CHAPTER 1

The Contracting Officer’s Representative and Contract Fundamentals

The contracting officer (CO) administers the contract during contract performance, but he or she rarely has the expertise to administer all areas of the contract necessary for successful performance. Therefore, the CO’s decisions must be based upon the input of many people. The contracting officer’s representative’s (COR) responsibility is to provide technical support to the CO and to the contract specialist.

This chapter answers questions about the COR’s specific duties, the COR’s role in contract administration, and the COR’s communication and documentation duties. This book provides answers to important questions about the typical duties and responsibilities of CORs. The actual duties and responsibilities of the COR are set forth in the letter of designation and may differ from those presented in this book. General principles, however, should still apply.

The COR will need to determine the requirements for designation as a COR in his or her particular agency. These COR designation requirements should, at a minimum, identify:

1. The COR training and certification requirements

2. The COR nomination and designation procedures of the contracting officer (i.e., the CO) making the designation

3. The title that will be used for the designated COR position.

THE CONTRACTING OFFICER’S REPRESENTATIVE

1. What is the COR?

The COR is a non-contracting person who is given the chief role in the technical monitoring and administrative aspects of a statement of work or specification of a contract. FAR 2.101 states: “Contracting Officer’s Representative (COR) means an individual, including a contracting officer’s technical representative (COTR), designated and authorized in writing by the contracting officer (CO) to perform specific technical or administrative functions.”

2. What other terms do some agencies use in place of “COR”?

Agencies may describe the same official using terms such as:

• Contracting officer’s technical representative (COTR)

• Government technical representative (GTR)

• Government technical evaluator (GTE).

Some agencies may reserve the COTR designation for technical representatives, while using the COR label for individuals who have other contract administration duties. Other agencies use the term COR to identify any government person who has been given authority under a contract by the CO. An agency usually handles the issue of deciding which title to use for the individual through a supplement to the Federal Acquisition Regulation (FAR) or other policy documents that generally reflect organizational practice. For the purposes of this book, the representative of a CO will always be called a COR.

3. What terms or roles can be confused with those of the COR?

The terms “ordering officer,” “BPA caller,” “contracting officer,” “POC” (point of contact), “PCO” (principal or procuring contracting officer), “ACO” (administrative contracting officer), and “TCO” (termination contracting officer) have specific and decidedly different meanings and should not be used if the title COR is intended.

An individual may be designated as a COR under one contract and have another role (e.g., ordering officer) under another contract. Care should be taken not to confuse the titles, as the authorities of each position are quite different.

The COR’s Authority

It is critical that the COR understand his or her authority when representing the CO. The COR must avoid making unauthorized changes to the contract; making such changes could create serious problems for both the government and the COR. The COR needs to determine the source and extent of the authority assigned to him or her.

4. What is the source of the COR’s authority?

The authority vested in a COR comes directly from the CO. This authority is bestowed upon the COR through specific provisions set forth in the contract or in a letter of designation. The CO can revoke the authority for cause if the COR fails to perform as required.

5. What authority may be delegated to the COR?

To understand what authority may be delegated to a COR, we need first to examine the CO’s authority. The CO’s authority is discussed in FAR Subparts 1.6 and 2.1.

FAR 1.602-2 states: “CO’s are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships.”

FAR 2.101 states: “‘Contracting officer’ means a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The term includes certain authorized representatives of the Contracting Officer [emphasis added] acting within the limits of their authority as delegated by the Contracting Officer.”

The CO may designate other government personnel to act as his or her authorized representatives for such functions as technical monitoring, inspection, approval of testing, and other functions of a technical nature not involving a change in the scope of the contract. Such designation must be in writing and must contain specific instructions regarding the extent to which the representative may take action for the contracting officer.

For every contract, the CO must determine whether to:

• Retain the contract and perform all applicable contract administration functions

• Retain the contract and perform the administrative functions with the assistance of other government personnel, such as CORs

• Assign the contract to a contract administration office (CAO)

• Assign the contract to a CAO with specific limitations or specific additions.

6. What is the COR’s authority on a contract?

The extent of the COR’s involvement, the specific functions he or she is called on to perform, and the processes used to perform those functions will vary from activity to activity and contract to contract. For example, in one instance the COR may be involved with a certain contract from “cradle to grave,” while in another, the COR may be tapped for duty only after the contract has already been awarded.

