to vary these terms of the purchase order between its issuance on January 11 and its completion of meat delivery on January 17. . . . Thus, when delivery was made on January 17, 2012, it signified Lacey Newday’s clear and unequivocal acceptance of the offer to purchase 10,000 lbs. of ground beef at $0.60/lb.

The Board need not address which party is the more credible in terms of appellant’s assertions regarding prior notifications of bid error during the various telephone conversations on December 22 and 29, 2011. Those conversations all predated both the agency’s offer and Lacey Newday’s acceptance and thus would not be relevant to the parties’ agreement on contract terms.

Decision

For the foregoing reasons, the appeals are DENIED.

I continually wonder why so many contracting officers want to make contractors whole in matters such as this. We’re contracting officers for the United States, not social workers.

ji, I understand what you are saying. I am trying to understand, in this instance, what was in the government's offer. Deaner said the the government was unaware that the quote excluded te cost of parts from its stated price.

I still think that the proper course of action here was a no cost termination for convenience.

This is coming from someone who generally always doubled checked the math in proposals for contracts, mods and claims. Having worked with foreign contractors early on, I was aware that 1+1 could sometimes equal other than 2.

It was very easy in spreadsheet programs to include "global" multipliers or individual cells with multipliers. Contractors were using minicomputers in the 1980's to develop proposals. We had our own, personal calculators until several of us office engineers bought PC's and our own software for database, spreadsheet and word processor applications.

This does reveal the need for parties to talk to each other and confirm certain key matters before signing contracts. I guess you can't do that on every small buy, but this one was $500K, not gigantic, but not exactly minuscule.

As for what to do, it may not be wise to force a company to perform when it is dissatisfied and will lose a significant amount of money. Both parties screwed up in one way or another.

I believe in the old adage to teach people correct principles, and then let them govern themselves.

If a contracting officer wants to do a kindness to a contractor, I want him or her to do it with a full understanding of the underlying correct principles. I'm not wholly convinced that happened here. Maybe, maybe not. But if he or she did the kindness without understanding correct principles, and comes here for validation, well, that might not be helpful in teaching correct principles to others.

If as a result of this discussion, the original poster or any other reader better understands the validity of a written contract (even a purchase order accepted by a contractor) and understands the Government's right to performance under a contract, and better understands that a purchase order is not a contract at issuance and only becomes one when the contractor accepts it (and then having accepted it, must perform it), then this was a good discussion -- this is the value in WIFCON.

If as a result of this discussion, the original poster or any other reader better understands the validity of a written contract (even a purchase order accepted by a contractor) and understands the Government's right to performance under a contract, and better understands that a purchase order is not a contract at issuance and only becomes one when the contractor accepts it (and then having accepted it, must perform it), then this was a good discussion -- this is the value in WIFCON.

Hopefully, the original poster or any other reader do not have such an understanding, because they would be wrong. The FAR 2.101 definition of "contract" clearly includes both bilateral and unilateral purchase orders:

“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.

I would prefer that the original poster or any other reader better understand that a unilateral purchase order is an offer to enter into a unilateral contract. A unilateral contract is defined as:

unilateral contract

n. an agreement to pay in exchange for performance, if the potential performer chooses to act. A "unilateral" contract is distinguished from a"bilateral" contract, which is an exchange of one promise for another. Example of a unilateral contract: "I will pay you $1,000 if you bring mycar from Cleveland to San Francisco." Bringing the car is acceptance.

That would make for a very good discussion. If the original poster or other readers are interested in further reading, see Comptech Corp., ASBCA 55526, 2008 WL 4628786 (Oct. 1, 2008).

Without regards to whether or not a FFP contract was the proper contract type, and the fact the awardee should probably have been rated technically unacceptable and never have received the award, what do you do and why? (This was a previous situation that has been handled, wonder if others would handle it the same way).

Since this is a $500,000 action using simplified acquisition procedures, I wouldn't necessarily consider the quote technically unacceptable. I could go back and ask why parts weren't included. The vendor could simply revise the quote and we've home free.

I'm no expert on purchase orders but from the very general info provided, it appears that the government made the offer to the contractor based upon its quote in block 29 of the purchase order, without knowing that the contractor excluded parts from the price. Deaner hasn't clarified the details.

Don,

Please don't get started.

My use of purchase order and contract are correct. I can quote the FAR, too (my emphasis added):

FAR 13.004 Legal effect of quotations.

(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.

