Ratification Ruling Throws Gov't Contractors A Lifeline

By Michelle Litteken
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Law360 (January 21, 2021, 5:47 PM EST) --
Michelle Litteken
Michelle Litteken
In an ideal world, before performing work outside the scope of an existing contract, a contractor obtains written direction from the contracting officer as typically required by the contract and applicable regulations. However, as the COVID-19 pandemic has taught us, we do not live in an ideal world.

Situations often arise in which a contractor performs work before receiving written direction from the contracting officer or at the direction of another government representative. These incidents have only increased during the pandemic, with agency personnel assignments disrupted, contractors often performing from home and normal chains of communications thrown into disarray.

The lack of a formal directive from the contracting officer proves to be problematic when the government refuses to pay for the additional work, claiming the work was not authorized because only a contracting officer has the power to modify a contract. However, when faced with this scenario, a contractor may be able to establish entitlement to compensation for the work by showing the government ratified the otherwise unauthorized act.

Although courts have recognized ratification as a means to validate otherwise unauthorized changes for more than 50 years, there have been attempts to prevent a contractor from using ratification to recover additional compensation.

Some agencies have attempted to preclude a contractor from relying on ratification by including provisions in government contracts that impose specific limitations and requirements related to changes and modifications. Such provisions could prevent a contractor from recovering additional compensation.

A recent decision from the U.S. Court of Appeals for the Federal Circuit in BGT Holdings LLC v. U.S. indicates ratification remains an option for contractors seeking to recover additional compensation for unauthorized changes — even when the contract includes provisions that impose additional requirements related to changes.[1]

The requirement to obtain written authorization from the contracting officer is grounded in principles of contract law. An essential element of an enforceable contract — as well as a modification to a contract — is that each agent entering into the contract must have authority to bind its principal. In government contracting, contracting officers are typically the only government personnel with the authority to bind the government.[2]

Contractors are expected to ascertain the scope of authority for any government representative they deal with, and the risk is on the contractor if a government representative acts outside the scope of their authority.[3]

Ratification can be express or implied.[4] Implied ratification occurs when a contracting officer has actual or constructive knowledge of an unauthorized commitment and by their actions adopts the commitment as their own.

Put another way, if a government representative without sufficient authority modifies a contract, and a contracting officer is aware of the modification and allows the changed work to continue, the doctrine of implied ratification provides that the modification was approved and authorized by the contracting officer.

As noted above, in some cases the government has argued that contract provisions that impose additional requirements on how a change is ordered or who may authorize certain types of changes preclude a contractor from invoking ratification. This is precisely what happened in BGT Holdings.[5]

In that case, the U.S. Navy awarded BGT a contract that involved using government furnished equipment, or GFE. After performance began, the Navy delivered all but two of the GFE items, and the Navy procurement manager advised BGT that the Navy would not deliver the two GFE items unless BGT provided the agency with a credit for the cost of the items.[6]

BGT instead elected to obtain the two GFE items and submitted a claim for the costs. The Navy denied the request, asserting that the changes to the GFE were not authorized because the contracting officer did not issue a written order directing the change, as required by the contract.

Specifically, the Navy took the position that the changes to the GFE were unauthorized because the contract's changes provision, which differed from the standard changes provisions in the Federal Acquisition Regulation, stated:

The Contracting Officer is the only person authorized to approve changes in any of the requirements of this contract [and] ... any change at the direction of any person other than the Contracting Officer ... will be considered to have been made without authority and no adjustment will be made in the contract price to cover any increase in charges incurred as a result thereof.[7]

BGT appealed the Navy's decision to the U.S. Court of Federal Claims under the Contract Disputes Act. BGT acknowledged that the contracting officer had not issued a written order changing the GFE, but BGT argued the contracting officer had subsequently ratified the procurement manager's direction to decrease the GFE.[8]

In response, the Navy argued that BGT contracted away the right to claim ratification because the contract's changes clause specifically stated that any direction from anyone other than the contracting officer was unauthorized. The court agreed with the Navy and dismissed BGT's claim.

BGT appealed to the Federal Circuit. With respect to the ratification issue, the Federal Circuit recognized that the changes clause in BGT's contract limited modification authority to the contracting officer. However, the Federal Circuit found the clause did not preclude BGT's argument that the contracting officer ratified the procurement manager's acts.[9]

The Federal Circuit reasoned that the changes provision did not address ratification or otherwise preclude the contracting officer from ratifying an unauthorized action. Accordingly, the Federal Circuit vacated the dismissal of BGT's claim and remanded the case.

BGT will now have the opportunity to present evidence to support its position that the contracting officer ratified the changes by showing the contracting officer had knowledge of that procurement manager's direction and affirmed that decision by reallocating the GFE in question.

Anyone familiar with government contracting understands that government representatives other than the contracting officer often give contractors directions, and sometimes those directions are outside the scope of the contract. In these circumstances, ratification may provide an effective means for a contractor to recover an equitable adjustment when the formal process for changing the contract was not followed.

In the past, contractors may have been deterred from pursuing claims by clauses similar to the changes provision in BGT Holdings. The Federal Circuit's recent decision provides contractors seeking an equitable adjustment without a change order from the contracting officer with a reason to be optimistic about their ability to recover.

As the disruptions caused by the pandemic continue, we will likely see an increase in requests for equitable adjustments and claims that are not supported by formal change orders. If the contractor can show that the contracting officer was aware of the unauthorized act and allowed the contractor to proceed, the contractor may be able to recover using ratification — even if the contract contains a provision similar to the clause at issue in BGT Holdings.

Meeting minutes, emails and progress reports can be used to show the contracting officer was aware of the change, and contractors would be well advised to document any and all changes. However, ratification should be seen as a Plan B.

As stated at the outset, best practices call for a contractor to receive written direction from the contracting officer before performing work outside the scope of the contract. However, if performance does not proceed as expected, ratification may provide a means to recovery.

Michelle E. Litteken is of counsel at Morris Manning & Martin LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] BGT Holdings LLC v. U.S. , No. 2020-1084, 2020 WL 7635980 (Fed. Cir. Dec. 23, 2020). BGT Holdings also involves arguments based on waiver and the breach of good faith and fair dealing. Those issues are outside the scope of this article and are not addressed here.

[2] See 48 C.F.R. § 1.601(a) ("Contracts may be entered into and signed on behalf of the Government only by contracting officers."); see also 48 C.F.R. § 43.102.

[3] Harbart/Lummus Agrifuels Projects v. U.S. , 142 F.3d 1429, 1432 (Fed. Cir. 1998).

[4] The Federal Acquisition Regulation provides contracting officers with authority to expressly ratify an unauthorized commitment after the fact. 48 CFR § 1.602-3. 

[5] BGT Holdings, LLC v. U.S. , 142 Fed. Cl. 474 (2019), aff'd in part, vacated in part, remanded, No. 2020-1084, 2020 WL 7635980 (Fed. Cir. Dec. 23, 2020).

[6] Id. at **5-6.

[7] Id. at *5.

[8] 142 Fed. Cl. at 181.

[9] Id. at *15. 

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