The CO is responsible for tasking the COR through the official designation letter and through the dynamics of day-to-day teamwork. CORs are generally not authorized to change the price, quantity, quality, delivery, or any terms of the contract.

SELECTION OF THE COR

The following section explains the selection and designation process for a COR and identifies the elements of a COR letter of designation. The COR should follow his or her specific agency policies and procedures relating to CORs, but sometimes agency guidance is lacking or inconsistent. The following questions and answers provide general information and guidance that can be used to establish a better COR selection and designation process for a particular contracting situation.

7. When should a COR be selected and designated for a contract?

A COR should be selected:

• When technical guidance is needed for a contract

• To perform inspection functions

• When testing approval is required

• When continuous surveillance of the contractor’s work is required.

8. How are CORs selected and designated?

FAR 1.602-2(d) states:

A COR

1. Must be a government employee, unless otherwise authorized in agency regulations

2. Shall be certified and maintain certification in accordance with the Office of Management and Budget (OMB) memorandum entitled “The Federal Acquisition Certification for Contracting Officer Technical Representatives” (FAC-COTR), dated November 26, 2007, or for DoD, DoD Regulations, as applicable.

3. Must be qualified by training and experience commensurate with the responsibilities to be delegated in accordance with department/agency guidelines

4. May not be delegated responsibility to perform functions that have been delegated under FAR 42.202 to a contract administration office, but may be assigned some duties at 42.302 by the CO.

5. Has no authority to make any commitments or changes that affect price, quality, quantity, delivery, or other terms and conditions of the contract, and

6. Must be delegated in writing, with copies furnished to the contractor and the contract administration office:

   • Specifying the extent of the COR’s authority to act on behalf of the CO

   • Identifying the limitations of the COR’s authority

   • Specifying the period covered by the designation

   • Stating the authority is not redelegable, and

   • Stating that the COR may be personally liable for unauthorized acts.

OMB memorandum “Revisions to the Federal Acquisition Certification for Contracting Officer’s Representatives (FAC-COR),” dated September 6, 2011, revises and replaces the November 2007 memorandum. This new memorandum establishes a risk-based, three-tiered certification program for civilian agencies that better reflects the important role of the COR. The new requirements, which were effective January 1, 2012, apply to all executive agencies except for the Department of Defense.

Where the previous FAC-COTR had just one level of certification for all CORs, the new FAC-COR has three levels of certification with varying requirements for training, experience, and continuous learning, depending on the types of contracts being managed. The COR level required for a particular acquisition is determined by the CO during acquisition planning and in consultation with the program manager. Details pertaining to FAC-COR are available at www.fai.gov/drupal/certification/fac-cor.

For more information on how your agency will implement the new certification requirements, contact your Acquisition Career Manager (ACM). A listing of ACMs is available at www.fai.gov/drupal/community/acquisition-career-managers-acms.

9. What selection criteria does an agency use to select the COR?

In addition to the regulatory requirements outlined in Question #8, the COR is usually selected on the basis of a recommendation by the program office, i.e., the requiring activity that initiates the contract requirement.¹ It is preferable that the COR be the technical expert on the requirements of the contract on which he or she will be working. Some agencies use a nomination process, including a nomination letter, to nominate an individual for the CO’s consideration.

10. When is a letter of designation used?

A letter of designation is prepared when a CO must administer a contract and needs to rely on other government personnel to ensure the successful completion of the contract. For example, the CO officially designates a COR by issuing a letter of designation based on the CO’s acceptance of the technical qualifications of the individual nominated by the program office in the nomination letter.

11. What are the elements of a letter of designation?

Letters of designation must be tailored for the individual COR for each applicable contract to which a COR is assigned. Therefore, each letter will contain certain elements as necessary. The sample letter provided in Figure 1-1 contains several elements that are most often found in a letter; however, it is unlikely that an individual letter would contain all the elements shown. For example, other individuals may be assigned inspection and acceptance or property administration duties. It is essential that the elements in the letter be tailored to the particular individual in a given COR designation because this is the document that establishes the COR’s authority as delegated by the CO.