Anyone who thinks a contract exists when a purchase order is issued, as you assert, is wrong. Look at the words above: issuance by the Government of a [purchase] order does not establish a contract -- rather, the contract is formed when the supplier accepts the offer. Thus, my statement "a purchase order is not a contract at issuance and only becomes one when the contractor accepts it," which you find offensive, is wholly correct and true. A person adopting your approach, that a contract exists at the moment of issuance of a purchase order, would err.

I have no problem with the FAR 2.101 definition of contract, in the context of definitions. By the way, FAR 2.101 also has a definition of purchase order. Please go look at it.

ji20874,

Is a unilateral purchase order a unilateral contract? Yes or no.

ji, in your post 23, you stated "a purchase order is not a contract at issuance and only becomes one when the contractor accepts it (and then having accepted it, must perform it)." I think the phrase "must perform it" is troubling. A purchase order can be accepted by performance. Thus, in this case, the purchase order only becomes a contract after the contractor has performed. You may have clarified this in your post 27.

To Don's point, FAR 13.003(g)(2) specifies that:

"Authorized individuals shall make purchases in the simplified manner that is most suitable, efficient, and economical based on the circumstances of each acquisition. For acquisitions not expected to exceed... $6.5 million ($12 million for acquisitions as described in 13.500(e)), for commercial items, use any appropriate combination of the procedures in Parts 12, 13, 14, and 15..."

The Contracting Officer could use FAR Part 15 procedures to develop an RFP using FAR 13. The offerors' response to that FAR 13 RFP would be tantamount to an offer that the could be accepted through issuance of a unilateral Purchase Order. Therefore, it is possible to have a unilateral Purchase Order that becomes a contract without performance.

Retreadfed,

A contractor accepts a purchase order (offer) either by signature or by starting performance. Once it has accepted in either way, a contract exists and the contractor must perform its obligations.

metteec,

A contracting officer can issue a RFP under FAR Part 13 -- if so, it receives offers, not quotations from prospective contractors, as you rightly note -- when I have done this, I accept such an offer by issuing a contract, not a purchase order. It seems that issuing a purchase order would be effectively issuing a counter offer for the contractor's acceptance.

Don,

Please let me refer you to the FAR:

• FAR 2.101: Purchase order, when issued by the Government, means an offer by the Government to buy supplies or services, including construction and research and development, upon specified terms and conditions, using simplified acquisition procedures.

• FAR 13.004(a): ...ssuance 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.

The term "unilateral contract" is not used in the FAR. Even so, your source for your definition of unilateral contract admits that the distinction between bilateral and unilateral contract is normally only of academic interest. It is of no interest to me, and of no relevance in this posting. For our purposes, a purchase order is an offer from the Government that a contractor may either accept or reject.

What is "and all" in block 29 and what was identified in block 20 of the SF-1449?

Did the government fill in blocks 23 and 24, based upon the quotation?

Not much in block 20. Number to reference on invoices, POP, and see continunation page for price/cost schedule and SOW.

Nothing in blocks 23 and 24 as there was a price/cost schedule on the following pages.

All referring to all CLINS the contractor priced.

, and comes here for validation,

I didn't come here for validation. Basically i did something stupid and then remedied it the best way i thought possible. I came here to get other people's view and if they would have done it different. Some would have some would not have.

I'm no expert on purchase orders but from the very general info provided, it appears that the government made the offer to the contractor based upon its quote in block 29 of the purchase order, without knowing that the contractor excluded parts from the price. Deaner hasn't clarified the details.

That pretty much sums it up.

Thanks, Deaner. I agree with your remedy and hey - every one has made a mistake.

Don,

Please don't get started.

If you keep making questionable assertions, I'm going to continue to challenge you. Get used to it. If you prefer to be anti-intellectual, then don't respond to me. In either case, you really need to stop with the whining.

My use of purchase order and contract are correct. I can quote the FAR, too (my emphasis added):

FAR 13.004 Legal effect of quotations.

(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.

Anyone who thinks a contract exists when a purchase order is issued, as you assert, is wrong. Look at the words above: issuance by the Government of a [purchase] order does not establish a contract -- rather, the contract is formed when the supplier accepts the offer. Thus, my statement "a purchase order is not a contract at issuance and only becomes one when the contractor accepts it," which you find offensive, is wholly correct and true. A person adopting your approach, that a contract exists at the moment of issuance of a purchase order, would err.

