Playing Your Cards at Interpreting Federal Government Contracts
| Publication year | 2019 |
| Pages | 0365 |
Introduction
Redstone Arsenal accounts for 9.8 percent of Alabama's gross domestic product.1 The importance of government contracts to Alabama's economy is even greater when one also considers Anniston Army Depot, Montgomery's Maxwell Air Force Base and Mobile's Austal shipbuilding complex. In the last 12 months alone, the federal government has awarded more than $11 billion in contracts to business concerns throughout the state.2 Inevitably, with such a high volume of government contracts also comes contractual disputes, and in a world where contract amounts can often exceed seven digits, a dispute over even a relatively small percentage of those funds can be significant.
Just as in the commercial sector, one of the most common types of contract disputes arises when the vendor and the customer have conflicting interpretations of the contract.3 Federal contracts are interpreted according to federal common law, consisting of a body of decisions issued by the U.S. Court of Appeals for the Federal Circuit, U.S. Court of Federal Claims and the several agency "boards" of contract appeals (primarily, the Armed Services Board of Contract Appeals and the Civilian Agency Board of Contract Appeals).4
Resolution of government contract disputes is frustrated when the respective parties do not understand the rules of interpretation by which a court or agency board will resolve the dispute. The confusion is analogous to playing a game of cards without understanding which cards outrank others in the deck. For example, if a dispute arises from a poorly drafted government solicitation, it may be tempting for a contractor to jump straight to the well-known rule that ambiguities are construed against the drafter. However, as discussed below, this is actually among the weakest rules of contract interpretation.
By analogy to a deck of cards, this article provides a simplified approach to help demystify the often-confusing federal common law rules of contract interpretation.
Ace-Mutual Intent a.k.a. "the Cardinal Rule"
The cardinal rule of contract interpretation is to carry out the mutual intent of the parties.5 Just as the ace is the highest card in the deck, the "cardinal rule" is the highest rule of contract interpretation. Accordingly, a court confronted with a contract dispute will first try to ascertain whether the written understanding is clearly stated and was plainly understood by the parties.6 Occasionally, the rule is stated as giving effect to the "spirit and purpose" of the agreement.7 Under this objective line of inquiry, the unexpressed subjective intent of either party has no bearing on how the contract should be interpreted.8 Once satisfied as to mutual intent, a court can invoke the "principal apparent purpose" doctrine to overcome any apparent gaps or omissions in the contract language.9
King-Patent Ambiguity and the Duty to Inquire
Frequently, the cardinal rule cannot be readily applied because the intent of the parties is unclear (or, possibly, they never had the same intent). Before proceeding to the secondary rules discussed below, a court must first determine, as a matter of law, whether the agreement is ambiguous and, if so, whether the ambiguity is latent or patent.10 "A patent ambiguity is one that is obvious, gross, glaring, so that the contractor had a duty to inquire about it at the start."11 A latent ambiguity exists when the ambiguity is "neither glaring nor substantial nor patently obvious."12
The distinction is crucial. If the ambiguity is latent, then the court may proceed to interpret the contract using the remainder of the rules below. The court may also allow the parties to introduce extrinsic evidence to help resolve the ambiguity.13 If, however, the ambiguity is patent, it gives rise to a duty to inquire.14
The duty to inquiry is a powerful rule in government contracting. Specifically, if a government solicitation contains a patent ambiguity, it triggers a duty to inquire on the part of the bidder to clarify the government's interpretation.15 If the bidder fails to inquire about a patent ambiguity, the bidder's unilateral interpretation will fail.