FIGURE 1-1. Sample COR Letter of Designation

12. What other means of designation do agencies use to outline the duties of a COR?

Agencies may use other means of designation, such as:

• Team assignments. Some agencies have developed a joint partnership agreement that is signed during the preaward phase, defining how the program office and the contracting office will work together on the contract. The agreement contains details pertaining to the duties and areas of responsibility of each party in defining the contract requirements and planning for contract administration during the performance period. The teamwork concept is enhanced by designating the COR early in the process. By becoming familiar with the program requirements, the COR is able to assist the CO in developing the statement of work and contract administration plan.

• Contract requirements. The COR’s authority and responsibilities can be presented in the contract through:

  • – Part 1, Section G (“Contract Administration Data”) of the Uniform Contract Format, or an addendum to a commercial item contract that specifies the name and duties of the COR

  • – The technical direction clause in the contract, which establishes the scope of the COR’s responsibilities in relation to the contractor. The clause further defines the role of the COR during contract performance.

The CO delegates the authority and responsibilities of the COR by signing the contract. A separate letter may not be necessary when the information contained in the contract is sufficient.

• Internal policy. Instructions and responsibilities addressed to individuals involved in the contract administration process may also be contained in:

  • – Regulations and policy documents

  • – Office procedures

  • – Job descriptions of contract administration team players.

Regardless of internal policies, the CO must still officially designate the individual who will serve as COR by name under a specific contract. Agency policy, procedures, and job descriptions cannot substitute for a specific designation from the CO, unless the agency has an agreement with the contracting office—as in a situation in which the same commodity or services were being acquired on follow-on contracts, and the COR designation flows from one contract to the next per the conditions of the agreement.

Also, remember that if the assigned duties of the COR are changed, or another person is assigned the responsibility by the program office to technically monitor the contract, the program office or the COR must inform the CO immediately so that the CO may assign the duties of the COR to another person.

In summary, the designation process should follow these steps:

1. The COR is nominated in writing by the program organization.

2. The COR is notified by letter, written and signed by the CO.

3. The COR acknowledges acceptance of the position by signing and returning a copy of the letter to the CO.

THE COR’S DUTIES

The COR will need to perform general duties and responsibilities that may be assigned to him or her as a COR. The following questions and answers describe the COR’s duties and responsibilities and identify the major areas of contract administration that are usually assigned to CORs.

The competencies needed to best perform these duties are described at the Federal Acquisition Institute (FAI) web page at www.fai.gov/drupal/node/184.

General Duties

13. What are the general duties of a COR?

The COR must:

• Know the contract. The COR must be thoroughly familiar with all facets of the contract. He or she will not only act as a liaison between the contractor and the CO on matters pertaining to the contract requirements, but will also be responsible for contract compliance to the extent such responsibilities are designated to the COR.

• Build rapport. The COR may be introduced to the contractor at or before the postaward orientation conference, or he or she may already have an established professional relationship with the contractor. The COR should begin to build or strengthen rapport with the contractor immediately, displaying his or her knowledge of the contract and emphasizing his or her understanding of the team concept. Of course, the COR will always relate to the contractor within the framework of the COR’s designated authority. (See the section in Chapter 2 entitled Ethics and Integrity for more on the importance of maintaining an “arm’s-length” relationship with the contractor and the standards of conduct and ethics that govern the relationship between the COR and the contractor.)

• Interpret technical requirements. Among the COR’s most important duties are talking with the contractor and gathering information from the contractor regarding differences in interpretation of the contract technical requirements. The COR may also be called upon to advise the contractor on environmental concerns, quality assurance, or issues related to safety, security, and government property. The COR will report this information, including differences of opinion, to the CO for resolution.

• Recommend changes. Remember, the COR may not make commitments to the contractor with regard to changes in price, quantity, quality, or delivery, but because he or she is intimately involved with the day-to-day workings of the contract, the COR may encounter situations that, in his or her opinion, warrant such changes. The COR’s responsibility is then to recommend these changes to the CO in writing. The COR should support his or her suggestions with technical and cost justification and input from the contractor, if such input is appropriate. And, more importantly, the COR will be responsible for monitoring the contractor to be sure he or she does not act on such changes until the changes are formally issued by the CO.