There you go with your straw man fallacy again. I did not assert that a contract exists when a purchase order is issued. I showed that the a purchase order was a "contract" as defined by the FAR. I don't have a problem with FAR 13.004( a ), just your bastardization of it. You wrote that a purchase order "becomes" a contract when it is accepted. FAR 13.004( a ) doesn't say that. It says a contract is established when the supplier accepts the offer. I don't think it's accurate to say that an offer "becomes" a contract. An offer is a necessary element to contract formation, but I wouldn't say that an offer "becomes" a contract. I would expect more from someone who thinks the nuance between "consistent" and "not inconsistent" is significant.

A contractor accepts a purchase order (offer) either by signature or by starting performance. Once it has accepted in either way, a contract exists and the contractor must perform its obligations.

That's wrong and it contradicts FAR 13.004( b ), which states:

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.

"Starting performance" does not constitute "substantial performance", nor would "starting performance" impose an obligation on the offeree to perform. Partial performance would be deemed to create an "option contract", which would limit the Government's ability to revoke its offer (purchase order). However, the offeree would still have the right to accept or reject the offer. From Comptech Corp., ASBCA 55526, 2008 WL 4628786 (Oct. 1, 2008):

Ordinarily, an offer is revocable prior to acceptance, and its revocation precludes the acceptance of that offer. See RESTATEMENT (SECOND) OF CONTRACTS §§ 35, 36(1)©, 42 cmt. a (1981); JOSEPH M. PERILLO, CORBIN ON CONTRACTS § 2.18 (rev. ed. 2007); JOHN EDWARD MURRAY, JR., MURRAY ON CONTRACTS § 43 (2001); FAR 13.004©. Because the law deems it unjust, however, to allow revocation of an offer where an offer can only be accepted by performance and the offeree has begun performing, a subsidiary promise — that the offeror will not revoke its offer if part performance is given — is implied as included in the offer and an offeree’s rendering of partial performance is deemed to create an “option contract.” RESTATEMENT (SECOND) OF CONTRACTS §§ 45(1), 87(2); MURRAY ON CONTRACTS § 43(D); PERILLO, CORBIN ON CONTRACTS § 2.29; see FAR 13.004( b ). When the offeree undertakes a substantial part of the performance requested, its actions form an “option contract” binding the offeror to keep its “offer” open until the time stated in the offer or, if no time is stated, for a reasonable time. Amplitronics, supra, 87-2 BCA ¶ 19,906 at 100,704; Klass I, supra, 78-2 BCA ¶ 13,236 at 64,717; P.E.C. Corp., ASBCA No. 13709, 69-1 BCA ¶ 7559 at 34,996; ITT Defense Communications Division Defense-Space Group, ASBCA No. 13420, 69-1 BCA ¶ 7548 at 34,953; RESTATEMENT (SECOND) OF CONTRACTS § 45(1); see FAR 13.004( b ), ©.

The principal legal consequence of an “option contract” is that it limits an offeror’s power to revoke its offer. RESTATEMENT (SECOND) OF CONTRACTS § 25; see FAR 13.004( b ), ©, 13.302-4. Under an option contract, the offeree is not bound to complete its performance. RESTATEMENT (SECOND) OF CONTRACTS §§ 37 cmt. a, 45 cmt. e. The offeror alone is bound, but its duty of performance is “conditional” on the offeree’s “acceptance,” i.e, completion or tender of the invited performance in accordance with the terms of the offer. Id. §§ 37 cmt. b, 45(2), 224, 225; see FAR 13.004 (when supplier accepts offer, contract established). The major element differentiating an option contract from all other contracts is that the optionee (option holder) has both the legal power to accept a second contract for the contemplated exchange and the legal privilege of not exercising that power. The optionor (option giver), on the other hand, has liability to become bound to execute the exchange and also a disability to avoid it. ERIC MILLS HOLMES, CORBIN ON CONTRACTS § 11.1 (rev. ed. 2007).

Get it, ji? Starting performance does not obligate the offeree, as you have asserted. Further, the issuance of a purchase order can result in a contract before acceptance. Try not to get upset.

Thanks, Deaner. I agree with your remedy and hey - every one has made a mistake.

Agreed. Thanks for posting the scenario, Deaner. It is an important subject and hopefully others that read the forums can use discussion to make the best decision possible.

Don,

I yield to your overwhelming quantity of words. I can't keep up with your ever-changing logic.

I will let my last words be these quotations from the FAR -- I wish you could find a way to agree with them...

