It’s never a good idea to perform work without a written contract authorizing the work; handshake agreements between the Government and contractors aren’t reliable. This is particularly true when a dispute arises and the contractor wants compensation. Without a contract, the firm might be out of luck.
An example of this situation recently played out before the Court of Federal Claims in Panther Brands, LLC v. United States, No. 16-1157C (Fed. Cl. Dec. 17, 2019). There, IndyCar company Panther Brands, LLC (Panther) entered into a sponsorship agreement (essentially as a second-tier subcontractor to the Guard) to promote the National Guard by supplying the car, driver, uniforms, personnel, and equipment and entering the IndyCar race series for the 2013 season. Under the agreement, Panther’s car and uniforms would be branded with the Guard’s marks and Panther would provide advertising and other services to promote the Guard. The sponsorship agreement also provided that the agreement could be extended for the 2014 racing season.
Although Panther did not have a direct contractual relationship with the National Guard, the two parties frequently communicated directly with each other. In early 2013, Panther met with the National Guard’s three-star general director who stated that the Guard would remain Panther’s major sponsor for the 2014 racing season. Shortly thereafter, the Guard told even Panther to start preparing for the 2014 season. Relying on this information, Panther incurred substantial costs to prepare, such as obtaining a new technical advisor, conducting additional research and development for the 2014 vehicle, and hiring a new driver.
In August 2013, the Guard asked the prime contractor to submit a proposal for the 2014 season. Panther submitted a proposal to the prime contractor, which in turn, submitted its own proposal to the Guard. Ultimately, the Guard selected Rahal Letterman Lanigan Racing to sponsor for the 2014 racing season because, in large part, its proposed cost was significantly less than Panther’s.
After an unsuccessful GAO protest, Panther brought a nearly $5 million claim against the Guard alleging a breach of its implied-in-fact contract with the Guard. In other words, Panther argued the parties’ conduct showed, in light of the circumstances, a tacit understanding that the Guard would sponsor Panther for the 2014 racing season. Instead of a written contract, the meeting of the minds was shown by the parties’ conduct towards each other.
The Court ruled against Panther because the Guard officials–who allegedly extended the Guard’s sponsorship of the Panther to the 2014 season–did not have actual authority to bind the Government. But, you ask, didn’t the Guard’s three-star general director reassure Panther that the Guard would continue its sponsorship in 2014? How many stars does a general need before he can bind the Government? Despite his high rank, the Guard’s director didn’t have a role in the contracting function. That authority came through different channels from the Deputy Assistant Secretary of the Army for Procurement to the contracting officer. The general’s functions (retention and recruitment) were plainly separated from the contracting function.
The Court also rejected other legal theories raised by Panther holding that other officials, like the COR, could not have had implied authority to bind the Government since the Government’s internal procedures barred him from authorizing contracts. Importantly, the Court explained that it is a contractor’s burden to accurately ascertain whether an individual, purporting to act for the Government, stays within the bounds of her authority. Put differently, contractors must be sure that Government employees who they work with can bind the Government; if they can’t, that’s the contractor’s problem.
In the end, this case serves as a cautionary tale. Contractors shouldn’t rely on the statements or approvals of just any Government employee–even if it would seem that they have authority to contractually bind the Government. Always work with a contracting officer or other official who, without a doubt, can act on the Government’s behalf. Performing work–in whatever context–without explicit permission (preferably written) from a contracting officer is perilous.
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