• Monitor and evaluate performance. As the CO’s “eyes and ears,” the COR will spend time at the contractor’s establishment to ensure that the contract is being performed as required. Site visits are essential to monitor whether:

  • – The contract is on schedule

  • – The contractor is performing quality assurance requirements as specified by the contract

  • – Employees charged to the contract account are actually working on the contract

  • – Government property is being maintained properly.

    The COR’s presence at the contract performance site also helps him or her evaluate the contractor’s performance. As an evaluator, the COR will record his or her observations of the contractor’s technical performance and perhaps offer ideas for technical performance improvement. The contractor’s required reporting, in addition to the COR’s first-hand observations, will provide the data for the COR’s evaluation reports to be furnished to the CO. The COR will also present a performance evaluation report as part of the contract closeout process.

• Review invoices. The COR is usually responsible for the review of each invoice submitted by the contractor and for recommending payment based on performance and allowability of cost (under certain types of contracts). The COR is required to report any discrepancies between the contractor’s invoices and existing contract terms to the CO.

• Recommend corrective action. The COR may find deficiencies in contractor performance and must report these to the CO. In addition, the COR may recommend courses of corrective action to the CO. An important point to remember is that the COR (or any government official) may not tell the contractor how to correct a deficiency. The contractor may interpret such direction as a “constructive change” (see Chapter 6, Resolving Constructive Changes), proceed with the change, and charge the government for what amounts to an unauthorized commitment. The COR may ask the contractor for a plan of action to correct deficiencies, and relay such plans to the CO, who then determines the next action. Possible actions could include the CO issuing a change order or issuing a show cause or cure notice, which are delinquency notices used when the contractor is failing to make progress or perform other provisions of the contract. (See the discussion of contract termination in Chapter 8 for further discussion of these notices.)

• Inspect and accept deliverables. The COR may also be assigned the responsibility of inspecting deliverables (e.g., units of a product or the performance of services) and deciding whether or not they are acceptable according to contract requirements.

14. In what areas of contract administration are CORs usually assigned duties and responsibilities?

The COR’s specific duties and responsibilities are set forth in his or her letter of designation. Figure 1-2 lists major areas of concern for the CO relating to contract administration. The CO will likely delegate significant duties and responsibilities to the COR from the major areas shown in bold type. Minor duties and responsibilities related to the other areas listed may be delegated to the COR from time to time by the CO.

The COR may be responsible for the following tasks and authorities, as covered in the letter of designation:

• Administration

  The COR may:

  • – Act as the government’s technical representative for contract administration

  • – Supervise all technical and clerical personnel assigned to assist the COR

  • – Assist the CO in conducting a postaward orientation conference

  • – Represent the government in conferences with the contractor and prepare memoranda of pertinent facts for the record

  • – Confer with representatives of the requesting office and other user groups on contract performance matters

  • – Maintain a file system

  • – Prepare a project diary

  • – Keep a current set of drawings and specifications, noting all changes or deviations.

  

  FIGURE 1-2.Major Areas of Concern in Contract Administration

• Inspection and acceptance

  The COR may:

  • – Inspect all work for full compliance with contract requirements

  • – Promptly reject all work that does not comply with contract requirements and immediately notify the CO of the rejection

  • – Advise the CO if the contractor fails to remove, correct, or replace rejected work promptly

  • – Provide appropriate technical direction, advising the contractor of its formal appeal rights when there is disagreement

  • – Prepare and maintain a list of items that are at variance with contract requirements, apprising both the contractor and the CO of possible corrective action or of the need for it

  • – Maintain a list of product defects or omissions

  • – Ensure that all defects and omissions are corrected.

• Labor relations

  The COR may:

  • – Ensure that Equal Employment Opportunity posters are prominently displayed at the job site

  • – Report violations of labor standards provisions to the CO

  • – Monitor the contractor’s time- and record-keeping.

• Contract modifications

  The COR may:

  • – Administer contract modifications previously authorized and issued by the CO

  • – Ensure that the contractor provides formal proposals for contemplated changes.

• Payments

  The COR may:

  • – Review and verify the contractor’s invoices, determining the government’s agreement or non-agreement with the contractor’s percentage of physical completion for progress reports and cost vouchers.