• FAR 2.101: Purchase order, when issued by the Government, means an offer by the Government to buy supplies or services, including construction and research and development, upon specified terms and conditions, using simplified acquisition procedures.
• FAR 13.004(a): ...ssuance 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.

ji20874,

I can agree with what the FAR says, just not the garbage that you wrote.

Considering the title of FAR 13.004 referring specifically to quotations, is it possible that this section does not apply to simplified acquisitions involving RFPs and receipt of offers?

If it is not applicable, couldn't a unilateral purchase order be synonymous with a contract issued unilaterally (unilateral contract is the term that Don used)?

metteec,

A unilateral purchase order is an offer to enter into a unilateral contract. When the offeree takes "substantial and definite action" in reliance on the offer, the law limits the offeror's ability to revoke its offer. The Board refers to this contractual relationship as an "option contract". Similar to options you may see in Government contracts, there is no obligation on the part of the offeree to perform. The offeree still has the right to accept or reject the offer. ji20874's response to Retreadfed demonstrated his ignorance of this fact (although he would claim that he knew it but it wasn't relevant or too academic, etc.).

An "option contract" becomes a contract for "purchase and sale" when the offeree accepts the offer. In the case of a unilateral purchase order, the offeree indicates acceptance by furnishing the supplies or services ordered or by proceeding with the work to the point where substantial performance has occurred. From the Comptech decision:

In sum, an option contract or “binding option is a standing offer as well as a contract.” It involves both a binding promise to keep an offer open, which is a contract (usually unilateral in character), and making of an offer of some exchange, i.e., giving of an “option,” which creates a “power of acceptance” in the holder of the option, just as in the case of a revocable offer. The offeree’s “acceptance” exercising the option is an event qualifying the offeror’s duty under the contract, i.e., a condition. “Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.” RESTATEMENT (SECOND) OF CONTRACTS § 225(1). Accordingly, an optionor’s “binding” promise (to not revoke its offer) is a contract, but not yet a contract of “purchase and sale.” There is no completed contract for “purchase and sale” until the occurrence of the condition, i.e., the optionee accepts the option/offer.

Note that "substantial performance" does not mean that the offeree merely started work. It means that they fulfilled the contract, for the most part. It's an alternative to the perfect tender rule. Here's a decent explanation of the term:

substantial performance

n. in the law of contracts, fulfillment of the obligations agreed to in a contract, with only slight variances from the

exact terms and/or unimportant omissions or minor defects. A simple test is whether the omission, variance, or

defect can be easily compensated for with money. Examples: a)the contract is for supplying 144 pumps for

$14,400, and only 140 were delivered; b. the real property was supposed to be 80 acres and only contained 78 acres. This constitutes substantial performance unless the loss of two acres is crucial to the value of the property

(e.g. reduced the number of lots able to be subdivided); c) the product was to be delivered on October 25 and did not arrive until November 5. This constitutes substantial performance unless the product was required for a

Halloween sale.

Thanks for the clarification, Don. That helps!

No problem. BTW, what would be the title of FAR part 20? Animal Rights?

For a discussion of the ASBCA's view of this issue, see, Amplitronics, Inc. ASBCA No. 33732 87-2 B.C.A. P19,906

May 27, 1987, and the cases listed there.

Ralph Nash discussed this at length in "Unilateral Purchase Orders: When Are They Binding," The Nash & Cibinic Report, March 2007. The leading case at that time was Davis Precision Machining, Inc., 35 Fed. Cl. 651 (1996). According to the court, acceptance by the contractor occurs upon completion of substantial performance, and the contractor is not bound until then, but the government is bound when the contractor begins performance.

To be fair, (1) FAR departs from the common law somewhat, (2) FAR does not explain the rules as clearly as it might, (3) the language used is confusing (unilateral contract, option contract), and (4) the underlying concepts are not widely understood by COs, contract specialists, or contractors, and are not properly taught. Prof. Nash's article is required reading.

Don, could you answer these two questions:

1. If a FFP purchase order for (non-commercial) supplies was issued, the contractor completed substantial performance of the first half the order on the delivery date, except final paperwork review of the half-order was underway. The Government COR came in to source inspect the completed half of the order two weeks later, but rejected the half for minor paperwork issues. The contractor stated these issues were correctable within two weeks, what do you do? The purchase order (contract?) was withdrawn one week after Government rejection of the paperwork. Is the Government on the hook, in your opinion?

