When it's not best left unsaid

Government contracting by implication. It's what you do when you've left home without it, it being a critical government contract clause, required by the procurement law, including its regulations. Now I know, thanks to Lexology and Attorney Edward Arnold and the article below.

The Christian Doctrine: The Double-Secret Contract Clause

The typical government contract contains a laundry list of standard Federal Acquisition Regulation (FAR) or Defense Federal Regulation Acquisition Supplement (DFARS) clauses that outline the requirements for the construction or services to be provided. These clauses are either expressly stated, i.e. written out in full length in the contract, or incorporated by reference to a particular provision which the contractor must research for the specific language. But contractors beware: not all contracts are what they seem. Since 1963, courts have held that certain clauses are so integral to public procurements that they are deemed incorporated by operation of law, even if they are omitted from the contract.

The “Christian Doctrine” arises from the Court of Claims’ 1963 decision in G.L. Christian & Associates v. United States.[1] The contractor there sought to recover anticipated profits on a contract that terminated by the U.S. Department of the Army. The government sought to avoid liability for anticipated profits, relying on the standard termination for convenience clause, which disclaims government liability for anticipated profits on unperformed work. Interestingly, the termination for convenience clause was not referenced or incorporated in G.L. Christian’s contract. The government argued that, despite its absence, the clause should be read into the contract as a matter of law. In support of its argument, the government relied on Section 8.703 of the Armed Services Procurement Regulations (“ASPR”), which requires the termination clause be inserted in all fixed-price construction contracts such as the one at issue.[2] The Court agreed, stating that since World War I, the limitation on anticipated profits in a termination case was “a deeply ingrained strand of public procurement policy.”[3]

Following this ruling, various boards of contract appeals and courts took a relatively broad view of the court’s holding, incorporating clauses and procurement regulations with little or no consideration for whether such provisions reflected a deeply ingrained strand of public procurement policy. Thus, a series of ancillary clauses were deemed incorporated by operation of law, even though they were not in the contract. For example, one case from the Court of Claims held that the ASPR “Mistake in Bids” clause was incorporated by law into the contract based on a theory that: “If a regulation appears intended to define and state the rights of a class of persons, it is presumptively intended to benefit those persons.”[4] The Court ruled that the missing clause was intended to benefit bidders, without any analysis as to whether that end was a deeply ingrained in the federal procurement scheme.

In 1993, the Court of Appeals for the Federal Circuit addressed the expanding scope of the Christian Doctrine in General Engineering & Machine Works v. O’Keefe.[5] Emphasizing Christian’s reliance on the significant and long-standing policy implemented by the termination for convenience clause, the Court re-iterated that “the Christian Doctrine does not permit the automatic incorporation of every required contract clause.”[6] Rather, “the Christian Doctrine applies to mandatory contract clauses which express a significant or deeply ingrained strand of public procurement policy.”[7] In the wake of General Engineering, one set of commentators noted: “They [the courts and boards] have been saved for the last 20 years by being able to mechanically follow the Christian Doctrine to incorporate all mandatory clauses in the contract without analysis or thought. But that day is over. Under the guidance provided by the Federal Circuit, the boards of contract appeals now have to think through each case to determine if the clause meets the General Engineering tests.”[8]

Under the guidance of General Engineering, the Armed Services Board of Contract Appeals (ASBCA) has invoked the Christian Doctrine only twice to incorporate clauses into contracts. And even so, the ASBCA only incorporated clauses that had been previously incorporated under earlier case law.[9] In that same time, the ASBCA has refused to invoke the incorporate various other clauses.[10]

In its most recent decision involving the Christian Doctrine, the Federal Circuit held for the first time that bonding requirements in FAR Part 52.228-15, “Performance and Payment Bonds—Construction,” were incorporated in every construction contract at the time of award.[11] Not only did the Court find that the purposes of the performance and payment bonds rendered them “a significant or deeply ingrained strand of public procurement policy,” it was also persuaded by the fact that government property cannot be subject to subcontractors’ and suppliers’ mechanic’s liens.[12] Thus, protecting subcontractors and suppliers represents a deeply ingrained strand of public procurement policy.

