Options for Contractors When a Breach of Contract Claim Appears Barred by Lack of Actual Authority
Occasionally companies need to sue a customer for breach of contract. But when the customer is the government, unique aspects are at play that do not appear in comparable commercial actions, or at least not as an affirmative burden of proof. One of which is authority to contract. The general rule is that a contract cannot exist unless the agent entering into the agreement has actual authority to bind the government. All may not be lost, however, for contractors who lack this element of their claim.
Breach of Contract Claims
Under the Tucker Act, the United States waives its sovereign immunity defense provided the substantive claim against it is founded upon the Constitution, federal statutes and regulations, or an express or implied contract to which it is a party.
There are four requirements to form a binding agreement with the government: 1) mutuality of intent to contract, 2) lack of ambiguity in offer and acceptance, 3) consideration, and 4) a government representative having actual authority to bind the United States. Whether the alleged contract is express or implied-in-fact, a plaintiff must demonstrate the same four elements.
Apparent Authority & Risk Allocation
A contractor must show that the person whose conduct is relied upon had actual authority to bind the government to the terms of the contract. While apparent authority may bind a principle in a commercial dispute, it is inapplicable in a procurement setting. The government is immune to any actions of a representative that possesses only apparent authority.
Contractors entering into an agreement with the government bear the burden of ascertaining the authority of the agent who purports to act for the government. Even more disquieting, this risk remains with the contractor even when the government agent itself is unaware of the limitations of its authority.
Alternate Legal Theories – Implied Authority & Ratification
When express authority cannot be shown and with apparent authority not a viable option, contractors may nevertheless be able to meet the authority element of their claim. Courts recognize two theories that will bind the government if the agent does not possess actual authority.
Precedent recognizes that authority to bind the government to a contract may be implied when it is an integral part of the duties assigned to the particular employee. Authority is integral when the employee cannot perform his or her assigned tasks without it.
Meaning, a contractor will need to demonstrate that the agent, when it allegedly bound the government to the contract, was carrying out some warranted aspect of its position. For example, a contractor would need to show the signing of a letter agreement for the purchase of services by an agency executive was an act within the express and integral assigned tasks of that role.
This theory is not without limitations. Many government contracts explicitly protect against the risk of implied authority by including clauses that state only the contracting officer has the requisite authority to enter into and modify agreements.
In circumstances when an agent does not possess express or implied authority, the government can still be bound if the contract was ratified by an official with the necessary authority.
Ratification may take place at the individual or institutional level. Individual ratification occurs when a supervisor 1) possesses the actual authority to contract, 2) fully knew the material facts surrounding the unauthorized action of his or her subordinate, and 3) knowingly confirmed, adopted, or acquiesced to the unauthorized action of the subordinate. In contrast, institutional ratification occurs when the government seeks and receives the benefits from an otherwise unauthorized contract.
For example, a contracting officer’s technical representative issued an offer against a contractor’s quote for services, which was accepted by the contractor, and therefore seemingly a contract formed. But the government refuses to honor the agreement contending only the contracting officer had the requisite authority to have made the offer. Here, the contractor could argue an individual ratification theory by showing that the contracting officer had full knowledge of the material facts involving the unauthorized act of the technical representative and purposefully approved of the activity.
The Take Away
Contractors assume the wholesale risk the agent with whom they are doing business may lack binding authority. Which means, they must confirm with their government counterpart from where his or her authority stems. It is imperative that contractors and their personnel are familiar with the sources of authority – the Constitution, a statute, or a regulation (including agency supplements) – and that they do not act on a directive by an official without knowing whether that person can bind the government.
If a contractor finds itself in a situation where it believed its counterpart had the requisite authority but in fact did not, then the two theories mentioned above should be pleaded if possible. On a breach of contract claim, the government will likely move to dismiss the case or for summary judgment based on an absence of authority argument. As such, contractors weak or fully lacking in proving express authority will want to have raised these alternate theories in an effort to stave off or survive such a motion.
While hard to make, implied authority and ratification are available avenues for working around an express authority proof problem and should be considered in any action for breach, if sufficient facts are available.