2.Do you have a link to the definition of substantial performance in the law of contracts? seems useful...

Thx!

Ibrob1, concerning your first question to Don, please clarify what you mean by "the first half of the order". Was full delivery of all supplies required by the same delivery date? Also, what do you mean by "final paperwork review" and by whom?

Do you have a link to the definition of substantial performance in the law of contracts? seems useful...

Black's Law Dictionary 9th ed. defines "substantial performance" as follows: "Performance of the primary, necessary terms of an agreement." Under "substantial performance doctrine" it says: "The rule that if a good-faith attempt to perform does not precisely meet the terms of an agreement or statutory requirements, the performance will still be considered complete if the essential purpose is accomplished, subject to a claim for damages for the shortfall."

Joel,

To clarify, 7ea of the same item were ordered, all due on the same date. 4ea were presented two weeks after the final due date. The remaining 3 were never presented for inspection. Final paperwork review is the process a Government QAR (COR) performs to ensure the item meets contract requirements. This usually requires a check of all inspection paperwork and material certifications. When this is complete, the contractor is authorized to deliver parts to the Government. In this case the Government inspector didn't like the paperwork for a rivt on the item and the contractor said new rivets could be installed in two weeks.

Vern, Do you know where Don got the info below...it looks like case law or something from a DAU textbook...I'd like to qualify this

Thanks guys.

Quote

substantial performance

n. in the law of contracts, fulfillment of the obligations agreed to in a contract, with only slight variances from the

exact terms and/or unimportant omissions or minor defects. A simple test is whether the omission, variance, or

defect can be easily compensated for with money. Examples: a)the contract is for supplying 144 pumps for

$14,400, and only 140 were delivered; b. the real property was supposed to be 80 acres and only contained 78 acres. This constitutes substantial performance unless the loss of two acres is crucial to the value of the property

(e.g. reduced the number of lots able to be subdivided); c) the product was to be delivered on October 25 and did not arrive until November 5. This constitutes substantial performance unless the product was required for a

Halloween sale.

lbrob1,

1. If a FFP purchase order for (non-commercial) supplies was issued, the contractor completed substantial performance of the first half the order on the delivery date, except final paperwork review of the half-order was underway. The Government COR came in to source inspect the completed half of the order two weeks later, but rejected the half for minor paperwork issues. The contractor stated these issues were correctable within two weeks, what do you do? The purchase order (contract?) was withdrawn one week after Government rejection of the paperwork. Is the Government on the hook, in your opinion?

If you issued a unilateral purchase order that required delivery of seven items by a certain date, the date has passed, and the vendor has yet to deliver an acceptable item, then I would say that the vendor did not accept your offer by way of substantial performance. Based on the facts provided, I would say the Government is not on the hook.

2.Do you have a link to the definition of substantial performance in the law of contracts? seems useful...

I got my definition from an online legal dictionary. The definition is helpful because it provides examples. However, the definition that Vern provided would more likely be used by a court or board.

lbrob1,

If you issued a unilateral purchase order that required delivery of seven items by a certain date, the date has passed, and the vendor has yet to deliver an acceptable item, then I would say that the vendor did not accept your offer by way of substantial performance. Based on the facts provided, I would say the Government is not on the hook.

I got my definition from an online legal dictionary. The definition is helpful because it provides examples. However, the definition that Vern provided would more likely be used by a court or board.

Ibrob1 might be the contractor or the gov't. Either way, I would disagree with Ibrob that substantial performance was achieved, if the government required delivery of seven items , only four were provided by the required date and the remaining three were still not delivered at least three weeks later, when the government "withdrew" the order.

Of course, we might have to wait for ...the rest of the story...

joel,

Re-read post #47--I don't think you have the facts right.

Don, which facts? The order was for seven, only four were provided. We don't actually know if they were usable without modification of a rivet. We don't know whether the four were useable without the other three. That's not necessarily substantial performance of the order, in my opinion.

You have all made very good points. The rest of the story is:

1. The contract states delivery of a partial quantity is acceptable.

2. The item functioned properly with the defective rivet. The Government QAR improperly rejected the rivet on a technicality, stating it was Government surplus, when, in fact, it was commercial excess production, sometimes referred to as surplus, but not meeting the FAR definition of surplus. The contractor screamed about the error to the deaf ears of the technical folks.

3. The Government went on to make a new award at double the price and a year and a half for delivery.

Now that there is that horse of a different color that folks might have heard of...