What Happens When Your Contract with the Government is Unenforceable?

Agency professionals who write contracts sometimes fail to include the basic and necessary elements of a contract. Whether an agency omits necessary elements of the contract deliberately or (more likely) by accident, it’s often the contractor who suffers. This was the case in a recent procurement by FEMA (Federal Emergency Management Agency), which neglected to include several critical parts in an IDIQ contract with Pros Cleaners. When Pros Cleaners never received a task order for any work under the contract, they took the case to the CBCA (Civilian Board of Contract Appeals) claiming breach of contract. Read on to learn why the Court sided with the agency and what you can do to make sure your Government contracts are enforceable.  

Complexities In The Contract’s Formation

To the contractor, it looked like FEMA had intended to form a viable indefinite-delivery, indefinite-quantity (IDIQ) contract for laborers and temporary workers. An IDIQ contract for such services makes sense for FEMA given the flexibility its mission requires. So first, the agency issued a solicitation for five-year IDIQ contract, which included the standard indefinite quantity clause from the FAR. Although the clause requires that the Government order at least the minimum quantity stated in the contract, FEMA failed to designate a minimum.

Next, according to protocol FEMA gave vendors an opportunity to ask questions. FEMA responded to inquiries about the minimum quantity by stating that the number of laborers is 10. Although this suggests a minimum quantity, it wasn’t expressly stated as one. And having a minimum and a maximum is absolutely essential in any IDIQ contract.

Then, FEMA awarded the contract to Pros Cleaners in 2013. But, the contract that Pros Cleaners received did not include the indefinite quantity clause from the FAR and did not state it was an IDIQ contract. It did, however, have an additional period of performance—a base year + four option years—as well as a new maximum contract value of $150K. In other words, Pros Cleaners now had a contract with a maximum, but lacking a minimum and the standard IDIQ contract clause.

Nine months later, in the fourth and final step of the process, FEMA issued a unilateral modification that cancelled the original contract, and issued a new one. The unilateral modification expressly stated, “The only change made to this contract is the contract number.” Well, this wasn’t entirely true. Like the previous version, there wasn’t an IDIQ clause and there wasn’t a guaranteed minimum. The agency had, however, omitted the period of performance and the maximum value for the contract. So ultimately, Pros Cleaners had something that looked like a contract, but was missing an IDIQ clause, a minimum and maximum amount, and a period of performance.

 

The Contractor Seeks Damages When No Task Orders Are Issued

Pros Cleaners waited, and for 5 years FEMA never issued a task order for any work under the contract. Finally, Pros Cleaners alleged that FEMA had breached the contract, and asked for damages of $750K (the original contract maximum of $150K for each of the five years the contract was supposed to run). The Contracting Officer denied the claim, so the contractor appealed to the CBCA. FEMA defended itself by claiming this wasn’t an enforceable contract. Most importantly, the contract was missing the minimum, a basic part required by contract law and the regulations. The Board ruled that there has to be some commitment by both parties to make it a real contract, and thus denied relief of any kind to the contractor. (Pros Cleaners had no hope of recovering the contract maximum regardess; damages for failing to order from an IDIQ contract are based on the minimum).

 

What Contractors Can Learn From This Case

FEMA had four chances to get this deal right, and missed every time. You have to wonder whether FEMA knew what it was doing! Did it write an unenforceable contract on purpose? Or did it just run into this problem, not knowing basic contracting rules? And likewise, it’s unclear whether Pros Cleaners was aware of the problems with the contract. Were they hoping that they could get some work in spite of the contract’s issues? Or were they unsure what components were supposed to be in the contract to begin with?

Regardless of the answers, it’s clear that contractors can’t always rely on to write and conclude proper contracts. An agency might have the intention of buying something and, despite putting work into writing and negotiating the contract, be able to evade the contract if it doesn’t include the specific elements required by contracts under the regulations and civil code.

Alarm bells should go off if an agency is constantly changing what it’s doing as the contract formation process continues, as was the case here. FEMA even went so far as to replace the contract document. And unfortunately it’s often the contractor who suffers when the agency stumbles. Consulting with an experienced procurement attorney is a must if the contract formation process looks odd.

 

Pros Cleaners v. Dep’t of Homeland Security, CBCA No. 6077 (Aug. 30, 2018)

 

For more on this case, listen to my interview on Federal News Radio’s “Federal Drive with Tom Temin.”

Leave a Reply

Your email address will not be published. Required fields are marked *