Mil-Spec Contractors, Inc. v. The United States
835 F.2d 865, 1987 U.S. App. LEXIS 17078, 34 Cont. Cas. Fed. 75,412 (1987)
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Rule of Law:
An oral agreement to modify a government contract does not constitute a valid accord and satisfaction when federal regulations require such modifications to be in a writing signed by both the contractor and an authorized contracting officer.
Facts:
- The U.S. Air Force awarded a contract to Mil-Spec Contractors, Inc. (Mil-Spec) to insulate buildings at Norton Air Force Base.
- After completing the work, Mil-Spec submitted claims for additional costs it incurred.
- A contracting officer, Mr. Hooppaw, informed Mil-Spec's principal officer, Mr. Barnes, that funds available for a settlement would expire on September 30, 1983.
- Three days before the deadline, Mr. Barnes had telephone conversations with a government negotiator, Mr. Barker, and they orally agreed to settle Mil-Spec's claim for $6,367.
- Mr. Barker's notes of the conversation stated that the negotiated price was accepted 'subject to approval of the Contracting Officer.'
- After the oral agreement but before signing any documents, an IRS employee told Mr. Barnes he could have obtained more money with a legitimate claim.
- Mr. Barnes then telephoned Mr. Hooppaw and repudiated the settlement offer, refusing to sign the written contract modification that had been mailed to him.
- On September 30, 1983, the government sent a check for $6,367 to the IRS to satisfy a tax lien against Mil-Spec, not directly to Mil-Spec.
Procedural Posture:
- Mil-Spec filed a claim for additional costs with the contracting officer.
- When the contracting officer failed to issue a decision within a reasonable time, Mil-Spec appealed to the Armed Services Board of Contract Appeals (Board), which is a trial-level administrative tribunal.
- After a hearing, the Board dismissed Mil-Spec's appeal, ruling in favor of the government on the grounds that the oral settlement constituted a valid accord and satisfaction.
- Mil-Spec (appellant) appealed the Board's decision to the U.S. Court of Appeals for the Federal Circuit, with the United States (appellee) defending the Board's ruling.
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Issue:
Does an oral agreement between a government contractor and a government negotiator to settle a claim for additional compensation constitute a valid and binding accord and satisfaction if it is not reduced to a writing and signed by an authorized contracting officer as required by federal regulations?
Opinions:
Majority - Friedman, Circuit Judge
No, the oral agreement does not constitute a valid accord and satisfaction. For an accord and satisfaction to be effective, there must be proper subject matter, competent parties, a meeting of the minds, and consideration. The court found this agreement failed for three primary reasons. First, there was no valid agreement because the government negotiator, Mr. Barker, lacked the authority to bind the government; only the contracting officer had that power, and the negotiator's own notes reflected that the agreement was subject to the contracting officer's approval. Second, Federal Acquisition Regulations require that a bilateral contract modification, such as this settlement, must be in writing and signed by both parties on a Standard Form 30, which never occurred. Third, the government's payment to the IRS instead of directly to the contractor was not the performance contemplated by the oral agreement and therefore did not constitute valid consideration for the settlement.
Analysis:
This decision reaffirms the principle of sovereign immunity and the strict formalities required in government contracting. It establishes that contractors cannot rely on oral agreements with government agents who lack actual authority to bind the United States. The ruling underscores that regulatory requirements for written and signed contract modifications are not mere technicalities but are substantive conditions for creating a binding obligation. This precedent serves as a crucial warning to contractors to ensure any settlement or contract modification is formalized in a properly executed written document with an authorized contracting officer to be enforceable.
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