Under proper circumstances, the patent ambiguity rule can overcome any of the other interpretation rules discussed below. Only if the court decides that the ambiguity was not patent will it reach the question of whether a contractor's interpretation is reasonable.16
Unlike many of the other rules of contract interpretation, the patent ambiguity rule does not attempt to ascertain the most probable intent of the parties. Instead, this rule prevents contractors from taking advantage of the government, ensures that all bidders bid on the same specifications and attempts to resolve ambiguities before a contract is awarded, thereby avoiding costly after-the-fact litigation.17
Queen-The Whole Instrument Rule
Assuming that a contractor's interpretation is not foreclosed by a failure to inquire, the next highest rule of interpretation is the whole instrument rule.18 Under the whole instrument rule, an interpretation that gives a reasonable meaning to all parts of an instrument will be preferred to one that leaves a portion of it useless, inexplicable, inoperative, void, insignificant, meaningless or superfluous.19 Additionally, a court will avoid construing any contractual provision as being in conflict with another, unless no other reasonable interpretation is possible.20 Thus, if a provision can be interpreted in two ways-one that is consistent with other contractual clauses and one that conflicts-the whole instrument rule dictates that the consistent reading is preferred. A harmonious reading of the whole instrument prohibits a twisted or strained analysis that would take terms out of their context.
As we descend into the remainder of the deck, it is worth noting that each of the following rules is progressively less concerned with ascertaining the actual intent of the parties and is more reliant on providing a mechanical substitute to determine the most probable intent. The more mechanical the rule, the less it is preferred, as it is less likely to reflect the true intent of the parties and therefore less likely to give effect to the cardinal rule.
Jack-The Express Language Rule
After avoiding a twisted interpretation under the whole instrument rule, the express language rule dictates that if the language of a contract is subject to only one reasonable interpretation, then that interpretation should prevail.21 Like the whole instrument rule, and often used in conjunction with it, the express language rule is a central tool of contract interpretation. If, after examining the intrinsic features of the instrument, the court finds that its terms are clear and unambiguous, the court will give those terms their plain and ordinary meaning and will not resort to extrinsic evidence as an aid to interpretation.22
The express language rule behooves parties to read their agreements before signing them. The rule recognizes that, absent highly unusual circumstances, the parties should be able to rely on the chosen language of their contract. For example, the parties are fully entitled to use express language to deviate from a prior course of dealings or custom in trade.23 Thus, a prior course of dealings will not override definitions that are provided in the express language of a contract.24
Professor Ralph Nash, the preeminent scholar on federal government contracts, attributes to a pundit, EK Gubin, the adage, "When all else fails, read the contract."25 Professor Nash went on to explain: "In 1960, that was good advice. In 2011, that's bad advice. You better read the contract before you sign it."26 Courts do not permit a party to avoid contractual obligations by claiming ignorance of the express terms to which they agreed.27 Failing to read a document before signing it does not enable one to ignore the obligations imposed by that document.28 Consequently, a contractor who submits a bid without reading all the specifications does so at its own peril.29
Fortunately, the government is also precluded from pleading ignorance as a basis for avoiding its contractual obligations. In Alkai Consultants, LLC, ASBCA No. 56792, 10-2 B.C.A. (CCH) ¶ 34493 (June 24, 2010), the Armed Services Board of Contract Appeals overturned a termination for default where the contracting officer misunderstood the delivery date and "thought the completion date had passed."30
Ten-Conduct of The Parties
If the express language fails to resolve a disagreement, the next step is to consider the parties' conduct under the contract prior to the dispute. How the parties acted under an agreement before the advent of controversy is often more revealing than the dry language of the written agreement by itself.31 The rationale behind this rule is that the interpretation the parties place upon a contract during their performance demonstrates their intent.32 Once the interpretation of the contract becomes controversial, however, a party is apt to manipulate its behavior to buttress its own litigating position. As such, behavior after a controversy arises is not a trustworthy indicator of intent.33
Nine-Knowledge of The Other Party's Interpretation
A party who willingly and without protest enters into a contract with knowledge of the other party's interpretation is bound by such interpretation."34 In the context of government contracts, this rule dates back to a 1970 Court of Claims decision in Perry & Wallis v. United States.35 In that case, the court found that the contractor was aware of the agency's interpretation of a disputed contractual provision due to its involvement as a subcontractor in a similar claim against the same agency involving the same contractual language. Having agreed...
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