• Schedule surveillance

  The COR may:

  • – Review and forward to the CO the contractor’s schedule or project management chart with a recommendation for acceptance or rejection

  • – Require the contractor to submit, if specified in the contract, a progress chart showing the actual progress on the project at the end of each accounting or payment period

  • – Advise the CO of any delay factors (e.g., strikes, weather) and record the impact of these factors on contract completion.

• Safety and environmental monitoring

  The COR may:

  • – Enforce safety and health requirements

  • – Enforce environmental requirements.

Communication and Documentation Duties

One of the most important areas of responsibility for the COR is his or her communication and documentation duties. The COR must perform these duties effectively and thoroughly to ensure that the government’s interests in the contract are accurately and adequately recorded and preserved. The following questions and answers provide the COR with information related to:

1. Occurrences that require communication with the CO

2. Formal versus informal communication with the contractor

3. The requirements of proper technical interpretation

4. The technical direction clause

5. The requirements of proper documentation.

15. What are the COR’s communication and documentation responsibilities?

The COR must communicate constantly with the CO to apprise the CO of real or potential problems regarding contract performance, requirements for contract changes, and other important events and situations. The COR must also communicate with the contractor to answer questions and initiate technical guidance. The COR must practice a degree of sensitivity in such communication to ensure that “personal services” (i.e., creating an employer-employee relationship; see Chapter 3, Special Considerations When Contracting for Services) are not rendered, that constructive changes do not result from technical guidance, that proper procedures are followed to implement changes, and that the government is protected by accurate documentation of all communication.

16. What typical occurrences require the COR to communicate with the CO?

The COR must advise the CO of the following occurrences:

• Failure by either the contractor or the government to meet contractual commitments

• Required contract changes

• Cost growth under cost reimbursement contracts or other cost-related problems

• Unsatisfactory progress

• Discrepancies in invoices or vouchers.

The CO may stipulate other routine periodic reports, and the COR must be sure to make complete, effective, and timely reports to the CO.

17. Why is it important to be aware of limits on communications with contractors?

CORs must be careful in their communications with contractors. First of all, the distinction must be made between prime contractors and subcontractors; the essential issue here is the observance of “privity of contract,” which defines the relationship between the two parties to a contract (see Figure 1-3).

FIGURE 1-3. Privity of Contract and Relationships among Government Agencies, the Prime Contractor, and Subcontractors

Because of limits on the COR’s authority, he or she must understand the differences between formal and informal communication. The protocols of both formal and informal communication must be carefully followed to prevent serious contractual and legal problems.

Under current contract regulations, communication protocols are commonly cross-referenced by levels of contract authority. The highest contract authority is the head of the contracting activity (HCA). The principal delegation made by the HCA is the appointment of COs. All other employees working on a contract support the HCA through the COs. Certain responsibilities are delegated to CORs in the letter of designation, with written limitations on the area and amount of their authority. Other government employees may have assigned contract duties that require monitoring and evaluation input to the CORs and COs.

18. What are the differences between formal and informal communications with a contractor?

Formal communications occur between individuals (the HCA, COs, and CORs) who are authorized to represent the contracting parties, and as such, these communications are usually binding, i.e., constitute a legal duty or obligation. Formal communications usually are in writing (which can include electronic media such as e-mail), but oral communication is also acceptable. Oral communication occurs in meetings, in briefings, by phone, or through video teleconferencing. Formal direction given orally should then be confirmed in writing.

Informal communications can occur between any government employee without contractual authority and any contractor or subcontractor employee, and these communications are thus non-binding. Informal communication can occur in written correspondence or via electronic media (e.g., e-mail), retrievable databases, or telephone facsimile; in presentations; and in meetings.

Informal communications with the prime contractor and its subcontractors are encouraged and expected from agency staff and management in performance of their oversight responsibilities. In their informal communications, agency employees must avoid giving the impression that the communications are formal. (In particular, when a CO or COR is engaging in informal communications, he or she must be careful to identify those communications as non-binding.) Misconstrued communication could result in unauthorized direction to the contractor, which can provide the basis for claims made by the prime contractor against the government based on changes or additions to the work requirements.