The lesson of K-Con: Federal contractors of all sizes must understand: (1) what type of contract is being contemplated by the government’s solicitation; (2) which provisions are found in those types of contracts; and (3) which provisions have been, or may be, deemed incorporated by operation of law even if not present in the contract. This will greatly impact how contractors price their proposals in competitive solicitations to better account for potential risks.

The article comes with a very organized and helpful matrix of over 40 administrative and judicial decisions, showing whether the decision followed or rejected the Christian Doctrine on the facts of the respective cases. This proved helpful to me as I was able to get a lead to two decisions concerning the incorporation of the standard federal and ABA Model Procurement Code Contract Dispute Clause models. Both of them followed the Christian Doctrine.

My interest arises from two separate procurement controversies that have been playing out here on Guam, that turned into binding arbitration train wrecks. I have been puzzled by that. Guam has the ABA MPC version of the contract dispute clause. Although the regulations elaborate, the essence is in the law, 5 GCA § 5427:

§ 5427. Authority to Resolve Contract and Breach of Contract Controversies.
(a) Applicability. This Section applies to controversies between the Territory and a contractor and which arise under, or by virtue of, a contract between them. This includes without limitation controversies based upon breach of contract, mistake, misrepresentation, or other cause for contract modification or rescission.
(b) Authority. The Chief Procurement Officer, the Director of Public Works, the head of a purchasing agency, or a designee of one of these officers is authorized, prior to commencement of an action in a court concerning the controversy, to settle and resolve a controversy described in Subsection (a) of this Section.
(c) Decision. If such a controversy is not resolved by mutual agreement, the Chief Procurement Officer, the Director of Public Works, the head of a purchasing agency, or the designee of one of these officers shall promptly issue a decision in writing. The decision shall:
    (l) state the reasons for the action taken; and
    (2) inform the contractor of its rights to judicial or administrative review as provided in this Chapter.
(d) Notice of Decision. A copy of the decision under Subsection (c) of this Section shall be mailed or otherwise furnished immediately to the contractor.
(e) Finality of Decision. The decision reached pursuant to Subsection (c) of this Section shall be final and conclusive, unless fraudulent, or the contractor appeals administratively to the Public Auditor in accordance with § 5706 of this Chapter.
(f) Failure to Render Timely Decision. If ... one of these officers does not issue the written decision required under Subsection (c) of this Section within sixty (60) days after written request for a final decision, or within such longer period as may be agreed upon by the parties, then the contractor may proceed as if an adverse decision had been received.

It seems to me that the requirement of mutual agreement by the parties precludes arbitration, and certainly the requirement that a disputed final agency decision must be appealed (first administratively, from which further appeal procedures are available, ultimately to the Guam Supreme Court), renders binding, non-reviewable arbitration clearly out of the question.

Yet, those two, very large (on Guam scale) contract disputes ended up in arbitration -- and litigation, adding insult to injury, and costs.

It should be noted Guam's Procurement Contract Disputes law is fortified by a strongly stated government policy in favor of resolution of "all controversies by mutual agreement without litigation", and backed up by a quite specific "Disputes" clause which "shall be inserted in all territorial contracts".

I could not square the arbitrations with that contract clause requirement. Obviously, someone(s) somewhere along the line neglected or resolved not to abide by the mandatory dispute resolution procedure explicitly mandated in law and regulation. A law and regulation, I might add, that has been ensconced in Guam's procurement law from the beginning of the comprehensive procurement law's adoption in 1982.

Needless to say, I have been plowing that Christian Doctrine field since coming across the article above and amassed a goldmine of resources should I ever need to have it to hand.

Such is the aspiration of a Procurement True Believer. Or nerd. Whatever.

Helpful to me, among others:
Yosemite Park v. United States, 582 F. 2d 552 - Court of Claims (1978)
SJ Amoroso Const. Co., Inc. v US, 12 F3d 1072, Court of Appeals, Federal Circuit (1993)
Bay Shipbuilding Company vs Dept. HomeLand Security, CBCA 54, 84 (2007)
US v Thomas K. Mills, MD, Court of Appeals, 3rd Circuit,822 F.2d 373 (1987)