In government contract interpretation disputes, adjudicative forums may rely on extrinsic evidence of the parties’ prior course of dealing to interpret ambiguous terms. In this context, prior course of dealing refers to a sequence of previous conduct between the government and the contractor which can be fairly regarded as establishing a common basis of understanding for the purposes of interpretation. When the parties have interpreted the disputed terms in a certain manner in a previous contract, those terms are typically presumed to hold the same meaning in a later disputed contract, absent clear evidence of changed intent or the parties’ disagreement at the time of contract formation. Furthermore, for the parties to be bound by their prior course of dealing, they must have actual knowledge of the conduct and be aware that it can reasonably be construed as indicative of their common understanding or intentions. In such cases, after determining the existence of an ambiguity, the claims adjudicative forum may rely on prior course of dealing evidence to assign meaning to the disputed terms.

In Armed Services Board of Contract Appeals (ASBCA) No. 60448, issued on June 24, 2020, the Board determined that the contractor was entitled to an equitable adjustment as the parties’ prior course of dealing had established a common basis of understanding regarding the ambiguous terms. The U.S. Air Force issued the three underlying contracts for the production and delivery of Advanced Medium Range Air-to-Air Missiles (AMRAAM). The contracts were part of a series of annual contracts issued for over more than two decades under which the contractor delivered a specified number of missiles each year. As relevant to the interpretation dispute, the statements of content (SOCs), which are similar to statements of work, for the three contracts each contained two paragraphs that the Board determined were ambiguous. The first paragraph, SOC 2.a, required the contractor to produce a specified number of missiles (or lot) over a three-year period of performance. Meanwhile, the second paragraph, SOC 2.b, required the contractor to provide Systems Engineering/Program Management (SEPM) support for a one-year performance period.

Under the Federal Acquisition Regulation (FAR) limitations on subcontracting clause, small business contractors may not subcontract out more than a specified percentage of work to non-similarly situated entities, depending on the NAICS code assigned to the contract. For instance, the clause at FAR 52.219-14 obligates the contractor not to pay more than 50% of the amount paid to it by the government for the performance of services and supply contracts to non-similarly situated entities. In this regard, a similarly situated entity is one that, like the prime contractor, possesses the necessary socioeconomic designations required by the contract. Notably, a procuring agency’s judgment on whether a contractor can comply with the limitations on subcontracting clause is a question of responsibility, which is reviewed by the Small Business Administration (SBA). Meanwhile, the contractor’s actual compliance with the clause is a matter of contract administration. Thus, both these issues are not considered by the Government Accountability Office (GAO) under its bid protest function. However, where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the limitations on subcontracting clause, the matter is of the proposal’s responsiveness or acceptability. The GAO reviews such matters to determine whether a proposal affirmatively takes an exception to the limitations on subcontracting or otherwise demonstrates that the offeror does not intend to comply with them.

Under Federal Acquisition Regulation (FAR) 9.103, government contracts may be awarded only to responsible prospective contractors, and contracting officers (COs) are required to make an affirmative determination of financial responsibility before contract award. To be deemed financially responsible under FAR 9.104-1(a), a prospective contractor must either have adequate financial resources to undertake performance or be able to obtain them. While financial responsibility is an important prerequisite for awarding federal contracts, the FAR does not provide specific techniques to make this determination. Thus, depending on the procurement’s needs and circumstances, COs may use various criteria, analyses, and techniques to assess a prospective contractor’s financial responsibility. Such methods may include reviewing cash flow statements, forward projections, working capital, profit and loss, and other financial information. As with other responsibility criteria used to determine a prospective contractor’s ability to perform, when reviewing financial responsibility, the CO must consider all relevant information available at the time of making the determination. Furthermore, any calculations or analyses assessing a prospective contractor’s financial capabilities must be accurate and rely on information available to the CO from the proposal and other relevant sources.

The interpretation of government contracts begins with the plain language of the contract, with meaning assigned to all clauses within the context of the contract as a whole. When contract language is susceptible to more than one interpretation falling within the zone of reasonableness, an ambiguity exists that may be resolved by considering extrinsic evidence. If the ambiguity is still not resolved, the doctrine of contra proferentum is applied for interpretation. Under the doctrine, the ambiguity is resolved in favor of the non-drafting party, which is typically the contractor. However, for contra proferentum to apply, the ambiguity must be latent rather than a patent ambiguity. That is, the ambiguity must not be so glaring or obvious as to place upon the non-drafting party the duty to inquire before contract formation. Under this exception to the contra proferentum doctrine, if the non-drafting party fails to timely inquire about a patent ambiguity, the ambiguity is resolved against it. Furthermore, contractors seeking application of contra proferentum must show that they relied on their reasonable interpretation of the ambiguity in developing their offer.