19. How does the COR respond to contractor requests for information or action?

The COR should make every reasonable effort to respond in writing within 30 days to written requests from contractors regarding contract administration matters. Sometimes, however, depending on the nature of the request, the COR may have to coordinate with the CO. This coordination might delay the COR’s response or mean that the CO will need to respond directly to the contractor. In the event of such a delay, the COR should provide the contractor, within 30 days, written notice of the specific date by which either the COR or the CO will respond to the request. (Note: This requirement does not apply to a request for a CO decision under the Contract Disputes Act, which has different response time requirements.)

20. What kinds of communication does the COR have with subcontractors?

Although an agency has the authority to approve subcontracts prior to contract award, there is no direct link between the agency and the subcontractor (see Figure 1-3). Privity, the legal term that defines the relationship between two parties of a contract, does not exist between the agency and subcontractors. Therefore, the prime contractor is responsible for ensuring, through its own internal processes, that quality work is performed and delivered on time by any subcontractors to meet the objectives of the prime contract.

Formal direction to subcontractors flows only through the prime contractor. There can be simultaneous communication (e.g., the exchange of informational copies of correspondence) between the prime contractor and subcontractors, but the agency and the subcontractor cannot bypass the prime contractor to communicate directly with each other.

21. What are the requirements for proper documentation of communications?

Effective communication is a wasted effort without good documentation. Without documentation of communications, there is no record of the events of contract performance, and the government is left vulnerable in the event of a claim, dispute, or a last-resort contract termination for default.

Proper documentation:

• Is the key to establishing and protecting the government’s position in a dispute

• Includes written records of all oral communication with the contractor and the CO

• Includes copies of all written correspondence with the contractor and the CO.

Meetings and telephone conversations should be documented. Meetings need not be formal “sit-down” meetings with an agenda. A meeting can also be an informal or impromptu gathering to discuss technical issues. Whichever type of meeting the COR attends, formal or informal, he or she must be sure to take notes, include them in the COR file, and provide a copy to the CO, as appropriate.

It is also important for the COR to document telephone conversations. Significant decisions and issues are discussed on the telephone as a normal part of conducting business. Thus, it is important for the COR to keep a record of such decisions and issues as part of the COR file.

22. What should the COR document?

Documentation is not a complicated process, but it does require organization. The COR should not rely on his or her memory to document events that took place in the past. It is very important to document events as they occur to provide an accurate record for the file.

The COR should prepare memoranda for the record (MFR) of all meetings, trips, and telephone conversations relating to the contract.

Key rules for the COR to remember in maintaining the COR file include:

• Note the contract number on each record and on all correspondence relating to the contract

• Be sure that the CO receives a copy of all records and other correspondence

• Pay utmost attention to restrictions regarding proprietary data, as well as classified and business-sensitive information.

Interpreting Technical Requirements

23. What is the COR’s role in interpreting technical requirements?

The COR must understand that interpretation of technical requirements permits explanation of intent after awarding the contract to contractors but does not permit changing the statement of work or methods the contractor has agreed to perform.

The COR assists the contractor in interpreting the technical scope of work required. This guidance may be in response to a contractor’s direct request, or it may result from the COR’s observation of a deficiency in performance caused by a differing interpretation of requirements made by the contractor. Whatever the situation, the COR may initiate technical guidance to the contractor as long as the advice does not result in an increase in costs, change the contract scope, or create irresolvable differences between the government and the contractor. If one of these changes is required, the COR must report the situation to the CO, with pertinent information and recommendations for action.

24. What is the technical direction clause?

When the CO formally designates a COR to administer the technical aspects of a contract, the contract, in many cases, will contain a technical direction clause. Usually developed by the program office in coordination with the contracting office, a technical direction clause specifically identifies the technical areas involved in the administration of a contract and any limitations associated with the COR’s authority to technically direct the contractor. The clause also provides for prompt reporting of government conduct that the contractor considers as constituting a change to the contract. This clause is normally found in Section H of the Uniform Contract Format for cost-reimbursement contracts. See Figure 1-4 for a sample technical direction clause.

