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Contract interpretation
Army Lawyer, Jan-Feb, 2003
Last year, two new cases further defined the issue of who should bear the risk when the government drafts its contracts carelessly. When defective drafting results in ambiguities in a contract, both parties may claim that the other side should bear the responsibility for these ambiguities. The ultimate question is whether the ambiguity was patent or latent, because a patent ambiguity creates a duty to inquire.
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In J&H Reinforcing & Structural Erectors, Inc. v. United States (J&H Reinforcing), (1) the ambiguity involved whether a Historically Underutilized Business Zone (HUBZone) preference would apply to a contract to rehabilitate a dam in the Wayne National Forest. As this was a commercial item acquisition, section I of the solicitation contained the clause found at Federal Acquisition Regulation (FAR) section 52.212-5. (2) This clause incorporates several other clauses into the contract by reference. (3) The FAR also cross-references two clauses that apply to all commercial item acquisitions. (4)
Another paragraph, however, cross-references twenty-eight clauses that may or may not apply, depending upon the nature of the particular commercial item acquisition. There should be a blank line before each of these twenty-eight clauses, where the contracting officer checks whether the nature of that particular acquisition requires incorporation of that clause. There should also be a note at the beginning of this listing of potentially incorporated clauses, indicating that the "Contracting Officer shall check as appropriate" those clauses that are applicable. (5) Unfortunately, the solicitation in J&H Reinforcing did not contain either this note or the blank lines before each of the listed twenty-eight clauses. (6)
One of the twenty-eight clauses listed in FAR section 52.212-5(b) is FAR section 52.219-3, which sets aside procurements for HUBZone Small Business Concerns. At a pre-bid meeting, in which J&H Reinforcing did not take part, a potential bidder asked whether the rehabilitation project was being set aside for HUBZone businesses. The contracting officer said that it was not being set aside. The contracting officer later amended the solicitation to reflect corrections in the drawings and specifications. In this amendment, the government also included a list of questions and answers raised during the pre-bid meeting. Unfortunately, this listing did not address whether the government was setting aside the acquisition for HUBZone businesses. (7)
Four businesses bid on the dam project. The low bidder was disqualified, and the second-lowest bidder was T-C, Inc., a non-HUBZone business. J&H Reinforcing was the third-lowest bidder. When the government awarded to T-C, Inc., J&H Reinforcing sued in the Court of Federal Claims (COFC), alleging that the government violated statutory and regulatory provisions regarding the HUBZone program by awarding to a non-HUBZone business. (8) The court held in favor of the government, finding an ambiguity in the solicitation but also finding that the ambiguity was patent, which gave J&H Reinforcing a duty to inquire further. The court noted that one of the other clauses listed in FAR section 52.212-5(b) is FAR section 52.219-4, which gives HUBZone businesses an evaluation preference by adding ten percent to the price bid by any non-HUBZone businesses. The court found that FAR sections 52.219-3 and 52.219-4 were mutually inconsistent, resulting in a patent ambiguity. (9)
Had this been the end of the story, it may not have been too difficult to accept the court's holding that the patent ambiguity created a duty for J&H Reinforcing to inquire further. In this case, however, J&H Reinforcing also alleged that it called the contracting officer to clarify whether the solicitation was, in fact, set aside. J&H also alleged that the contracting officer was unavailable to answer its questions, but that her representative assisted J&H Reinforcing to "bid as a HUBZone contractor." (10) In response to this argument, the court noted that FAR section 52.214-6 requires prospective bidders who need explanations to submit their inquiries in writing. It then noted that this provision was designed to prevent the exact scenario in which J&H Reinforcing found itself--"reading the tea leaves of recalled utterances to ascertain if the contracting officer or her representatives made a statement that would bind the government." (11) Because the alleged conversation between J&H Reinforcing and the contracting officer's representative was verbal, the court ruled against J&H Reinforcing and granted the government's motion for summary judgment. (12)
This case is also somewhat troubling because it appears that the court could have decided it on other grounds. The court hinted at various times that the contracting officer's representative had no authority regarding this procurement. (13) At other times, the court implied that this case really involved a failure of proof by the plaintiff. (14) Yet, instead of basing its holding on either of these grounds, the court chose to reach its outcome on the basis that J&H Reinforcing failed to inquire in writing. This was a commercial item acquisition--a procurement in which one should expect less savvy contractors. The actions of government personnel contributed more to J&H Reinforcing's situation than its telephone inquiry. Hopefully, holdings similar to J&H Reinforcing will not reinforce inattentive behavior by government personnel or discourage smaller contractors from participating in government procurement.
