In a decision issued by the United States Court of Federal Claims, Anthem Builders, Inc. v United States, 121 Fed. Cl. 24, the Court considered a Contracting Officer’s right to deny a bid on a project based on an entity’s use of an unacceptable individual surety. Proper bonding is essential, because without a safety net, the government is left with no protection if the contractor fails to meet its contractual obligations. Under FAR 28.203 an entity can use an individual surety, instead of a corporate surety, for all types of bonds, with the exception of position schedule bonds. Anthem bid on a government construction project and the bidding package included a bond secured by an individual surety. The Contracting Officer rejected the bid as “nonresponsible.”
Contractors have been careful about using an individual surety to secure bonds because of the difficulty in verifying assets and the questionable practices of some individual sureties. Since these problems arise with an individual surety a Contracting Officer is given wide latitude under FAR 28.203(a). FAR 28.203(a) gives the Contracting Officer the right to find the individual surety “nonresponsible.” The right of a Contracting Officer to reject an individual surety was cemented in Anthem Builders. The Court found that even though pursuant to FAR 52.228–15(d), the bond was supported by an individual surety, the Contracting Officer had the right to deny the bid if the individual surety was “nonresposible” and the funds were not guaranteed.
For Contracting Officers, the validation that a bid does not have to be accepted if the individual surety raises severe financial red flags for the project provides some much needed relief and mitigates a common fear of having to accept fraudulent transactions. Entities bidding on a federal government project should try and obtain bonding from a surety listed on the Treasury Department Circular. If an entity is using an individual surety as security for the bond, the entity could take steps to avoid Anthems’ fate in this case. The entity should ensure that the individual surety provides an escrow account where the Contracting Officer has the sole and unrestricted right to draw on the funds, provides proof of unencumbered assets, or provides an Irrevocable Trust Receipt that is issued by an FDIC insured financial institution.
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In a recent decision by the Government Accountability Office (“GAO”), AutoFlex, Inc., B-415926, April 19, 2018, the GAO considered a challenge to the agency’s termination of a contract for the convenience of the government where the termination flows from a defect the contracting agency perceived in the award process.
In this bid protest, service-disabled veteran-owned small business (“SDVOSB”) AutoFlex, Inc. (“AutoFlex”), protested the termination of its contract for the lease of executive vehicles with the Department of Veterans Affairs (the “Agency”) and subsequent award of a contract to small business concern District Fleet, LLC (“District Fleet”). AutoFlex alleged that the Agency unreasonably terminated its contract, failed to set aside the procurement for SDVOSB concerns, and failed to provide AutoFlex with a debriefing. On November 30, 2017, the Agency issued the solicitation as a small business set-aside for the lease of four 2018 Chevrolet Suburbans for a period of one base year and four option years. The solicitation indicated award would be made on a lowest-price, technically acceptable basis.
District Fleet submitted the lowest-priced quotation, which the Agency initially found unacceptable. AutoFlex, the incumbent contractor, provided the next lowest-priced quotation and the Agency awarded the contract to AutoFlex on December 20, 2017. Subsequently, District Fleet filed an agency-level protest of the contract award to AutoFlex. Upon further review, the Agency determined that the evaluation of District Fleet’s quotation was erroneous and found the quotation to be technically acceptable. As a result, the Agency terminated AutoFlex’s contract and awarded the contract to District Fleet. AutoFlex then protested the termination of its contract to the Government Accountability Office (“GAO”).
In its decision, GAO noted that the GAO generally will decline to review the termination of contracts for the convenience of the government as those actions are matters of contract administration. However, the GAO will review the propriety of the termination where the termination stems from a defect perceived by the contracting agency in the award process. In which case, the GAO will analyze the award procedures underling the termination for the limited purpose of determining whether the initial aware may have been improper, and, if so, the appropriateness of the corrective action advanced by the agency in remedying the impropriety. Even if the agency’s corrective action is not the most advantageous to the government, the GAO will not object as long as the corrective action taken is appropriate.
Here, the GAO found no basis in the record to object to the agency’s termination of AutoFlex’s contract. The Agency reasonably concluded that it had misevaluated District Fleet’s quotation and corrected the error. Additionally, the GAO found AutoFlex’s challenge to the Agency’s determination to set the procurement aside for small business concerns as opposed to SDVOSB concerns as an untimely challenge to the terms of the solicitation. During the solicitation phase, the Agency posted a response to a question as to whether the solicitation was in accordance with the Veterans First Contracting Act by stating “[t]his requirement is being solicited in accordance with the Veterans First Contracting Program.” The GAO found no basis in the record to conclude that the Agency’s response was misleading. The Agency did not amend the solicitation to change the set-aside designation, nor did the Agency add VA Acquisition Regulation clauses 852.219-11, VA Notice of Total Veteran-Owned Small Business Set-Aside or 852.219-10, VA Notice of Total Service-Disabled Veterans-Owned Small Business Set-Aside to the solicitation. The solicitation clearly designated the requirement set-aside for small business concerns. The GAO found that in viewing the matter in a manner most favorable to the protester, the Agency’s response could be construed as a patent ambiguity. A patent solicitation ambiguity exists where the solicitation contains an obvious, gross, or glaring error apparent from the face of the solicitation. As such, a patent solicitation ambiguity must be protested prior to the closing time for receipt of proposals or quotations to be considered untimely. Finally, the GAO also dismissed AutoFlex’s protest of the Agency’s failure to provide it with a debriefing since the adequacy and conduct of a debriefing, including the failure to provide a debriefing are procedural matters that do not involve the validity of an award.