FIGURE 1-4. Sample Technical Direction Clause

CONTRACT FUNDAMENTALS

This section provides information to assist the COR in identifying the six classifications of contracts and the five elements of a valid contract and in understanding the concepts of authority under agency law as related to the COR. As a member of the contracting team, the COR can rely on other members of the team (e.g., the CO, legal personnel) for responsibilities relating to the finer points of contract law. However, the COR needs a basic understanding of the concepts of contract and agency law to assist the CO effectively in the planning, formation, and administration of a specific contract.

25. What is an agreement?

An agreement is defined as “mutual assent between two or more legally competent persons, ordinarily leading to a contract. In common usage, it is a broader term than contract, bargain, or promise because it includes executed sales, gifts and other transfers of property, as well as promises without legal obligation. While agreement is often used as a synonym for contract, some authorities narrow it to mean only mutual assent.”²

26. What is a contract?

A contract is defined as “a promise for the breach of which the law provides a remedy, or the performance of which the law recognizes as a duty; a transaction involving two or more individuals, whereby each has reciprocal rights to demand performance of what is promised.”³ A promise is defined as “a declaration of one’s intention to do or to refrain from doing something.”⁴ If an individual promises in a contract to do something, the courts will ensure that he or she upholds that promise; if he or she does not, the courts will provide a solution for the person to whom he or she made the promise.

27. What are the types of contracts?

Contracts can be classified as:

• Unilateral

• Bilateral

• Unenforceable

• Voidable

• Void

• Valid.

A unilateral contract is one in which only one party makes a promise. It may be a promise for an act (e.g., “I will pay you $10 to mow my lawn”) or an act for a promise (e.g., someone offers a reward for the return of a lost dog). In the case of the reward, one person makes a promise to pay, and a contract would be formed when the other person acts on that promise.

A purchase order under the government’s simplified acquisition procedures that is signed only by a CO is a governmental example of a unilateral contract. The contractor accepts the offer by delivering in accordance with the terms of the offer, or rejects the offer by not responding to it. If the person to whom the offer was made performs to the terms of the offer, a valid contract will be created.

A bilateral contract is one in which both parties make promises. A promise to perform a service in exchange for a promise to pay the agreed upon amount for the service is a bilateral contract.

An unenforceable contract is one that cannot be enforced by the courts because of a particular statute or doctrine. Unenforceable contracts are not invalid, but if a breach of an unenforceable contract occurs, then the courts cannot determine if a remedy exists.

An example of an unenforceable contract would be one based on the statute of frauds. This statute requires that certain types of contracts be in writing to be enforceable (e.g., real estate contracts). If an individual enters into an oral contract for the sale of land, even if all the elements of a valid contract are present in the oral contract, civil courts are prohibited from enforcing the provisions of that contract.

A voidable contract is one in which only one of the parties is bound to the terms of the contract, while the other may withdraw from the contract at any time. Examples of voidable contracts are ones made with persons under the legal age and contracts induced by fraud, such as ones containing intentional misrepresentation of facts. Minors and persons induced by fraud to make a contract for which fraud is proven can choose not to be bound by the contract.

A void agreement is one that never became a contract because it lacked an essential element, or the agreement contains misrepresentations of fact. In either situation, the CO can void the contract. For example, a contract found to be in violation of an Environmental Protection Agency (EPA) regulation, or one in which an offeror represents his or her company as a small business under a small business set-aside when it is actually a large business may be voided.

A valid contract is one that contains all of the following essential elements.

28. What are the elements of a contract?

The five essential elements of a valid contract are:

• An offer

• Acceptance

• Mutual consideration

• Legal purpose

• Contractual capacity.

To initiate a contract, an offer must be made. An offer is a promise of what will be done and what is expected if the promise is fulfilled.

Advertisements are not considered to be offers but rather invitations to negotiate, unless they are very specific regarding offer and acceptance guidelines or terms and conditions. But advertisements of rewards are generally considered to be offers that can result in unilateral contracts. An advertisement for bids is considered a request for an offer rather than a specific offer itself.

An offer must:

• Show the offeror’s intent to perform if the offer is accepted by the other party

• Be complete and clear in all of its terms

• Be communicated to the offeree.

Acceptance is an expression of consent to a proposal or offer. There are two ways to accept an offer:

If the contract is	Acceptance occurs when the offeree …
Unilateral	delivers or performs.
Bilateral	expresses to the offeror acceptance of the same items and conditions stated in the offer.

