Imagine you are working on a federal government contract. The Government is happy with your work. You have received excellent performance ratings and high award fees. Your employees may have even received commendations for their efforts in supporting the Government’s mission. One day, your Government client calls you and asks you to perform substantial additional work. While this type of contract change may seem to be an excellent source of new revenue, it can also quickly turn into a bad situation in which your company does not get paid if you are not careful.
In agreements between private sector entities, agents have the authority to bind their principals to contracts and contract modifications. This is not only the true in instances in which the principal provides actual authority to its agent, but also the case when the principal intentionally or unintentionally causes the other party to rely upon an agent’s apparent authority to enter into and modify contracts.
By contrast, the Federal Government is not generally bound by the doctrine of apparent authority. That is, only limited classes of government employees are able to bind the Federal Government to contracts and contract modifications. These personnel, Contracting Officers, have explicit regulatory and contractual authority to make contract changes. Other government personnel, including program managers and Contracting Officer’s Representatives (CORs), are prohibited from directing or encouraging the contractor to perform work that should be formalized as a contract modification and are not allowed to act as though they have that authority. Importantly, Contracting Officers are typically allowed to commit Federal funds only to a certain dollar value.
None of this stops Government customers from requesting or demanding that their industry partners perform additional work. Unless the Contracting Officer is aware of and agrees to pay for that work, however, the contractor may not get paid for the extra work it performs.
The safest approach in these situations is ensuring that the Contracting Officer is party to the negotiation as early as possible. Because Government customers may not appreciate the cost of their requests for additional assistance, it is particularly important to ensure that the appropriate parties negotiate the additional work. For that reason, make sure you are working not just with a warranted Contracting Officer, but the one with the authority to bind the Government to the dollar value of the additional work. Finally, make sure your agreement is reduced to writing in a formal contract modification.
While remedies may exist if your company agrees to perform additional work without a formal modification, it is important that your employees recognize up front that few Government personnel have the explicit authority to change contract terms and pay for additional work. Having a plan in place to make certain that your employees who interact with the Government review and understand the terms of the contract, are trained to spot changes, are aware of the personnel in your company authorized to negotiate additional work with their Government counterparts, and make sure to ask whether the authorized personnel has authority up to the dollar value of the modification being negotiated is a painless means of recovering funds on the front end rather than fighting for them on the back end.