Government contracts often include both prime and subcontractor arrangements. Public contract law governs the prime relationship between the government and the contractor. Subcontracts between the contractor and its partners, however, are commercial contracts and fall within the realm of common law. Similar issues arise in both settings and serve as good examples to demonstrate how differences in the applicable law can impact dispute outcomes even though the various parties are working on a single procurement. This article utilizes the concept of contract ambiguity to examine the sometimes stark distinction between government and commercial contracts.
What’s The Same
Courts adjudicating public contract law matters and those deciding disputes related to commercial contracts in Texas agree that whether there is an ambiguity and the type of ambiguity are questions of law. They also concur that determining the existence of an ambiguity turns on whether more than one reasonable interpretation of the contract.
In public contract law, a patent ambiguity is present when the contract contains facially inconsistent provisions such that a reasonable contractor would notice the inconsistency. A latent ambiguity exists when there is uncertainty around a term, but it is neither glaring nor obvious on the face of the document.
In Texas, determining patent ambiguity tracks public contract law – it is evident in the contract. A latent ambiguity under Texas law arises when a contract that is unambiguous on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of a collateral matter.
To contrast, if a government contract term is clear and unambiguous on its face, it will be given its plain meaning and extrinsic evidence may not be introduced. In Texas, however, evidence may be presented to apply the contract to the subject matter to determine the existence of an ambiguity even when the contract term appears definite.
Perhaps the most striking difference is if a patent ambiguity exists in a government contract, a contractor has a duty to rectify the ambiguity by inquiring about the inconsistency with the appropriate parties. Contractors must seek clarification from the government or its interpretation of the contract will be precluded.
While knowing the differences between the governing law on the same issue appearing in a prime contract and a subcontract is generally helpful, the most important takeaway here for contractors is the patent-ambiguity doctrine. If there is an obvious inconsistency on the face of the document, a contractor has a duty to inquire about it and seek clarification of the interpretation of the contract provision.
Weitz Morgan serves as litigation counsel to general counsels, business owners, and government contractors throughout Texas and nationally. This article is basic in nature, for the purpose of general interest and education, and limited to the law of the State of Texas.