CONTRACT INTERPRETATION REVISITED

Many, if not most, problems during contract performance arise over differing interpretations of contract requirements.  The same is true of most contractor claims under or related to contracts: they arise over differing interpretations of contract language.  So far, our most popular blog posting discussed the rules of contract interpretation enunciated in a recent Armed Services Board of Contract Appeals (ASBCA) opinion authored by Judge David James.

The rules have been around a long time and the final authority really is the Court of Appeals for the Federal Circuit (CAFC) since the U.S. Supreme Court seldom gets involved in federal procurement cases.  Judge James based his recent recitation of the rules based on the CAFC precedent.  Another ASBCA jurist, Judge Carol Park-Conroy, has stated the rules this way:

To prevail upon its parapet wall claim, SRC [the contractor] initially must demonstrate either that its interpretation of the contract is the only reasonable interpretation or that the contract was ambiguous.  The rules of contract interpretation are settled.  We are to read the contract as a whole and give it meaning that makes sense.  A contract is unambiguous if there is only one reasonable interpretation.  Conversely, a contract is ambiguous if it is susceptible to more than one reasonable interpretation.  It is not enough to demonstrate there are two different interpretations; rather, both must be within the 'zone of reasonableness.'  Ambiguities will be construed against the government as the drafter under the doctrine of contra proferentem, so long as the contractor relied upon its interpretation during bid preparation.  An ambiguity is patent if it contains glaring errors or patently obvious conflicts.  (Citations omitted.)

If the ambiguity is glaring or obvious, the contractor has a duty to inquire as to the contract language meaning before submitting its bid or proposal.  If the contractor fails to discharge that responsibility, it assumes the risk that the language will be interpreted against it.  If the contracting officer fails to clarify the language, the contractor still must assume the risk, or, of course, not submit its bid or price the risk accordingly.

We cannot overemphasize the point that the practical effect of these rules is the premium both buyer and seller should place on review of contract documents for clarity.  The government, as drafter, bears the initial responsibility.  But the contractor has a duty to inquire about obvious ambiguities and assumes the risk if the government does not clarify.  It is perfectly proper to protest to GAO before bidding if the language is not cleared up.  We should hasten to add that the ASBCA has said the contractor has no duty to "ferret out hidden ambiguities" and that a contractor only has a duty to read the solicitation for the purpose of preparing a proposal in response.

bill@spriggsconsultingservices.com; bill@spriggslawgroup.com