It is well established that the U.S. government may only enter into contracts through the authorized actions of its Contracting Officers (COs), who have actual authority to bind the government. In contrast, however, contractors may be bound by the actions of their representatives possessing apparent authority. Apparent authority refers to authority that a third party reasonably believes an agent possesses based on the third party’s dealings with the principal – even though the principal did not confer that authority to the agent. Since apparent authority can exist in the absence of actual authority, the government may reasonably assume that a contractor’s agent has the authority to act on the contractor’s behalf, even if the contractor did not intend to confer actual authority to its agent. This difference in the applicability of rules surrounding apparent authority between the government and its contractors means that while contractors have a duty to determine whether a person who holds himself out as acting for the government has the actual authority to do so, contractors themselves may be inadvertently bound by the actions of their agents possessing apparent authority.

Actual Authority

Actual authority is the authority that a principal intentionally grants to an agent. Additionally, actual authority can also exist when an agent reasonably believes he possesses authority based on his dealings with the principal. Thus, actual authority may be express or implied. In the context of government contracts, agents acting on behalf of the government must generally possess actual authority for their actions to be binding. Similarly, contractors may confer actual authority to their agents to perform various functions on their behalf. For instance, in Civilian Board of Contract Appeals (CBCA) No. 7135, a case in which the underlying contract involved a State Department lease for residential property in Afghanistan, the Board found that even though the individual that brought the appeal against the government was not himself in privity of contract with the government, the claim was properly brought before the CBCA on behalf of the contractor pursuant to the contractor's grant of power of attorney to the individual to represent the contractor. In that case, the CBCA found that the power of attorney granted broad actual authority to the individual, including the authority to appeal a claim before the CBCA on the contractor’s behalf.

Apparent Authority

Meanwhile, apparent authority exists when a third party reasonably believes an agent possesses authority based on the third party’s dealings with the principal, even though the principal did not confer that authority to the agent. As previously mentioned, while the government cannot be contractually bound to the actions of its agents possessing apparent authority, the same is not true for contractors. An example is presented in Armed Services Board of Contract Appeals (ASBCA) No. 21469, which involved a small business set-aside contract for manufacturing parts for the M107 self-propelled weapons system used by the U.S. Army and the Marine Corps in the 1960s and 1970s. During the performance phase of the contract, the contractor directed its attorney to send a letter to the CO requesting that the contractor be relieved from its duty to perform due to its inability to produce the subject part. However, the contractor did not review the final letter sent by its attorney. As a direct consequence of the attorney’s letter, the CO anticipatorily repudiated the contract and terminated it for default. The contractor later tried to argue that in addition to not reviewing the final version of the letter, the contractor had also not authorized its attorney to make the statements contained in the letter. However, the ASBCA rejected the contractor’s arguments, holding that the government had the right to assume that the contractor’s attorney, as his agent, possessed the necessary authority to bind the contractor. Thus, even if the attorney did not have actual authority to send the letter, the government could still reasonably assume that he had apparent authority to act on the contractor’s behalf.

Ultimately, the determination of whether the government or its contractor are bound by the actions of their respective agents is a fact-specific inquiry with additional rules, exceptions, and nuanced applications. For example, if the government is aware or should be aware that the contractor’s agent does not possess the requisite contracting authority, then the government cannot reasonably assume that the agent has apparent authority. This exception to apparent authority principles may be particularly applicable in protracted settlement discussions where government representatives are familiar with the contractor’s organizational structure and understand which executives possess the necessary settlement authority. Generally, however, contractors should be mindful that their employees’ and agents’ words and actions may be binding upon them in various circumstances throughout the procurement lifecycle. By understanding the overarching framework governing actual and apparent authority in federal procurement, contractors and their agents can be better positioned to interact with government representatives in different situations and contexts.

This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.