The interpretation of federal contracts is generally governed by the plain language of the contract. This means that adjudicative forums assign meaning to federal contracts primarily by giving the contractual words their ordinary sense and without referring to extrinsic evidence. If the plain meaning of contractual words is unambiguous, that meaning generally controls for the purposes of contract interpretation. However, there may be situations where the contract terms are unclear or ambiguous permitting more than one reasonable interpretation. In such situations, adjudicative forums may rely on certain extrinsic evidence to resolve contract interpretation disputes.

• Extrinsic Evidence in the Solicitation Phase

In resolving the meaning of ambiguous terms in case of interpretive disputes in federal contracts, adjudicative forums often look to the discussions between the government and prospective contractors in the solicitation phase of the procurement. Statements made by government officials during their interactions with prospective contractors at pre-proposal conferences, industry days, or pre-award testing may be used as evidence in contract interpretations as long as such statements do not directly contradict the contract language. As with other extrinsic evidence in the context of contract interpretation, written communications, such as handouts and meeting minutes, generally hold much more weight than oral statements made by government officials.

A War Risks clause may be added to government contracts if performance is required in regions with a risk of war or war-like events. Such a clause helps allocate responsibility between the government and the contractor for any losses or damages caused by such events. While the Federal Acquisition Regulation (FAR) does not specifically contain a standard war risks clause, the defense supplement to the FAR (DFARS) includes clauses such as DFARS 252.228-7000, “Reimbursement for War-Hazard Losses.” Such a clause addresses the allowability of costs of war-hazard benefits for contractor employees. A War Risks clause can typically be negotiated between the government and the prospective contractor at the time of formation of the contract. As contracts in different regions have varying circumstances, risk allocation for specific events described in the War Risks clause should also be tailored and negotiated for each applicable contract. When disputes between the government and the contractor arise that implicate the War Risks clause, adjudicative forums such as the Boards of Contract Appeals or Federal Courts interpret the language of the War Risks clause to allocate increased costs liability between the parties.

The government retains the right to terminate a contract for default when the contractor fails to meet its performance obligations. The default termination, commonly considered one of the most undesirable outcomes for contractors, may nevertheless be converted into a termination for the government’s convenience if, on appeal, the government fails to prove that its default termination decision was justifiable. Notably, when the contractor appeals the government’s decision to terminate its contract for default, it is the government’s burden to prove default termination in the first instance. In other words, the government must demonstrate the correctness of its actions in terminating a contract for default. When contract modifications change the terms of the original contract such that the government’s default termination decision is no longer justified under the modified contract, adjudicative forums will typically convert the default termination to one for the convenience of the government, citing the change in circumstances from contract award to termination.

The Armed Services Board of Contract Appeals (ASBCA) in ASBCA 58866 and ASBCA 58867 converted the Army’s terminations for default for two similar contracts into terminations for convenience due to changes in the terms of the contracts due to later modifications. The Army awarded the underlying contracts for the acquisition of thousands of foreign language test items to assess the proficiency of military linguists. The contracts included the Federal Acquisition Regulation (FAR) 52.212-4 clause: “Contract Terms and Conditions—Commercial Products and Commercial Services.” During the performance, the government was only responsible for paying for the items it accepted, with no apparent definition of what constituted an acceptable item, presumably leaving the acceptability determination at the government’s discretion. The government retained intellectual property rights in both accepted and rejected items as the contracts provided the government sole ownership and exclusive rights to the deliverables. After the contracts were awarded to the same contractor, the Army issued nearly identical modifications, stating that any foreign language test items still required under the contracts but not accepted by the government would be “automatically descoped” from the contract. The Army eventually terminated the contracts for default, citing the contractor’s failure to provide the agreed-upon number of acceptable items.

Under certain circumstances throughout the procurement lifecycle, contractors may need to establish understandings, agreements, planned actions, or otherwise define the scope and procedures for relationships between themselves and a federal agency to accomplish mutual goals and objectives. When meeting such objectives does not require fiscal obligations or contract awards governed by the Federal Acquisition Regulation (FAR), contractors may negotiate and enter memorandums of understanding (MOUs) or memorandums of agreement (MOAs) with the government. These memorandums provide an overarching framework to govern the relationship between the parties under such circumstances by clearly defining their roles, responsibilities, and expectations. Such memorandums may have binding authority depending on the authority used to execute the memorandum and the facts surrounding other impacted contracts or agreements. In such situations, if the government is in breach of its obligations under the memorandum, contractors may have the right to obtain monetary damages as a party to the memorandum of agreement.

• Memorandums of Understanding

When an effort requires the federal government to provide federal funds, resources, or items for support, and the memorandum is only being used for the limited purposes of establishing a general framework of the parties’ rights and obligations, contractors may elect to enter into an MOU with the government. An MOU is typically used if the circumstances do not require a high level of detail to establish the parties’ specific roles, responsibilities, and actions. MOUs are generally not issued under specific authority and are not usually legally binding.