Decisions such as AutoFlex serve as two important reminders to both contractors and agencies alike. First, the GAO will not object to an agency’s response to a defect in the procurement process as long as the corrective action taken is appropriate. Additionally, contractors should closely adhere to GAO timeliness regulations when determining whether to protest a patent solicitation ambiguity. The untimeliness of such a challenge may prevent a contractor’s success on the merits without even a chance of its allegations being heard in such instances.
As more business is conducted via text messaging, new legal problems will continue to arise. Recently, a court addressed whether a letter of intent was binding based on an exchange of e-mails and text messages between real estate brokers. In St. John’s Holdings, LLC v. Two Electronics, LLC, No. 16 MISC 000090 RBF the court examined whether the parties merely engaged in negotiations regarding the purchase of certain property, or whether their text messaging gave rise to a binding and enforceable contract for the purchase and sale of the real estate.
Because this was a sale of real estate, the issue at hand was whether the text messaging was sufficient to satisfy the Statute of Frauds. To resolve this issue, the court looked at whether (a) a text message can be a writing under the Statute of Frauds, (b) whether the alleged writing contains sufficiently complete terms and an intention to be bound by those terms, (c) whether the text message is signed, and (d) whether there is an offer and acceptance.
The factual timeline in St. John’s Holdings, LLC involved a number of drafts of the letter of intent sent from the Buyer to the Seller. None of these drafts were signed by the Buyer. Eventually, the Seller’s agent sent the Buyer’s agent a text asking the Buyer to sign the letter of intent and provide a deposit. The Seller’s agent included his name at the end of this text message. The Buyer signed the letter and provided the deposit, and then texted to the Seller’s agent: “Tim, I have the signed LOI and check it is 424[pm] where can I meet you?” Thereafter, the Seller’s agent met the Buyer’s agent and accepted the signed letter and deposit. After this exchange, the Buyer’s agent sent a text message requesting a copy of the letter executed by the Seller, but was informed via text message, “[Seller] was out of town today. He will get back to us tomorrow.” The Buyer was later informed that the Seller had accepted a separate offer from a third-party, and did not close on the deal with the Buyer.
The court found that the text messages, read in the context of the negotiations and exchanges between the parties, contained sufficient terms to create a binding contract between Buyer and Seller. The court found sufficient support that multiple writings relating to the subject matter of the agreement may be read together as long as they contain all of the material terms of the agreement and are eventually authenticated by signature. Therefore, the text messages, together with the previous negotiations and draft letters exchanged, satisfied the writing element of the Statute of Frauds. The ultimate factor for the court was that “[t]he way in which the parties handled the transaction was sufficient for them to appreciate that the text message would memorialize the contractual offer and acceptance.” Therefore, the court embraced a contextual approach to effectuate the intent of the parties.
Once determining that the text messaging constituted a writing, the court liberally construes the “signature” element and inferred from the Seller’s agent adding his name to the end of the text message that it was intended to create a binding signature. The court found that “the use of his signature at the end of the February 2nd text message is evidence of his intent to have the writing be legally binding.” Therefore, the court found that the text message from the Seller’s agent, asking the Buyer to sign the letter of intent and provide a deposit, was a binding contract.
While this case concerns the purchase of real property, and therefore involves the Statute of Frauds, it does provide instruction for construction projects in the 21st century. As more and more communication is conducted informally via text messaging, parties need to be aware that text messages can and will have legal ramifications. A text message may not be as informal as one thinks, at least in the eyes of the law. Further, this case shows the importance of preserving documentation. While e-mail is routinely stored and backed-up, text messages are more prone to deletion or being lost. It is important to remember that steps must be taken to preserve text messages, as a claim could survive or fail based on text messaging documentation. Law firms should instruct clients on the need to preserve all relevant documentation, including text messaging. Issues can arise if team members are discussing change orders or potential claims via text messaging, which may also raise notice issues.
Ultimately, cases such as this remind us that the law must continually adapt to modern technologies and business practices, and that parties must be aware of how modern communication methods will be interpreted by courts.
The U.S. Supreme Court in Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 195 L. Ed. 2d 348 held that the implied certification theory can be a basis for liability under the civil False Claims Act (FCA), resolving a split among the Federal Court of Appeals about the theory’s viability. Under this theory, when a contractor submits a claim, it impliedly certifies compliance with all conditions of payment. However, if the contractor fails to disclose a violation of a material statutory, regulatory, or contractual requirement, the contractor has made a misrepresentation that renders the claim “false or fraudulent” under the FCA. certification theory
The Court not only upheld the validity of the implied certification theory, but also clarified the scope of the theory. The Court held that the implied certification theory can be a basis for liability only where two conditions are satisfied. First, a claim for payment cannot “merely request payment.” The claim for payment must also “make specific representations about the goods or services provided.” Second, the contractor’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements” must make those “representations misleading half-truths.” The Court also held that FCA liability for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment. A contractor can be liable for violating requirements even if the requirements were not designated as conditions of payment, but not every violation of a requirement that was designated as a condition of payment triggers liability. In reaching this holding, the Court explained: “What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”
The Court also clarified how the materiality requirement under the FCA should be enforced. The Court emphasized that the “materiality standard is demanding.” Materiality “cannot be found where noncompliance is minor or insubstantial.” Consequently, the Government’s decision to identify a provision as a condition of payment is relevant to materiality, but “not automatically dispositive.” The Court elaborated that “proof of materiality can include … evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement,” or, conversely, the Government’s payment of a “claim in full despite its actual knowledge that certain requirements were violated” is “strong evidence that the requirements are not material.”
While the Court upheld the implied certification theory, the true impact of the decision will depend on how the lower courts choose to implement the decision. In particular, how the lower courts read the Court’s emphasis on materiality. The focus of future litigation may be whether the Government actually cared about the alleged violations, rather than technical arguments over terms of payment.