United States: On Human Bondage And Christian Doctrine

To be clear, the bondage here is the bond requirement under Federal construction contracts, and the doctrine does not appear in the catechism but in the Court of Claims' old decision in G. L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963). In K-Con, Inc. v. Secretary of the Army, the Court of Appeals for the Federal Circuit recently applied the Christian doctrine to read bonding requirements into construction contracts that lacked them. The decision is not particularly surprising but is a useful reminder that you may have contract requirements that don't actually appear anywhere in your contract.

Background

K-Con and the Army executed two fixed-price contracts for pre-engineered metal buildings. Neither the contracts nor the solicitations under which they were competed included the performance and payment bond requirements that statute and regulations require in all Federal construction contracts valued at over $150,000.

After contract award, the Army directed K-Con to provide performance and payment bonds before the Army would issue a notice to proceed, even though the awarded contracts did not include the performance and payment bonds clause. After some delay, the contractor provided the bonds and the Army allowed performance to commence.

The contractor submitted a claim for each contract, asserting entitlement to an equitable adjustment to account for increased costs as a result of the bonding process and attendant delays. The Army denied both claims, taking the position that FAR 58.228-15's bonding requirements were incorporated into the contract at the time they were awarded, even though the clause was omitted from the contract.

The contractor appealed to the Armed Services Board of Contract Appeals, which upheld the Army's final decision. K-Con then appealed to the Federal Circuit. The Court of Appeals focused on two legal questions: (1) Were these construction contracts; and (2) If so, were the standard bonding requirements incorporated into the contracts by operation of law?

Patent Ambiguities

K-Con first argued that its contracts were commercial item contracts, not construction contracts, and therefore the bonding requirements for construction contracts did not apply. K-Con noted that the Army issued both contracts on standard forms for commercial item acquisitions. The contract line items specified delivery terms of "FOB Destination," which are typical of commercial item contracts, not construction contracts. The Army countered that the contracts repeatedly called for the contractor to "construct" things and engage in "construction," and expressly required compliance with the Davis-Bacon Act, which is applicable only to construction contracts.

The court found the contracts, and the solicitations under which the contracts were competed, contained provisions that were patently ambiguous as to whether the contracts were for construction or commercial items. The court held that, because K-Con failed to seek clarification of the patent ambiguity prior to award, it was barred from arguing that the contracts were not construction contracts.

The Christian Doctrine

Having rejected the contractor's first argument, the court then considered whether the bond requirements at issue are read into construction contracts regardless of whether the requirements are expressly included among the contract's terms. Like the Board in the decision below, the court looked to G. L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963). In Christian, the Federal Circuit's predecessor court found that the mandatory termination for convenience clause applied to a contract even though the agency failed to include it in the contract. The Christian court held that a mandatory contract clause that expresses a significant or deeply ingrained strand of public procurement policy is read into a Federal contract by operation of law, even if the clause does not appear in the contract.

The Federal Circuit found that 40 U.S.C. §§ 3131–34 (the "Miller Act") and FAR 28.102-1 requires a contractor to furnish performance and payment bonds for any construction contract exceeding $150,000. Thus, the clause at FAR 52.228-15 was mandatory for K-Con's two contracts. The court next found that this requirement reflects a longstanding strand of public procurement policy dating back to the 19th Century and subsequently strengthened by Congress and repeatedly addressed by regulators. Therefore, under the Christian doctrine, the bond requirements applied to K-Con's contracts all along, even though the bond clause was not expressly included in either contract.

Takeaways

The K-Con decision teaches us a couple of lessons. First, it can be risky not to seek clarification of apparent solicitation ambiguities. In the context of bid protests, failure to raise a timely challenge to a patent solicitation ambiguity generally operates as a waiver and prevents a disappointed offeror from subsequently challenging an agency's choice to take the ambiguity in a direction the offerors do not like. In the context of contract claims, failure to clarify ambiguous solicitation or contract terms may prevent a contractor from subsequently using the ambiguity to its advantage when filing a claim under the Contract Disputes Act.

Second, study the requirements that appear in a solicitation and ask yourself whether anything seems to be missing. A seasoned construction contractor, for instance, should think it odd that a Federal invitation for bids does not require performance and payment bonds. If something appears to be missing, consider inquiring – particularly if the missing provision is a mandatory clause reflecting an arguably deeply ingrained procurement policy. Just because the clause is not in the solicitation or contract in writing does not necessarily mean the agency cannot require you to comply with it anyway.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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