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Are Verbal Agreements Good Enough for Government Contractors?

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Long gone are the days of verbal agreements over a friendly handshake. Now a contractor needs a written contract to ensure payment for services rendered. However, what if no paperwork exists proving the client authorized additional work? Can a contractor still get paid? The answer is maybe. If the contractor can find enough non-documentary evidence to show the person who verbally requested the work has actual authority to enter into contracts on behalf of the client, a contractor may be able to recover payment under an implied-in-fact contract.

What is an implied-in-fact contract? Implied-in-fact contracts are based on the situation’s facts, circumstances or conduct of the parties involved, which creates an obligation between the two parties. For example, if a contractor is paid for something each week but it is not in writing, the contractor may be able to claim they have a contract with the other party and a reasonable expectation that they will be paid for their service going forward. 

In the below motion against the contractor’s appeal, the Marine Expeditionary Force Training and Experimentation Group within the U.S. Marines' Advisor Training Cell (Client) motioned the Armed Services Board of Contract Appeals (ASBCA) for a summary judgment, essentially requesting the contractor’s appeal be thrown out.

Interaction Research Institute, Inc. ASBCA Appeal No. 61505
Decision issued May 5, 2021

THE Additional training

Interaction Research Institute, Inc. (IRI) contracted with the Client to provide certain training events. At various points during IRI’s contract, the Client verbally requested additional training without filling out the required express contract documentation for approval by the government in the form of a Standard Form 182 (SF-182). Typically, the Client paid for training via the Government Commercial Purchase Card (GCPC). Major Philip A. Bain, a representative for the Client, placed several short notice orders for additional training with IRI. For example, IRI sent a quote on April 4, 2009, to Major Bain for a training event occurring on April 6 – 10, 2009. In May 2009, IRI provided Major Bain quotes for additional training “right before the training began since we found out about the training at the last minute.” On June 5, 2009, Captain Joshua W. Burgess, another representative for the Client, emailed IRI and other Marines, including Major Bain, stating “[b]elow dates [June 18 & 22, 2009] are solid for Lima Company cross-cultural psychology courses”. IRI sent another quote for training on June 11, 2009, to Lieutenant Corporal Brandon K. Perry who had requested the training by phone. IRI conducted this training from June 18-22, August 7-10, 12-13, and 13-15, 2009. 

On June 18, 2009, IRI requested the “SF 182s for IRI services completed in April and May 2009?” as IRI had not been compensated for this training. The Client responded, “as for the May and April payments, Corporal Javvad Shah will be taking care of that, he has the SF 182 for those dates”. Previously Corporal Shah had paid at least two IRI invoices, including IRI invoices he considered valid, though he “was never provided any paperwork (SF182) to authorize paying them”. 

On January 26, 2012, the Client conducted a Command Investigation concerning the unpaid IRI invoices. Based on this initial investigation, the Client concluded it could substantiate invoices for training events conducted on November 18-25, 2009, May 11-13, 2009, and August 17-20, 2010, and agreed to ratify payment of the invoices for those events. However, after a second Command Investigation concluded on April 12, 2017, the Client was unable to find any SF-182s related to the April, May, and August 2009 training events, and on October 31, 2017, the Client denied payment for those training sessions. IRI appealed the denial to the ASBCA. The Client moved for a summary judgment and therefore was responsible for providing sufficient material facts on all relevant issues raised by the motion.

The SUMMARY JUDGMENT MOTION

Although both the Client and IRI agreed no written contract existed for these rush orders, the Client argued no implied-in-fact contract existed between the two parties. The Client stated that although a SF-182 is not an express contract, “it is possible for a properly approved SF-182 to serve as evidence of implied authority to contract.” However, the Client “could not produce any SF-182 documentation to support the Appellant’s [IRI’s] remaining disputed invoices, the Government must conclude that no such documentation exists.” The Client also argued, “no assertion herein as to whether IRI was informed by Government personnel that the disputed training[s were] approved.” Therefore, according to the Client, any approval of the training was done without actual authority.

The Client did acknowledge none of the staff involved with ordering the training lacked the authority, only that there are no SF-182s documenting the proper approval of the training.

The Outcome

According to an internal Navy memorandum, an SF-182 was used to document a training, education and professional development event from a non-government source and not an express contract. However, an SF-182 could be used to show implied actual authority to bind the Client in a contract. A review of the record showed IRI had been properly paid for seven previously funded classes using SF-182s. Based on this information, the Client demonstrated the employees (representatives for the Client) involved likely had the authority to authorize the additional training in question. The Client also admitted to paying IRI for seven training events using the GCPC and ratified three other training sessions after proper documentation was uncovered.

Regarding the April and May 2009 training events, Major Bain requested a quote from IRI, noting specific training dates, and received an invoice from IRI shortly thereafter. When asked about payment, a representative for the Client stated Corporal Shah would be “taking care of” payments as “he has the SF-182 for those dates”. The same procedure to acquire additional short-notice training was used for the August 2009 training with different representatives for the Client. At this time, there appeared to be internal restrictions on Corporal Shah’s use of the GCPC but these restrictions did not restrict his actual authority to commit the Client to an implied-in-fact contract. Rather it appeared that ordering these training events was an integral part of his job.

The Client failed in providing sufficient material facts to warrant a summary judgment. The fact no SF-182s were located does not necessarily imply the training was unauthorized. Therefore, the ASBCA agreed with IRI, finding that Major Bain may have actual authority to contract on behalf of the government in his role with the Client, and that “it is possible to have an implied-in-fact contract without an express document.”

THE TAKEAWAY

This case was forced solely on the motion for summary judgment and not IRI’s appeal. While the ASBCA did not find that Major Bain had the actual authority necessary to bind the Client to a contract nor that IRI had proven an implied-in-fact contract existed, the ASBCA decided it would not be appropriate to throw out IRI’s appeal before IRI had a chance to prove the allegations. Potentially, IRI could prove both of those points without any documentary evidence a representative for the Client had approved additional training. Other evidence, such as testimony by the contractor and government personnel, may be able to prove an implied-in-fact contract existed between the two parties. 

Although this ASBCA decision opens the possibility of enforcing a purely verbal contract with a government representative, it is best practice to always insist on some sort of documentation even when a client is in a rush for a contractor to do additional work. Written evidence is far stronger and, oftentimes, more credible than mere testimony. If circumstances arise preventing written authorization from the contracting officer (CO) or client, the contractor should create a written document made directly after the verbal authorization and send this documentation to the CO or client. This documentation can simply be an email summary of the additional authorized work, the deadline for this additional work, pricing, or any additional necessary information. Sending follow-up email(s) via a read receipt allows for further proof that the client or CO received and viewed the message(s). Even something as simple as this basic follow-up with the client or CO may help if a dispute ever arises.

However, should a contractor be unable to get the request for additional work documented for whatever reason, there is still a possibility the contractor may be able to prove an implied-in-fact contract existed. The path to reimbursement will be more difficult, but still possible with other non-documentary evidence such as witness testimony. 

If you have questions about rush work you performed for a client with the client refusing to pay, contact us. Whitcomb, Selinsky, PC has a team of experienced attorneys ready to help.

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About the AuthorDavid Tscheschke, Esq.

When David counsels clients, he keeps potential business concerns in mind. This is due to his extensive knowledge of business administration and economics. By identifying critical business or industry issues early on, David tailors his advice to address any concerns he has identified during his initial research and discovery. This mindset allows David to focus on delivering value to every client.

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