Acceptance must be:

• Expressed to the offeror.

• Consistent with the same terms and conditions stated in the offer. Changing these terms and conditions creates a counter-offer, and it is up to the original offeror to accept or reject the terms.

• Timely. The offeror may stipulate a period of time after which the offer is no longer valid. When no such time frame is expressed in the contract, the acceptance period must be of a reasonable length. The offeror may fill in a time for acceptance on the government’s official contract form; a 60-day acceptance period is established if the offeror does not specify a desired length of time for acceptance. If the CO determines that a specific period of time must be allowed by the offeror, he may insert a minimum acceptance period clause.

Mutual consideration means that each party receives something of value and gives up something of value when a contract is established between the parties. Without mutual consideration, one party would be giving a gift to the other, which does not have the same legal obligation as a contract.

Contracts also must be for a legal purpose. If a contract violates a statute, it is unlawful and void. An example of a void contract would be one that was awarded on a cost-plus-percentage-of-cost basis. The FAR forbids the use of such a contract because it rewards a contractor for increasing costs on a contract and discourages cost reduction.

Parties entering into a contract must have the capacity to do so. Contractual capacity is the ability to incur legal liability or to acquire legal rights. Examples of individuals who lack contractual capacity are minors and insane or intoxicated persons.

Agency and Authority

29. What is “agency”?

Agency is a fiduciary (based on trust and confidence) relationship between two persons in which one person (the agent) acts for or represents another (the principal) in dealings with third parties. A principal can confer authority on an agent only if the agent accepts it. A principal can also approve the unauthorized actions of an agent and thereby create an agency relationship. This process is called ratification. An agent has certain duties to his or her principal. These include a duty to act in the principal’s best interest, a duty of good conduct, a duty to keep the principal informed, a duty to act only as authorized, and a duty of loyalty to the principal.

30. What is an independent contractor, and what is an agent?

An independent contractor contracts to do a piece of work according to his or her own methods and without being subject to the control of the other party to the contract; the independent contractor’s only concern is to provide an acceptable product or service. An independent contractor does not represent the other party in business dealings.

The primary distinction between an agent and an independent contractor is the amount of control placed over each. An agent is generally subject to more control. For example, a chauffeur is an agent of his employer. A taxi cab driver is not an agent of his fare.

Chauffeur	Taxi Driver
Under control of his employer.	Paid only to take fare to a particular destination.
Fills limousine with gas and charges his employer.	Fills taxi with gas and is responsible for the cost.
Gets a ticket and the employer pays it.	Gets a ticket and must pay for it himself.
Has an accident and his employer is liable.	Has an accident and the fare is not liable.

There are two types of agents. A general agent can transact all the business of the principal or all of the principal’s business of a particular kind or in a particular place. A special agent can act only in a special transaction or for a particular purpose or class of work. CORs are special agents because they can only be given authority to perform certain actions.

31. What is actual authority?

Agents can only be given actual authority. There are two types of actual authority:

• Express authority is conferred in direct terms, definitely and explicitly.

• Implied authority is conferred by inference. For example, if a COR is given express authority to authorize payment of invoices, he or she is given implied authority to return improper invoices for correction.

32. What is apparent authority?

Apparent authority is authority perceived by a third party (e.g., a contractor) to exist, when authority was never actually conferred upon the government agent in question. For example, the contractor may perceive that the COR has authority to conduct a particular inspection, when in fact the COR does not have that authority because the authority has been delegated to a particular government inspector. Apparent authority does not apply to government contracts unless a CO ratifies the action of an unauthorized agent.

33. What is ratification?

Ratification is defined as the affirmation by a person of a prior act that did not bind him or her but was done on his or her account; the act is then treated as if he or she originally authorized it. Government employees can ratify actions of any unauthorized agent if the individual ratifying the action has the actual authority to enter into a contract and the government benefits from the action.

34. How can agency be terminated?

Agency can be terminated:

• By mutual agreement of the principal and the agent

• Upon expiration of the contract

• By the principal’s revocation of the authority

• By the agent’s own renunciation, in some cases (e.g., an act of conscience)

• By operation of law (e.g., the death of either principal or agent).