Management
Legal Insight

Federal Procurement Contracts

The far system and practices

Procurement is the process by which the federal government acquires goods and services for military and civilian use. To procure products, the government’s executive agencies use the Federal Acquisition Regulation system (FAR). It is a uniform code of policies that applies to all acquisitions with funds appropriated by Congress.

The Secretary of Defense, the Administrator of General Service, and the Administrator of NASA maintain the FAR. Each agency can supplement it with its own unique policies. Federal contracting may be affected by other laws, regulations, executive orders, and agency guidance.

The government and contractors must follow the FAR rules with regard to solicitations and contracts, albeit the agency can make some exceptions. Government contracts and subcontracts must contain or incorporate FAR clauses by reference.

Contractors in the private sector should understand the scope of government employees’ actual authority to contract. The government agencies’ contracting officers and their representatives (hereinafter “Officers”) execute or terminate contacts on the government’s behalf.

Under the U.S. Constitution, the federal government is one of delegated powers. Theoretically and legally, its powers are limited. While Officers have wide discretion to exercise business judgment, they can only bind the government within the scope of their limited authority.

The law presumes, perhaps unrealistically, that contractors can ascertain the scope of Officers’ authority. Practically, as a matter of law, this may not be simple to do. Contractors should inquire about the scope of an Officer’s authority and try to be cognizant if the Officer exceeds it.

If the agency seeks to terminate a contract or avoid payment, it might argue that the Officer exceeded his authority even if he did not. To ensure payment for goods and services rendered, the contractor should try to verify that Congress has appropriated funding.

If an agency has not properly authorized a commitment but the contractor performed in good faith believing that the government properly committed itself, the government may be deemed to have ratified the agreement. If the government obtained a benefit, the contractor would be entitled to fair value. To be enforceable, a contract may not be illegal or void due, for example, to a conflict of interest.

Statutes and regulations prohibit a variety of practices and conduct with regard to procurement. The government cannot enter “cost plus a percentage of cost” (CPPC) contracts. Because payers’ profits would be computed as a percentage of costs, CPPC incentivizes high costs and penalizes efficiency.

The Procurement Integrity Act restricts former agency officials from accepting certain employment and compensation for a period of time after leaving the agency. Officials who were involved in a procurement exceeding $10 million may not become employees or consultants of the contractor for one year. They can accept positions with a contractor’s affiliate that does not produce the product that was the subject of the procurement.

If an official was substantially involved in procurement worth more than $100,000 and the contractor contacts the official about private employment, the official must report it to the agency, reject the offer, and cannot participate with regard to the procurement.

Under another law, Department of Defense (DoD) officials cannot be compensated by DoD contractors for two years after leaving the agency.

Violations carry civil and administrative penalties. Contractors’ procurement contracts can be rescinded. Contractors can be suspended or debarred from future procurement contracting.

The Anti-Kickback Act forbids providing or accepting compensation in exchange for favorable treatment in securing contracts. The False Claims Act prohibits the submission of false or fraudulent claims to the government. Violations can result in fines and triple damages.

The FAR tries to avoid conflicts of interest and the appearance of favoritism. It prohibits agencies from awarding contracts to current government employees or organizations that they substantially own or control. An agency can award a contract to a retired or former employee immediately after the person leaves the agency.

Under the FAR’s contract administration provisions, contractors must implement special procedures to protect classified information that they obtain while soliciting and performing procurement contracts. Many of the same provisions must “flow down” into prime contractors’ agreements with subcontractors.

 The next column will discuss additional aspects of government contracting. 

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