How are Government Contracts Different?
Recently, we here at San Diego Corporate Law have written about various aspects of corporate and business law including the need for and importance of having written contracts. We occasionally get questions from clients about government contracts and how those contracts are different. Because of the special nature of one party to the contract — a government entity — government contracting has some unique features. Here are a few highlights with a case example.
Government Contracts: Bidding, in Writing, Bid Party Requirements, and Protests
As a contract, a government contract must meet the same legal requirements as any legally binding contract – offer, acceptance, consideration and, in general, a meeting of the minds as to the essential terms of the contract. But, with only the rarest of circumstances, all government contracts must be in writing and there are almost no factual conditions that can create a contract-by-course-of-conduct. The “in-writing” requirement is a function of the process of contract formation.
Contract formation with a government party begins with the governmental agency issuing what is generally called a request for proposal (“RFP”). From there, the process is competitive (and most often blind) bidding. The RFP sets out requirements and conditions and asks qualified businesses to submit pricing bids. In general, the company with the lowest bid is awarded the contract.
In the private marketplace, as long as the reason does not violate public policy, any person or business can decide NOT to enter into a contract because the other party does not meet any number of subjective requirements. With government contracts, however, any and all requirements for the other party must be set out in the RFP. An example might be that the bidding party must be a corporation, not a sole proprietorship, of a certain size with the ability to be obtain a surety bond and insurance of a certain amount, etc. Here is another example of why the choice of corporate entity is important and advice from experienced corporate legal counsel should be obtained.
Finally, unlike private party contracts, if your company fails to be awarded the contract, there is a process for disputing or protesting the bid that went to your competitor.
Bid Protests and Dispute Resolution: In-Agency, Agency Appeal, and Specialty Courts
For government contracts, bid protests and breach-of-contract and payment disputes must be submitted first for an in-agency review, then (often) to an Agency Appeal board, then to a specialty court that handles disputes for that agency. Importantly, unlike private party contracts, with government contracts, the reasons why the government rejected a bid can be challenged.
A good case law example is the Matter of: Global SuperTanker Services, LLC, B-414987; B-414987.2. In that case, the Comptroller General of the US, the head of the federal Government Accountability Office (“GAO”), sustained a bid protest to an RFP related to air-tankers for fighting wildfires.
Background and Result
On May 16, 2017, the Forest Service, under the US Department of Agriculture, issued an RFP soliciting airtankers for fighting forest fires. The RFP provided that the airtankers were “required to have a minimum tank capacity of 3,000 gallons that will deliver long term retardant to active wildland fires.” The RPF also specifically stated that “… Aircraft with … greater than 5000-gallon dispensing capacity will not be considered.”
Global SuperTanker Services, LLC (“GST”), a small business located in Colorado Springs, Colorado, protested the RPF alleging that the limitation on the maximum tank size was unduly restrictive of competition. GST owned a firefighting plane that had a large capacity tank.
GST began its protest with an agency-level challenge but received no response. Then GST filed with the agency appeal board, but the protest was denied. The Forest Service stated that its RFP was intended for services needed to support “initial attack operations” and that large airtankers were “not ideal” for those types of operations.
Finally, GST appealed to the GAO. As can be seen from the decision, the GAO judge conducted a long and detailed review of the RPF, the stated purposes and reasoning of the Forest Service, the various supporting documentation and arguments. In the end, the GAO reversed the Forest Service decision. The GAO stated: “[b]ased on the record, we are unable to conclude that the specifications included in the RFP are necessary to meet the agency’s needs.” As such, GST was allowed to submit its bid. The GAO decision was just handed down a week or two ago. It is yet to be seen if GST will be awarded a contract.
Appeals can be taken from these types of decisions into state and federal courts. However, the court cases are resolved not under contract law, but under administrative procedure law.
Contact San Diego Corporation Law Today
If you would like more information about business contracts, business formation, or other aspects of business law, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. In 2017, Mr. Leonard has been named again a “Rising Star” by SuperLawyers.com. Mr. Leonard has the experience and knowledge to help your business succeed. Mr. Leonard can be reached at (858) 483-9200 or via email.